Earlier this month Sony followed Nintendo's lead by launching PS5 version for Japan only this price is a significant discount from the console's suggested retail price worldwide. Early sales figures since launch suggest that this gambit has, unsurprisingly, proven quite popular; PS5 sales in Japan quadrupled (from an admittedly low starting point) in the first week the new version goes on sale, although the real impact will likely be felt in increased hardware sales due to the launch of major software products.
While consumers may legitimately worry that this signals a return to the bad old days of region-locked consoles, the reason for Sony and Nintendo creating Japan-only hardware versions—locked to the Japanese digital store and with language options disabled in the operating system—is simple.
The collapse of the Japanese yen has made international prices for things like consumer technology extremely high for consumers. Meanwhile, concerns about the affordability of even domestic goods and largely stagnant wages in many sectors have made consumers more price-sensitive than ever—a killer combination for discretionary purchases like the PlayStation or Switch.
Of course, Japanese companies that do not want to push themselves out of their country's market have a certain pride in their home country. However, for Nintendo, some strategy to ensure availability in Japan was inevitable – Japan remains an incredibly large and important market for its products, whereas Sony's sales in Japan peaked with the PS2 and now represent only a small part of its global market.
However, it's reasonable to wonder why this math doesn't seem to add up in other markets. The affordability crisis is hardly unique to Japan, and while some countries have certainly weathered the current economic conditions better than others, consumers in much of the world are feeling pretty bruised and battered by price inflation in recent years. The weakening yen is of course a Japan-specific factor, but it doesn't appear to be resolving itself anytime soon, which could mean companies like Sony will pursue an ongoing strategy of lower-priced products tied to Japan.
Presumably somewhere these companies have a spreadsheet and some graphs where they have modeled the impact of these price cuts and concluded that they make financial sense. Consoles are theoretically sold on a “razor and blade” model; you sell the console as a loss leader and make money by selling the software.
This model has definitely suffered a lot in recent years – note that Valve seems to be abandoning it completely for the Steam Machine, claiming that the system will the price corresponds to a PC with similar characteristicsand therefore presumably not subsidized in any way. However, these cheaper Japanese models represent a major endorsement of Nintendo and Sony's commitment to the model.
We don't see exact numbers on a per-unit basis, but the PS5 and Switch 2 are likely selling at a significant discount to their production costs in Japan – and platform holders, although they only switched to this model when their arms were very much twisted by the economic situation, are no doubt satisfied that they will still end up making a profit thanks to their share of software sales, subscriptions and other revenue from console users.
So why do it only in Japan? If the model works in Japan, why not take a similar pricing approach to try to expand the installed base in other countries? The steep price cuts may not be justified everywhere (although as hardware like the PS5 becomes increasingly outdated, the fact that it costs as much, if not more, than at launch is undoubtedly having a growing impact on its market reach), but it does at least call into question the justification for such price cuts. the price increases we've seen over the past couple of years.
One reason could simply be that platform owners are very, very nervous about adopting aggressive pricing strategies in the face of massive volatility in the cost of key components for these devices. A few years ago, cryptocurrency mining drove GPU prices through the roof; now it's the turn of high-speed RAM chips and solid-state drives, which are needed to increase the power of artificial intelligence data centers and have has risen in price in recent monthswith RAM prices doubling, tripling, and in some cases even quadrupling in just a few weeks.
For anyone trying to build or buy a computer right now, this is a huge problem; for a console maker trying to lock in a competitive price for millions of pieces of hardware, this is a nightmare. While a company like Sony orders these components in sufficient quantities to gain some pricing power, it is not immune to longer-term price fluctuations that could easily turn some key numbers in its business models a very bright shade of red.
Hedging against these possibilities no doubt makes companies like Sony more conservative in their pricing strategy and much less willing to take on risk by viewing their consoles as a significant loss leader.
However, as understandable as this is, it still leaves us with a reality in which consoles are expensive – instead of dropping in price over their lifespan as they once did, in many cases they instead receive price hikes. Essentially, this means that the market dynamic where consoles were relegated to impulse buys over a period of years while opening up a whole new consumer audience has disappeared. It's no coincidence that many of the casual, family game genres that were so successful on platforms like the PS2 and Wii have either moved to mobile devices or disappeared entirely.
This whole situation requires consideration of a very key question; What is the role of a platform holder in this industry? A few console generations ago, the answer was simple; they were the backbone of the industry precisely because they were companies willing to take on the enormous financial risk and burden of creating a console platform and creating a market for it. In doing so, they took on the responsibility of creating and developing a market for other publishers and developers, which in turn paid off with a fairly healthy share of the revenue from each game sold by these third parties.
Console makers still bear the risks and costs of making and selling hardware, and build digital service platforms and other infrastructure around their devices—all of which benefits everyone else in the industry. However, it appears that they have lost much of the interest in the core task of creating and growing a market – that they are no longer willing to take the risks and put in the effort required to enter new markets and market their devices beyond their (admittedly very large) core consumer base.
Consumer price sensitivity in Japan may be relatively high, but it is not unique; it is simply the canary in the coal mine for trends that are being replicated in markets around the world. If Nintendo and Sony are willing to support the development of the Japanese market by cutting profits on their hardware and taking greater financial risks – and if they can still make money doing so – then it's hard to see why the same approach isn't justified in other markets.
