Sony's (NYSE:SNE) PlayStation 4 is off to a roaring start. A recent update provided through the official PlayStation blog celebrates the fact that the system recently exceeded 7 million global sales. The blog also points out that more than 20 million PS4 games have been sold, an impressive figure at this early stage in the hardware cycle.
With an influx of indirect competitors like Apple, Google, and Amazon, the strong performance of Sony's latest console gives reason to believe that dedicated gaming consoles might still have a future. Does this mean that the PS4 is on track to surpass the sales of the PlayStation 3? How are competitors Microsoft (NASDAQ:MSFT) and Nintendo (NASDAQOTH:NTDOY) looking on the home console front?
Some much-needed new blood
The tail end of the last console generation saw hardware sales slow to a crawl. This fact, in conjunction with declining retail software numbers and the rise of new competition in the forms of mobile devices and set-top boxes, caused many analysts to speculate that console gaming would soon become a thing of the past. The explosive initial success of the PlayStation 4 has cast that narrative in a more suspect light; however it remains far too early to declare that the future is safe for dedicated gaming devices.
The last console cycle lasted from the release of the Xbox 360 to the release of Nintendo's Wii U in 2012. Some would say that the latest generation actually began with the launch of the PlayStation 4 and the Xbox One in 2013 due to the fact that Nintendo's console is not notably more powerful than Sony and Microsoft's previous systems. Regardless of where the generational line is drawn, it's clear that there was pent-up demand for new gaming hardware. It's also clear that Sony has been the biggest beneficiary of that demand.
Wii U will sell less than 15 million units
Despite the Wii U's year head start on the market, the PlayStation 4 has now soundly eclipsed Nintendo's console in terms of global sales. After substantially revising down its initial forecast of 9 million Wii Us sold in the last fiscal year, Nintendo arrived at expectations of approximately 2.8 million units sold for the period. Given that the system sold 3.45 million units in the previous fiscal year, and assuming Nintendo's revised target is close to accurate, sales of the console should be hovering above the 6 million-unit mark. At this stage, it's clear that the Wii U has very little in the way of momentum, and that the system is a lost cause.
Microsoft must fix Xbox One's price problem
Evaluating the health of the Xbox One remains a trickier proposition. Microsoft has been keen to point out that its latest console is the fastest selling in the history of the brand, but the prevailing narrative has been the extent to which the system is being outsold by the PS4. It's been a while since Microsoft has released official sales data for the console, but sales are almost certainly between the 4 million and 5 million mark. The U.K. and the U.S., strongholds for the Xbox 360 in the previous console generation, seem to be turning to Sony's console by decisive margins.
Even after the release of March's Titanfall bundle, retailers like Wal-Mart and Target initiated unofficial price drops, bundles, and special offers, suggesting that the Xbox One will need to see an official reduction within the coming months if Microsoft wants it to be competitive with PS4. It's highly likely that Microsoft's console will be priced at parity or below Sony's by the end of the year. Whether Microsoft achieves this by releasing its console without the Kinect 2.0 camera, shipping a version of the console without a disc drive, or by eating a substantial loss, remains the more prudent point of speculation.
PS4 sales will surpass PS3 but fall short of PS2
Despite the Japanese market looking soundly uninterested in console gaming, the PlayStation 4 has a great chance at surpassing the approximately 80 million-unit performance of the PlayStation 3. That said, total sales for dedicated gaming hardware are almost certain to contract when compared to the previous generation.
The PS3, Xbox 360, and the Wii have moved more than 260 million combined units, a figure that the latest batch of hardware will fall well short of. Nintendo's Wii console sold more than 100 million units, while the Wii U's total lifetime sales will probably end up in the neighborhood of 12 million units. If Microsoft doesn't get the Xbox One to a market-friendly price within the next year, the drop-off between generations looks to be huge.
Will Sony find success in a bigger slice of a smaller pie?
PlayStation 4's sales numbers are great news for Sony, but the broader console industry is still in a precarious position. The Wii U and the Xbox One are suffering for missteps made in their respective planning phases, and only Microsoft's console has a legitimate shot at recovery. Less than six months after PS4's release, it seems clear that Sony will own a much larger share of a shrinking market.