While Microsoft's (NASDAQ:MSFT) Xbox One game console made progress in the U.S. market during the holidays, beating Sony's (NYSE:SNE) PlayStation 4 thanks to a price cut, the story is very different globally. The PlayStation 4 continues to vastly outsell the Xbox One both outside of the United States and overall, giving Sony the advantage of having a much larger install base worldwide. With gaming being one of the few businesses within Sony that's thriving, the stakes for the Japanese company in the video game console market are higher than ever.
The PlayStation 4 remains king
Microsoft has cut the price of its Xbox One console twice, first releasing a version without its Kinect peripheral for $100 less than the original, then offering a $50 discount for the holidays. This put the Xbox One below the price of the PlayStation 4, and in the U.S., Microsoft's console won the holiday season. The U.S. install bases for both consoles are now very similar, with the PS4 maintaining a slight lead.
But the U.S. isn't the only major market; about two-thirds of Sony's cumulative PS4 sales have been overseas. Microsoft is far more dependent on the United States, and weakness in Europe and Japan has been part of the reason the PS4 has built up such a big lead. As of early January, Sony had sold 18.5 million PS4 consoles globally, compared to just 11 million for Microsoft's Xbox One, according to VGChartz.
Over the holidays, the size of this gap has only been growing, with the PS4 outselling the Xbox One globally every week:
Part of Microsoft's problem has been its launch strategy. The Xbox One was launched in just 13 markets in 2013, and countries like Japan, Russia, Switzerland, Sweden, and the Netherlands had to wait until September of 2014 for the Xbox One to arrive. The PlayStation was available in more markets from the start, helping explain its enormous lead in Europe.
Even European countries where the Xbox One originally launched, like Germany, overwhelmingly favor the PlayStation 4. Sony has sold about 1.3 million PS4 consoles in Germany cumulatively, compared to just 300,000 for Microsoft's Xbox One. The U.K. is the only major European market where the Xbox One has performed well, although it's still behind the PS4 by a significant margin.
There are many reasons the Xbox One is in a distant second place: a narrow launch in 2013; an initial high price; various features working in the U.S. but not in Europe, like voice commands; and the console's inability to match the PS4 in terms of performance for many cross-platform games. In the United States, the Xbox One could eventually pull ahead of the PS4. But globally, Sony's lead may be insurmountable at this point. And that's great news for Sony.
Sony needs a win
Sony has been struggling to turn a profit in recent years. The company's net income has been negative in all but one year since fiscal 2009, dragged down by weakness in TVs and, more recently, smartphones. Gaming has been a bright spot for Sony, and as the company tries to return to profitability, the PlayStation business will become more important than ever.
During the first half of fiscal 2014, which ended in September, revenue from Sony's Gaming & Networking segment jumped nearly 90% thanks to the launch of the PlayStation 4, turning a loss during the previous year into a gain. Based on current exchange rates, Sony's gaming segment generated more than $200 million in operating profit during the first half of this year, and a strong holiday season bodes well for the unit's profitability for the full year.
Gaming can't make up for the huge losses Sony is experiencing in its mobile phone business, but the strength of the PlayStation ecosystem may help some of Sony's other divisions. Sony launched PlayStation Now, a cloud gaming streaming service, last year, allowing PS3 games to be streamed on PS3 and PS4 consoles as well as Sony's Vita handheld console. The service also works on Sony's TVs, and in 2015, it will be available on both Sony's Blu-ray players and even Samsung TVs. While the success of the service is far from certain, it helps differentiate Sony's products, potentially boosting sales.
As Sony struggles to reinvent itself, its PlayStation business gives the company an important competitive advantage. While the days of Sony making huge profits from selling TVs may be over, the PlayStation business will be much harder to disrupt. Sony has plenty of problems killing the company's bottom line, but PlayStation isn't one of them.