author: Tom Borys
How Scalpers Threaten the Development of PlayStation 5
It turns out that groups of users wmo purchase PS5 from online stores in bulk can seriously damage the financial performance of the entire ninth generation.
When we reported some time ago that scalpers are running wild on the Internet, trying to buy as much PS5 consoles as they can, using specially designed bots, it still seemed to be problematic only for impatient customers struggling with shortages. Some people even suggested at the time that some scalper groups may have been hired by Sony - after all, thanks to them the PS5 sells like hot cakes. However, the case turns out to have a second, much more serious bottom.
Who are those "scalpers"?
In order to understand why the activity of scalpers is, in the case of 9th-generation consoles, something very unfavorable also for PS5 and XSX/S manufacturers, it is necessary to understand the mechanism of such groups. They set up a kind of "investment funds" to which tens of thousands of people add their savings and then spend this capital, using super-fast "clicker" programs, to buy out entire supplies of PS5 and (to a lesser extent) XSX/S consoles from the stores. When an "average customer" cannot find the devices on any first hand website, they turn to places like eBay. There is no shortage of consoles there. They are put up for sale by scalpers, demanding much more money for their wares.
The scale of the phenomenon is best seen in figures: careful estimates assume that scalpers made $28 million - $9 million on XSX/S and $19 million on PS5 on eBay alone. The store price of the PS5 Digital Edition - $399 - has risen to $937 here. The price of the $499 PS5 with disc on eBay was $1021. The figures are median, not arithmetic mean. This means that half of the second hand consoles sold on eBay cost less that that and the other half more.
How does scalper activity threaten the development of PS5?
The wares accumulated by scalper funds are distributed slowly, and much of it still remains in storage. No one will buy any game for these consoles in the nearest future, nor will anyone pay for the PS subscription - because there is no end user to do so. This makes Sony's hardware sales performance very good, but the software - that is, the game market - is looking worse.
Especially now that Sony has set the price of PS5 at below production costs, the large number of titles sold is crucial to the financial equilibrium of the project. The required ratio is very simple - there should be one game sold per console. Currently, as data from some markets, such as Japan, indicates, three devices should account for only one game sold on a physical medium. The situation is slightly improved by digital distribution, constantly increasing its share in the whole market, but still it is far from 1:1.
Analysts indicate that if the beginning of the generation is poor in this respect, it will disturb the unstable balance of the video game market. It should be remembered that poor sales hit developers in particular, who may become discouraged and stop publishing their games on PS5 - this in turn will reduce the attractiveness of the offer available on the console and stop some potential customers from buying it.
Analyst Kazunori Ito calls this process a "hardware & software spiral", which can of course also go the other way around, driving both console and game markets - but the activity of scalper groups brings us dangerously close to the pessimistic scenario.
What Sony can (and should) do as soon as possible
The remedy? Sony must produce a huge number of new PS5s as soon as possible and plan a sensible distribution model so that they reach end users who will drive the market by buying games. It's in the company's interest to prevent the valuable devices from being trapped in the warehouses, where they will be waiting for saps, or simply impatient people, willing to pay double the margin to the scalpers.
PlayStation 5 is expected to find 7.6 million buyers by the end of the fiscal year which expires on March 31, 2021, which would mean breaking the record established by PS4 and allowing analysts to be a little more optimistic. Bloomberg's sources report, however, that Sony may have a problem delivering such number of devices at that time. Apparently, the console;s processor has proved to be particularly troublesome in production and delays the whole process of launching the new PS5. Sony officially denied similar revelations, so let's hope it's just rumors.
There is a chance that the problem of scalpers will be solved legally - at least in the UK, were a ban on aftermarket sale of the devices is considered. A group of members of the local parliament has already submitted a motion to make a similar procedure impossible. We'll see whether that happens.