Is the game up for PlayStation?

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Anyone who knows me personally knows I’m a big gamer. It’s a special interest of mine, no doubt. So, any opportunity to write an article on one of my favourite subjects, and practice my commercial awareness writing, will always be a winner for me!

As they say, practice makes perfect. I’m nowhere near perfect but each time I write an article like this, I get a little better and a lot more confident.

So as a note to anyone else who feels that writing pieces like this is a struggle, give it a go anyway! The worst that can happen is you find that you need to improve, and so you try it again until you find what works for you. I promise, you’ll only get more capable and confident as you go.

Anyway, onto the story!

What’s happening?

Sony PlayStation is being sued for £5 billion in the UK over allegations that it’s “ripped off customers” with overpriced games and in-game purchases over the past six years.

Alex Neill, consumer rights champion and former managing director of Which?, is leading the collective action claim, which could see almost nine million gamers compensated. She argues that Sony PlayStation breached competition law by imposing unfair terms and conditions on game developers and publishers, as well as driving up prices.

The claim alleges the company abused its position as market leader to impose terms and conditions on game developers and publishers, including a 30% commission on every digital game or in-game purchase made through the online PlayStation Store.

The console gaming market

Video gaming is one of the fastest growing sectors in the gaming software industry. In 2021, it reached a global value of $38 billion (roughly £32.5 billion), an increase of 13% from the previous year as a result of the growing demand for video gaming during worldwide lockdown orders.

Sony PlayStation dominates the worldwide console gaming market with a 46% share in the market in 2021, compared to Nintendo’s 29% and Microsoft’s 25%.

In recent years, the sale of digital copies of video games have been catching up to physical sales. But now, the scales appear to be tipping towards digital more than ever. This could be attributed to:

• lockdowns keeping customers from shopping in person and pushing them towards online storefronts;
• the investment into online services, such as the new PlayStation Plus and Xbox Live Gold;
• an increase in in-game purchases including ‘loot boxes’;
• regular releases of downloadable add-on content; and
• the release of digital-only versions of the PlayStation 5 and Xbox Series X consoles.

Want to read more commercial awareness related content? Check out these Commercial Questions from LCN.

How do companies make money?

It’s common knowledge that videogame companies sometimes sell consoles at a loss to entice gamers and gain market share from competitors. This lost revenue is made up by selling video games and online subscriptions like PlayStation Plus and Xbox Live Gold.

The cost of purchasing the games reflects:

• the complexity of the game;
• its functionality and design;
• the chosen platform(s);
• the number of people working on the project;
• the salary of the developers working on the game;
• the duration of the project; and
• the predicted marketing and advertisement costs.

Subscription services are a much more regular income source than consoles that you’d only buy once or twice. Payments for these services might be monthly, quarterly or annually depending on the plan that’s been purchased.

So what’s the problem?

Generally, a position of market dominance requires a company to have a 50% or greater market share, although dominance can exist where the market share is as low as 40%.

Sony’s dominant market position doesn’t, in itself, breach competition law, but abusing this position is unlawful.

Firms can abuse their dominant market position by:

• imposing unfair trading terms, such as exclusivity;
• excessive, predatory or discriminatory pricing;
• refusing to supply or provide access to essential facilities; and 
• stipulating that a buyer wishing to purchase one product must also purchase all or some of their requirements for a second product from the dominant supplier (known as ‘tying’).

The 30% commission charged on every digital game and in-game purchase through the PlayStation Store could count as imposing unfair trading terms and excessive pricing.

On the face of it, this appears similar to how the Apple and Google duopoly of the mobile app market means customers are left with little choice but to pay the high costs for content given there’s no alternative. As Sony has a dominant position in the console gaming market, it can take advantage of its position and commercial strength to make an excessively high margin or return should it choose to.

This is said to be particularly problematic from a social and political standpoint given the current cost-of-living crisis, skyrocketing energy costs and consumer finances being stretched like never before.

What would a positive ruling look like?

Customers will automatically have a claim if they:

• owned a console since 19 August 2016;
• live in the UK;
• purchased digital PlayStation games;
• made in-game purchases via the PlayStation Store.

If £5 billion is being sought in the claim then the estimated compensation per individual gamer could be between £67 and £562. Although it’s likely that a case of this nature and size could take years to resolve.

If Sony refuses to settle the claim, then it could take even longer as it would need to be heard in court. But given the number of gamers affected, the amount they claimed to have been overcharged by, and that Sony will likely want to protect its reputation as an industry leader in the eyes of its customers, Sony may come forward and settle.

At the time of writing, the claim is still ongoing, and Sony hasn’t responded to requests for comment from news and media outlets. So we’ll have to wait and see what happens going forward.