The PlayStation 4 Has Peaked (Premium)

For the first time, Sony sold fewer PlayStation 4 consoles in the holiday quarter than it did a year earlier. If history is any guide, that indicates that sales have peaked and that we're on the other side of the sales curve now. How will Sony respond?

Like many other tech firms, Sony announced its quarterly earnings this past week. Among the data points is that the firm sold has now sold 76.5 million PlayStation 4 consoles (all versions) to actual customers since its launch in late 2013. By comparison, Sony sold 80 million PlayStation 3 consoles over that device's entire 7-year lifetime. So the PS4 has almost equaled the total sales of its predecessor in less than two-thirds the time. The PS4 is, by any measure, a smash success. And it is, of course, the best-selling console of this generation by a very wide margin.

That said, Sony is experiencing the same saturation that we see in other markets, like that for smartphones, where the two market leaders, Samsung and Apple, just saw year-over-year unit sales drop-offs.

In Sony's case, it sold 9 million PlayStation 4 consoles to customers in the quarter. This is an astonishing figure, but it falls short of the 9.7 million it sold in the same quarter one year ago. That's the first time that PS4 sales have fallen year-over-year. As Kyle Orland points out over at Ars Technica, this milestone has denoted a steady sales decline in previous PlayStation console generations.

In other words, the PlayStation 4 has almost certainly peaked. And that means that Sony needs to respond in some way.

I see three possible outcomes for the near-term, which I'll define as "the effective life cycle of the current console generation," an admittedly squishy term given that both Microsoft and Sony have worked to change that historical dynamic. But whatever. This is just a conversation.

Here's what I'm thinking.

One, Sony could simply ride out its current offerings---PlayStation 4 and PlayStation 4 Pro---for the duration and apply classic cost-cutting measures to improve its profits on each device sold. In other words, we'd see a cost-reduced "PS4 Pro Slim" or whatever, but not much else. This is highly unlikely.

Two, Sony could respond explicitly to the technically superior Xbox One X by releasing a "PS4 Pro 2" (for lack of a better term) that surpasses the capabilities of Microsoft's console. Under this plan, the original PS4 Pro could either disappear or become the new entry-level offering, I guess. Though either approach could anger fans, especially those who did buy the original PS4 Pro. (One wonders about a video console that could be upgraded graphically and otherwise via a technology like Thunderbolt 3. But I don't believe this capability exists in the current consoles.)

Three, Sony could simply schedule a traditional console generational upgrade and release a PlayStation 5 as its next-generation console, but well before the 7-year deadline (which is late 2020). This possible outcom...