Why Japan Gets Exclusive Console Discounts, But Other Countries Don't

Recently, Sony introduced a Japan-exclusive version of the PS5, priced significantly lower than the standard retail price worldwide. The initial sales data indicates that this move has been well-received, with PS5 sales quadrupling in Japan within the first week of the new model's release. This development raises questions about the reasoning behind Sony and Nintendo's decision to create Japan-only hardware editions, which are locked to Japan's digital store and have language options disabled. The decline in the Japanese Yen's value has resulted in high prices for consumer technology products, making them less affordable for Japanese consumers. Additionally, concerns over affordability and stagnant wages have increased price sensitivity among consumers, making it challenging for discretionary purchases like consoles. Japanese companies, including Nintendo, are motivated to maintain a competitive edge in their home market, and addressing affordability in Japan is crucial for Nintendo, given the country's significant market size and importance. However, it is reasonable to wonder why this approach is not applied to other markets. The affordability crisis is not unique to Japan, and many countries are experiencing economic challenges, leading to price inflation and decreased consumer purchasing power. While the decline of the Yen is a Japan-specific factor, it is unlikely to be resolved soon, which could lead to a permanent strategy of cheaper, Japan-locked products for companies like Sony. It is likely that Sony and Nintendo have conducted financial modeling and determined that these price cuts make sense, given the potential for increased software sales and revenue. The traditional "razors and razorblades" model, where consoles are sold at a loss and profits are made through software sales, has been re-committed to by Nintendo and Sony through these cheaper Japanese models. The question remains as to why this approach is not applied to other markets. If the model is successful in Japan, why not use a similar pricing strategy to grow the installed base in other countries? While a dramatic price cut may not be justified everywhere, the fact that consoles like the PS5 are still expensive, even after several years, weighs heavily on their market reach. This raises questions about the justification for recent price hikes and the role of platform holders in the industry. One possible reason for the hesitation to apply this pricing strategy elsewhere is the instability in the cost of key components, such as high-speed RAM and SSD chips, which are essential for building AI datacenter capacity. The prices of these components have soared in recent months, making it challenging for console manufacturers to lock in a competitive price point. This uncertainty may lead companies like Sony to be more conservative in their pricing strategy and less willing to take on the risk of treating their consoles as a significant loss leader. The reality is that consoles are becoming increasingly expensive, rather than decreasing in price over their lifespan. This shift in market dynamics means that consoles are no longer dropping to impulse-purchase prices, which previously allowed them to reach new consumer demographics. The casual, family-friendly genres of games that were successful on platforms like the PS2 and Wii have either moved to mobile devices or declined. This situation raises questions about the role of platform holders in the industry. In the past, they were the driving force behind establishing console platforms and building markets, taking on significant financial risks and burdens. However, it seems that they have lost their appetite for this core task, and are no longer willing to take the necessary risks to grow their markets and push their devices beyond their core consumer base. Japan's consumer price sensitivity may be relatively high, but it is not unique. The trends in Japan are replicated in markets worldwide, and if Nintendo and Sony can successfully build the Japanese market by slashing their hardware margins and taking on greater financial risks, it is hard to see why the same approach is not justified in other markets as well.