PlayStation 5 Scalpers use bots to hunt scarce consoles

Photographer: Paul Yeung / Bloomberg

Sony Corp. created one of the hottest gadgets of the year with the PlayStation 5, but its launch was marred by scalpers buying up scarce supplies and threatening the long-term health of the company’s flagship product.

Scalpers, who buy devices at retail and then resell them at a higher price, have long been a challenge in the games industry. But the problem is particularly acute this year as the coronavirus has pushed production and spurred more console sales online – where scalpers are using advanced bots to power the PlayStation 5 and The Xbox from Microsoft Corp.

Furious gamers are calling for resellers to charge $ 1,300 or $ 1,400, nearly three times the retail price, on sites like eBay and Twitter. “This is a launch disaster”, a Twitter message stated, vowed not to give in to extortionate prices. “Scalpers can keep them.”

The threat is that Sony’s struggles in the early weeks of launch could hurt its ability to draw gamers and developers to the new platform, undermining profits for years to come. A console’s debut should spark a positive cycle of consumers rushing to buy the devices, while developers are debuting games that take advantage of new graphics and processor capabilities, driving demand on both sides. Sony risks the opposite.

“The PlayStation 5 could miss a crucial opportunity to get into a good hardware software upward spiral,” said Kazunori Ito of Morningstar Research. “The platform’s peak is likely to be low and the platform’s total revenue earned won’t be as strong as we hoped.”

Scalpers deploys bots that continuously monitor online stores for changes in inventory and stocks, then automatically place orders and check out in seconds when devices become available. The technique is based on trusted web crawling or scraping technology, but tailored specifically for e-commerce and can sometimes jump the front of the queues.

The evidence of problems is clear in what is known as the draw ratio, or the number of games sold for each console. A healthy ratio for a new console is about one, which means that every person who buys a machine will walk away with at least one game as well. The figure is important because the PlayStation 5 is sold at a loss, while games are lucrative.

Consoles are sold out, games not so much

The PS5’s Japanese debut hasn’t catalyzed the boom in software sales

Source: Famitsu sales estimates (excl. Digital downloads)

So far, Sony appears to be selling about one game per three devices – compelling evidence that scalpers are hoarding consoles. Estimates for the first month of Japan’s Famitsu show Sony sold approximately 213,000 PlayStation 5 consoles in the country, while the top three titles sold less than 63,000, excluding digital downloads. Sony’s Spider-Man and Demon’s Souls were the top games, while the third was an outside software company. For comparison, Nintendo Co. sold half a million Switch consoles in the domestic market in the first four weeks, and the top three titles accounted for about the same number.

“Even when considering the purchase of digital download software, the percentage of PlayStation 5s sold that are actually in use is not that high, which means that current demand is constrained by profitable resellers,” said Ace Research Institute analyst Hideki Yasuda. The PS5 is compatible with the PlayStation 4 game and comes with Astro’s Playroom pre-installed, so players may not be forced to buy new titles right away.

Sony’s headaches are exacerbated by production struggles. The company has said it plans to sell more than 7.6 million PlayStation 5s by the end of March, beating the performance of the previous generation console.

But the pandemic has caused shortages across the supply chain, forcing businesses from Sony to Apple Inc. to boost output. Main suppliers, including MediaTek Inc. has said chip availability will be limited in the first half of 2021. According to those familiar with the supply chain, the strong demand from electric vehicle manufacturers, among other things, has consumed capacity for some parts used in the PS5.

Of particular concern for Sony is that the production yields of the PS5’s main custom-designed processor remain inconsistent and have affected its ability to meet demand, said the people, who asked not to be mentioned because the details are private. The company may need to rely more on air freight to deliver consoles to retailers, further diminishing profits, they said.

“Air is at least 10 times more expensive than sea when the world is in a normal state, and the gap is probably widening now,” said Ace Research’s Yasuda.

Sony’s latest shipping forecast is still well above 7.6 million, although not as high as previously envisioned, one said.

Sony declined to comment specifically on production figures or scalpers.

“While we are not releasing details regarding production, nothing unexpected has happened since mass production of PlayStation 5 began and we have not changed the production number for PS5,” said a spokesman.

Inadequate delivery threatens to disrupt the cycle of a successful console launch, with new software titles driving interest in hardware in turn. A major Japanese publisher was shocked enough by the market’s early reaction that there were internal discussions on whether or not to postpone its PlayStation 5 games, one person familiar with the talks said.