Sony Boosts R&D Investment to Explore ‘Extended Reality’ and Catch up with Microsoft in Live Services

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black and white sony ps5 game controller

Japan’s Sony Group Allocates RM9.30bn to Research and Development, Focusing on Live-Service Games and Blending Physical and Digital Worlds

Sony Group, the renowned electronics giant from Japan, is set to significantly increase its research and development (R&D) expenditure in the gaming industry. The company aims to enhance its technological prowess in live-service games and delve into the emerging realm of “extended reality,” which merges the physical and digital worlds.

For the fiscal year ending in March 2024, Sony will invest a staggering 300 billion yen (approximately RM9.91 billion) in R&D specifically for its game segment. This substantial amount surpasses R&D spending in electronics and semiconductors, making up approximately 40% of Sony’s total R&D budget.

This new figure represents a significant increase from the 271.1 billion yen invested in game R&D during the previous fiscal year, more than doubling the 144.5 billion yen spent in fiscal 2020. Sony Group’s overall R&D spending for this fiscal year is projected to reach 760 billion yen, reflecting a 3% increase from the previous year.

Games play a vital role in driving Sony’s business, as evidenced by the company’s game business’ earnings before interest, taxes, depreciation, and amortization (EBITDA). Last fiscal year, EBITDA for the game business exceeded 337 billion yen, reflecting a remarkable growth rate of over 60% compared to five years ago.

Sony’s strategic shift from a hardware-oriented approach to a subscription-based business model is the driving force behind this intensified focus on R&D. Traditionally reliant on sales of its iconic PlayStation game console, the company now seeks to excel in live-service games that allow users to purchase additional content for online-streamed titles.

Sony is aiming for 60% of game development costs for its PlayStation 5 to be in the live service field by fiscal 2026. (Image courtesy of Sony)
Sony is aiming for 60% of game development costs for its PlayStation 5 to be in the live service field by fiscal 2026. (Image courtesy of Sony)

Company Aims to Pivot from Hardware Sales to Subscription-Based Model and Plans to Have 12 Live-Service Game Titles by 2026

Sony foresees the market for add-on style games surpassing the hardware market, reaching an estimated value of RM88.37 billion by 2026. However, while Sony has yet to establish a strong foothold in the live-service games sector, its rival, Microsoft, already possesses an advantage with its cloud-based streaming games. Moreover, Microsoft is currently finalizing the acquisition of game publishing giant Activision Blizzard.

To fortify its growth strategy in this evolving landscape, Sony acquired major U.S. game studio Bungie for a substantial RM17.21 billion in 2022. This acquisition aims to leverage Bungie’s expertise in live games to bolster development efforts within Sony.

By the end of the fiscal year in March 2026, Sony plans to offer an impressive portfolio of 12 live-service game titles, a significant increase from a solitary title in fiscal 2021. The company intends to allocate 55% of its PlayStation 5 game development budget to live-service games for the year ending in March 2024, with a further increase to 60% by March 2026.

Sony’s vision extends beyond live-service games and encompasses the metaverse, a virtual reality space where physical and digital realms converge. The concept of extended reality, which merges these realms, is edging closer to the mainstream, exemplified by Apple’s upcoming Vision Pro headset slated for release next year. With promises of immersive gaming experiences that engage all five senses, extended reality represents a new frontier for Sony.

Sony PSVR2. (Image courtesy of Sony)

To expedite extended reality development, Sony plans to leverage the resources of the nine overseas game studios it has acquired or invested in over the past two years. Additionally, Sony has made strategic investments in U.S.-based Epic Games, renowned for its industry-leading computer graphics game engine, “Unreal Engine.”

“We will continue to make strategic investments going forward, prioritizing intellectual property,” stated Sony Group President Hiroki Totoki, emphasizing the company’s commitment to driving innovation.

Sony also intends to apply the technology cultivated in its game business to other fields, such as in-vehicle content for the electric car it is jointly developing with Honda.

Sony’s strategic pivot aligns with a broader trend of increased R&D investment by Japanese electronics companies, particularly in areas of growth. The total R&D expenses of Japan’s top eight electronics companies for the fiscal year ending in March 2024 are expected to reach a record high for the third consecutive year, amounting to 2.28 trillion yen, representing a 5% increase from the previous year. Companies such as Hitachi are increasing R&D expenditure in the environmental sector by 27%, while Mitsubishi Electric is focusing on power-saving semiconductor development.

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As Sony plunges into the world of extended reality and intensifies its efforts in live-service games, the company aims to position itself at the forefront of innovation, aiming to catch up with its competitors and secure a dominant position in the evolving gaming industry.