- Daniel Ahmad of Niko Partners says Sony ending physical disc production was inevitable
- He says it would have happened if not for the PS6, then the PS7
- Ahmad says Sony wants to create a “closed ecosystem with high margins”
Sony’s decision to end the production of physical PlayStation discs in 2028 came as quite a shock to the community, but one analyst believes the move was inevitable given the rise in digital sales on consoles.
Sharing his thoughts in a long thread on X in a response to a fan likening the situation to Apple removing the headphone jack from its products, Daniel Ahmad of Niko Partners said, “It’s more like Apple removing the CD Drive from its laptops starting in 2008.”
He explained that while there were many complaints at the time, there’s “not a single person is complaining about it today,” and there were not many people complaining in the early 2010s either. Ahmad puts Sony‘s decision down to digital PlayStation software performing better now than it ever did before the PS4 launched.
“The first thing to note about Sony’s decision is that it would inevitably happen at some point for consoles. If not PS6, then PS7,” Ahmad continued. “Full game digital sales on PlayStation have gone from less than 10% prior to the release of the PS4 to around 80% today.”
He added, “On Xbox it’s already over 90%, and if anything I’m surprised they weren’t the ones to do it first. Yes, these numbers include digital only games, reflecting the current market environment, but they don’t include DLC, microtransactions or subscriptions / free games.”
Ahmad shared a bit more data to support his claims, saying that about 50% of the PS5 user base is subscribed to PS Plus and has built up a large library and/or has access to numerous digital games.
“The truth is that the console ecosystem is nearly entirely digital at this point,” he said, pointing to how Sony also earns revenue through digital add-on content, like microtransactions and other in-game purchases, more than it does “from the sale of physical and digital full game sales combined.”
Games like Fortnite, Grand Theft A 5, Minecraft, Call of Duty, Apex Legends, Marvel Rivals, Battlefield 6, and Arc Raiders, Ahmad pointed out, had the highest number of players on PS5 in May, and half of them don’t ship on a physical disc.
“Over 30% of PS5s sold to date do not have a disc drive (Meaning that 70% do, however),” the analyst added. “More importantly though, the current sell through rate of digital only PS5s is above 50%.”
Ahmad also said Insomnia Games’ sales figures, which have been presented as evidence that physical sales represent a good chunk of PS5 sales, are “out of date” and “people are looking at the sell in number rather than the sell through number.”
He explained that one of the reasons retail is high for certain physical games is “because Sony counts bundles as retail sales, even if it’s a digital code with the console.”
A reason he believes Sony is going forward with an all-digital future is simple: “The economic argument.” Because of the profit margins between physical and digital games, Sony can retain 100% of first-party games sold on the PlayStation Store, but it earns $21 (30%) from a $70 third-party title.
“When it [Sony] sells a third party game at retail, it earns around half that amount, even if the player spends the same $70,” he said. “The difference isn’t as stark for third party publishers, but they’d prefer to sell all games digitally if they could for the higher margins. That’s why physical game revenue makes up just 5% of Sony’s total game software sales revenue (incl. DLC / MTX), despite accounting a higher % share for units sold. When Sony said it would stop publishing games on PC, no one pointed out that it essentially earned the same from PC sales that it earns from physical disc sales, and the former was considered too little.”
Ahmad said another reason is the market we’re currently in, where console prices seem to be increasing regularly. Sony knows that the PS6 could enter a market where other hardware is over $1000, and players will think twice about upgrading on day one.
“While part of it is cutting costs, it’s also a realization that consoles are no longer going to be $199 mass market devices and they will need to focus on hardcore gamers who are willing to spend more than ever,” he said.
A third reason would be Sony wanting to create a “closed ecosystem with high margins.”
“The retreat from PC is partly about this, the end of disc production is also about this, as is the exploration of different form factors. Right now you can resell, gift, or even refund physical games. With digital games, you don’t have the same rights currently,” Ahmad said. “As Sony looks to maximize spend per user, it is essentially ending the used market for PS6 software and ensuring all software sold is high margin and they capture a %. In other words, Sony controls the license in its entirety and access is dependent on them.”
Ahmad concluded, calling Sony’s lack of announcement around what will happen to PS4 and PS5 discs “a mistake,” and had it “talked about a disc to digital program, or confirmed a disc add on for the PS6, the backlash wouldn’t have been as strong.”
The analyst also said it’s “unlikely” that Sony will reverse the decision, but “wouldn’t be surprised if they do end up clarifying certain aspects.” However, Ahmad thinks it could support physical games for a few more years, perhaps through limited-run hardware or a more expensive PS6 compared to the digital version.
“I’m also of the belief that even if the PS6 costs $1k, used physical games helps increase overall affordability,” he said.
Ahmad ended by saying the conversation needs to shift to “consumer rights” and what digital game ownership really means.
“Regardless of whether we’re talking about bringing physical back, or embracing digital, the conversation needs to shift to consumer rights and what a license should enable. Stop Killing Games was one part of it, but gifting, family sharing, refunds, and other aspects are just as important,” he said.
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