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The PlayStation 5's plan to win the console wars: Only the best stuff, absolutely nothing else

Sony is not quite defining PlayStation as a luxury brand, but the company appears comfortable with the vision of PlayStation as a premium experience.

Screenshot from Spider-Man game on the PS5

Spider-Man: Miles Morales is among the exclusive titles for the PlayStation 5.

Image: Sony

In New Haven, Connecticut, is a famous little restaurant called Louis' Lunch that fans (myself included) believe invented the hamburger. Louis' makes burgers in gas broilers made in 1898 and serves them on white toast. Options are, shall we say, limited.

On the wall is a sign: "This is not Burger King. You don't get it your way. You take it my way, or you don't get the damn thing."

The thing is, they're the world's best burgers. Every time I stop by, there's a line out the door and halfway down the block.

That's just about how Sony seems to be approaching the next generation of the $160 billion video game business. Sony's showcase online event Wednesday for its coming PlayStation 5 console confirmed the company's proudly, powerfully conservative notion of what is fundamentally important in the mass entertainment industry.

It's not ultimately about how people buy and consume your product. It's not about consumers engaging with one another. It's not about prices. It's not about technology. It is not even about innovation.

Those things can all play a role. But in the end what matters is the content. If the content — created by professionals — is objectively fabulous (whatever that means), then consumers will come. They will pay more. They will put up with inconveniences. They will take it our way.

And Sony is correct. They will.

Microsoft is trying to disrupt gaming both as a business and as a consumer experience. That's because Microsoft has long been No. 2 in this part of the market and is trying to leverage its broad technical and financial power into advantages in gaming. Sony, on the other hand, is betting that the strategy that has made PlayStation No. 1 in the console business for years — a focus on core content, the traditional couch-and-television console experience and traditional consumer spending patterns — will continue to work for at least the next several years.

For Sony, it's all about the blockbuster global franchises (obviously). This is clear to hardcore gamers, but this is what we mean by Sony's strict focus on content. Wednesday's presentation was all about demonstrating that many of the world's most important entertainment properties, from gaming and beyond, will be on PlayStation 5. That included Spider-Man, Final Fantasy, Harry Potter, Fortnite, Call of Duty, Resident Evil and God of War.

It will generally be more expensive and less flexible to choose PlayStation over Xbox, and Sony is fine with that. The entry point for the new Xbox systems is basically $25 a month. Over two years, that buys the cheaper Xbox and also hundreds of games. Retail price is $299 for the box and $499 for the more powerful version (which has a $35/month bundle option including games). On Wednesday, Sony announced that the less-expensive PlayStation 5 version costs $399 and the top-end edition also costs $499. In the United States, the new Xboxes will arrive on Nov. 10 and the PlayStation 5s on Nov. 12.

Technically, the two PS5 versions are largely identical; the $499 version has an optical drive whereas the $399 version does not. With the new Xboxes, the $299 version is less powerful than the $499 version. This will allow both companies to claim a pricing and value victory.

Sony is not offering a monthly payment plan comparable to Microsoft's and does not offer a similarly broad game subscription service. However, Sony did make the attractive announcement Wednesday that PS5 subscribers to its online multiplayer service (which costs $60 for a year) will get free access to 18 top-end games from the previous PlayStation 4.

"For us, having a catalogue of games is not something that defines a platform," Sony's PlayStation chief Jim Ryan told Gamesindustry.biz. "We are not going to go down the road of putting new releases titles into a subscription model."

Sony also announced Wednesday that at least some of its new top-end games will cost $70 rather than the $60 that has been customary. U.S. consumers seem likely to generally take that in stride, memes notwithstanding. Rumblings may be louder in Europe, however, where Sony's top game price is now €80 ($95 at current exchange).

Sony is not quite defining PlayStation as a luxury brand, but the company appears comfortable with the vision of PlayStation as a premium experience. "It's a considerable capital outlay, and we want to make sure people know they are buying a true next-generation console," Ryan told The Washington Post.

Sony's ideal is boutique quality at global scale. I don't actually know, but I'm pretty sure that the Lassen family, which has owned and operated Louis' Lunch for at least five generations, has long laughed off the idea of expanding the Louis' burger empire beyond Crown Street in New Haven. You can't build the world's top console gaming franchise like that, but Sony is trying to build and protect the values that got the company here in the first place.

And as with Louis', legions of loyal fans wouldn't have it any other way.

Seth Schiesel

Seth Schiesel ( @SethSchiesel) is a contributing editor for Protocol focused on the business of video games and adjacent industries. He is a former editorial writer for The Boston Globe, entrepreneur and business reporter, technology writer and video game critic for The New York Times.

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health tech
Protocol | China

Everything you need to know about the Yuanxin Technology IPO

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media China.com.

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.
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