Reports indicate that Sony Group is set to amplify R&D funding in its gaming realm remarkably. The company plans to channel 300 billion yen (approximately $2.13 billion) into this area for the financial closing year of March 2024, which equates to nearly 40% of its total R&D outlay, overshadowing investments in electronics and semiconductors.

This sum displays an upturn from the 271.1 billion yen dispensed for game R&D in the preceding fiscal year and is more than double the allocation of 144.5 billion yen in fiscal 2020. Sony Group’s cumulative R&D budget for this fiscal term is forecasted to hit 760 billion yen, marking a year-on-year increase of 3%.

Transitioning Business Model

Sony has been undergoing a shift from their conventional hardware-centric business paradigm towards a subscription-led model, catalyzing the surge in R&D expenditure. The company, renowned for its PlayStation gaming console, will now focus on live service games allowing users to acquire add-ons for titles streamed via the internet. Forecasts by Sony suggest that the market for these add-on-styled games might attain $19 billion by 2026, potentially surpassing the hardware market like PlayStation for the first time ever.

Increasing Competition

Despite Sony’s substantial investment, the company has yet to make significant inroads into the live service games market, currently relying mostly on sequels to traditional games for software sales. Sony’s competition, particularly Microsoft, already has an edge in the domain of cloud-based streaming games. Microsoft’s bid to acquire Activision Blizzard, a major game publishing company, further intensifies the competitive landscape.

Strategic Acquisitions and Future Plans

  • To better navigate this challenging market, Sony acquired major U.S. game studio Bungie for $3.7 billion in 2022, hoping to leverage its expertise in live games to boost development.
  • By the fiscal year ending March 2026, Sony plans to have 12 live service game titles in its portfolio, a significant increase from just one in fiscal 2021.
  • For the year ending March 2024, the company plans to dedicate 55% of PlayStation 5 game development spending to live service games and 60% for the year ending March 2026.

Eye on the Metaverse: Extended Reality

Aside from live service games, Sony is also keenly interested in the realm of extended reality (XR) — technologies that merge the physical and digital worlds. XR is gradually becoming more mainstream, particularly with the expected release of Apple’s Vision Pro headset next year. This technology promises to deliver immersive gaming experiences that engage all five senses. Sony is planning to leverage the resources of the nine overseas game studios it has acquired or invested in over the past two years to aid XR development.

Significant among these investments is U.S.-based Epic Games, whose “Unreal Engine” is one of the industry’s top computer graphics game engines. “We will continue to make strategic investments going forward, prioritizing intellectual property,” said Sony Group president Hiroki Totoki.

Beyond Gaming: Technological Innovations

In addition to gaming, Sony is exploring opportunities to apply the technology it develops in other fields, such as in-vehicle content for the electric car it is collaborating on with Honda. This strategic shift is happening in parallel with a broader R&D push by Japanese electronics companies, particularly in high-growth sectors. R&D spending by Japan’s top eight electronics firms is set to increase by 5% on the year to 2.28 trillion yen by the end of March 2024, marking a record high for the third consecutive year. Other companies like Hitachi and Mitsubishi Electric are also increasing their R&D expenses in areas such as environmental technology and power-saving semiconductors, respectively.

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