Last week, Sony significantly decreased its forecast for the number of PS5s it expects to sell before the end of March, from 25 million down to 21 million. Following this, the company’s stock dropped roughly $10 billion in value. However, according to CNBC, analysts say that the declining margins in Sony’s core gaming business might be the bigger worry.

Sony’s operating margin in the gaming business was just 6% last quarter, compared to 9% in the corresponding quarter of 2022. One equity analyst, Atul Goyal, told CNBC that they would expect the margins to be higher than single-digits due to “various tailwinds,” making the number especially disappointing. Goyal also cited Sony’s record-breaking revenue in digital sales, add-on content, and downloads as other reasons why the margin should be higher. Another analyst, Serkan Toto, said that he expected Sony to have better operating margins by this point in the PS5’s life-cycle.

It’s not clear what exactly is causing this low operating revenue, but it’s been clear for years that video games are getting more expensive to make. That was a clear concern revealed in documents leaked as part of the Insomniac ransomeware hack last year, with one leaked slideshow suggesting that Sony has put pressure on Insomniac to keep budgets low due to Spider-Man 2 costing significantly more to make than its predecessor.

Given industry-wide layoffs and other factors like inflation, it remains to be seen if that will be Sony’s strategy moving forward. Sony indicated earlier in February that there will be no new “major” projects released until at least April 2025. Sony has also indicated that it wants to make live-service games a larger part of its portfolio, but has run into some roadblocks along the way. The company’s largest live-service game, Destiny 2, recently had its next significant expansion (The Final Shape) delayed from February to June.