How the Wii U can thrive in a tough market
Nintendo is unveiling its next console, the Wii U, in early June for shipment this holiday season. The launch of a new console, every 5 years or so, is a crucial moment for any console manufacturer. The stakes are much higher than normal for Nintendo's Wii U launch, since Nintendo is projecting its first annual loss in 30 years, estimating a net loss of ¥45 billion (about $552 million, or £343 million, or €420 million) after previously projecting a ¥20 billion profit. The Wii, after a very successful run, has seen steep sales declines in the USA, from 7 million units sold in 2010 down to 4.5 million sold in 2011; Nintendo is now estimating only 10 million units sold for the FY 2012 worldwide.
Third-party developers have slowed development of new Wii titles to a trickle, and Wii software sales have plunged. "Everybody needs to realize that the Wii software segment is trending down 50 percent year over year, and has been for the last 12 months. That is a massive decline," said Cowen and Company analyst Doug Creutz. This all occurs at a time when overall sales in the console industry have slowed, and many analysts attribute this to the impact of mobile, social, and downloadable games. Analysts have begun to wonder if the console industry can ever get back to the size it reached in 2008, with sales dropping every year since then.
"As of March 2012, Nintendo had over $10 billion (£6.2 billion, or €7.6 billion) in cash in the bank"
The Wii U has already come under fire, even before solid information has been released. The graphics and processing capability is rumored to be about the level of the Xbox 360 and the PS3; the retail price may be $300 or more in the USA; many wonder if the tablet controller will actually add to gameplay or just become a focal point for arguments over which player gets to use it, since there can be only one. It's a tough market, and there's a skeptical crowd of analysts and consumers who are already hearing rumors of vastly more powerful consoles from Microsoft and Sony that may be released by the end of 2013. Does Nintendo have a chance?
Absolutely. In fact, Nintendo has many advantages in this battle, and if they extend some of the boldness and creativity they show in game design to their marketing and business practices, Nintendo could once again be the leader in the console business. Let's take a look at some of Nintendo's key strengths and how they could leverage them into a profitable leadership position.
Start with a fact that's not mentioned often enough: As of March 2012, Nintendo had over $10 billion (£6.2 billion, or €7.6 billion) in cash in the bank, and another more than half that again in premises, equipment, and investments. That is a huge competitive advantage over Sony, which is looking at a loss of over $6 billion for the year. Microsoft has a huge pile of cash, more than 5 times that of Nintendo, but they have many other places to spend money (such as the mobile phone business, and Windows 8). Nintendo can afford to spend a lot of money in order to grab market share, and can easily outspend Sony (Microsoft might be a different story if they feel sufficiently threatened).
Nintendo's vast resources give it many chances to recover from mistakes, and they've shown how they can recover from severe mistakes with the 3DS. Nintendo made a number of big mistakes with the 3DS launch: They priced the handheld much too high, at $250; they didn't have any top-notch titles or key franchises available at launch; the eShop wasn't working for months; and Nintendo was so confident they didn't bother with much in the way of marketing. Not surprisingly, after a good initial sell-in sales fell off a cliff. Nintendo watched this for a few months, then surprised everyone with a bold $80 price cut. By the holiday season, when several key 3DS titles shipped, the 3DS had recovered and turned into a solid seller (though still not up to their initial projections for the year). Nintendo showed that they can recognize a problem and figure out the correct solution, and return to leadership in the handheld console market.
The Wii U's strategy for success is simple. It's value.
Think abut it. The raw power of a console is not the most important thing; it's price performance and the total value of the package to the user. Nintendo has usually tried to make money from the sales of their consoles from day one, unlike the vast amounts of money that Sony and Microsoft lost with each sale of the PS3 and the Xbox 360 when they launched (said to be $300 per unit or more). The rumors point to a hardware cost for Nintendo of $180, and suggest that Nintendo may need to price the Wii U at $300 or more in the USA in order to make a profit. What if Nintendo were to price the Wii U at $249, or even $199? This would instantly change the battle for console leadership. Microsoft and Sony would have a huge problem trying to meet that sort of price even with their current consoles; for their next-gen consoles, forget it.
How could Nintendo afford to lose
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