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Nintendo: Time for an intervention?

Nintendo: Time for an intervention?

Thu 31 Jan 2013 4:00pm GMT / 11:00am EST / 8:00am PST
BusinessPublishing

The trend line isn't good, the forecast is bad, and the competition is ugly; what is Nintendo planning to do?

Whenever the market shifts, as ours does with such regularity, we come to inflection points. Opinions invariably divide on how those inflection points will pan out - it's the nature of disruption.

This week's quarterly financials from Nintendo, which highlighted missed sales targets for the Wii U and 3DS, have brought exactly such a situation into sharp focus. When a company as big as Nintendo, which has until so recently been held up as a paragon of adaptive success and market growth, stumbles, pundits and punters alike are quick to make a diagnosis.

We're no hive mind at GamesIndustry International, so we prefer to give you both sides of the argument whenever we can. To that end, we'll have two pieces about the impact of both the financial results and the sales figures revealed by Iwata, each arguing from a different perspective.

Below, we have an op-ed from our West Coast Editor, Steve Peterson, arguing that Nintendo needs to make some changes or risk serious damage. Tomorrow, regular columnist Rob Fahey will be putting his case for a different interpretation: that any doom sayers are over-reacting and that the publisher will ride out the storm quite happily. Of course, we expect to see you having your say in the comments threads, too.

The quarterly report from Nintendo was, once again, disappointing. Not only did the company miss its numbers, but Nintendo lowered its forecast for the fiscal year by a couple billion dollars. CEO Satoru Iwata apologized as he cut sales estimates for all of the company's consoles. This is becoming a regular quarterly ritual for Nintendo, and it's agonizing to watch. What's going on? Is this just a bad patch before a great surge in sales? Let's look at the overall picture.

Nintendo has known for years that Wii sales are declining, and the pace is accelerating. Nintendo's answer was the introduction of the Wii U, a new console that finally brings Nintendo to relative parity with the current generation of HD consoles. Many have argued that Nintendo should have done this a year or two earlier, before the Wii completely lost its ability to sell and to attract third-party development. Regardless, Nintendo finally introduced the Wii U, but with a relatively high price of $299 for the entry level (and most sales were of the $349 version).

As was expected, many fans rushed out to buy the Wii U; after all, it's a new console from Nintendo. Yet as many in the industry feared, Wii U sales have dried up since Christmas, and Nintendo just lowered its Wii U sales forecast for the year ending in March to 4 million consoles total, down from its previous forecast of 5.5 million units. That's a reduction of of over 25 percent. 3DS sales estimates were also cut, from 17.5 million units down to 15 million units, and DS sales were reduced from 2.5 million to 2.3 million.

"Nintendo's chance to attract third-party development dollars is rapidly vanishing along with the Wii U's sales momentum"

Steve Peterson

Nintendo is still planning on generating a profit this year, though the net income projected is only $154 million on total sales of $7.368 billion, which works out to about a two percent profit. Nintendo would be better off investing its money; that's a terrible rate of return. It's especially embarrassing when you look at the profits Japanese companies like Gree and DeNA are posting, which are hovering around the 45 percent level on sales of over $2 billion apiece. If you put Gree and DeNA's sales together the total is approaching Nintendo's; give the two companies another year or two and they will probably pass up Nintendo and never look back.

Clearly, for Nintendo to post a profit on this scale is not a sustainable business strategy; it's a way to avoid embarrassment, such as the massive $473 million loss of last year. With slower than expected sales of hardware and software, Nintendo has probably been cutting back on marketing expenditures. Certainly we didn't see a massive amount of TV commercials, nor other kinds of marketing efforts over the holiday season. Yes, it's good that the company has been keeping expenditures under control, but the trend line is not promising. Much of the gain Nintendo is looking at comes from the improvement in exchange rates, which is outside of anyone's control. As a business strategy, sitting around waiting for the macroeconomic environment to get better is not a winner.

Iwata-san took to video last week to apologize for delays in Wii U software, and to talk vaguely about great games coming in the (mostly unspecified) future. That's not going to revive sales of the Wii U; people are going to wait until the games they have to have actually appear before dropping $300+ on a Wii U and accessories. That's a rational decision, given that Nintendo may well reduce the Wii U price at some point, or software might be delayed, or some nifty new console might arrive from some other manufacturer. Why spend the money on a Wii U now if there aren't enough games, and a proven stream of exciting releases, to make your investment worthwhile?

The gaming environment is only going to get more competitive as time rolls on. Nintendo will be attacked on the high end, with new consoles from Sony and Microsoft, on the low end with Android consoles like Ouya and GameStick (and existing consoles with much lower price points), and on the undefended flanks by smartphones and tablets and free-to-play online games. Nintendo's chance to attract third-party development dollars is rapidly vanishing along with the Wii U's sales momentum.

Look no further than EA's earnings call yesterday, when EA CEO John Riccitiello basically said the Wii U was not a next-gen console, and not one the company is looking at to revitalize the game industry. The Wii U can expect weak support from publishers who are gearing up for new consoles from Sony and Microsoft. Sure, they may not sell all the that well, either, but at least it hasn't been proven that they are slow sellers. Sources in the industry indicate there are not many big titles being planned for the Wii U among major publishers, and this should not be a surprise

1

Nintendo's sales and earnings have been on a steady path since fiscal year 2009. The graph (in yen) shows the trend clearly; in FY2009 Nintendo's sales were over $20 billion; the next year $15.8 billion, then $11.2 billion, then $7.1 billion last year, and projected for this fiscal year (ending March 31) a slightly better $7.37 billion. Before the revision yesterday, Nintendo was projecting sales of $8.9 billion for the fiscal year.

The net income story is similarly grim: $3 billion in FY2009, then $2.5 billion, $858 million, then a loss of $473 million for FY2011. Now Nintendo is projecting for this coming year a profit of $154 million, or in the neighborhood of two percent. This is largely being achieved through an improvement in the exchange rate for the yen, and what looks like Nintendo reining in spending, particularly on marketing.

Nintendo's CEO took some time to explain the finanical results and the company's strategy going forward. "In the overseas markets, Nintendo 3DS has not yet solved its chicken-and-egg problem as a platform. To put it another way, we do not yet have a virtuous cycle where hardware sales and software sales drive one another. Because of this, our lineup lacks diversity, and as a result, Nintendo 3DS does not have as wide and diverse an appeal as Nintendo DS. As a consequence, software sales, which should ideally grow in proportion to hardware sales, did not grow as expected."

"With Wii U, we have taken a rather resolute stance in pricing it below its manufacturing cost, so we are not planning to perform a markdown"

Satoru Iwata

Notice that there's no mention of other options for mobile play, such as smartphones. The issue in Iwata's mind appears to be merely that Nintendo has to ship more of its software to the US and Europe.

Iwata turned his talk to the Wii U, explaining that it sold well initially, but then stopped. "However, since we were unable to incite enough excitement in society, we have failed to maintain its momentum after the turn of the year. In addition to this, because of some delays on the development side, we were unable to continuously supply software at the beginning of this calendar year. This has further upset our scenario for market penetration, for which momentum is the key."

Iwata attributes the problem to the complexity of the Wii U. "While it was pointed out that, unlike in the case of Wii, it was difficult to instantly understand the appeal of Wii U, those who purchased it, although there are issues to be addressed, have shown a certain degree of satisfaction with our product value, but since its value by nature is something that takes time to appreciate and hence cannot be spread amongst society instantly, we have yet to communicate its value to the wider public. To put it another way, we delivered Wii U to those consumers who we thought would be the first to buy it, but information has not successfully been passed on to those consumers who we think will be the next people to buy it. This must be one big factor with which Wii U could not maintain its momentum."

Or, you know, it could be a lack of compelling games for the Wii U. Or maybe it's the price? Why not reduce the price and see if that gooses sales; it worked for the 3DS, right? No way, says Iwata. "With Wii U, we have taken a rather resolute stance in pricing it below its manufacturing cost, so we are not planning to perform a markdown. I would like to make this point absolutely clear. We are putting our lessons from Nintendo 3DS to good use, as I have already publicly stated. However, given that it has now become clear that we have not yet fully communicated the value of our product, we will try to do so before the software lineup is enhanced and at the same time work to enrich the software lineup which could make consumers understand the appeal of Wii U."

In other words, don't look for any price drops soon. Nintendo will first try to get some good games out there, and perhaps spend some money on marketing trying to explain why the Wii U is a great console to buy, and pay no attention to those shiny new consoles coming from other manufacturers soon. Or those tablets. Or those free-to-play games on your computer. Anyway, maybe if Wii U sales are still slow after some new games and some marketing, maybe then there will be a price drop. Maybe.

Iwata again: "Regarding the Wii U, it is now clear that many consumers have not understood its product value. We hope to change the situation from now and make a drastic improvement before the latter half of the year starts. The Wii U is a game console you can enjoy most with the Internet connection and the current Internet-Connection ratio is 74 per cent, which means that almost three of four consoles have been online already. This is clearly higher than the previous hardware system we released. We will continue to inform our consumers about the advantages of using the Wii U consoles online to further increase this ratio."

2

Only 74 percent have connected their Wii U online? Add that to the list of reasons Nintendo is struggling to make money; it hasn't figured out that selling things online to game players is a great business opportunity.

Iwata has a clear plan for the future, though: "It is our must-do for the next fiscal year to revive the momentum of our overseas business, expand the market by exploiting the potential of our products, and therefore retrieve 'Nintendo-like' profits. For the next fiscal year, with the premise of the current trend of currency exchange rates, the management aims to earn 100 billion yen or more of operating profit by reviving the momentum of our overseas operations."

That's a laudable goal, but it's hard to see how Nintendo's current strategy will ever get it back to the level of $10 billion in sales, let alone $20 billion. The company's strategy apparently takes no notice of current or impending competition. It seems logical that the arrival of new consoles from Sony and Microsoft at pricing in the neighborhood of the Wii U might make it harder to sell the Wii U. Nintendo has a very short window of time in which to get the Wii U's pricing ready for the competition (that is, make sure it's substantially cheaper), ship some really great games, and make sure there's a consistent marketing message explaining the Wii U's benefits.

At the same time, Nintendo has to keep the 3DS going in the face of ever-increasing tablet and smartphone competition. Games on tablets, at least, are getting increasingly sophisticated in design and execution. Already the horsepower of smartphons and tablets are catching up to and passing the 3DS. Nintendo's going to have a more difficult time selling the 3DS, as the reduced sales forecast indicates.

"It's time for the three-step program: 'Step 1: Get a clue. Step 2: Get a grip. Step 3: Get a life.'"

Steve Peterson

Is Nintendo doomed? Not at all; as EA's CEO Riccitiello said, "Never count Nintendo out." Nintendo has over $10 billion dollars in cash and some of the very best IP in the game business. Nintendo has adjusted itself to make a profit even at a sales level that's less than half of what it was a few years ago, and with its massive bank account it could continue for many, many years on ever-dwindling sales.

Or Nintendo could take some bold actions. The company could buy game developers, drastically reduce pricing on hardware to establish a broad installed base, commission some of the top third-party games to include special features for Nintendo hardware (or even just to appear on Nintendo hardware). Nintendo could start spending more, perhaps a lot more, on marketing; even on creating other media based on Nintendo IP in order to generate interest in the games (animated TV shows, for instance).

Instead, the company is plodding along, clinging to its cash and making no sudden moves, hoping that for some reason people will suddenly decide to start buying Nintendo products again. The possibility of even more radical ideas, like putting Nintendo characters on smartphones or creating a Pokemon version of Skylanders, seem completely beyond consideration.

If Nintendo were a person, friends would be calling for an intervention. Get Nintendo to recognize the real problems in front of it; acknowledge the company's strengths, and get it to understand that business as usual won't work when the market is anything but usual. It's time for the three-step program that Warren Spector once described to me: "Step 1: Get a clue. Step 2: Get a grip. Step 3: Get a life." Nintendo needs to get busy on Step 1, because the market is moving faster than ever.

27 Comments

Rick Lopez Illustrator, Graphic Designer

1,269 941 0.7
Popular Comment
I dont know man, Im kind of extatic about the new software announcements they have made... I hope those numbers change... New RPG from Monolith, Bayonetta 2 and Fire Emblem X SMT, to name just a few... To know that the same people that made Xenoblade are making an exclusive RPG... my heart is throbbing with excitment.

Everybody was hyped when SONY and Microsoft announced that they will release new consoles. Nintendo stayed quite as the internet world went a buzz over PS4 and Xbox 720. Then Nintendo dropped the ball. Honestly, after those new game announcements, That new RPG from Monolith (praying its Xenoblade 2), Bayonetta 2, Shin Megami Tensei X Fire Emblem, A new Zelda, New 3D mario, Mario Kart, Smash brothers, Rayman Legends... The WiiU is starting to look very appealing. And they claim more will be announced, showed and playable at E3. My heart is throbbing with anticipation for the next event.

Graphics have reached a point where they have almost flatlined. If you look at games like Fuse, Uncharted 3, Metal Gear rising, The Last of Us, Beyond 2 souls and halo4, and compare it to the tech demo's of variose game engines like squares Luminouse engine, Unreal 4 or Frostbite 2... the differance is not as great as the leap from standard definition to HD or from 2D to 3D.

If you look at games for the WiiU like Xenoblade, The Last Story ... they look pretty good. In last story you can have a party of up to 5 characters all batteling in real time, while most RPG's can only handle 3. I used to enjoy games like Lunar because of this. Xenoblade has massive draw distances and a pretty detailed world with individual blades of grass, however these effects are faked as they are 2D polygones that rotate with the camera. But still it has achieved stunning results, a vivid game world and very good art aesthetics and style. Not all creatures are enemies, they are just animals in there own enviroment and will only attack if you bother them.

Then we have games like Nino Kuni That look stunning, and if the Wii you has even a bit more power than current generation consoles, it all means it can produce pretty impressive graphics.

I belive that when designing a game now a days, tech horsepower helps, but its more about artistic, cinematographic direction. Good writing, and inovative gameplay. Basically good ideas and being creativity, limit more than the actual tech.

I can see why Nintendo didnt push with HD since I honestly bought my first HD TV last year, and its only now that prices have become affordable. Im in no rush for 4k resolutions.

All Nintendo needs to do is keep their first party franchises fresh. Fire Emblem Awakening is amazing and they also need to grab as many AAA exclusives as they can, such as with Xenoblade and Bayonetta. I think with the right plan, Nintendo can do fine. They have a great controller with all the face buttons, clickable dual analog sticks and all, plus the touch screen which can add custom control options for more complex games (still dont like the size though :( ).

But after Nintendo's announcements Im pretty excited. However i do think Nintendo should put the premium WiiU bundle in the 300$ range and simply eliminate the basic console. They shift more units this way. Im personally waiting for a price drop but will stock up on games in the meantime.

I belive consoles should be made with expansion in mind.Such as RAM and a slot for added graphics cards that can come in the form of 60$ enhancments down the line. The NES, SNES, N64 and Gamecube all had it. I wouldnt mind upgrading the WiiU with 8GB of RAM 3 years from now, for a fraction of the cost to develope a new console.

Edited 1 times. Last edit by Rick Lopez on 31st January 2013 5:06pm

Posted:A year ago

#1

Caleb Hale Journalist

157 238 1.5
I agree with your advice. Nintendo probably should go for broke with its considerable cash reserves, buy itself some exclusives, introduce some new IPs and definitely invest in some production value for those Nintendo Direct videos. If it dies, at least it can say it went with a bang, rather than wait to die a slow, painful death.

Posted:A year ago

#2
My first step would be to get MiiUniverse on to the 3DS, smartphones and PC as soon as possible.

Posted:A year ago

#3

Daniel Hughes Studying PhD Literary Modernism, Bangor University

436 497 1.1
Popular Comment
I agree Nintendo need to move, but I'd say that expecting them to announce plans before their full year results is a little foolish.

"Or Nintendo could take some bold actions. The company could buy game developers, drastically reduce pricing on hardware to establish a broad installed base, commission some of the top third-party games to include special features for Nintendo hardware (or even just to appear on Nintendo hardware). Nintendo could start spending more, perhaps a lot more, on marketing; even on creating other media based on Nintendo IP in order to generate interest in the games (animated TV shows, for instance)."

This I agree with partially. Reducing hardware prices drastically before you have returned to posting operating profits would be premature panic, however, investing in expanding development capabilities would be a wise move. Third parties will never provide Nintendo with the kind of support they provide to other manufacturers. Nintendo should therefore not pursue or expect that kind of support. Further effort needs to be put into (and is evidently being put into) collaborative efforts with other developers and publishers. Nintendo don't just need a wide marketing blitz, they need a focused marketing blitz. What's happened to the marketing nous that sold videogames consoles to people who had never bought one before?

"The issue in Iwata's mind appears to be merely that Nintendo has to ship more of its software to the US and Europe."

And Iwata is completely correct. As you argue with the Wii U, why would people buy the 3DS when there isn't a diverse catalogue of must-have titles available? Why would 3DS owners in the West buy large amounts of software, when no consistent, quality release schedule is in place? The ultimate differentiation between games devices is what you play on them. If there's nothing to play, what are you to buy? If there's not enough coming out, what incentive is there to buy into 3DS? Japan loves the 3DS--because Japan gets regular, quality content, creating a diverse library that attracts more and more people. This is how dedicated videogame systems are sold, and whatever else has changed, that much is still true.

You can argue that Japan is a stronger market for handhelds, that the West is more enamoured with tablets and phones, but look to your own arguments. Gree and DeNA go from strength to strength, yet 3DS software sells in the millions at retail, and in the hundreds of thousands digitally. Japanese 3DS owners have established brands like Monster Hunter, Mario, Animal Crossing, Brain Training, Fire Emblem to choose from. They have new, critical and commercially successful IP like Bravely Default and Fantasy Life. What has the West had? A splattering of Mario titles, broken up by Kid Icarus and Resident Evil, spread across the same twelve months that has seen all those properties and more hit Japan. Iwata recognises this. Not only will Nintendo publish and push ten major releases in the West this year, they will devote resources to bringing Japanese third party software to the West. In Iwata's words, "change the Nintendo 3DS system from a handheld device just to play the Mario series to the one to enjoy a variety of games." The global release of Pokemon and the Western release of Animal Crossing alone will shift millions more 3DS systems this year. The price is right, the hardware is right, the services are improving all the time. The one issue Nintendo need to nail, and are now in a position to nail, is a consistent stream of software for 3DS in the West.

As for Wii U, that's a more difficult question to answer. Nintendo have made clear mistakes in launching the basic model and in pricing and ineffectively communicating the device. As admirable as it is that Nintendo left the ground relatively clear for third parties, the absence of an instant blockbuster release (as opposed to an evergreen title like 2D Mario) has clearly impacted the Wii U. Nintendo should have focused on having a string of their own published titles--Mario, Nintendo Land, Pikmin 3, Wario, Monster Hunter, Wonderful 101--out before the end of March. As it is, Nintendo had late third party ports, a couple of decent titles, and no releases in January or February, with no confirmed release dates beyond the end of March. How in the hell are large numbers of people expected to invest in that kind of system? Nintendo have games, that much is clear, but they need to start dating them.

All said, while I agree Nintendo need to move more quickly, I definitely don't think it's time to panic. There are a couple of points this article doesn't really acknowledge:

1) A decline in sales and transitional period, during which revenue and profits decline or disappear, is the norm for the console business. This is an even more competitive transitional period than usual.
2) While you correctly state that Nintendo posting profits due to a weak yen is not good business, you ignore the fact that the incredibly high yen weakened Nintendo's finances in the last two years, making Nintendo's core business appear far shakier than it actually is.
3) The upcoming financial year is the first year for two years in which a) Nintendo does not need to contend with a strong yen, and b) Nintendo does not need to devote time, money and manpower to launching new systems. Software development, localisation, and marketing can now take precedence.

One final point that ties into 3) above. The importance of price cuts is over-stated. While I agree it's a poor policy not to announce release dates for games, as I have already said, it's an even worse policy to cut the price of a system with no compelling content and to then expect the system to sell. 3DS experienced a short-term boost on the back of its new price point, but the longer term boost came from two new Mario titles. The lower level of Western sales coincides with the 3DS being consistently available at lower prices, but without a continuing stream of software. As demonstrated, in Japan, this is not the case due to strong software support. Nintendo's priority right now has to be getting quality software out on a consistent basis. That will be enough to improve momentum for 3DS, and enough to build momentum for Wii U.

Iwata said several years ago that content is king. That in an age of ever-increasing competition, companies like Nintendo need to prove themselves by releasing top-drawer content consistently. That has happened for 3DS in Japan and the market has responded accordingly. It has yet to happen for Wii U globally and 3DS in the West, but the signs are all ready there that Nintendo know what 3DS needs, and Wii U has been out for three months. It's time to assess Nintendo's failings during this transitional period, yes, but it's not time for a drastic intervention just yet. If Iwata and co panic, one fumble or misstep could spell disaster. Set more modest sales targets. Ensure your software slate supports your sales estimates. Communicate your products clearly. Expand your developmental capabilities. Localise and support key third party software. Continue to improve your online and digital policies. Examine your software pricing policies now a weak yen gives you more pricing leeway; introduce flexibility without devaluing your software. Don't panic and slash hardware prices, hampering revenue streams before it's necessary. Why cut the price now when you can undercut rivals this winter? Vita has remained on the market despite slow sales globally, despite no stand-out software, for twelve months. Would we honestly expect Wii U to fall beyond the point of return in the next nine months, considering the IP and finances Nintendo can bring to bear? Take action, yes, but back your hardware with the quality content only Nintendo can provide, and the market will respond in the next twelve to eighteen months.

As I've said elsewhere, the far more interesting questions here aren't about Nintendo's ability to post profits or sell their devices, or to avoid a piece of hardware failing. The question is whether or not Nintendo can turn the Wii U into a sufficient enough success that means they don't require a Revolution in four or five years time. We won't know that for couple of years at least. It's tempting to believe that right now we can assume what will or won't happen to Nintendo in years to come. We can say we saw they needed to change direction or they'll fail. But the truth is, if any company can clinch success from the jaws of defeat, it's Nintendo. They can just as easily do the opposite. Rather than saying Nintendo need an intervention right now, we'd be far off better settling in for the long haul. You can bet your life that's what Nintendo's executives are doing in Kyoto right now.

(EDIT: Now the essay is over, thanks for a thought provoking editorial Steve, I look forward to Rob's point of view tomorrow. Could GI.Biz continue this kind of for/against approach in future? I'm sure it'll make for some stimulating debate in future. Much appreciation to the GI team)

Edited 1 times. Last edit by Daniel Hughes on 31st January 2013 7:01pm

Posted:A year ago

#4

Christopher Bowen Editor in Chief, Gaming Bus

461 754 1.6
Say it with me, everyone:

It's the games, stupid

And Nintendo has a LOT of good games coming.

Posted:A year ago

#5

Craig Page Programmer

390 233 0.6
I don't really see what the problem is. They lost $500 million last year, but with $10 billion in the bank they could do that for another 20 years.

They've always had weaker hardware, but that's always been okay because of their Mario and Zelda exclusives.

So my bold prediction is this: as their hardware costs get lower, their profits will go higher. Their next console will be underpowered too, but it won't really matter because it will do 1080p reasonably well. Nintendo will be okay, as long as Japan doesn't get destroyed by a Godzilla attack.

Posted:A year ago

#6
I don't see any issue with their current strategy - I think its working - I just see an issue with their current predictions. The market has changed, and Nintendo is having trouble adapting to it.

The push into digital is right, its just going to take them some time. The WiiU will build, just as the 3DS did (its already doing a lot better at the same point in its life).

The main thing I would consider if I was Nintendo, is to diversify the hardware lineup. For instance:

Both the WiiU & 3DS are now considered "complex" devices (re: input). Recapture the uber-simple gaming market:
- release a portable Gamecube (i.e. in Gameboy format). Make it digital only, with compatibility with all GC games, via a online store.
- release additional models of the 3DS: one with extra storage (premium?) and one with 3G/4G connectivity
- get into the mobile market. License hardware from someone (Sony? Samsung?), stick Android on it, and sell it with a wireless NES/SNES controller. Release an Android app that acts as a NES/SNES store, stick all the content on their digitally. Make money off the mobile hardware, and off the game software. Use it to market the WiiU & 3DS to people.

And Pokemon. I know they don't fully own it, but they need to do more with it. Something physical (Skylanders?), and maybe even a free-to-play web based micro-transaction title and/or an MMO.

And I don't know what they are doing with their cash, but they could invest and/or purchase some good revenue generation companies. With a high yen, and $10bn+ in the bank - I would like to see a 5-10% flat return on that, which is $1bn profit/yr.

And finally... maybe its time to introduce a console (or even a handheld?) that follows in the model of the PC market. Iterate, and release new models every 6-12 months. Fully backwards compatible, but more powerful (more RAM & more CPU). The hardcore love that stuff.

Posted:A year ago

#7

Robin Clarke Producer, AppyNation Ltd

343 811 2.4
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Twenty years ago Nintendo and the other console manufacturers trailed so far behind the cutting edge of tech that they could spend years tinkering on new platforms and building up an enviable launch catalogue before putting them before the public.

The last time Nintendo were able to do this was the N64 - 15 years ago - and yet for some reason whenever a new platform is released we still get these articles expressing bafflement that killer apps aren't available on day one, and urging that marketing money be thrown at competent but unspectacular launch games, and for immediate drastic price cuts.

Even the all-conquering PS2 launched with Fantavision, not GTA3.

The only console (from any manufacturer) that broke this pattern in recent times was the Wii, on the strength of Wii Sports. The games that put meat on the system's bones for traditional gamers (Super Mario Galaxy, Metroid Prime 3) didn't arrive for months.

It doesn't follow at all that Gree and DeNA's trajectory will 'inevitably' put them ahead of Nintendo. I'm sure lots of analysts spent most of the last four years saying similar things about Zynga and we know how that panned out (even though Mr. Petersen was one of the very last to accept it if memory serves). Their market (an entirely different one to Nintendo's) is finite in size and growth is dependent on how they do outside of Japan.

I'm excited about the possibilities of the budget microconsoles as anyone but talking them up as direct competitors to the mainstream consoles is laughable.

The 74% connectivity rate for the Wii U is not surprising in the least for anyone able to look beyond the US's borders.

Handheld gaming has never, ever been about hardware horsepower. Every single successful handheld console since the Game Boy has thrived in the presence of cheaper, more powerful alternatives which weren't designed or marketed primarily to play games.

I think it's a bit early to accuse Nintendo - a company that radically redefined its business at least three times in the last decade (DS, Wii, Wii Fit) of lacking a clue or twiddling their thumbs. (In fact, the DS makes the hapless analyst's narrative that "Nintendo don't know how to deal with mobile games" look utterly absurd. The platform's entire design philosophy was to facilitate games that would not be possible on Japanese mobile phones, where it succeeded spectacularly. Without that impetus, it would have been a more powerful GBA and would probably only be coming out around now.)

I look forward to Rob Fahey's counterpoint.

Posted:A year ago

#8

Yiannis Koumoutzelis Founder & Creative Director, Neriad Games

363 208 0.6
thank god nintendo has its own strategy and doesn't listen to the press. if the press knew what they are talking about, they would be the ones running nintendo or nintendo would be dead by now :) i think nintendo is pulling a practical joke on the press in general, with every launch. giving them enough opportunities to cry doom, and then riding on top like a boss. Nintendo has no competition in the dedicated home and handheld console business. If there can be only 3 companies competing for general gamer attention, that is apple, nintendo and behind with a huge difference sony. microsoft and PC is a different beast altogether. a league of their own. considering that iPad/iPhone are not really game devices, but devices that is so happens that you can play games on, (great games, but they are not game hardware) nintendo is pretty much dominating that field. wiiU is spot on riding and building up on the next trend of home entertainment. multiple screens in the living room. as always, they came in a bit early, and it takes time for people to realize where their strategy is heading. last but not least, wiiU is not underpowered. never judge a console's power from the first games. (especially since, most developers didn't even have the opportunity to develop their games on the final DevKit, but in very early and constantly changing versions of it.) great games have been announced, these are just the tip of the iceberg, and while i strongly believe nintendo is anything but out of the game, this year is going to be crucial for wiiU.

Posted:A year ago

#9

Nicholas Pantazis Senior Editor, VGChartz Ltd

1,021 1,470 1.4
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It's an interesting article Steve, just one thing stood out as laughably bad reasoning to me. Your arguments that Nintendo has no understanding of the value of online, and that 74% of consoles connected to the internet is bad.

First of all, Nintendo has sold more than 700K digital Animal Crossing copies. That's incredible profit for them. They're seeing huge success on the 3DS eShop and Virtual Console and are well aware of the benefits of connecting more gamers online. Miiverse is an incredibly innovative system, building social network forums straight into your games creates a system-wide community independent of anything the publishers themselves do with their online services, and keeps players engaged.

Second, 74% is higher than the 73% online connectivity reported for the 360 back in 2010 (the most recent data I could find) and within spitting distance of the PS3's 78%.

Posted:A year ago

#10
Oh look at this:
Iwata: Fires warning shot to staff, intends to "revive momentum of overseas operations"
[MCV 31/1/13]

Where are all those Nintnedo-fan boys that shot down my comment that NOJ was not happy with Western executive structure and may consider changes!!

Posted:A year ago

#11

Dan Howdle Head of Content, Existent

281 815 2.9
Popular Comment
Nintendo Defence Force - COMBINE!
Actually, GI.biz, could you please stop beating us half to death with facts and just be nice about Nintendo?
In all seriousness, though, this article lays out clearly the job Nintendo has in front of it; the facts that have led me to consistently voice my concern for one of my favourite companies. The facts that have led some parties to accuse me (incorrectly) of anti-Nintendo hatespeak.

Let me be clear on this; I am not capable of hating a company that makes games, I love Nintendo, which is why I am so very irked to see it release such an ill-conceived and anachronistic product into the living room console space.

This finger-in-earing in denial of problems Iwata himself is highlighting to his shareholders doesn't help address these issues. I do not want Nintendo to fail. I want it to succeed. If I'm disappointed with the Wii U, it's because I wanted a console that could compete in the market of 2013 and beyond; no matter how you slice it, I do not believe the Wii U can, let alone will. Like Riccitiello hints and Steve says, the Wii U needed to arrive a year or three ago to get the traction some of us are still holding out hope for. It is very, very late to the current gen, as Riccitiello says, not early to the next, and with the world's biggest third-party publishers keeping it at barge-pole distance, good software looks set to be extremely irregular.

What's acceptable? One decent game every month? One every two? With only Nintendo itself and a few paid-for exclusives, it's looking more like one every three or four. Three great games a year does not sell me anyone's console; not Microsoft's, Not Sony's and not even Nintendo's.

Edited 1 times. Last edit by Dan Howdle on 2nd February 2013 6:26am

Posted:A year ago

#12
Btw - the yen is not weak. It's just slightly weaker than than a year ago because Japan started to print money. The fed however have been printing for the last four years. The dollar is still only worth about 90% of what it was before the crash compared to the Yen.

Edited 1 times. Last edit by John Owens on 1st February 2013 8:02am

Posted:A year ago

#13

Bruce Everiss Marketing Consultant

1,692 594 0.4
@Robin Clarke

"It doesn't follow at all that Gree and DeNA's trajectory will 'inevitably' put them ahead of Nintendo. I'm sure lots of analysts spent most of the last four years saying similar things about Zynga and we know how that panned out (even though Mr. Petersen was one of the very last to accept it if memory serves). Their market (an entirely different one to Nintendo's) is finite in size and growth is dependent on how they do outside of Japan."

Far less finite than Nintendo's market. We are well on the way to an installed base of 2 billion smartphones and will eventually reach 7 billion as dumb phones are phased out.
Both Gree and DeNA have invested massively in breaking out of their native Japanese markets to become true global players. and are getting good results from this investment.

Posted:A year ago

#14

Daniel Hughes Studying PhD Literary Modernism, Bangor University

436 497 1.1
Is it really necessary to call people on the other side of the fence "fan boys"? Particularly when there are some people, like myself, acknowledging both that Nintendo face severe challenges, but seeing enough evidence to believe the company are capable of turning it around? I'm aware some of this is very much tongue-in-cheek, but I don't think any of it is necessary.

Like I said in my original essay, I'm all for both sides of this debate--but dismissing one side or another as fanboys, or haters, or whatever other lazy labels come to mind, doesn't help constructive, thoughtful debate. If anything, it'll simple inflame whoever is on the other side of the fence to you, which shouldn't be what discussion on GI biz is about.

@ Kevin

I still maintain that in order for any kind of real change to be enacted at Nintendo, executive shuffling at Nintendo of Japan would be necessary--that's where the real power lies. However, there's a clear need for a change in marketing and localisation policies in both Europe and North America, so changes could very well be made there. I'm just not convinced it'll be the people at the top, such as Reggie, who disappear, but rather people below them in charge of key departments, like marketing, who'll be replaced.

Posted:A year ago

#15

Fran Mulhern , Recruit3D

863 707 0.8
Yeah, the fanboy label annoys me as well. I can understand certain people will have a blind loyalty or addiction to a brand, or even a platform etc, but the word is used much too often. The word says more about the person using it than the group of people they're talking about.

Posted:A year ago

#16
@Daniel, I agree with your comments and the change would be best placed in JP and then applied downwards - but this is Nintendo!

To chime in on what Bruce stated, NOJ has in its history, playing card, toy, arcade and motel (not sure I would suggest the Love element though Bruce!) They are also an incredibly insular and close-nit corporation, that has not changed greatly and has had little truck with the air of management change that impacted other corporations in their sphere.

I based my original comments (all those weeks ago) on why I though NOA would see management change was based partly on my feeling of a poor executive structure in the US offices (and UK) becoming 'fat' and lazy - but also the blocking internally towards embracing online and DLC as the core corporation makes a lovely profit from localization. For a window into this unsavory aspect of the corporation look up the history of Rare and the Stampers under Nintendo tutorship.

But you are right Daniel - the top executives are 'frogs on the log' and will not get kicked off, the underlings (who have their own responsibility to the problems) will be kicked!

Edited 1 times. Last edit by kevin williams on 2nd February 2013 12:24am

Posted:A year ago

#17

Steve Peterson West Coast Editor, GamesIndustry.biz

111 73 0.7
Thanks for all the great comments. I really do hope Nintendo does better; I'd like to see more great games from them., and great games for their hardware. I am afraid that Nintendo's not on a course for that, and that they need to make some changes. When you miss your sales estimates quarter after quarter, and major titles keep slipping, and the market is getting more competitive, it's seems like it's time to wonder if you shouldn't have a different strategy. "Stay the course" is fine when it's working, but it's obviously not -- by Nintendo's own metrics.

Posted:A year ago

#18

Preet Basson Studying Mathematics with Statistics, University of Portsmouth

92 13 0.1
For someone that has never owned any nintendo products, I think people like to go over the top. Nintendo missed estimates by about 1 to 3 mill, but someone like sony who has missed estimates by 5+mils that says something. Nintendo has been the only and oldest player in gaming industry with Wii & 3DS doing well in there respected markets and people think Nintendo is being threated. I think people need to wake up smell the coffee. Economic climate may affect gaming in general, but nintendo still knows how to sell.

Posted:A year ago

#19

C. Bruner

4 3 0.8
Okay, the author makes some points that just drive me crazy, as a CFO:

1) Calculations that don't support the result

"... net income projected is only $154 million on total sales of $7.368 billion, which works out to about a two percent profit. Nintendo would be better off investing its money; that's a terrible rate of return"

While the conclusion might be correct, it isn't based on anything logical. You don't use "sales" to calculate return. You generally use equity.

2) Charts that don't mean anything

Lovely charts on sales and net income. What hasn't been factored in, is a continually APPRECIATING yen, over that same period. What are those numbers if Yen remained at the 2008 levels?

3) Incomparable Comparisons

"It's especially embarrassing when you look at the profits Japanese companies like Gree and DeNA are posting, which are hovering around the 45 percent level on sales of over $2 billion apiece"

Actually, it isn't embarrassing. You are comparing pure software companies with high margin, against a company selling lower margin hardware. Break out software against software, if you want to compare. Companies that have hit games do REALLY well ... but hit games don't always drop on your plate and you have to play the averages.

The author may accidentally be right, but his conclusions aren't driven by the analysis. The other thing I'd like to point out is that while Nintendo is sitting on $10Billion in cash from past successes, whereas PS3 and MS Entertainment are likely going to be up for sale in the not too distant future. PS4? Xbox 720? Maybe, but Sony is near failure and MS may need to sell their entertainment division. Nintendo meanwhile is well positioned and have a track record of innovation (and not nearly as good marketing).

Edited 1 times. Last edit by C. Bruner on 2nd February 2013 9:28pm

Posted:A year ago

#20

C. Bruner

4 3 0.8
Dan - why do you believe they have released an "ill-conceived and anachronistic product"?

The Wii U handles 1080p, not that games for any of the consoles provide that, and if they did it would increase the cost to software developers. And .... how much additional value is graphic beyond that?

The Wii U chip? You can put a more power hungry chip in but how much additional value is there over the Wii U chip, with its fast GPU and memory?

You can pour money into faster hardware, but does it provide "real value"? Nintendo differentiated themselves with their tablet. Not only can I play when my wife wants the tv, but it offers different types of gameplay.

More important is that Nintendo are selling a "consistent hardware setup" so that every Wii U developer KNOWS there will be a tablet to work with.

As for 3rd party developers - they care about:

1) Consoles available to sell to - Nintendo (as does any PS4 or Xbox720 has to work on this, but Nintendo has a head start at 4MM);
2) Ability to build "cross platform". As per point #1 you want lots of consoles, you want it to port to other consoles. The Nintendo gamepad messes that equation up in the short term as it requires more thought. But .... Xbox 720 or PS4 are going to have a tough time coming to market in that environment .... and see point #3 below.
3) Cost to develop - Costs are dropping on the Nintendo platform, with middleware development that has come out in support

I think Wii U needs work - software updates promised, better TVii (thought that would be great, but sort of meh at moment - although I see potential), and ability to control receivers and other consoles (replacing Logitech controllers would be a business in itself)

It is new .... it needs work ... it is not IMHO ill-conceived or anachronistic. I do agree with you that more game deliver needs to happen .... soon. I think that is underway.

Edited 1 times. Last edit by C. Bruner on 2nd February 2013 9:54pm

Posted:A year ago

#21

Dan Howdle Head of Content, Existent

281 815 2.9
@Kwantz

First, GI.biz has a no anonymity policy, which I have mentioned before, but it seems to be creeping in every so often. That means using your real name. It's a small point, but one which favours users standing by the words they scribe here. Might want to look at that.

In answer to your question: "Why is the Wii U ill-conceived and anachronistic?"

Well, first, bear in mind that all things are relative. A bicycle is relatively fast compared to a pedestrian and a car to a bicycle. There are no absolutes, only how things appear (in this case to the consumer) relative to one another. So, know that I speak of the Wii U just as John Ricciatello does, relative to the rest of next-gen (PS4/Durango), Not alongside the arse end of this one. They are its competiton going forward. Here is what the Wii U falls short on:

1. Power. It's current-gen. Graphics are important, but especially so in relative terms. Some Wii U games may look okay now, but come the announcement of new consoles, mere weeks away now, the Wii U is 2013's Betamax. It cannot compete. Not even close. You may contest that it's Nintendo's gimmick that got it through last time, but you can only invoke the Wii as proof of a different concept. All the success of the Wii proves is that seven years ago was the right time for waving your controller around, it has no bearing on the Wii U. I firmly believe the gamepad is comparatively too difficult to a concept to translate.

2. Connectivity. The Wii U connects to nothing. True next-gen consoles plan to connect to everything: your phone, Skype, social media, internet browsing, your tablet, everything. Wii U is not a living room entertainment hub, it's a games console with almost no games available for it and only two or three of any note on the way. Nintendo has made a console for 2005 both technologically and conceptually and you can argue the strengths of Nintendo first-party titles all day long, but are any of them really superior to the likes of Skyrim? The other consoles have games that are just as good and in vast quantities.

3. Games. You know, contesting that there's every reason for third parties to support it is a discussion for a year ago. It's already abandoned. EA tested the water by bringing FIFA and Mass Effect to the console and they sold next to nothing. Why? Because we've already played those games. What possible desire should gamers harbour for mildly inferior versions of games they played a year ago with second-screen functionality shoehorned awkwardly in?

The big third parties have voted 'no' and are moving on.

4. Even Nintendo can't figure out how to use its own gimmick. You know, it was the moment my 50" living room TV flashed up with the words 'Look at gamepad now!' - right then - that I knew it was all over. Any reasonable person has to ask themselves at that point why they're beng told not to look at their expensive, immersive screen and into a little middling-resolution handset. I work among people who have been in this business for a long, long time. None of us get it. Even our office's most vehement Nintendo evangelist hasn't used his Wii U since before Christmas. Like some smarter folks than myself have stated in a separate article, you have to design a Wii U game to be a Wii U game from the ground up.

5. Lack of storage. You can add your own, but say you're a developer/publisher. Say you need your game open-eneded to make room for DLC. Say the data tells you that only 5% or less of Wii U owners have extensive, self-added storage. Are you going to release a 3gb demo? 2gb worth of DLC as the year goes on? Why bother when most users don't have the space for it? This lack of potential revenue streams is a contributing factor to the fact that EA and others are already abandoning the console. The others being specialised development needs (gamepad) and lack of parity with this year's new consoles. The Wii U is likely incapable of doing Battlefield 4, Dragon Age III.

6. As if the rest of the world does not exist. As Steve says in this article, Nintendo remains willfully ignorant of the internet, of the importance to gamers of online multiplayer communities, of providing the necessary space to download content daily, of how awkward its controller is even to find a practical use for. It seems ignorant of what year this is. Hence anachronistic. At the very least, it is acknowledging that there are major problems in communicating its product to consumers, but it appears to be blaming its marketing instead of looking somewhere closer to home. Wii U's greatest ambition right now is just to be able to do half the things the current generation of consoles already do.

The three questions any new product should ask of itself should be:

What is it?
What does it do?
Why do I need it?

If you need more than a sentence to explain the answers, you have problems with the translatability of your product, ergo problems with your product. Translatability to the consumer is its biggest problem, and one I believe it can never overcome. Added to that, by March, Microny will be demoing games that look like CG movies, and at that point, sadly, the Wii U is full resigned to niche.

I hope the inner circle of gamers keep buying the Wii U and its games, but I see its destination somewhere like SNKs Neo-Geo or the good old PC Engine. A place where a small group of enthusiasts will gather around and keep it burning. But not going to set the world on fire.

Edited 1 times. Last edit by Dan Howdle on 3rd February 2013 8:10am

Posted:A year ago

#22

C. Bruner

4 3 0.8
@Dan

Apologies for the anonymity.

Ok ... so lets go to your points:

1) Power - From what I've seen it didn't look to me that the PS4 or 720 will be great leaps in power beyond. There was what I thought was a good write-up at techradar. There will be a gap, but I'm not sure how significant - the gap in the last generation 1080P was obvious. If by "translate" you mean to explain to consumers .... you may well have a good point. Easier to translate a fundamental shift (waving wand around) than a subtle difference (asynchronous or dual screen gaming)

2) Connectivity - I'll agree on Skype (but MS owns that iP). Other than that, on this point, I think we generally disagree. Internet browsing is BY FAR the best I've seen for ease of use, on any tablet or console, so I'll disagree on that point. Social media - I think that is an open question with the Mii village thing ... which I thought was the dumbest thing I'd ever heard of until I saw it in action. TVii which I thought was going to be big ... is lacking ... but it has potential. Overall I like the experience and if it controlled my other devices (receiver etc), I'd be happy - no reason it couldn't in the future, but .... we'll see. As for your slam about lack of games I don't think it is any different than any launch console in that regard, but has more on the horizon than most. The "other consoles" have lots of games because they are old. I don't know about 720, but I'm hearing that PS4 is dropping backward compatibility. I can't comment on Skyrim (don't know anything about it) but we both know the Wii wasn't a good platform for high quality games.

3) Games - I'd argue that EA didn't test anything by bringing out product already available on other consoles - not many Wii owners (which is why Nintendo should have refreshed much earlier) don't have another platform (and it is enthusiasts who are the majority of initial purchasers). You're right though about EA's expressed preference for PS4 and 720, but part of me wonders how much of that has to do with their "selling" to their own investors - EA is having a tough time.

4) To date our experience is that the Wii U is the "go to" console, and heading more that direction. I don't think it is just "latest new toy" syndrome ... and might have to do with the seven year old ... but ..... you might be right. Lack of new product in Jan/Feb certainly hasn't helped.

5) Yeah - I hadn't considered the storage issue from that perspective and I think lack of insight into the "platform available" hinders development. I don't know the games you are referring to, but you're right, this will impact more than I'd have thought.

6) I think if I did a lot of multi-player gaming (I don't, due both to lack of time, and the "annoyance" factor) but I think in this area you are right and Nintendo has to build audience. They really haven't had the games to do that though, to date. In general the online community experience is FAR better than PS3 - I don't have enough Xbox experience to comment. But multi[player games (COD etc,) are a new area and I've notices some mis-steps regarding sound.

You raise a lot of good points, many of which I agree with, but:

1) I don't believe the hardware differential will make much difference - (not like we'd be going from 480 to 1080P).
2) Wii U provides strong connection to the living room and online social that I don't think PS3 (certainly) or Xbox have
3) There will be significant 3rd party support for Wii U games
4) Sony will (unfortunately) not make it.

I'll be interested to see where we are in a year.

Posted:A year ago

#23

Steve Peterson West Coast Editor, GamesIndustry.biz

111 73 0.7
I'm not convinced that the raw horsepower improvements of new Sony and Microsoft consoles over Nintendo's Wii U will, in and of itself, mean those new consoles are better. What matters are the games; if more horsepower means better games (more engaging, more fun), then those consoles will do better. Nintendo could be bringing out some great games for the Wii U that truly show why its capabilities are important to gamers, and why the Wii U is better than existing or future consoles. I just haven't seen those games yet.

Nintendo is unlikely to get such games from third parties, as their support for the Wii U is weak. So it's up to Nintendo to really show why it's hardware is great for games. The problem I see is Nintendo doesn't seem to be putting forth any extra effort on its software; if anything, the slippages seem to indicate otherwise. And if third parties aren't going to provide enough games, or games that are good enough, then I think Nintendo should spend some of its cash pile to make that happen.

Nintendo is not going away, but they are already far less important to the gaming industry than they used to be, and their influence will continue to diminish unless they change something. That, to me, is sad; I think Nintendo has an incredible heritage of great games and I would love to see that continue.

Posted:A year ago

#24

Robin Clarke Producer, AppyNation Ltd

343 811 2.4
@Dan Howdle - I really hope your mag is a bit less tribalistic than your comments here! ;)

1) Hardware power is less of an issue with each passing year. The Wii's limited specs were compounded by the fact developers had to deal with a non-standard controller and that the platform was marketed to customers who weren't interested in the third party games they were offered (Sonic and Just Dance aside). The Wii U is being pitched to developers as another platform onto which to make/port games using familiar technology. The risk is reduced further by the digital distribution option. Whether Nintendo can convince people that the machine can have a long lifespan is still an issue though.

2) The Wii U connects to the internet, includes a tablet, and has MiiVerse as well as the de facto video streaming junk. Complaining that a games console is just a games console is a bit of a puzzler. And yes, there is an abundance of good games on every platform these days, but Skyrim(!) is hardly a game I would point to as a benchmark of quality.

3) Well, yeah. Lazy ports (FIFA, ME) outperformed commercially by good-fit natively developed titles (ZombiU). It's like EA learned nothing from the Wii.

4) "you have to design a Wii U game to be a Wii U game from the ground up." Assuming for a moment that this is true, it's a headache for publishers but as with the Wii it will allow those willing to invest in using the hardware creatively to reap rewards.

5) A problem that the Xbox 360 was dogged with for its entire life as well. (It was exasperating that MS didn't kill the pointless HDD-less version when they moved to the slim revision.)

6) It supports online play, has community features built in at system level for every game, and has a digital store. I don't know what else you need it to do really - banner ads?

If there's going to be another Xbox and PlayStation, I don't really see why it's so desperately important for some people that Nintendo make a machine identical to them. The fact is that their customers buy their machines for a slate of good first party games with anything else being a bonus. And as these games aren't available anywhere else, they feel that they've gotten their money's worth.

Posted:A year ago

#25

Paul Gheran Scrum Master

123 27 0.2
blah blah blah

Best selling game of all time: Wii Sports with nearly 80 million copies sold.

It takes 5 CoD titles to approach that number.

Posted:A year ago

#26

Laurens Bruins Jaywalker, Jaywalkers Interactive

135 158 1.2
If Call of Duty came packed with every Xbox...

Posted:A year ago

#27

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