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Nintendo should "get out of the Wii U business" - Pachter

Nintendo should "get out of the Wii U business" - Pachter

Fri 17 Jan 2014 7:29pm GMT / 2:29pm EST / 11:29am PST
BusinessHardwarePublishing

The Wedbush analyst sees Nintendo ditching the Wii U and pulling a Sega, but only for a limited time before it launches new hardware

When a company is in trouble, everyone in the industry seemingly comes out of the woodwork to offer up advice. Unsurprisingly, following the bad fiscal report from Nintendo today and the word from CEO Satoru Iwata that the company is examining a new business structure, Wedbush analyst Michael Pachter has chimed in, commenting in his latest note to investors that it's time for Nintendo to abandon the Wii U.

"It is clear to us that the old Nintendo model of proprietary hardware supported by compelling proprietary software is broken," he said. "Nintendo's proprietary software continues to be first rate, but its console hardware is not competitive; the Wii U is under-powered relative to next generation offerings from Sony and Microsoft, and is not competitively priced (priced similar to current generation offerings from the competition). We don't think Nintendo should exit the console hardware business, but think it should consider getting out of the Wii U business, and consider going back to the drawing board on consoles. Nintendo has a console in the marketplace that isn't working, and if it continues to tilt at windmills, its software sales will suffer."

So what's the solution for Nintendo? In Pachter's opinion, the company must swallow its pride and start publishing its first-rate software on competing platforms. Then, once Nintendo is ready to bring a more competitive console to the market, it can withdraw its support from the other systems and focus on its own platform again.

"Under its current business model, if Nintendo discontinued the Wii U, it would sell no console software. We believe that it should reconsider its 'all proprietary, all the time' model, and should consider making its proprietary console software available on other platforms until it is able to release a new console. Once Nintendo has a new console on the market, we think it would make sense for the company to pull all of its software from the PS4 and Xbox One, and go back to being a proprietary software maker. In the meantime, we believe that the company has a problem that it is not acknowledging or addressing," he stated.

Additionally, Pachter believes it's high time that Nintendo give in to the world of smartphones, but only with legacy software: "The company's handheld woes are far more complicated. The handheld business is not failing, but Nintendo handhelds have lost share to mobile and tablet games, and the company will have trouble getting that back. We believe that Nintendo would benefit immensely from embracing mobile and tablet, placing GBA games on those platforms for paid download ($4.99 - 9.99) and developing a broader audience, then releasing current games on the 3DS and exploiting its larger customer base by convincing them to buy a 3DS and a more expensive game. That's hard to pull off, but we believe that Nintendo has the IP to do so."

"We don't believe that Nintendo's troubles are indicative of anything other than that it has an uncompetitive console in the marketplace and mobile is cannibalizing dedicated handheld sales. If Nintendo management addresses these problems, we think that the company has sufficiently strong IP to reverse course and become profitable," he concluded.

29 Comments

Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.

2,270 2,439 1.1
Popular Comment
Is he mad?

Does he realize what it would take to completely halt Wii U production and software development, shift all resources to other consoles, learn those new systems and their workflows, and then shift everything back to a new Nintendo console a year or two later?

Posted:9 months ago

#1

Daniel Hughes Studying PhD Literary Modernism, Bangor University

436 496 1.1
Popular Comment
@ Jim

Of course not. Never mind the increase in budget and team size, which would be detrimental to Nintendo's profit margins, 3DS business and their transition to the hypothetical next machine Pachter advocates they release. Pachter is interested in advocating short term measures that sound pleasing to investors looking to make a short term buck. Nintendo's management are concerned with retaining their stability, independence as a platform holder and control of the means of distribution for their intellectual property.

Pachter's suggestions are not compatible with Nintendo's long-term aims. Virtual Console on smartphones is one less reason to buy a 3DS, and Nintendo having prematurely abandoned a home console to support devices from other manufacturers, is a huge reason not to invest in Nintendo hardware in future. It's a clear reason for publishers and consumers to steer clear--why should they invest in another Nintendo console, if Nintendo were willing to ditch their last home console 12 months after launch, and before they'd launched major properties like Mario Kart, Smash Brothers and an original Legend of Zelda?

Wii U is never going to be a market leader. Barring some miracle, it won't even be particularly competitive. But if Nintendo can convince just enough consumers to buy enough software, continue their digital drive, increase profit margins on 3DS, and lay the ground work for a networked platform through investing in cloud and network infrastructure, and properly unifying accounts and improving digital services, then they lay the ground work for a shot at a more successful Nintendo platform in the future.

Nintendo don't need to temporarily step away from their own platform in order to become competitive in the future. They need to make their current offerings the best and most profitable they can be in current circumstances, and create a future platform which is the best possible platform for releasing and profiting from their intellectual property. Pachter's advice would speed them along the road to bankruptcy or third party publishing.

Posted:9 months ago

#2

Alexis Matar Programmer

10 44 4.4
So what's the solution for Nintendo? In Pachter's opinion, the company must swallow its pride and start publishing its first-rate software on competing platforms. Then, once Nintendo is ready to bring a more competitive console to the market, it can withdraw its support from the other systems and focus on its own platform again.
I am not business analyst, but this statement confused me. Does anyone thinks it is completely flawed. If consumers (non-Nintendo loyalists) are not buying a Nintendo hardware to play Nintendo software, what makes you think those consumers will buy the hardware after Nintendo does what Patcher suggested?

Posted:9 months ago

#3

Klaus Preisinger Freelance Writing

1,132 1,164 1.0
Popular Comment
He probably realizes, like any sane person, that the only thing to achieve his proposal is a triple back hand wave of the tooth faerie's magical staff wearing a helmet made from cottage cheese.

The tragedy being that he is the one person on the planet thinking the cottage cheese was the real problem in all of this.

Posted:9 months ago

#4

Matthew Hardy Studying Multimedia/Game Design, ITT Technical Institute

42 105 2.5
We won't see a new Nintendo console until at least Christmas of 2015 or spring 2016. We'll just have to learn to love the WiiU until then.

Posted:9 months ago

#5

Ruben Monteiro Engineer

79 194 2.5
We'll just have to learn to love the WiiU until then.
Or not.

Posted:9 months ago

#6

James Brightman Editor in Chief, GamesIndustry.biz

242 367 1.5
Wii U will have plenty to love. It may not help the console sell like Nintendo wanted, but the software will be there from Nintendo. I'm sure whatever the next Zelda is on Wii U will be pretty epic. And I'm personally very excited by Mario Kart 8.

Posted:9 months ago

#7
Popular Comment
Yet another "Patcher on Nintendo" clickbait article. It's high time I learn how to filter his name in RSS reader.

Edited 1 times. Last edit by Lucija Pilic on 17th January 2014 10:48pm

Posted:9 months ago

#8

Axel Cushing Writer / Blogger

104 130 1.3
@Jim

No, he isn't mad. He's Pachter, which is to say "mind-blowingly stupid on anything that he talks about." I don't know what's more disappointing: that he keeps opening his mouth and vomiting forth "analyses" that don't bear even a passing resemblance to reality, or that Wedbush hasn't fired him yet. The man believes himself to be a great prognosticator and sage observer of the video game industry. I make two observers like him every day, three if the chili dogs from the night before were extra spicy.

Posted:9 months ago

#9

Rick Lopez Illustrator, Graphic Designer

1,269 942 0.7
Fire Emblem x Shin Megami Tensei for me. Thats my killer app right there. My thoughts are, Nintendo wont lead this generation but they will struggle until the really great games come out. And they havent even announced all of them. And now that Nintendo knows what SONY and MICROSOFT are up to they can strategize.

As long as they make a profit, which Im assuming they are I dont see it as a big deal. They may not be market leaders, nore would they sell all that much. As long as they keep supply proportionate to demand and dont have a massive amount of units sitting in store shelves or in wharehouses as with the Udraw, everything will be fine.

They are walking on a tight rope now. They just have to struggle for a bit until the WiiU successor, hoping they have learned something from the current generation and not make the same mistake again.

But finally I dont thing they are at the point of doing a "sega". Not by a long shot. And Im certain they have a plan. However like I said, they are walking on a thin tightrope.

Posted:9 months ago

#10

Paul Jace Merchandiser

936 1,412 1.5
I think Pachter may be half right. It would probably be smart to drop Wii U support if the system fails to make a profit within the next 12 months. But if this happens I don't agree with Pachter on what he suggest next. Instead of Nintendo making games for XBO and PS4 Nintendo should just refocus all of their efforts on the handheld market. And if they want to release two systems so badly they can follow the current model of having the 3DS and 2DS on store shelves concurrently. So the successors(the 4DS and um...3.5DS) can launch simultaneously.

Edited 1 times. Last edit by Paul Jace on 18th January 2014 12:31am

Posted:9 months ago

#11

Greg Wilcox Creator, Destroy All Fanboys!

2,193 1,170 0.5
Patcher and his ilk need to realize this isn't about who the hell is "first" or "best" as both are subject to whimsy beyond his and their crystal ball gazing and doom-saying antics that need a gawdamn laugh track as of late. Let Nintendo be what it's going to be and leave them alone. I'm sure if ANYONE follows Patcher's advice, they're either out of business or only can make a short term profit before fizzing out in the long haul. He's the Jimmy the Greek of tech analysts if you ask me...

Posted:9 months ago

#12

Klaus Preisinger Freelance Writing

1,132 1,164 1.0
Do we really believe MIcrosoft or Sony would grant a developer license to Nintendo so they could make the cash to then produce hardware competing with Sony and Microsoft? How is that even supposed to work on a balance sheet?

Posted:9 months ago

#13

Paul Jace Merchandiser

936 1,412 1.5
@Klaus--I think they'd make an exception for Nintendo games, especially Microsoft. After all, that may be their only shot at selling more than 10 systems in Japan once the console finally launches over there. Although something tells me that even then the Japanese would come up with another excuse to not buy it.

Posted:9 months ago

#14

Yiannis Koumoutzelis Founder & Creative Director, Neriad Games

363 207 0.6
It is about time Nintendo starts seriously thinking of the next move. If it didn't work these holidays, and if it doesn't work till March, they should announce something big at E3 or move on to the next piece of hardware. although at this point i'm not so sure what new they could present. HOWEVER if they pull a tablet out there with nice gpu and a forked Nintendified android version they can make a strong comeback!.

Posted:9 months ago

#15

Jeff Kleist Writer, Marketing, Licensing

355 214 0.6
@Oaul Microsoft isn't selling game consoles in Japan. They're selling a media box which will be different from the US version, with a BDR drive, a larger hard drive and OTA DVR capability that happens to pkay games along with all the ap stuff. Unless they've hired even stupider people to ru. Their Japanese operation. Anything that doesn't meet those specs is doomed to crash and burn in Japan before it even starts.

Pachtner is smoking crack. If aNintendo swallows it's pride enough to publish in the competition, it's permanent. More importantly they'll also have to accept a huge amount of help from Sony (they will want to stay with a Jaoanes company, for face saving ep reasons if nothing else) to even begin to get up to speed on modern hardware

Posted:9 months ago

#16

Daniel Hughes Studying PhD Literary Modernism, Bangor University

436 496 1.1
@ James



@ Paul

Abandoning hardware is the route Sega took--they launch add-ons and new consoles without ever giving them much time on the market, which massively reduced consumer confidence in their brand. By the time they launched DreamCast--which had an excellent range of software--they'd burned through most of their financial assets, burned third party development bridges, and reduced consumer confidence to rubble. Consumers will already be wary of buying new Nintendo hardware: both 3DS and Wii U have received price cuts not long after launch, and both systems endured lengthy software droughts post-launch. Prematurely abandoning Wii U, even to launch a new, "better" machine, gives consumers another solid reason not to bother buying Nintendo hardware. Nintendo have to make their offerings the best they can be in current circumstances, not cut the legs from under them and damage consumer confidence further.

Posted:9 months ago

#17

Jack Pochop Studying Telecommunications, Indiana University

27 16 0.6
That is absolutely ridiculous. The notion that Nintendo would just stop producing Wii U's and "eat" those they have in stock is crazy. Let alone shifting their software to Microsoft and Sony platforms. Nintendo's games would probably sell worse on other consoles than they would on the Wii U.

Gamers hardly know these games exist on the Wii U, let alone on consoles they've never (re: never ever) been on. Besides, it's not natural!

Posted:9 months ago

#18

Greg Wilcox Creator, Destroy All Fanboys!

2,193 1,170 0.5
I'd hope for a MAJOR eShop reworking, dropped prices and bundling of those "classic" games (five bucks a pop is too much for what, Ice Climber again? Mario a 27th time?), more promotion of indies (hell, UnEpic dropped this week in an edited for language and other "adult" elements version, but no one knows about it!) and yes, SOME sort of way to play 3DS games on the Wii U. That's a start.

Posted:9 months ago

#19

Robin Clarke Producer, AppyNation Ltd

26 50 1.9
It does make sense to shorten the life of the Wii U and get something else out there. I reckon that Nintendo are shrewd enough to have planned for this eventuality, in the same way that the DS was brought in alongside the GBA in case customers didn't go for it.

But then Pachter wanders off to la-la land, as usual. What retailer would touch another Nintendo home console if they started porting their games to competitor's systems? What happens to the customers who have bought digital games that are then deleted on other platforms? Never mind that it would take months and hundreds of millions of dollars to restaff, retrain and reconfigure their studio organisation to support a different model, then change it all back again.

Nobody is going to pay $4.99 for GBA games with virtual stick controls. And where exactly is the upside for Nintendo in offering this when they are having no trouble earning many times this out of every kid who buys a 2DS and Pokemon? I really hope Pachter gets a chance to play a video game one day.

Posted:9 months ago

#20

Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.

2,270 2,439 1.1
Popular Comment
I think Pachter should go 3rd party and provide financial advisement for other investment firms until he can come up with better video game financial advice.

Posted:9 months ago

#21

Nick Wofford Hobbyist

180 190 1.1
The mobile idea is a great one. I'm not going to buy a system for remakes. Period. I won't buy a Vita for PS1 titles, and I won't buy a 3DS for old GBA games. But sell me Pokemon R/B/Y on my phone, without bad emulation? Yeah, I'll do that, and it'll make me want the new ones even more. Do the same thing for other older titles that might see sequels on the new hardware. Retro titles don't sell people on systems. They may sweeten the deal, but old games aren't worth $200.

As for home consoles, the Wii U is dead. Nintendo isn't going to make a profit for this year, and that's with the 3DS selling well. The Wii U has virtually no good PR and people have pretty much tuned it out. This image that's been circulating recently sums it up pretty well: http://imgur.com/xmCoOBy

If Nintendo continues in the current strategy, they'll never be able to salvage their reputation. In my personal case, I won't touch a Nintendo console until it's got at least 25 games on it that I must play. That number goes up the worse they handle this.

Posted:9 months ago

#22

Paul Jace Merchandiser

936 1,412 1.5
@Jeff Kleist--It really doesn't matter what form the XBO takes over there. As long as it carries the US-branded Microsoft stamp the Japanese won't buy it.

@Daniel Hughes--I don't think they should drop it at this very moment but if sales stay the same for the next 12 months then continuing to support it will make their financial losses even greater. I suppose they have enough money to ride it out for another three years but I don't see the point if things don't improve after the next price drop, which may be in a few months. And they still have their handhelds to permanently fall back on so dropping the Wii U wouldn't be as big of a blow to them as all of the stuff Sega launched then dropped so quickly.

Posted:9 months ago

#23

Adam Campbell Associate Producer, Miniclip Ltd

1,179 967 0.8
What a surprising statement.

Posted:9 months ago

#24

Klaus Preisinger Freelance Writing

1,132 1,164 1.0
Excuse my rant, but may we remind ourselves of the lunacy which was 2005-2014?

For an entire generation of consoles, Nintendo was the golden goose for figuring out how to actually sell a product which focused on wanking about your remote control and guilt tripping you into playing mind-numbingly dumb minigames for having made the fatal mistake to step on a scale. The industry admired Nintendo for getting the idea into the heads of your elderly relatives that their brain trainer software actually helped against the onset of technological dementia, while we thought of Nintendo's record revenues as the result of our love for Twilight Princess and Mario Galaxy. When the movie Zero Dark Thirty came out, we fully expected the true story behind Osama Bin Laden having been found was the story of a helicopter pilot crashing into his garden from the shock of having just street passed America's most wanted.

Meanwhile in the real world, Microsoft released a self-destructing toaster oven of a consoles and Sony pictured their garden grill looked best in your shelf, if there was no software distracting from it. When you finally thought they had come to their senses, you were prompted to get excited about waving a glowstick or spasming out in your living room. Dammit, where is the shotgun in the Rock Band: Nirvana - Band Edition when you really need it?

Few years later, we find ourselves surprised and shocked, when people on this site point out that instead of being part in this madness, teenagers these days seemed to have taken a liking to bashfully touching the screen of their smartphone silently in the corner, while taking a selfie here and there, on devices with screens so curved they could stand in as protective cups; which they probably do. Here I am, having thought of curved CRTs as inferior all these years, when all I did was using them wrong. On the PC side, we have Riot running a studio of 1000 people in 11 locations with more resemblance to a TV production company than traditional game studio. Just when you thought remakes of Transformers and G.I. Joe were ruining your childish perception on the action figures of your youth, Bobby Kotick was there to double dip you in the dirt with Skylanders. Somewhere along the road, somebody even figured that if you drain the fun out of games, you can make even more money off them, because you can claim they were free. Which sounded great until some poor developer on this forum ran the successful test, proving that a f2p game can be too smart to attract customers dumb enough to get suckered into its business scheme. He is by far not the only person finding out that a high quality game can still have enormous troubles breaking even these days, regardless of its business model. Except if you are Chris Roberts, in which case you make more money from preorders of your game allegedly belonging to a dead genre, than other companies make off games belonging to healthy and trendy genres. At least that fact helps you sleep at night, instead of pondering the wisdom of you PR department to focus advertisement efforts on two companies, which to this date have no coherent plan of how to create a functioning revenue stream, although being valued at billions of Dollars.

So why are we advising Nintendo to get out of the Wii market again? Was it the sane advice? Was it because to our surprise a console consisting of a bunch of remakes and updates is not selling all that well and we can't stand that? Was it because nobody wants to watch a 3D movie on a 4 inch screen after all? Granted, these consoles have some of the finest games you'll ever play, but compared to the madness creating the sales before, it sounds rather nimble and restrained. I am not sure what we expect Nintendo to become. Zynga by releasing the hate-crime version of Animal Crossing? Sony by going balls out hedging an entire company on the well being of one division and releasing a mobile phone you can literally take a piss on? Microsoft by financing a venture into gaming through excess revenue from the business software sector? Something on Kickstarter maybe?

What is the difference now? Obviously hardware prowess and core games had nothing to do with the past success of Nintendo during the Wii and DS days. From a gamer's perspective, Nintendo was making money off fools and every day those fools continued to get out of bed and into electronic stores. Back then we lamented the lack of Nintendo's investment into their core franchises and now that they do we get the proof that this is not as financially viable as we desperately wanted it to be. So why abandon the Wii U again? Nintendo does not need the fourth third party software powered high end Steam Machine. A couple of million software sales on other platforms will do them as much good as it did Sega. Judging based on the past 10 years, Nintendo needs the next big thing to sell to fools, while gamers shake their heads.

What has sanity ever done for you?

Posted:9 months ago

#25

Neil Young Programmer, Rebellion Developments

302 383 1.3
Dropping wiiu support would be worst thing nintendo could do - the one thing you can rely on with a nintendo console is good 1st party titles. Dropping wiiu support now would end that guarantee, therefore damaging future consoles.

Posted:9 months ago

#26

Renaud Charpentier Lead Designer, The Creative Assembly

66 144 2.2
The Pachter problem is that people with enough background and knowledges to be great analyst in our field have more interesting things to do in life than that... they run studios or run game companies or they craft games... they create tomorrow instead of "predicting" it.

Posted:9 months ago

#27
A Pachter and a Booth Babe article. Slow news day?

Posted:9 months ago

#28

Andrew Ihegbu Studying Bsc Commercial Music, University of Westminster

461 166 0.4
@John Owens. My thoughts exactly.

@Klaus, great summary. I totally agree and it was a joy to read. So many people argue 'what is a core gamer'. It's really simple,a core gamer loves games, period. If CoD, Battlefield, Halo and all the other AAA Shooters disappears tomorrow, a core FPS gamer will go hunting for an indie gem or some such game because he loves his FPS too much for that to stop him. It's summed up really simply actually, strong loyalty to the game mechanics, not the game itself. I don't even thing the Wii had a core audience, because there as very little loyalty and a lot of businesses make the mistake of not realising that even if a product sells great now, your decision to make it may destroy the chances of the 2.0 selling at all.

Nintendo would probably be best off doing what I said they should have done with the Wii. Release another console alongside it, a beefier one that can still play WiiU games but does not force the use of the tablet.

Posted:9 months ago

#29

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