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Is Nintendo Switch in trouble?

After a slight E3 showcase, investors and analysts are concerned over Switch sales. But are they right?

Nintendo's share price falling after it shows something significant is not unheard of. In fact, it's almost the norm. And after the Smash Bros-focused Nintendo Direct yesterday, the company's share price dipped 6 per cent to its lowest point this year.

That isn't necessarily significant - not yet anyway - but it wasn't just investors who were disappointed. Certain analysts have also expressed concerns, with Niko Partners suggesting doubt on Nintendo's ability to sell-in 20 million consoles and 100 million games during its current financial year.

In order to hit these targets, Nintendo needs to broaden the appeal of Switch, which it hopes to do with the more mainstream Pokémon Let's Go titles, Super Mario Party and Fortnite. Yet critics remain sceptical.

Why are analysts concerned?

"Smash Bros. remains firmly targeted at Nintendo's core fans, and not the more mainstream consumer it needs to attract"

Nintendo focused 25 minutes of its E3 showcase on Super Smash Bros. This game is a big deal - the previous five in the series have sold a combined 40.5 million units and are amongst the best-sellers on all of Nintendo's games consoles (post-N64).

Yet Smash Bros. remains firmly targeted at Nintendo's core fans, and not the more mainstream consumer it needs to attract. An early December release date also limits the pre-Christmas sales window, and means the game won't arrive alongside Switch's new online subscription service in September.

The rest of the showcase did feature more mainstream fare, with the main Nintendo product being Super Mario Party. This game is due in October and generated some decent buzz at E3, but Mario Party has been an inconsistent series for Nintendo over its 20 year history. The pressure is therefore on the new Pokémon games to help increase the console's reach.

Nintendo focused on Smash Bros. at E3, a series that has sold over 40 million games

Nintendo focused on Smash Bros. at E3, a series that has sold over 40 million games

Another concern centres on the Switch's recent performance. After dominating 2017 with numerous blockbusters, this year has been quieter for Nintendo. There has been a strong run of releases (Bayonetta, Kirby, Hyrule Warriors and Donkey Kong amongst them), but they've been primarily targeted at the existing audience. Nintendo's big bet has been Labo - the edutainment property designed to inspire children to create things and mess around with the Switch technology - but despite a strong critical reception the high cost of the product (and the console required to play it) has had a negative impact on its commercial performance.

Finally, despite strong first year sales, third-party support remains lacking. Fortnite aside, E3 was notable for the lack of Switch games from the big publishers, including Nintendo favourites like Ubisoft.

Are analysts right to be concerned?

2

Pokémon targets mass market gamers this Q4

Analysts, investors and the media base predictions on the information presented to them, and based on what was on offer at E3, there is a reason to be cautious.

But there's certainly nothing to panic over. Games don't get much bigger than Smash Bros., Pokémon and Fortnite, and the fact that the first two are out before Christmas - even if it's a bit late in the year - is still likely to result in strong software (and hardware) sales.

In addition, unlike Microsoft and Sony - which tend to use E3 to showcase their line-up for the next 12 to 24 months - Nintendo doesn't rely on E3 to communicate with its audience. If you include the Pokémon reveal, there have been five Switch-related 'announcement events' this year so far. Nintendo is paranoid about its competitors stealing its ideas, so it frequently leaves small gaps between announcement and release. Nintendo Labo, for instance, was announced in January and launched in April.

"There's plenty of time and opportunity to course correct... if, of course, it needs to"

I would be surprised if there were any really significant Switch products to be announced for 2018, but there will likely be a few third-party games and maybe even some Wii U ports still to emerge for a quick release. Last year, Doom was revealed in September and on the market by November, and Nintendo loves an 'available now' surprise in its livestreams. We can reasonably expect the 2018 release schedule to bulk up a little bit before the Q4 sales window begins.

Finally, it's not all about new games. Switch has a strong line-up of software already, with Splatoon 2, Mario Kart 8 Deluxe, Super Mario Odyssey and The Legend of Zelda: Breath of the Wild. These games remain in the charts and continue to receive digital updates.

Unlike with Wii U, where the games took too long to arrive, Nintendo has many of the tools it needs to sell consoles already. If necessary, it could pull together some attractive game bundles - or even drop the price of the hardware - to stimulate extra interest. A Switch with a free copy of Mario Odyssey or Splatoon 2 would likely perform very strongly during the summer months.

But there's no need to do anything yet. It's still very early in the financial year, and in a quarter not known for strong game sales. Nintendo has been marketing its products heavily during May, and can evaluate its position better once Mario Tennis Aces and the new expansions for Splatoon 2 and Mario + Rabbids hit the market later this month.

In other words, analysts and investors are understandably wary after Nintendo's E3 performance. But there's plenty of time and opportunity to course correct... if, of course, it needs to.

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Latest comments (11)

Alex Barnfield Lead Engineer, 17-BIT4 months ago
The one that stands out to me is Yoshi.
From the developer which developed the incredibly similar Yoshi's Wolly World on the WiiU - very similar hardware to the switch, now using Unreal. An odd occasion to switch engine. Here in Japan third party engines only seem to have entered developers awareness relatively recently and often seem to be mistaken for a silver bullet to easy development in less time.

Another issue from where I was sitting included overestimating the ability for indies to fill a schedule and highlighting ports on a lower spec system which would make them less than the ideal way to play the game. Finally we're still lacking many big titles that you couldn't argue were similar enough to a preceding WiiU title to be called a port.

Course correcting just means more software which doesn't feel familiar.

Edited 2 times. Last edit by Alex Barnfield on 17th June 2018 8:57am

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Christopher Dring Publisher, GamesIndustry.biz4 months ago
@Alex Barnfield: E3 is about fan favourites and core games, to be fair. Nintendo and its associates has been pushing for new ideas and original concepts this year - the new Pokemon games for one, and of course Labo. Focusing on Smash Bros at E3 feels more like understanding its audience as opposed to evidence of a wider business strategy.

Yoshi isn't exactly a major release.
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Alex Barnfield Lead Engineer, 17-BIT4 months ago
Maybe I'm biased as its one of the few Nintendo franchises I've never been fond of but resting the whole show on another title which yet again feels very similar to a WiiU release was quite disappointing.

I was actually thinking that the absence of Yoshi is of more note to investors (which prompted this article). "Nintendoʼs software developers have mastered state-of-the-art technologies such as Unreal engine, and their skills can now be compared with those of Western developers. Our developers are more excited than ever to create software.". It indicates a possible change in development methodology and if I were investing I'd be watching for signs of how that's panning out.
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Show all comments (11)
Christopher Dring Publisher, GamesIndustry.biz4 months ago
I am with you on this Alex. I'm not a huge Smash Bros fan myself, although I've always tried to get into it. The thing with Nintendo fans, including myself, is that we all have different favourites. If Nintendo had announced Wind Waker HD was coming to Switch as a port, I'd have proclaimed the show a huge success, but others would have bemoaned the reliance on Wii U ports.

Smash Bros, however, is a significant release. Considering what Smash Bros is... it's not fair to suggest it's just the Wii U game again... but also, because of its nature, it's never really a true sequel like a Zelda or a Mario either. This is a new beat 'em up from Nintendo. One that sold 10m copies on 3DS, and sold to more than a third of all Wii U owners.

But Nintendo's challenge is interesting, because it's not really about the fans. They've brought out so many big fan favourites, and every month there's something fans would enjoy - whether it's a class Wii U port like Donkey Kong Country Tropical Freeze, or a new game like Mario Tennis Aces. It's in widening that fanbase, and in that regard the key titles to watch are Labo and Pokemon Let's Go.

The Unreal Engine element is interesting, too. It's hard to say what's caused the game's delay, though. It could be the game is in trouble. It could be that it's actually finished and Nintendo thinks it is best launching after Christmas.
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Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.4 months ago
While the focus Nintendo chose for E3 was itself disappointing, using it as a prognostication of potential trouble for Switch is a bit misguided.

Gamers are bemoaning the lack of showing software already known. Not the general lack of software itself. Had E3 happened as it did but without any prior indications of Metroid Prime 4, Animal Crossing, Pokemon RPG, Bayonetta 3, Pikmin 4, Yoshi Switch, etc...then we would have reason to ponder trouble.
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Christopher Dring Publisher, GamesIndustry.biz4 months ago
@Jim Webb: Yes, but it's not fans moaning that has caused the analyst and investors to worry. It's about content designed to appeal beyond the fans
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Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.4 months ago
Haven't we learned by now that analysts and investors are incredibly out of touch with Nintendo (and the industry in general)?

Nintendo's stock rose 4.3% in one day at the end of May on the announcement of two Pokemon games and then it dropped dropped over 5% in one day just prior to E3 because they announced the cancellation of their long since dormant QoL project with Panasonic.
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Bob Johnson Studying graphics design, Northern Arizona University4 months ago
I can see the non-excitement. Their mobile stuff hasn't taken off much. Labo was interesting but doesn't seemed to have gone anywhere. There is no big new release like a Zelda this year. I mean Smash Bros is fine, but they went thru so much effort to say it's not a port that it's probably not far from a port. :)

The Pokemon game has some asterisks attached to it this year.

I also feel like all the old ports to the Switch from western parties are probably half-hearted especially at $60.

And then personally we have a Wii U. And it's the same thing as the Switch when at home. And so all the Nintendo Wii U ports are of very little interest.
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Bob Johnson Studying graphics design, Northern Arizona University4 months ago
On the other hand, the stock has gone through some fairly large swings in the past few years. It seems to reflect more feelings than reality as I don't think internally the company has undergone those same swings. It's just if they don't have new great thing to show then the price goes down a lot because it's the end of the world and then when they show something cool the price goes wildly up because suddenly the sky is limit.

Something like Labo could do turn around and do quite well during Xmas because it's aimed at young kids. And Nintendo may have the Switch price down further by xmas.

Smash Bros although fun with my kids, isn't something I have ever gotten terribly excited about. But it's a big game. And it undoubtedly will sell well.

Pokemon, even though to me it seems like it a special version aimed at the Labo audience, could very do well and be another game that justifies parents buying a Switch for a 6 yr old.

They can always release some DLC for Mario Odyssey too. And still might have another smaller holiday game. A fun Mario Party game never hurts.

Edited 1 times. Last edit by Bob Johnson on 19th June 2018 12:16am

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Richard Browne VP Production, Leyou Technologies4 months ago
Nintendo are in the toy business, it makes what they do very seasonal. They can fuel the current install base with big releases at other times of the year but hardware sales will be largely driven in the build up to Xmas. Labo releasing in April was a bit odd to say the least, again a perfect Xmas present which retail might get a bit wary of with them clogging the shelves for seven months. But is Nintendo in trouble? Hardly, Switch is already a huge success by their recent batting average, if Pokemon can bring over the 3DS crowd (preferably along with a more outdoor travel friendly hardware iteration) it will continue to grow its install base nicely. People expecting it to outstrip the Wii were delusional, that was a one time phenomenon unlikely to ever repeat.

Edited 1 times. Last edit by Richard Browne on 19th June 2018 7:37pm

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Christopher Dring Publisher, GamesIndustry.biz4 months ago
@Richard Browne: Labo's release window was odd. An in-door edutainment product released in the last term of school as the sun comes out.
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