Topic: Profit on each console sold?

I was just wondering if Nintendo are going to be making a profit on each console sold this time around. Unlike the 3ds. Or has that changed?
Anyone heard any likely figures?

The Wii U will sell for a profit.

I reckon it will too, would be interesting to estimate thier margins

I heard that the Wii U needed to be $300 to make a profit, $200 to sell super well.

https://www.nintendolife.com/news/2012/04/rumour_wii_u_compone...

If this rumor was true, aren't they making $120 profit per system? _{I don't understand how this works, OlympicCho, please help...}

Until we know the specs, we won't know how much profit is being made off of each system.
I can say that the spec prices alone doesn't show exact profit. There's also shipping costs, and how much of the cut of the sale the store sells it gets, and other minor factors. However, I can say that Nintendo is most certainly making a profit off of each system.

Well that would be part of the equation, you would also have to factor in things like shipping, labor, and advertising,
Although I still imagine that Nintendo is making money oh each console.

The staff and facilities which design all this hardware costs bajillions of dollars to maintain. To calculate the profit based on component cost is ridiculous.

The cost of components wouldn't include the cost of assembly, warehousing and logistics. Technically it wouldn't include the cost of R & D and marketing, though I suspect that Nintendo wouldn't include those in its own calculations.

Nintendo has said that it believes it should be making money on hardware, so I suspect there's some profit in there.

Until the company goes bankrupt??

Loss leading doesn't send companies bankrupt.

Though assuming the $300 price point does yield a slight margin, the $200 price point would be excessive.

Also worth noting that component prices drop quickly and that Nintendo also makes money on software sales. They could, for example, lose a bit of money on early adopters in order to get units out the door and spread the word about how awesome the tech is. These early adopters will almost surely buy at least a few more games over the life of the console so they can make some of their money back that way. A year later the prices of components will drop so they could at that point start to sell everything at a profit. By that stage you've built an audience, gained mainstream appeal, have major titles to push hardware and are making a profit on everything.

.................. but I'd say they're probably making a profit from the start

I would assume that Nintendo is selling the Wii U for a profit, since they always try and sell stuff for a profit. They almost never try and sell their stuff at a lost except in extreme cases like the 3DS. They may be a huge company but they can't take selling at a loss like a huge company would, like Microsoft. There is also this prevailing philosophy at Nintendo that you should always sell something at a profit. If they are selling it at a lost first, which I highly doubt, it's a very small one.

Loss leading can work, regardless of your company's side. Why just the other day my local convenience shop ran a loss leading exercise, selling cans of Coke for less than what they would have bought them from.

People don't seem to understand that loss leading is not "selling things at a loss." It's "selling one product at a loss because complementary products return higher margins." For Nintendo, the real money is in licensing and its own software. It baffles me that Nintendo cares so much about selling hardware for a couple of points margin, when selling ten times as much hardware for a couple of points loss would still be more profitable for Nintendo as a company.

The more consoles Nintendo sells at a deeply discounted price, the more ground has to be made up in sales of software and accessories.
To sell at significant loss might imply:
A) lack of confidence in the appeal of the product
B) the console is in fact inferior, consumer perception that a cheaper product won't offer a superior experience to other alternatives

And would require Nintendo to assume significant risk:
First scenario) The system meets with lukewarm reception, with the price already reduced Nintendo will be low on options to push sales
Second scenario) A very high volume of sales, which aren't immediately supported by the expected surge in software purchases. Buyers stick with Nintendo Land and another game or two, while Nintendo eats a loss until software sales rebound.

Remember that the 3DS pricing fiasco led to Nintendo's first operating loss as a company

The more consoles Nintendo sells at a deeply discounted price, the more ground has to be made up in sales of software and accessories.
To sell at significant loss might imply:
A) lack of confidence in the appeal of the product
B) the console is in fact inferior, consumer perception that a cheaper product won't offer a superior experience to other alternatives

That's not how it works at all. The best example of loss-leading is the printing industry, where everyone loss leads on hardware. There's a reason they do this - because the correct assumption is that people who buy printers will replace the ink on multiple occasions over the life of the printer, and the commodity (ink) is sold at high margin.

But if there aren't printers in offices and at home, there can't be ink sales, so the only solution is to sell the printers at a loss to ensure as many of them are sold as possible.

The games industry works in much the same way. For every console sold there are XXXX games sold - that number is growing as people buy more and more lower priced games. Over the course of the console's hardware life, the sales and licensing fees to third parties of the games will more than make up for the initial small loss per unit sold.

First scenario) The system meets with lukewarm reception, with the price already reduced Nintendo will be low on options to push sales

No business survives for 100 years assuming lukewarm reception. You don't make a product expecting a lukewarm reception. Nintendo is not expecting a lukewarm reception for the Wii U, and nor is it preparing for one. No business survives for 100 years by preparing for failed products. If necessary you make failing products succeed. Business is not for people lacking in confidence, nor the faint of heart.

Second scenario) A very high volume of sales, which aren't immediately supported by the expected surge in software purchases. Buyers stick with Nintendo Land and another game or two, while Nintendo eats a loss until software sales rebound.

Most companies expect initial losses because the early adopters are not a lucrative market. But every product has to go through the early adopter period.

2-3 games sold per person with the Wii U launch would more than justify an initial period of loss-leading.

Remember that the 3DS pricing fiasco led to Nintendo's first operating loss as a company

... Nintendo was turning a profit on the 3DS sales initially. When it slashed prices to the point where it was loss leading, that's when things started to turn around.

So, thanks for supporting my point?

I'm looking for discussion, not a who's right/wrong kind of routine. A school boy can speak with glittering generalities and text book cases which are not equatable across differing industries.

You danced around my point about the 3DS: the loss of profit due to slashing 3DS prices led to an operating loss. That is not disputable, and it's an example of loss leading "leading" a company to reduced profits. It's repetitious to say but loss leading is a losing strategy in some short term period, and the 3DS example was an extraordinary event for Nintendo. Perhaps you would argue that it was a positive step towards a new business strategy, but investors will not be so understanding when they see a stalwart earner like Nintendo stumble.

waltz: thanks for these posts. i do not pretend to understand the ins and outs of corporate business. hell, i'm an artist who hates the selling end of my own work. much of what you say makes sense, it just takes a different way of looking at things.

I'm looking for discussion, not a who's right/wrong kind of routine. A school boy can speak with glittering generalities and text book cases which are not equatable across differing industries.

If you were looking for a discussion, then you would be open to the facts that might change your opinion, no?

You danced around my point about the 3DS: the loss of profit due to slashing 3DS prices led to an operating loss. That is not disputable, and it's an example of loss leading "leading" a company to reduced profits.

The difference is that you seem to think that a temporary loss is a bad thing or in some way a problem. Of course loss leading incurs a loss. That's why it's called loss leading. But the 3DS is just one product in one product line. Nintendo has three major product lines - hardware, software and licensing. Incuring a loss in one hardware product to bolster the overall revenue from the other two product lines is a sound business strategy, and since companies set long term goals, a quarter or two of loss for an overall improvement in profitability is a positive, not a negative.

Perhaps you would argue that it was a positive step towards a new business strategy, but investors will not be so understanding when they see a stalwart earner like Nintendo stumble.

Investors are easily spooked in the current investment environment, and people who invest in Japanese companies are always on the look out for the sign that the inevitable crash of the entire Japanese market has started.

That has nothing to do with the 3DS, let alone whether loss leading is a good idea or not.

Also Nintendo do more than just sell 3DS consoles. From what I had read the loss Nintendo made recently was not just because of the 3DS not doing as brilliantly as they thought at the higher price but also because of declining software sales for the Wii combined with a weak US dollar. Ontop of that a company like Nintendo doesn't stop spending money on R&D purely because their current console didn't do so great and you can't exactly halt console manufacture in anticipation of weaker than expected sales. Costs didn't drop and profits dropped, that's how the loss happened.... and mostly for reasons other than the 3DS.