Talking Point: A Big Year for Nintendo

Time for a transition

Today Nintendo announced its annual financial results, and the big headline is that it made a loss of 43 billion Yen, roughly $529m USD or £327m GBP. While we don't need to fear for the future of the company at this stage due to its significant stockpiles of cash and assets, it’s nevertheless a blow for the big N. The loss was smaller than Nintendo predicted in January, but we can’t dance around the fact that any annual loss at those levels is bad news indeed. We knew it was going to happen, but seeing it formally announced brings the reality home.

Today’s announcement wasn’t just about confirming losses, but also outlining the performance of 3DS and Wii, as well as setting out projections and targets for the upcoming Wii U. Let’s take the headline announcements and consider the implications, both now and for the coming year.

Aiming low with Wii U

When Nintendo launched 3DS, it didn’t mess around when it came to sales predictions, with a bold statement — 16m worldwide sales in one year — that has only become realistic, in hindsight, at a much lower price point. It seems with Wii U the opposite is true, as Nintendo is projecting a combined 10.5 million sales for Wii U and Wii in the coming financial year. If we assume that Wii U sales in that equation will be over a period of four to five months – if it arrives in November – then it’s a modest undertaking. It’s certainly a conservative, steady approach from Nintendo.

The reasons for this, from a Wii U perspective, could be varied. On one hand it could be for logistical reasons, as Nintendo will need to manufacture and distribute the consoles for launch, and perhaps it only anticipates a modest number of units being shipped over the launch period. It’s certainly possible, and who can forget that when Wii launched it was notoriously difficult to get hold of as Nintendo dealt with demand. Another reason for that projection could be an acceptance that the economy and game market has changed, and perhaps the days of selling nearly 100 million home consoles are long gone. There’s more competition from non-traditional platforms such as iOS and Android tablets, and on a broader scale the world economy is at a low ebb. The least attractive reason, from our perspective, is that Nintendo will release the Wii U at a reasonably high price to avoid a loss on each unit sold: contrary to rumours and speculation of a $250-300 price range. If Wii U does come in at a high price point, there’s a danger that Wii owners will be turned off from an upgrade. At the moment pricing is, of course, unconfirmed.

If Nintendo does sell a combined 10.5 million Wii U and Wii consoles it will no doubt be pleased to hit its targets. It’s notable, however, that presenting this combined figure – without providing individual numbers for each console — suggests an exceptionally bad year for Wii. Wii still sold 9.84 million consoles last year, with a limited game release schedule and the announcement of Wii U hindering sales. A drop this year is expected, of course, but to predict that Wii and its successor together will only just surpass last year’s total doesn’t show a great deal of confidence in either. It seems to suggest a relatively quiet Wii U launch period and a struggling Wii in 2012.

3DS may finally print money

When it comes to the financial year sales targets for 3DS, it narrowly missed out. Nintendo had updated its goal to 14 million sales, and it’s been confirmed that 13.52m was the final result. As mentioned earlier, even getting close to that target has taken a lot of effort from Nintendo: a major price cut, popular title releases and improved functionality through system updates, to name a few areas. Getting to that stage also led to uncomfortable times for Satoru Iwata and others, with management staff taking severe pay-cuts last year for what was, ultimately, a poor system launch. There’s light at the end of the tunnel, however, with big franchise titles on the way this year and beyond, along with a growing user base.

Most importantly for Nintendo, it’s anticipated that each 3DS unit will become profitable by September this year, as manufacturing processes and part costs improve, meaning the company will no longer lose money on each and every handheld it sells. To get to that stage at the lower retail price point will come as a relief, and projected sales this year of 18.5 million consoles also suggests confidence that the upcoming release schedule, especially New Super Mario Bros. 2, will move plenty of units.

Those are positives, but one area of concern for Nintendo to address is the performance of 3DS outside of Japan. In its homeland, the handheld is outselling all rival consoles combined on a weekly basis, as well as dominating the software charts: elsewhere, that’s not the case. In the most recent quarter 1.19 million systems were sold in Japan, compared to 520,000 in the Americas and 380,000 elsewhere. Although not disastrous, it’s clear that Nintendo’s regional teams have work to do to boost sales around the world, and it’s undoubtedly an area that will be targeted.

Time for Nintendo to hold its nerve

To reiterate an earlier point, this financial loss wasn’t a surprise, with Nintendo preparing the ground for its arrival for a number of months. There aren’t bold statements for the coming year’s results either, with a project profit of 20 billion Yen: not bad, by any means, but lower than the norm for Nintendo’s shareholders. We’re also anticipating more detail on the results in the coming days, as transcripts of Satoru Iwata’s shareholder Q&A sessions are released. It’s clear, though, that after enjoying a period of outstanding success Nintendo is being forced to shift gear and, in a sense, make a fresh start.

The most recent results, and the projections for the year to come, show that Nintendo is truly in a transitional period. The 3DS is developing a user base, moving towards profitability and hoping for a strong year, while Wii U will be the company’s second major launch in as many years. Technology, gamers and the economy have all changed, and Nintendo is being forced to adjust accordingly. At times Satoru Iwata and his team have got it wrong, particularly with the 3DS launch, but a modest set of projections suggest that Nintendo as a whole is learning lessons and preparing for the long-term with its latest consoles.

What do you think? Are you concerned about Nintendo’s losses, or do you believe it’s a one-off? What do you think of the conservative Wii U/Wii projections, and will the 3DS pick up steam this year? Let us know in the comments below.

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