Talking Point: Wii U's Beginnings and Challenges For 2013

Convincing sceptics is one

Recent sales figures and industry conversations have given us a fair old glut of analytical articles focused on Wii U in recent days. For a system that's barely a couple of months old, there's been a temptation in some quarters to either predict doom and a major loss of market share, or to put faith in Nintendo's relatively recent track record — with the Wii and DS era — of defying expectations and selling millions of units. With so many varied opinions on the system, we thought we'd highlight some of the viewpoints of recent days and try to add some context.

Context is important right now for Nintendo. Even raw sales figures have no definitive truth, as they can be twisted and debated in endless ways. With that in mind, we're not planning to make too many predictions of our own in this article — though it's hard to avoid them completely — but to try and reason why there's such conflicting opinion on Wii U's early performance and future prospects.

Sales and revenues

There is a saying in business — or maybe something we heard on a TV show — "revenue is vanity, profit is sanity". With that in mind, we'll be watching with interest at the end of January when Nintendo publishes its latest financial results to cover the Q3 period. While share prices jumped a little over 5% with recent news of U.S. sales, thanks to the flighty knee-jerk nature of the investment industry poor results could see shares fall once again. Nintendo's overall target this financial year is to make a modest — by its standards — profit, and the Q3 results will do much to indicate whether it's still on course to do so, or whether the outlook is more negative. There's little sense that disaster is on the way, especially with the profitable 3DS going on an impressive run, so we don't expect dramatic headlines of crushing losses or soaring profits.

When it comes to Wii U, specifically, Nintendo isn't exactly singing from the rooftops and dancing along the street clicking its heels. It's managing expectations to an extent, with Satoru Iwata referring to "steady" sales earlier this year — we hope this isn't steady in the same sense that Vita sales were supposedly so at its launch, which actually translated as "below expectations". The recent NPD results for U.S. sales of Wii U, which prompted that boost in share prices, were also spun by Nintendo of America with the headline that its revenue surpassed that of Wii in the equivalent period. As we've already said, revenue is vanity, and reportedly low software attach rates suggest that profits for Wii U could be very modest.

Yet let's make an important point about the Wii U sales figures coming out of the United States. If you look at the first week U.S. sales of 400,000 and then the combined total of 890,000 units, some have pointed at higher sales of other systems in that period — particularly Xbox 360 — as some sort of stick with which to beat the early days as a failure. The problem with that logic is that it defies the norm for any recent console generation launches that you care to name. It's important to note that brand new consoles on the market often get out-gunned by their predecessors or older rivals in the early days (as highlighted in this article on IGN). Consoles with significant back catalogues and a cheaper price will inevitably perform well during the Holiday season particularly — look at the strong numbers for the practically abandoned Wii — so time is needed for new systems to actually take over and gain momentum.

If you want to make a fairer comparison, for U.S. sales, then Wii U's first week results of 400,000 sales compare favourably to the launches of Xbox 360 (326,000 in first two weeks) and PS3 (197,000 in the last two weeks of November 2006). There are a lot of variables in there that make that comparison tenuous, but then that's the point. To quote two more examples from Ars Technica, the PlayStation 2 sold more that 500,000 on its first day, yet the SEGA Dreamcast also did just fine with 372,000 units in its first four days — the latter console eventually flopped and ended SEGA's time in the hardware market.

January's financial report should give us an indication of where Wii U is in terms of worldwide sales, which will enable some guess work in terms of whether it'll reach its target of 5.5 million units shipped by the end of March. The numbers we have for the U.S. and Japan so far put sales in those territories at over 1.5 million units, which doesn't include the rest of North America, Europe or other regions. Perhaps the target is tough and much depends, arguably, on Europe's results, but it isn't impossible to reach.

How will Wii U do? Depends on your choice of analyst

With launch figures and details that can be twisted to suit almost any agenda or opinion, it's inevitable that business analysts will arrive at varied conclusions. While it's tempting to look at the contradictory predictions and argue that analysts are pulling ideas out of thin air, it's worth acknowledging that these are often individuals and organisations paid very well to assess trends and industry data that many of us simply can't see or access. That doesn't make them right beyond any doubt, which is obvious as they so rarely agree, but it at least makes their opinions valid and worth respecting. Their interpretation of the industry does, at the very least, highlight how unstable and in-flux it truly is.

Games sell systems, so that'll be a big priority for the latter half of 2013, but perhaps the biggest question will be whether the system is desirable enough at current prices to sell big numbers.

On the one hand we have Baird Equity Research sharing a concern that Wii U will lack broad appeal, and will face a price cut this year; on the flip-side we have International Data Corporation, which expects the system to find an audience and ship 50 million units by the end of 2016. Doug Creutz, analyst at Cowen & Company has weighed in with hard facts for his part, with the potentially troubling news that Wii U software sales “remained well behind launch levels for the original Wii and GameCube in December”.

The poor figures for game sales seem to be fairly well enforced by various statistics, so that's likely to be an area highlighted by Nintendo for improvement at the end of the month. Satoru Iwata has recently spoken to Nikkei and stated, once again as part of a message without much celebration, that it'll take time for consumers to "understand" Wii U. If you'll allow us to indulge in a bit of comparison — which we've admittedly highlighted can be unreliable — a pattern similar to 3DS is emerging.

While Wii U is still in its early days and sales haven't statistically gone off a cliff as they did for 3DS, the handheld also had an issue communicating to the masses what made it new and why it was better than DS. Of course its improvement in fortunes ultimately came from an arrival of must-have software titles — which Wii U needs time to deliver — but also a major price cut. Nintendo will be watching Wii U's sales momentum very closely, and if it stalls the same revival options will be needed. Games sell systems, so that'll be a big priority for the latter half of 2013, but perhaps the biggest question will be whether the system is desirable enough at current prices to sell big numbers. Will Nintendo cut prices, appease early-adopters with some goodies and rely on reducing manufacturing costs — in other words will it be 3DS all over again?

In summary

What we know so far for Wii U is that, in terms of hardware, the figures that we have can be interpreted as representing various levels of success, but they're not disastrous; comparisons to other system's Holiday sales are also, largely, not worthwhile. Software sales are a concern, however, and the worldwide figure at the end of January will reveal much in terms of whether the system can hit its sales targets. Let's not forget that some titles may still arrive in Q1 that could help sales along in time for Nintendo's financial year results, particularly targeting keen gamers not yet drawn in: major releases either expected or confirmed to arrive before 31st March include The Wonderful 101, Monster Hunter 3 Ultimate, Game and Wario, Wii Fit U and LEGO City: Undercover.

With the gaming industry where it is right now, with platforms such as PC and Android planning to muscle into the living room as well as upcoming systems from Microsoft and Sony, it's the long game upon which Nintendo must focus. It'll ultimately need a games library and price that shows much of the Wii generation, and hopefully others, that it's a system worth owning. And that's exactly where predictions become so difficult; with Nintendo revealing very little of what games to expect — first or third-party — in the second half of the year, it's borderline impossible to predict where the system will stand at this time in 2014. Trends and statistics may predict doom or triumph, but it's the unpredictability of what experiences are coming to Wii U that keeps us on edge, while the optimists among us may just allow a bit of excitement as well.

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