Talking Point: Nintendo's 3DS and Wii U Strategies Face Rather Different Challenges

Past-generation trends need not apply

In some respects today's financial results were the least surprising and eye-opening of recent times, and that's mainly to the credit of Nintendo's decision to jump the gun and reveal major reductions in sales and financial projections, blunting the impact from today's Q3 results. Nintendo's previously bold projections, which it maintained for around eight months, would have been blown out of the water, but the company decided to deal with that fallout early. It's made the best of a difficult situation, as the initial frenzy of speculation and debate has peaked before its investor briefing — that name is deceptive, as the translated publication of that briefing serves as a quarterly briefing (intentional or not) to anyone in the world interested in Nintendo's plans.

We can be pretty sure that Nintendo has been busy behind the scenes in terms of the changes in strategy that it'll outline, and we'll learn more very soon. That's not to say that its actions are guaranteed to be fodder for blockbuster headlines, as it's quite possible to pick occasions when Nintendo's played safe as well as points where it's surprised observers. Its plans to promote and boost the Wii U and 3DS could fall into either camp.

Today's announcements haven't been entirely uneventful, however. In a flashback to the summer of 2011, when a revival plan was hatched for the struggling 3DS, Satoru Iwata, Shigeru Miyamoto and members of senior management have taken hefty pay cuts, continuing the recent trend of board members receiving a financial penalty for poor performance. It's unlikely to be said much, but we should note that this is a refreshingly honest approach to missing targets — not many major corporations reduce executive salaries after underperforming, to be blunt.

It wasn't all about disappointing numbers, either. The 3DS and Wii U hardware numbers (11.65 and 2.41 million units respectively) were below Nintendo's goals for the nine months of the financial year to date, but there were some happy software tales to tell. Pokémon X & Y presented the biggest success and a sizeable worldwide impact with 11.61 million sales — it may be a slightly off comparison in real terms, but it's still amazing to think that two games released in October almost matched the 3DS hardware numbers (which aren't that bad, unless you compare to DS) up to 31st December; that's with over six months less time on the market. There were pleasing numbers for some other major releases — with a special NL high-five to Mario & Luigi: Dream Team for hitting two million units, while three Wii U titles passed one million sales. Considering those Wii U titles all arrived in the second half of the year and against the context of less than six million units in the wild at the close of 2013, Super Mario 3D World, The Legend of Zelda: The Wind Waker HD and Wii Party U arguably did a reasonable job scoring "over one million units" each.

The final interesting pre-briefing revelation was that the company is planning to invest a serious amount of money into buying ten million of its own shares; it already owns over 13.7 million shares, yet this increase could potentially mean serious expenditure before 31st March, contributing to those anticipated losses. We won't pretend to be stock market experts, and there's speculation enough around which shares will be the target, but it seems common sense that this is a process to exert a degree of control over the selling market. With the share value back to the levels seen during large parts of 2013 (January saw a wild upswing and equally dramatic drop) it may also be an opportunity to buy low and, assuming the company is backing itself, sell high again in the future. Whatever the case, this share buying policy is set to end before the close of the financial year, so it shows a willingness to absorb a sizeable hit now rather than let it bleed into the next year's results. All part of the company's strategy, if not necessarily hugely exciting for fans.

Moving beyond those summaries, we're going to tackle a slightly different angle when considering these results. What's clear, in black and white, is that this isn't the financial year of the Wii U's big revival — that'll hopefully be something to talk about from April onwards — nor is it the year that the 3DS keeps pace with the DS. As we've argued before, to compare this generation's handheld with the last and simply say "3DS isn't doing well" is extremely narrow-minded, and disregards a sea-change in the respective marketplaces. The fact that the 3DS can consider well over ten million sales in nine months as "disappointing" is testament to the runaway success of the past generation and, arguably, a reflection that Nintendo had significant expectations to ride out the smart device wave a little better. Of course Nintendo should keep doing everything it can to retain higher levels of sales, but considering the fact that just two and a half years ago many were saying the age of portable dedicated games devices was dead, let's maintain some positivity.

Yet still, real-life trends are now clear, and far different from the predictions that Nintendo made in April 2013. And so we've taken a look at an updated Nintendo document that shows hardware sales by region. The results show that Nintendo's future strategies won't be easy to pull together, as its 3DS and Wii U market performances are surprisingly different; the figures make the idea of a future system combining portable and home console (as many Nintendo fan chats seems to speculate) far from a simple "nothing can go wrong" prospect.

Without exhaustively breaking down the sales per year for previous generation systems, there are sales trends between regions that are certainly revealing. The sales figures in question only go back to 1998 but there's a consistent pattern of Western markets, in particular North America, outperforming the sales in Japan. This applies in most years for the Game Boy Advance, the mid-to-late years of DS, and through the entire lifespans of Nintendo 64, GameCube and Wii. Not a surprise, of course, as North America is the biggest video game market in the world and, when you add Europe and PAL regions into the mix, the Japanese market (as an individual country, after all) can't keep up.

That is, until this generation. The tales of the 3DS and Wii U respectively show markedly different performances per region, and therefore leave Nintendo with a handheld now delivering expected results in Japan, and a home console far more even between territories than the company would like. Let's bear in mind that Nintendo has said that, from April 1st to 31st December 2013, 31.9% of total sales in Japan. This is accentuated by the fact the the 3DS is selling more in Japan than North America on a consistent basis, a trend last seen in the two years of the DS 'Phat', before the DS Lite conquered the markets in the West.

3DS sales by region

2011 financial year:

Japan — 1.06 million
The Americas — 1.32 million
Others — 1.23 million

2012 financial year:

Japan — 4.79 million
The Americas — 4.67 million
Others — 4.06 million

2013 financial year:

Japan — 5.69 million
The Americas — 4.27 million
Others — 4 million

2014 financial year to date (up to 31st December 2013):

Japan — 4.22 million
The Americas — 4.1 million
Others — 3.33 million

Sales to date:

Japan — 15.76 million
The Americas — 14.36 million
Others — 12.62 million

Although these numbers are still in progress, lifetime sales for previous systems have always been higher in The Americas than Japan. But what about Wii U?

Wii U sales by region

2013 financial year:

Japan — 920,000
The Americas — 1.52 million
Others — 1.01 million

2014 financial year to date (up to 31st December 2013):

Japan — 830,000
The Americas — 1.1 million
Others — 480,000

Sales to date:

Japan — 1.75 million
The Americas — 2.61 million
Others — 1.49 million

To start with the Wii U, it's obviously early days and the picture may change. Despite the low numbers the trend continues of North America being Nintendo's best home console market, though the gaps seem lower due to limited figures across the board. The Japanese and 'Other' markets have been relatively close before in the N64 and GameCube eras, swapping places across those two generations. The Wii was an exception, with the PAL territories easily outselling Japan as the little box achieved outstanding results in the West. It's not uncommon, from the N64 era onwards, meanwhile, for The Americas to outsell Japan by anything from three to five times in units — it's been the dominant console market even on underperforming hardware. If anything, Nintendo may be most concerned that, of the sales so far for Wii U, a larger percentage don't belong to The Americas, as the region outsold both Japan and PAL regions combined with the GameCube and N64, propping up modest (by Nintendo standards) sales.

The 3DS, however, has been a trend-buster so far. Every single portable generation to date (Game Boy, Game Boy Advance and DS, accounting for multiple iterations in each) has enjoyed higher lifetime sales in The Americas and Other territories, in individual terms, than in Japan — in other words, Nintendo's homeland has always trailed The Americas and PAL regions for portable hardware. With the 3DS Japan has only been the lowest selling territory in the very first reported period, which covers the initial launch. In every financial year since, Japan has out-sold The Americas and Others individually, which is a success story for Nintendo's homeland but a concern for the company — its sales are becoming increasingly less in the most valuable markets, and it's in the West where the loss of portable gaming customers is perhaps being felt the most.

And so while Nintendo will aim to boost the Wii U everywhere, there are considerations to tackle for the 3DS, too, in order to get back to a stage where the Western markets contribute to the levels they have in past generations. An issue is clear for all to see in this released software data, too. The numbers of first party games releases on each respective system per year show consistency with past generations (typically less than 15 per year per system), but the externally published games are well down on the peaks seen, even during the most recent Wii and DS eras. There are multiple considerations — it's early for the Wii U and these figures don't include download games. Yet still, major retail publisher support for the Wii U is low at this current time, and even accounting for downloads the volume of third-party content on both current systems is undeniably below-par.

Nintendo has plenty of considerations when plotting its strategies — boosting the 3DS and its portable market outside of Japan, and reviving the Wii U across the board. We should be grateful for the 3DS doing so well in Nintendo's homeland, but it also shows that decisions on future hardware aren't simple. If portable hardware is the big attraction in Japan compared to Nintendo's home consoles (as it was with the GBA and DS eras, and seems to be with the 3DS) will the company do anything to disenchant that audience? Likewise if it can't make its home console pick up the slack to the required extent in the West, how is that resolved?

As some of these facts and figures possibly indicate, Nintendo is dealing with some changes in hardware sales trends that have been consistent for a decade and more; as a result its moves in the coming weeks, months and years are likely to be fascinating.

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