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Nintendo's Difficult Path Forward

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Nintendo's Difficult Path Forward

April 30, 2013 Article Start Page 1 of 4 Next

Nintendo's latest annual results, announced last week, were disappointing in many ways. On Thursday its global president Satoru Iwata used his presentation to investors, along with the subsequent question and answer session, to explain his vision of where the company is and where it is going.

In expectation of the results, I had written that Iwata would “likely focus on its upcoming first- and third-party titles for the 3DS and Wii U” and then “attempt to reassure investors that its basic business model is still viable.” That's essentially what happened, although the details matter. I'll get into those below.

My outlook beforehand wasn't rosy: “I don't think their arguments will reassure anyone.” Now that I've had a chance to look at the numbers, read over the president's comments, and think them over a bit, I'm not significantly more optimistic.

I would break down Iwata's comments into three parts:

1. The Nintendo 3DS has a strong slate of software this year, and that should help keep the system's hardware and software sales robust through this fiscal year. Nintendo has raised its hardware estimates for the 3DS to 18 million, up from 14 million in the past couple of years.

2. Iwata has committed the company to increasing support for the Wii U, after what he admits were some stumbles so far. This includes dealing with the system's identity, which he admitted some consumers felt was “just [the original] Wii with a pad for games.” He also explained that the system still doesn't have a title comparable to Wii Sports which could help “people immediately comprehended its product value.” On top of better communication, Nintendo will make up for “lost momentum” by launching key titles for the system starting with Pikmin 3 in July or August of this year, nearly three months from now.

3. Nintendo plans to expand its digital business, and showed some of the clearest digital sales data we've seen from any platform holder. On top of this digital initiative, Iwata discussed some interesting new angles, with Nintendo's Web Framework and the use of the Unity engine to get games to the Wii U quickly.

Hanging over all of this, the company restated its goal to reach operating income of ¥100 billion ($1.02 billion) by the end of the current fiscal year, ending on 31 March 2014. In discussing this in previous sessions with investors, Iwata has used language that suggests he would step down if that goal were not met.

If Nintendo executes well on each of these points, it should post positive results for the current fiscal year. However, I'm doubtful that Nintendo can accomplish all these goals. Let me take them one at a time, and tell you why.

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Bob Johnson
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The NOA CEO was promoted to Japan. Probably to learn the ropes and become the next CEO of NIntendo. They wanted a guy that is more in touch with the western market.

So if Iwata fails to reach his goal that's the guy that will replace him. Either that or he was actually demoted. ;)

Nintendo isn't going to take off into the Wii/DS stratosphere without a big massive gaming hit, but they can still have a nice business.

I'm loaded up on Nintendo stock now. They are fiscally conservative. Have lots of cash in the bank. Have valuable franchises. They make great games. I don't see much downside at this point.

Bob Johnson
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lol. Let's check back next year and the year after although I might not have internet if I am living under a bridge.

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It can go either way, either Iwata become CEO of NOA only, or Reggie becomes CEO of NOA and Iwata goes back to being just Japan. Japan is not suffering as much as America and EU are with numbers, so it not a problem with Iwata's leadership as so much as it is a problem with getting regional CEO to notice that things are not where they need to be.

Bob Johnson
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Nintendo needs to get Minecraft on their system. It seems like a good fit with the Gamepad being the inventory screen. Or looking around your world via the gamepad. Or playing the game off the tv on the Gamepad. And of course the age range playing that game is Nintendo's market. Might be a bit late to the party, but ...

Chris Hendricks
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Ooh... Minecraft on two screens would be great! Example: It's annoying on one screen to have the map take up so much space. On a Wii U, problem solved.

Russell Carroll
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I think the 3DS goal will be incredibly easy for them, and the WiiU goal is impossible.
3DS is going into a perfect storm of software after having had some great titles to start off the year. It may be the best console for games this year and will undoubtedly sell many units this Christmas between Pokemon and Zelda. I think 18 million hardware units is too few, but on the flipside, I think the software units may be too high as people are buying the key titles, but not the AA titles.

WiiU has a serious software problem that is poisoning the well. Pikmin 3, doesn't come close to solving it. E3 will be very key to see this year. Will they have a new Open world Mario and Mario Kart by the end of the year? I think they must! Yet even with that I think the first 8 months of this year will put the WiiU in a terrible hole in the minds of consumers, and it will be hard to get out of that.
(still, I love my system, Panorama View, had a great 'Wow' moment, and the Rayman daily Challenges are wonderful)

Bob Johnson
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Panorama trial was cool. I didn't buy a tour yet though.

Nintendo will come out with one of those Mario titles most likely. That plus Zelda WW HD and Pikmin in August means 3 great games to play in back half. Doesn't sound like a lot to those that buy that many games in a week. But for most that is alot of gaming in 6 months and $180 in games.

And the back catalog by the 2nd half will have Game and WArio plus NSMB plus NintendoLand plus Lego City.

For any family buying during xmas season I don't think lack of software is going to be a problem. They won't be buying all the good games (and/or potential good games) as it is unless you think famiies are buying a console plus 6 $50-$60 games at once.

Eric Pobirs
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A big question so far as Z:WW HD goes is how much of the Wii U base is people who owned a Gamecube in its era. I wouldn't consider buying the new version until it got down to about $20. For the full price one could pick up a used GameCube and the original game (along with a few others of lasting value like Mario Sunshine.

There is a pretty good chance the family that is longtime Nintendo customers still has the Gamecube and the original Z:WW game. The HD remakes are a nice thing to enhance a platform's value (as has been effective on the PS3) but I wouldn't count on them to sustain a company in a revenue pinch.

The big problem isn't how much a shopper looking at buying a Wii U will be offered at Xmas. It's how many of the existing installed base will enter the second-hand market as the owners decide not to sit out the software drought.

Jeferson Soler
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@ Russell Carroll - I personally still believe that Pikmin 3 will be a big title, but Nintendo of America will have to really convince the public of that when the time comes. Until then, the current big title for the Wii U is Capcom's Monster Hunter 3 Ultimate and that game is big enough to keep people busy for quite sometime. Having said all that, the Wii U could still have been sold by a great number, even with the launch line-up that it had. The key problems were more to do with marketing and pricing. In case of pricing, I'm not just talking about the price of the Wii U as there may be people that will be concerned with the price of games just as much as they are concerned with the price of the system. Games of the same caliber as Monster Hunter 3 Ultimate, Assassin's Creed 3 and Pikmin 3 may get a free pass with being sold at around $60, but games of the same caliber as Nintendo Land and New Super Mario Bros. U might be viewed as something that could have being sold at around $50. I'll admit that this is more of my own point-of-view and may not be the same view that's shared by the majority, but with today's economy and some people being cautious with what to buy, I wouldn't be surprised if there are other people that share that similar. Weeks ago, I checked comments in the Batman: Arkham City - Armored Edition on Miiverse and couple of those comments were from people that managed to purchase the game at a low price and that have no regrets getting the game as they really enjoy it. That may only be a small example and may not reflect how the entire public thinks, but what if it did? Even with games, pricing is something that needs to taken into account, especially when it comes to trying to convert Wii owners into Wii U owners (or in my case, trying to make a Wii owner also a Wii U owner as there may be people that don't plan on selling the Wii ever). As for the Wii U itself, it has already being talked about that the marketing was/is a problem; more specifically, marketing in the US was/is the problem. Japan and UK seem to be doing a better job with telling the public that the Wii U is a whole new system among other things, so if NoA doesn't get it together and improve its Wii U commercials (make them more like the early Wii commercials with some heavy narration), then Nintendo itself will have no choice but to use the same strategy that Sega used to get people to buy the Genesis: lower the price of the Wii U and stick Pikmin 3 with the Deluxe Edition (while at it, focus on one SKU only to avoid any further confusion and begin to phase out the Wii). There are other strategies that Nintendo could use, but that would be the key approach that it would have to use if push comes to shove.

Bob Johnson
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Not understanding the logic there.

First the GC had its day 7-12 years ago. Your 8 yr old in 2000 is now 21 and knocking back pints of beer at the dive bar just off campus. Today's families are different families. Second the GC wasn't a big seller. WW is a great game that wasn't played by a ton of people even back then.

It should do well on the Wii U for these reasons. And because Nintendo will make it over and add a few things.

IT is just another attractive title to play. No one was arguing that it is a massive system seller or anything.

Also not seeing the logic behind why "current owners going to the used games market because they don't want to sit out the software drought" is a problem. It seems contradictory for one thing. OH there are no games to play so I am going to buy used Wii U games to play instead of doing nothing. Doesn't that mean there isn't a software drought? ;)

What's the connection here otherwise? That you will make current Wii U owners used game customers for the rest of their ownership or that they will suddenly blow all their money on used games that they didn't want to buy new in the first place and then have no money for upcoming great new games?

I get it that some current owners want a new game now. Nintendo has no new games right now. Thus Nintendo doesn't make a sale. But I also get that Nintendo is going to make x games that I want to play for the Wii U over its lifetime and that they aren't always going to line up nicely with the Gregorian calendar. As much as some consumers seem to want it, Nintendo isn't going to put out product on the shelf just to have product on the shelf. It's a self-defeating strategy as pretty soon you are just releasing stuff because the calendar says to and expecting consumers to buy it which leads to you making games like one would make any commodity product. Your product then loses value. It is like every other product.

This is what won't sustain them in the long run.

Eric Salmon
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He meant Wii U hardware owners are going to sell the hardware and get something else because they're tired of waiting for games. So the Wii U hardware goal is going to be hard to hit as a lot of used Wii U's hit ebay.

Bob Johnson
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Oh ok. Decent observation. I am sure they will lose some folks. But not enough to have any large effect on the 9 million Wii U sales figure they hope to reach.

Eric Pobirs
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iOS and Android have devalued games? Or maybe it's absurd to be charging $5 for an emulated NES game on Virtual Console at this late date. Unless you are a slave to nostalgia, a clone of an old NES game on any other platform is going to be much more graphically pleasant and less expensive.

I have to question the idea of adding a new high-end model along with annual price cuts. What would a new 3DS model have to qualify its existence that wouldn't require developers to treat it as a separate platform? A larger SD card bundled? More software at a discounted price? What would be of any use that they aren't already doing?

Just getting the price down should suffice. When the base model is down to the magic $99 price, then will be the time for a new unit that requires separate software to be fully utilized. Although one approach that might work depends on the vendor for the screens. If they can double the resolution on each axis (quadrupling the pixel count) and beef up the processing to match, along with stronger GPU FX capability, then you'd have a 3DS that could run existing games by just doubling the rendered image on each axis and support a new generation of flashier games. At the same time, a lot of existing games could be easily modified to get a graphical boost. (Some polygon oriented titles might not need any modification, as seen with many original Xbox games running on the Xbox 360.)

That strikes me as the easiest way to grow the 3DS without starting a new platform from scratch. The reolution on such a unit might be good enough to make it worth while to have a mini-HDMI port to drive a 3D HDTV at 720p, duplicating the upper screen. Another value add, much as TV output was added to later PSP models.

I believe Nintendo failed to remember what made the Wii appealing in its day. Along with the motion controllers it was substantially cheaper than the other new platforms. This made it appealing to a lot of consumers outside the typical video game demographic. Not so for the Wii U. Those intrigued by tablets are likely to already own one or desire the real thing rather than Nintendo's sort of tablet.

I strongly believe making the GamePad part of the base system was a dire mistake. If the price for the GamePad as a separate item in Japan is any indicator, the Wii U could have been offered without it for $200 without losing money per unit. That unit would instead include a Wiimote, nunchuk, and a low cost version of the Pro Controller that plugged into the Wiimote for its wireless functionality. (A plug-in module that gave the Pro Controller its own battery and transmitter could be offered as an accessory.)

Call it the Wii HD and sell the GamePad as a separate item for $100. The fact is that very few games have made it essential rather than a gimmick. The best potential appears to be in asymmetric multi-player, as seen in Rayman Legends.

I think Nintendo would be far better off if they had pitched a low priced HD Wii and didn't tie the platform's fate to whether the GamePad ever makes good on its promise for a majority of players.

Bob Johnson
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That is the complete opposite of Nintendo's strategy and philosophy.

As they said in the Q&A:

" It is natural that there will be more things that battery-run devices can do thanks to technological advances and game consoles will become more powerful. However, if we try to linearly pursue this direction, software development will become so complicated that we will eventually face a situation where cost recovery becomes a serious issue. Therefore we feel that we are nearing a saturation point in terms of simply improving performance or enhancing graphics.

What is far more important for the future of video games is whether we can make new propositions in other aspects and create games out of something that people never expected to see in the form of a game."

Chris Hendricks
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Not all games for the Wii U will use the Gamepad in a major way. However, if it was a $100 accessory, even fewer games would use it, and developers couldn't depend on it to exist, just as developers couldn't depend on the existence of MotionPlus for the Wii.

Brandon Johnson
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I think Nintendo's problem is larger than they want to admit. Android and iOS have irrevocably changed the mobile gaming landscape. 5 years ago when the DS and DS Lite were hugely popular, smart phones will still new and unproven. Now everyone and their grandmother owns a smart phone that can render graphics to make the DS Lite look like an antique. Many gamers no longer want to have to carry around an additional device to play their games. It's the same reason the Vita is doing so poorly despite the fact that it's a really good piece of hardware with an exceptional lineup of games. Nintendo is currently riding q quickly dwindling wave of interest in dedicated mobile gaming devices. One that I think will be gone soon. With their mobile division on a downwards spiral and their primary console an entire generation behind their competition hardware-wise, Nintendo is about to have a Very bad year.

Personally I think they should do what Sega did and get out of the hardware business. Nintendo is great at making really interesting and fun games but most gamers don't want to buy hardware that's out-dated at launch for an inflated price to play Nintendo's games when they can easily buy a decent "Squenix" game on Android or iOS for considerably less.

In addition, Android and iOS offers built in legacy as your purchases remain in your account even when you hop devices. Nintendo charges extra to run their older games under emulation. It's a good thing they're sitting on a mountain of cash because without it I'd wager the release of the PS4 and Xbox (720 / Infinity) would put them out of business.

Leon T
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Nintendo needs something big to sell 9 million Wii Us. I'm talking like another Wii Sports like hit so I don't think it is going to happen. Their E3 is also going to have to blow everyone else away so they better have something major planned.

Outside of that I see Iwata stepping down.

Michael Pianta
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But he was only just made NOA CEO. I don't think I see him stepping down soon. Maybe in a few years of things continue like this. I agree thought that I don't see them moving 9 million Wii Us this year.

Michael Pianta
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Even though these numbers are bad, I feel like Nintendo is fairly well positioned. They are about to get some good content, Pikmin 3, Wonderful 101, 3D Mario, Mario Kart, Wind Waker HD and maybe even Bayonetta 2 are all expected this year. Next year we'll see Smash Bros. and possibly that "X" game that looked interesting. That will help them a lot with the traditional gamer crowd.

Meanwhile, they are almost certainly going to be cheaper, maybe significantly so, than either of the other new consoles. If they also drop their price even just $50 the disparity will be even bigger. Last holiday they were the most expensive hardware and most of their software was ports that were already available on the other machines. Is it any wonder that only the Nintendo faithful bought one? But this holiday they will be one of the cheapest system and they will have a string of high quality exclusives.

The last variable is this: how will they communicate the value of the game pad to the uninitiated? I have a Wii-U and I think the Game Pad is fantastic. It's super cool, but it's hard to articulate why. People just need to play with it. So I think they may gain moment there as they sell more units. It will slowly become more and more likely that you or your kids have a friend with a Wii-U and that will be how you learn you want this thing. I'm not sure an ad campaign can do it.

Leon T
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Its more like the DS/3DS than anyone would like to remember. The early launch, low sales, confusion, slow software releases, and tempid support are all more like those two launches than anything else. Gamecude launched late and had much less of a chance to turn things around. Would love to see Nintendo turn the Wii U around like it did the 3DS.

Alan Rimkeit
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This is not good news for Ninty.

"We rooted Wii U encryption and file system, says hacker group. Nintendo says it has "no reports" of unauthorized game playing."

What is Ninty going to do?

Bob Johnson
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System update! New games will require it.

Jeferson Soler
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@ Bob Johnson - Nintendo could do that, but at the same time, it may not be necessary. From the sound of one of the commentators from Alan's link, the hacker group did all that work for nothing, because the Wii U could already use an external USB hard drive for games without any hacks. This is more of the situation in that Nintendo (especially NoA) needs to improve public awareness of the Wii U. If even the hacker group wasn't aware of what the Wii U was already capable of, then this means that there's even more work that needs to be done with the Wii U marketing. Even if it takes a couple months (like with the 3DS), Nintendo has to get the ball rolling.

Lincoln Thurber
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I hope Nintendo is being more realistic internally. For investors they have to say what they plan is and follow that plan, but I hope Iwata and the board are being realistic about FY 2015 and beyond. Wii U is probably not salvageable as a consumer products for families, kids and fan-gamers.

- The philosophy of two-screen play that worked on a handheld doesn't translate as well to a TV & tablet, and it is a hard sell to consumers.

- Nintendo has failed to create more development teams to create new IPs or even create more games from ist old IPs. Since 3rd part development has collapsed they have too few games and always will unless they started spending monye now to create more development muscle.

- The system is just expensive to produce. It is two consoles one screenlessand one screeend, but they share one brain. Its just full of expensive parts, sensors, and gew-gaws so redcing teh costs will be hard.

Geoff Yates
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Agree with your sediments.

Here are some thoughts on why sales are not happening:

- I know this has been discussed to death but I think the population that embraced the Wii most likely will not be coming onboard for the Wii U. I say that because the phenomenon that Nintendo created with the Wii for bringing all types of gamers onboard has dissipated in favour of the new medium of smart phones and tablets. Consumption model has changed.

- 3DS sales are exceptionally good which means I can still get Nintendo goodness without a Wii U. Why buy a Wii U?

- It didn't help that Rayman Legends and Pikmin 3 was shifted to a different date. Its sad but I believe Nintendo knew damn well both of these titles were not going to hit the launch window. Rule 1 never believe any company again about launch windows. If its not launching Day 1 its not a consideration for purchase. I think this has mislead a lot of folks who may have thought about buying a Wii U. This also stalls sales if you do not deliver on your promises.

- Just Dance (which sold in the millions) which is used by most girl gamers is still happening on the Wii. We don't know if Just Dance will get the proper coverage on Wii U nor do this generation of girl gamers even won't that anymore. Gamepad is only used for song selection I believe on the Wii U version for Just Dance 4. This adds even more confusion to a purchasing client. No value for Dad to buy his daughters a new system.

- Of course you have diehard Nintendo follows who need a proper Nintendo title. SMB is a stop gap for the bigger picture of Metroid etc. N64 was so successful because Mario 64 shipped day one. If the Wii U shipped with a similar Mario title Nintendo wouldn't be in this position today.

- Lastly, the big spectre of PS4 and Xbox 720 on the horizon. Money is not in abundance and I suspect if a core gamer is strapped for cash he /she will be waiting till E3 to make their mind up on what will be the next system purchase. Nintendo dropping their major event at E3 will just add fuel to the fire (IMO dumb move by the way).

All these "things" and events are just stalling sales.

Bob Johnson
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I agree that alot of casual Wii users won't get back on board with the Wii U. I am sure the smartphones and tablets have something to do with it, but I think the bigger cause is that the Wii U just doesn't have that WiiSports type of mainstream hit. WiiSports really resonated with casual types because it showed the consumer off the couch and moving around. And it was new and fresh. Nintendoland is fun, but it wasn't the homerun that WiiSports was.

Nintendo has put out handhelds alongside its consoles for a long time now so the notion you can get a Nintendo handheld and not the console has always applied. I don't think this is a factor here any more than it was before.

Yes not getting games out on time doesn't help sales. But delivering bad games is even worse. In the end Nintendo delivers x amount of games over the lifecycle of each their consoles. They are consistent if you look at the bigger picture. The short term of whether a game comes out in March or August, for example, doesn't matter over the long term.

As far as just Just Dance goes the more hits that appeal to consumers the better. If that software doesn't appeal to consumers then it doesn't help console sales.

NSMB was much more popular than Super Mario Galaxy - 26 million sold to 10 million. So I don't think a 3d Mario is sure system seller. What is a system seller is something really new that shows off the system. That's what Super Mario 64 did. That's what WiiSports did. NSMB isn't that title. NintendoLand is supposed to be that title. And it is fun and shows off a few interesting uses of the Gamepad. But it isn't that big homerun that those other two system sellers were.

When I add up everything you said it all adds up to lack of killer software. YOu throw that in there with the $350 price point and fuzzy customer awareness and it is off to a really slow start. They admit they are behind with the software and that that ball won't get really rolling until Pikmin 3 launches. But it is going to look much better in a year than it does today. The price is only going to drop. The game will only slowly pile up.