I wrote on Monday that the NPD Group's retail sales estimates for the U.S. video game market would reveal the kind of enthusiasm that consumers had for Nintendo's hardware in the post-holiday period. I surely didn't foresee figures in the 50,000-59,000 range, but that's what our internal estimates showed. CNet's sources put that number at 57,000, so we'll just go with that.
Those aren't just terrible figures for the Wii U; they're terrible for any system in recent memory.
Because January 2013 was a retail month with a leap week, the figures reported by the NPD Group covered a five-week period. That means that the Wii U sold on average 11,400 systems per week in its third month on the market.
I took the time to go back through the historical data and see just how close other consoles have come to that level of sales. It's a slightly tricky question because once a successor console comes out, the previous model usually sees its sales drop dramatically. So in the figure below, there are two types of consoles: those that don't yet have successors on the market (PS3 and Xbox 360, to be crystal clear) and everyone else.
Just take a good look at the graphic, and I'll discuss the results below.
At a level of 11,400 systems per week, the Wii U has only other Nintendo consoles for company. However, there is an essential difference between the 8,000 systems per week that the GameCube fell to and the 11,400 level of the Wii U: the GameCube didn't fall that low until it got replaced by the Wii. Likewise, the weakest month for the Wii wasn't until the month before its successor, the Wii U came out.
For both of those prior Nintendo consoles, the weakest month of the system's lifetime was in that 60th month, just before it was superseded. In the case of the Wii U, it is hitting sales of 11,400 in only its 3rd month, a level that in this context seems dangerously low.
The other consoles have their own stories. The original Xbox reached its minimum during its short lifetime after only six months, right as Microsoft and Sony each cut the prices of their respective consoles. The price cut did buoy Xbox sales and they didn't fall below 20,000 per week again until the fifth month of its successor's lifetime, in March 2006.
The PlayStation 3 also struggled out of the gate, not unlike the Wii U. However, one salient difference is the price differential. While the Wii U can be had for a mere $300, the price of admission for the PlayStation 3 was $500. After the PlayStation 3 got its first major revision and price cut in November 2007, its sales have never fallen below 30,000 units per week.
The Xbox 360 suffered from shortages in its first year, and so after a mere five months on the market, its sales hit a rate of 38,400 systems per week. Its sales slid again in mid-2007 to around 38,800 systems per week, but have never again fallen below 40,000 again.
Not content to be the king of consoles, the PlayStation 2 also has the dubious honor of hitting its minimum sales level during its second (yes, second!) month on the market, back in November 2000. However, the weakness in its sales was certainly due to a shortage of hardware and this minimum level is actually the highest minimum of any console during the past 13 years. For the record, its sales today are well below the Wii U's 11,000 systems per week, but the PS2 did not get that low until January 2010, in the first few months of the system's tenth year on the market.
Another way of looking at it
Instead of just focusing on a single month's results, we could also take the slightly longer view and ask how systems have historically performed in their first three months on the market. Going back again to the PS2, the results look like the figure below.
Viewed this way, the Wii U is certainly in the middle of the pack, and in good company. The Xbox 360 and PlayStation 3 both had weaker launches than the Wii U.
However, as noted above, those figures come with some caveats: the scarcity of Xbox 360 systems around launch and the high price of the PlayStation 3.
And the console with the most robust launch of all time, the original Xbox, was the one killed most quickly by its creator just four years later. So the installed base doesn't signal doom on its own, but it certainly is a step down from the standards set by the PlayStation 2 and Nintendo's own Wii.
If the current Wii U sales rate continues through the coming months, then the platform has an even more challenging road ahead of it than we thought. Before today we knew that it was the most expensive console currently available, is still building a library of must-have exclusives, and is currently waiting for new titles to trickle out over the next few months. What we did not fully appreciate until now was just how sensitive consumers would be to those factors outside of the holiday season.
History shows that Nintendo does better business during the holidays than its competitors do, generally speaking. A corollary to that is that Nintendo suffers more outside the holidays, and that bodes ill for the rest of their year. The middle of each of the past two years has been a painful slog through weak sales, even for strong software and new systems.
In a conversation with Wedbush analyst Michael Pachter, he expressed shock that Nintendo has sold "under 1 million" Wii U system's in the U.S. so far. "If there are only 1 million Nintendo supporters in the U.S., that’s a really sad state of affairs," he told me.
On top of that, I'd add that Nintendo won't break a million Wii U systems before March unless February's sales show about a 20 percent increase over January. That's certainly possible, but statistically improbable.
Is there hope?
So what can Nintendo do? That's a tough problem, and not one that has an easy answer. Just look at how Sony has utterly failed in the past year to ignite sales of its PS Vita handheld. The company has stubbornly held onto its original pricing structure and maintained the high price of the memory cards required for the system. When retailers aggressively pushed discounted systems over the holidays, sales rose dramatically, but consumers quickly shut their wallets when the promotions ended.
Should Nintendo cut the Wii U price? Not if they want to maintain enough of a margin to make it through the end of the fiscal year with the profit that it promised. As Pachter told me, "they can cut price and lose money on each unit, but that isn't the right answer."
The real goal, of course, should be to make money on software. Unfortunately, it appears that Nintendo isn't making much progress there either, at least at retail. "Total software sales for the Wii U are under 2 million units in the U.S.," Pachter told me. That suggests that the system's LTD tie ratio can't be any higher than 2.1, and is in fact probably 2.0 or lower. With few new titles out there for the Wii U in the coming months, that situation isn't likely to improve.
Some of the weakness in software sales may be mitigated by the sale of software digitally, but Nintendo is firmly married to the retail market. President Satoru Iwata's promises to maintain good relations with retailers by partnering with them to sell digitally distributed software reveals precisely that, and this is their weakness. Nintendo is clinging to retail precisely when that segment is losing its relevance to the larger video game industry.
It's like retrofitting your horse-drawn carriages with car tires or selling chrome trim for horse bridles, and then touting your robust partnership with carriage dealers to sell those goods. When all those carriage dealers are out of business and your competitors are all selling new cars, who is going to care?