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Analysis: The State Of The Nation At Nintendo

Analysis: The State Of The Nation At Nintendo Exclusive

November 30, 2010 | By Chris Morris

November 30, 2010 | By Chris Morris
More: Console/PC, Exclusive

[Gamasutra editor-at-large Chris Morris examines the surge in Nintendo's U.S. sales around Black Friday, and asks whether this holiday season turnaround is enough to influence the company's slowing growth curve.]

Over the course of the past year, gamers and the gaming press have written Nintendo off as a company in steep decline; hailed it as the savior of the handheld industry; written it off again (a couple of times, in fact); and called it greedy.

With Tuesday's release of the 2010 Black Friday sales figures, the winds have shifted once again and Nintendo is now being called a powerhouse. The latest moniker is, of course, a temporary one - but it begs the question: exactly what is going on with Nintendo these days?

The answer is anything but simple. This year's Black Friday numbers were right on pace with 2009 - which turned out to be one of the best holidays on record for the company. Fueled by a September price cut, the company sold over 3 million Wiis in December 2009 and the DS and DSi set sales records.

So matching those numbers is good, right? Well, yes - but this year's numbers come amidst serious discounting at retail, meaning the margins likely aren't as high as a year ago - though that doesn't in any way lessen the critical nature of the season to Nintendo.

"The holidays are more important to Nintendo than to other manufacturers," said Reggie Fils-Aime, president of Nintendo of America earlier this month. "Almost half of all Nintendo hardware sales in 2009 occurred in November and December, with rivals accounting for just over 40% of all sales during the same time period."

Whether this year's buying surge has long-term benefits is something no one will know for months. The tie-ratio for both systems is the best barometer of how enthusiastic these new owners will be. Given the vast catalog of both platforms, though, things look good.

"I think you're going to see a decent tie ratio with the people who are buying the Wii right now," Eric Handler of analyst firm MKM Partners tells Gamasutra. "The consumer who is buying now has a wider range of games to choose from and that should help."

The gaming landscape has changed dramatically over the past year - and no company has been as affected as Nintendo. The astonishing success of the Wii - and its then-revolutionary control system - spawned the motion control craze that Sony and Microsoft are pushing so hard this year.

While neither company offers anything that's light years ahead of the ground Nintendo broke, the Move sufficiently improves the experience and Kinect is just evolutionary enough to make the Wii's remote control device seem dated.

"Kinect is being very well received," says Handler. "And Kinect is a direct shot across Nintendo's bow. ... Nintendo definitely has a big head start (in motion gaming), but if you're Microsoft, you say 'what can I do to stimulate demand?' Kinect is a very interesting product that's doing quite well right now. Does it eventually catch up to the Wii? Probably not, but it doesn't have to in order for it to be a success for Microsoft."

At the same time, Nintendo is also dealing with rapidly changing price models in gaming as casual players buy more and more apps on mobile devices - and quickly get used to price points of $5 and less. The DS has seen software sales suffer as a result and some worry the 3DS could be hobbled as well - especially if those games carry a price point that's higher than the $35 average for DS games.

That's possible, of course, but given the unique qualities of the 3DS, many analysts feel the system will help support premium price points. As Kinect has shown, one radically different feature on an existing technology can be all it takes to spark a sales rush.

"Regular DS [software] prices are going to have to come down, but with the 3DS, because of the innovation of the product, they're going to be more able to get that $35 price - because of the uniqueness of the platform," says Handler.

There are, of course, other hurdles. The Wii's lack of high definition graphics is more and more apparent the further we get into the cycle. But that's easily offset by the argument that the Wii can be set up in a basement or secondary TV, letting kids play while parents watch programs on their high-definition set.

The lack of a strong online presence is harder for supporters to defend, but so far, Wii players have done little more than grumble quietly. The same-room social interaction the system encourages seems to offset the criticism.

Still, it's hard to argue the company's growth curve is slowing. Nintendo has lowered its sales estimates for the year from 30 million DS units to 23.5 million - and it cut Wii estimates by 500,000. The 3DS will help boost overall sales figures, but the system is expected to be supply constrained - and will likely remain that way for a while.

Of course, there's still one way around that: Price cuts. Nintendo has firmly said it has no plans for any such action this year, but they're cleverly sidestepping that with select discounts at retail for short periods. The action (which, admittedly, is sometimes enacted by the retailers themselves) moves product, but lets Nintendo keep its current price structure intact - letting it see another sales boost when it officially lowers prices.

It's the retail equivalent of a double dip. And that second dip is something we're likely to see in the first half of 2011.

"If you look straight at the numbers, they've definitely been on decelerating path curve," says Handler. "When that happens, you have to reevaluate your pricing strategies or make some big games. They need to do something to regain some of their lost momentum."

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