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Thursday, August 4, 2011

Nintendo: 3 Scenarios For The Future

Since Nintendo's dramatic announcement of massive losses and a huge price cut on the 3DS, there have been plenty of articles posted on the Internet about what this could mean. Some writers are predicting doom, others say Nintendo is just in a rough patch and they'll be fine soon enough. Comparisons to Nintendo's previous venture into 3D gaming, the Virtual Boy, have reared their ugly head. What exactly will happen depends on what choices Nintendo makes in the next year or so, as well as the ultimate attitude of consumers towards Nintendo's decisions.

In classic think-tank style, I present three scenarios for Nintendo's future. Which one will occur? None of them exactly as I have outlined, I'm sure. But elements of all have some degree of likelihood... See where your vision fits in.

Scenario #1: Nintendo Triumphant
Nintendo awakens to the huge changes in the gaming industry. The near-death experience that 3DS sales underwent in its first full quarter and the complete failure of their expectations for the hardware and software cause Nintendo to re-examine every facet of its business. The public admission of problems and the huge price cut on the 3DS turn out to be just the beginning of Nintendo's re-invention.

Nintendo quickly diverted resources to building out its online offerings, using a sleek interface and integrating social networking. (Allowing you to use your Facebook signon was a bold move.) They reworked their developer program to make it far easier and almost free to become a developer, and removed restrictions on what you could offer; a wide range of DLC soon appeared and sold briskly. Freemium games and social games were soon to be found on the Wii... and when Farmville hit the Wii, hardware sales zoomed. The holiday price cut to $99 accelerated the revitalization of the platform, especially with its new range of apps available for free or inexpensive prices.

The 3DS was a hit once the price cut took effect and the new developer program really took hold. The crowning achievement, though, was Nintendo's strategic alliance with Apple. Bringing iconic Nintendo characters to Apple hardware was genius. The inexpensive, easy to play titles brought a whole new audience to appreciate Nintendo characters, and they could then buy Nintendo hardware to play those characters in premium adventures. Online notifications of matchmaking and leaderboards through social networking sites and smartphones added to the excitement building around Nintendo's networking and burgeoning gaming community.

The integration between Nintendo's hardware and Apple's made the whole process seamless. The Wii U launched with the capability to use not only Nintendo's controller, but an iPad or an iPhone or a 3DS. That, plus the ability to now access the full iTunes product line on the Wii U, made the hardware a hit from the start. Its $299 price point and advanced graphics, along with the ability to add a hard drive, made it a killer platform for the new media revolution.

2012 closed out with Nintendo reporting record sales and profits. It was hard to believe that people were once worried about the future of the company only 18 months before.

Scenario #2: Nintendo Muddles Through
Nintendo's huge mistake with the 3DS caused a sharp price reduction in the summer of 2011, which lead to a sharp growth in sales. It wasn't the 5x growth Nintendo needed to make their initial sales predictions, but it still rescued their relationship with 3rd-party developers. New titles for the 3DS brought sales to a higher level, and when Nintendo introduced a revised version of the hardware that was sleeker, lighter, and with longer battery life for the 2012 holiday, it looked as if the hardware would finally be a decent seller, if not a record-breaker. Nintendo's willingness to add some DLC and make some changes to their eShop certainly helped. They made some efforts to include social networking, claiming that they'd always been about networking. Nintendo continued to believe that their inherently high-valued games would differentiate them from the smartphone market.

The Wii U launch was later than expected, and the price point was somewhat high at $349, but the solid launch titles (including both Zelda and Mario titles) showed that Nintendo had learned their lesson about software. Still, sales were not up to the heights of the previous generation of consoles. Nintendo's fiscal year results for 2012 were solid, recovering from the 2011 stumble, but nowhere near the heady days of the Wii's huge sales rush.

Scenario #3: Nintendo Fades Away
Nintendo's poor 1st quarter performance was just the beginning of their woes. While they responded quickly with a sharp price drop for the 3DS, consumers did not respond. Sales moved up for a month, but by September they were leveling off at a new level of about 1 million units per month. Hardly what Nintendo was hoping for; they had to slash their earnings estimates once again, and they no longer had any illusions about being able to sell 16 million 3DS units by March 2012.

Christmas 2011 was a disaster for Nintendo. Refusing to drop the price of the Wii below $149, the hardware stalled as almost no new 3rd-party titles were shipping. Sony's PS Vita debuted to rave reviews, and it crushed 3DS sales over Christmas. The announcement of the Wii U price ($399) and ship date (June 2012) left fans feeling unimpressed, especially when it became clear there was to be no hard drive or any possibility of expansion, only one special controller could be used, and no good new controller for playing first-person shooters. Nintendo's attempt at GDC

Nintendo really was hurting after the E3 show in 2012 gave the new hardware so-so reviews. Most of the new software were ports of existing Xbox and PS3 titles, and they looked pretty much the same. Developers had found no really useful ways to use the new controller, especially since only one player could use one. The hardware launch was dreadful, as the new Apple TV and Google TV units (priced at $99) quickly ramped up to sales levels of 4-5 million per month.

Christmas sealed Nintendo's fate, as their hardware continued to perform poorly. Developers delayed or cancelled previously announced Wii U titles. Nintendo's shares tanked, and rumors swirled of a buyout offer from Microsoft. No deal was struck, and by February 2013 Nintendo announced it was exiting the hardware business for good. Henceforth, they would develop and market software for a variety of platforms. Their characters are remembered fondly but never excite big sales again.

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