Wii U's Problem

Nintendo finally announced the Wii U last week, and they came in at the high end of price expectations. Instead of one SKU, Nintendo announced two: A Basic set with 8 GB of storage and a GamePad controller for $299, and a Deluxe set with 32 GB of storage, and a copy of NintendoLand in addition to the GamePad controller, along with a charging cradle for the controller, for $349. I think Nintendo expects to sell mostly the Deluxe set, and the Basic set is there just so they can say "the Wii U starts at $299." Both versions will be available November 18th in the US, and preorders are already being taken. Shortages may well be the case initially; cynics might suspect Nintendo of manipulating the supply precisely to create shortages in order to generate a greater desire to possess the console.

Nintendo spent a big chunk of its presentation showing off Nintendo TVii, a unified interface on the GamePad controller for finding and playing video from various services (like Netflix and Hulu), and controlling your Tivo (assuming you have one). Pretty nifty, actually, though not sufficient to buy a Wii U all by itself. Still, it brings the Wii U into rough parity with the Xbox 360 and PS3 as far as entertainment options go, and even one-ups them (along with Apple TV and Google TV) in some respects.

They also announced more details about the software lineup, and said there will be more than 50 titles available by March, calling it the best software "launch" lineup in Nintendo's history (a rather loose definition of "launch," giving it a whole 5 months). The biggie was Activision announcing the latest Call of Duty title, Black Ops II, will be coming out for the Wii U along with all the other platforms.

My concern is basically with the longer term for the Wii U. I grant that hard-core fans will rush to get one, and Nintendo would have been leaving money on the table to price the console lower. Supplies may well be limited, as Nintendo is not know for being able to manage high-quantity manufacturing well. (Though that would seem to be so much easier these days; again, cynics might suspect Nintendo will keep quantities limited through the holidays to maintain an image of a "hot seller" and so propel some more third-party publisher support.) Still, $349 is a high price to pay for a console that has no apparent graphic advantage over the Xbox 360 and the PS3. None of the titles that have been shown so far that appear on other consoles looked different in any way on the Wii U. Not any worse, like they would on the Wii; but not any better. Nintendo would certainly have been touting a clear graphic advantage if one existed. So I think it's safe to say that the Wii U, graphically, is on par with the 360 and PS3.

So here's the problem I see: Is there any compelling reason for a 360 or PS3 owner to drop $350 on a Wii U? None that I see. If you're a Call of Duty fan, the Wii U version offers no compelling advantage, so you'll just buy CoD for your existing console. New console buyers will be looking at Xbox 360 and PS3 bundles that are cheaper than a Wii U, and a much better value; the game lineup will be much better on the older consoles, with lots of inexpensive options, too. The Wii U may have a game play advantage with the GamePad someday -- but right now that's largely theoretical. A few of the games shown use the GamePad, but it's not clear the concept will be hugely popular. It may end up like 3D on the 3DS; initially Nintendo marketed it as the key reason to buy the console, and now it's hardly even mentioned.

My guess is that Nintendo will do well over Christmas with "limited" supplies, but that sales will fall off a cliff sometime early next year, and then a price cut will be in order. Microsoft and Sony have plenty of ability to drop prices and pile on freebies, so they will keep the pressure up on Nintendo. The Wii U is not really a next-gen console; it's competitive with this generation, it's just that Nintendo is about 5 years behind. They will need to get the price down as much as they can, as quickly as they can, to keep momentum going.

Even then I'm not sure it will work. Tablets are gaining in performance and falling rapidly in price, and they will become a key game platform for the future. The general consumer audience (non-core gamers) will be weighing the value of tablets against the value of consoles when they think about purchases for the household, and I think consoles will increasingly come up short.

Microsoft and Sony have some tough decisions to make about their next console offerings. If they boost performance by 5x to 10x over the current consoles, the hardware will likely cost $500. How can they offer a good value at the price? Or will they have to eat losses of hundreds of dollars per unit to achieve any kind of market share? Will there even be a large enough hard-core audience to pay for ever-increasing development costs on big-budget titles?

Microsoft Surface: Killer Game Machine?

Before you laugh at the idea of Microsoft getting any traction in the marketplace with their Surface tablets, consider the following:

Halo 4 is headed to the Surface tablet. Microsoft Entertainment head Don Mattrick confirmed this at the GamesBeat conference in July: "Speaking during a panel at VentureBeat’s GamesBeat 2012 conference, Microsoft exec Don Mattrick mentioned that the upcoming first-person shooter Halo 4 will work with Surface. VentureBeat reporter John Koetsier confirmed this with Mattrick after the panel."

The Surface Tablet may retail for $199. Yes, the hot rumor making the rounds is that the base Windows RT Surface tablet, with 32 GB of RAM, a Tegra 3 chip, and a 1280 x 720 10.6 screen, and a keyboard, may retail for an astounding $199. How? Well, Microsoft could be prepared to take a loss on every one in order to gain market share and make it up later on software sales; they did this successfully with the Xbox, remember. Or Microsoft could make the price $199 with a contract for (say) Xbox Live or Microsoft Office or SkyDrive or some combination of services.

The Surface tablet will also come with a keyboard, which makes up to some degree for the lack of tactile controls (a joystick and buttons); after all, the FPS did arise on PCs with a keyboard and mouse as the controllers.

We could have a truly epic battle for the wallets of consumers this holiday, if Microsoft really takes aim at the $200 market with a 10.6" tablet. They could even cannibalize their own 360 sales. I'd have to think consoles, and especially the 3DS and the PS Vita, would be the big losers in this scenario. Even mighty Apple could feel the pinch both at the low end (the forthcoming iPad Mini would look a lot less alluring) and at the high end (if Microsoft pulled a similar trick with the Surface Pro and undercut the iPad).

The biggest losers would be Microsoft's erstwhile hardware partners, like HP, Dell, Asus and others, who would see any chance for them to sell Windows tablets vaporize. Microsoft would also lose revenue from that, but they may just figure that ultimately they'll make more from having a strong share of the tablet market as a hardware manufacturer.

Start getting the popcorn ready; this may be the best entertainment available until The Hobbit hits the screens in December.