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.

Wii U vs. Xbox 360 vs. PS3: About Even

Wii U. Better than Wii Wii, I guess.

Nintendo has announced the final name of Project Cafe: Wii U. Just when you thought the Wii name was the strangest console name ever... Wii U. Nintendo introduced the console with some nice accolades from industry executives, some good-looking graphics videos, and plenty of laudatory exposition. Actual details about the hardware were rather scarce. Here's what we know:

• 1080P HD graphics output
• Controller with 6.2 inch screen, dual analog controls, touchscreen, camera, microphone
• Output can be from the Wii U to a TV or to the controller
• Backwards compatible with all current Wii controllers and games
• Games on proprietary optical discs
• 4 USB slots
• Release in 2012

What's missing? Well, you'll notice that what they didn't say is perhaps more important than what they did say. No mention of a hard drive in the console... so you can count the rumors that said there wouldn't be one as confirmed. If they were putting one in there they would have mentioned it. What they will have is some internal flash memory, size unspecified, and the ability to connect an external USB hard drive.

Graphics resolution? No specs at all, just some nice looking video. Which means that the Wii U graphics power will probably be around the level of the Xbox 360 or PS3, perhaps somewhat below. If the graphics output was substantially better in any way (resolution, polygons, texture mapping) you can bet Nintendo would have touted it. They didn't, so I think it's a safe assumption that the Wii U will not be setting any graphics records for home consoles.

The Wii U controller.

Price? No, no mention of that. Again, I think if they were planning to have a substantial price advantage over the Xbox 360 or the PS3 they would have mentioned it. Although, since they are more than six months away from the release date, keeping their options open is a good idea. Microsoft may well decide to drop the Xbox 360 price for the holidays, with the spectre of the Wii U looming for 2012. I'd guess that Nintendo will come in at least at $299, and quite possibly higher.

There was also no mention of digital distribution, any differences in how Nintendo deals with developers, or any of the new things that have been upending the game market like social games, free-to-play, or other new business models. Seems like Nintendo is counting on business as usual; if they were gonna do something different you'd have heard them talking about it.

It's not clear, either, exactly when the Wii U will appear. I'd guess earlier in 2012 rather than later, since this announcement will probably slow Wii sales even further (especially since the Wii U is fully backward compatible).

How does the Wii U stack up against its competition? Lack of a hard drive really cripples its ability to compete with downloadable content, or even streaming content that needs substantial caching. Assuming graphics output to be roughly the same, and the pricing to be about the same or higher, the real differentiation is the controller with the screen. Though Sony may have that covered with the PS Vita, and Microsoft has already shown a connection with Windows Phone 7 devices. The installed base of the Xbox and the PS3 are huge advantages, as are their software libraries. Motion control is no longer a unique feature for Nintendo. I think all the Wii U does is level the playing field; I think Nintendo is going to have to show some unique and compelling software titles for the Wii U to make inroads against the Xbox 360 and the PS3.

More Wii 2 Rumors: "Stream"?

Concept of a Wii 2 controller... looks expensive.

Nintendo is trying very hard to make sure they are the talk of E3, and in a positive way. Normally they try to release very little prior to the show, in order to maximize the impact of announcements at E3. This year, though, we're already seeing a flood of rumors about the successor to the Wii... and it's still April.

The details concern price, availability, and the name of the so-called Wii 2. Sounds like early 2012 is the release time, which makes sense given how long it takes to develop software (assuming that groups have been working on it for a while already). There's a chance it could hit for holiday 2011, but perhaps only in Japan. It would certainly help create a buzz if they only had a relative handful of units available for Christmas, trying to inspire lots of press and people holding onto Christmas money in order to buy a unit in the first quarter.

Pricing that's being floated now is somewhere in the $350 to $400 retail range, which sounds about right if Nintendo is trying to put together hardware that exceeds the capability of the current competition without losing a boatload of money on the new console. A tricky balancing act, to be sure, and so they will probably hold off as long as possible before attaching a price tag in a public way.

The console would be capable of 1080P output, and probably 3D as well. Supposedly the size is about that of an Xbox 360, with the industrial design resembling a modernized Super Nintendo. (Does this mean we can look forward to purple buttons on the case?) Controllers may include a Wii style remote as well as the aforementioned controller with a 6.2 inch HD screen. I suspect there will be a minimal amount of hardware in the box in order to keep costs down, and you'll likely spend more than $100 extra to get the extra controllers you'd want.

Nintendo's new console will really need some killer software if they hope to generate excitement greater than the 3DS. How about a new version of Zelda, in 1080P? That would get a lot of fanboys drooling. Given the rumored price tag, Nintendo has to find ways to appeal to a higher-end audience, which perhaps is why the rumor is going around that Nintendo is in heavy talks for a Grand Theft Auto 5 for the new console. That would certainly change the tone away from Wii Fit.

The name of Nintendo's new console? Rumor has it a leading contender is "Stream". I guess that's what comes after you take a Wii... sorry, sometimes those puns just sneak out. Perhaps it means they will stream movies, or games, or maybe they are just trying to get a little more online pizzazz going. If Nintendo is really serious about boosting digital distribution, they'll want to include a hard drive or some other sort of mass storage option for downloads. That's a huge limiting factor right now in making the Wii a viable platform for downloadable content sales... there's just not room for much.

Meanwhile, the responses from Sony and Microsoft have been unofficial, but pretty much suggesting that 2014 is the earliest they are looking at for coming out with new hardware. Of course, they may change their tune if Nintendo is eroding their market share with their Stream. Right now there must be a great gnashing of teeth and pondering about how to recapture the news momentum at E3. Sony, at least, has the NGP to talk about, and will probably push that hard so you don't think too much about a new console to replace the PS3. What's Microsoft got? Good question...

Wii 2 Rumors Explode

Probably not what the Wii 2 will look like.

It's all over the 'net today: Rumors about Nintendo's successor to the Wii. The Wii 2, Wii HD, or more probably, some other name entirely, has suddenly become a major topic on the game sites. The rumors point to some features: HD graphics output (a total no-brainer of a feature to add), and they are calling it more powerful than the Xbox 360 or the PS3. Which will be quite interesting, if true, since Nintendo has not been the horsepower leader in the marketplace since... well, it must be the N64 days back in the '90s. Raw horsepower can get expensive, though; will Nintendo really be willing to hit a high initial price point?


Supposedly the new console will be announced at E3 for a 2012 shipment, and it's being shown to industry leaders now. The new console is supposed to be backwards-compatible with the current Wii, and there will be a pre-announcement from Nintendo coming before E3. When queried, Nintendo gave its stock "We don't respond to rumors" answer. Check out the sources yourself here, here, and here.


This is NOT a coincidence, folks. Clearly Nintendo is finally letting a little rumor-mongering happen. They're floating a trial balloon, in a totally deniable way, to gauge reactions. It must have finally sunk in that Wii sales (and third-party support) are on an irreversible downward trend. Price cuts will definitely help boost sales, but at the expense of profitability. And even with a price cut to $149 (and eventually to $99) for the Wii coming (rumors say a price cut is coming in May) I don't see third-party support recovering. There are too many other places for publishers to invest their development dollars.

I'd say an E3 announcement of a 2012 release date for a Wii 2 might seem early, but it would be good for Nintendo to get some excitement rolling early. Perhaps they felt this was necessary given the less-than-stellar response to the 3DS in the marketplace. I think they were hoping the 3DS would be such a huge hit they could take their time with a Wii successor. Now that it's clear the 3DS will not, by itself, save Nintendo's profits, they are starting to leak out info about a Wii successor to generate some excitement about Nintendo again.


What are the chances for a Wii successor? It's difficult to really say how well a console might sell before you know little details like price, capabilities, and software... but certainly the Wii is way past its prime. The Xbox 360 and the PS3 are starting to look a bit long in the tooth, but both Sony and Microsoft would love to get a few more years of nice profits out of those consoles before they enter the maelstrom of new hardware again (and all the losses that implies for the manufacturers, plus the pain and suffering of developers trying to figure out how to use the half-baked tools for new consoles... I can hear the screams from here).


If Nintendo is really going for sheer graphics horsepower, it represents a change in their approach. Perhaps they couldn't think of an inexpensive add-on that was as powerful as motion-control has been for the Wii, and with that out of the picture they figured horsepower was the best bet. There are problems with choosing horsepower, though; pushing pixels and polygons gets expensive in terms of silicon. And as the number of polygons gets higher, the differences to consumers are less and less compelling. The difference between 1000 polygons and 10,000 polygons onscreen is huge; the difference between 10,000 and 100,000 is not as readily apparent; and the difference between 100,000 and 1,000,000 is something you have to look at carefully to see, and non-gamers would easily not see it.


In the past Sony would talk about things that weren't polygons to say why new, expensive hardware was worth the money... they used terms like Emotion Engine to say that games could now have emotional content because of the horsepower available. Did we ever see those? No, not really; developers found it far easier to build better graphics than to figure out how to make games more emotional. We are getting games that are more engaging, but it's a slow process. Most of the new horsepower in the latest consoles is devoted to better graphics, displayed faster.


So I think the horsepower route is a risky one for Nintendo, but they are in need of a boost right now. Sales are sagging, the 3DS has not set the world on fire, and their stock price is in the dumper. Perhaps some adroit rumor-mongering can bring it back up for them.

Is The Wii A Dead Console?

It's a good question. Although Nintendo seems to think that the release of a Wii in a new color constitutes a major hardware update, consumers don't seem quite as convinced -- nor do analysts. The above chart shows the Wii's market share, which reached its high point in 2008. It started to drift down in 2009, and 2010 saw a steep decline. Early figures from 2011 show more of the same, as the 360 continues to lead the sales charts while the PS3 battles Nintendo for second place. And this is despite the Wii's $100 price advantage... when you factor that out things look quite grim indeed. Unit sales of the Wii fell by 24% in 2010, which should have set alarm bells ringing.

Nintendo seems to be focused on the 3DS launch, which is understandable. (It's not clear right now whether the tragedy in Japan will have any effect on Nintendo's hardware production ability... but I'd guess not.) Still, you'd think the strategy is fairly easy to discern. It's a simple two-step: Step 1 is to reduce the price on the Wii to $149 to goose the sales up and keep third-party developers on board. Step 2 is to introduce a new console. If it's going to take longer than this holiday season to introduce the new console, you may have to repeat Step 1 a few times.

So far Nintendo has been reluctant indeed to reduce their hardware price. It would certainly seem like the time, with sales dropping at a rate of 25% a year or so. Why wait until the 360 reduces its price and makes things more difficult for you? I really don't know why Nintendo hasn't done this; their hardware production costs should be nice and low by now, having had years to cost-reduce the hardware.

Meanwhile, there's been nothing rumored at all about a new version of the Wii. Sure, people have made up wish lists, but it's clear no developers have their mitts on one yet. Speculation ranges from a very minor upgrade (HD output, faster processor) to a full blown new console (new graphics chip, new processor, perhaps some new interface capabilities). I would argue that Nintendo should not go for the high-powered end, but instead should try to have a low retail price with HD output and some interesting capabilities. Why? Because Sony and Microsoft are certainly already competing on horsepower, and they look to continue to do that. Nintendo should stay out of that fight, like they did with the Wii. Besides, with the looming threat of Apple TV and Google TV, the low end is going to be busy. And Apple TV and Google TV are aimed squarely at Nintendo's game consumers. They will be putting out thousands of low-cost or free simple software titles that people can download instantly.

Nintendo's got a real threat to its continued existence here. Microsoft and Sony have the high end cornered, and Apple and Google will be aiming at Nintendo's market. Plus, Nintendo has shown disdain for the idea of online anything, and is only slowly beginning to grasp the idea of an online community, online sales, downloadable content and digital distribution, much less freemium.

I believe Nintendo will announce a successor to the Wii at E3. If they don't, I expect they'll be leaving the home console business... willingly or otherwise.

7 Ways Nintendo Can Win

It's possible for your fans to be too devoted.

Nintendo's been around since 1889, so they have seen business cycles a time or two. They have been up, and they have been down, but overall they've continued to thrive. Lately they have been looking a little tired, as the Wii begins to show its age, and the amazing run of the DS line is also beginning to weaken. As far as the world knows, Nintendo is not planning any immediate changes in the Wii product marketing strategy, and appears to be pinning its hopes for 2011 on a successful launch of the 3DS, their new handheld console. They need something to look forward to; profits have dropped 74% since last year, and sales are down significantly in all areas. Nintendo has lost its mojo; can they get it back?

The Wii still has life, but not at $199. The time has come for another price reduction for the Wii; the last time it was reduced was in September of 2009. It should be obvious to anyone that the Wii has not been able to keep its sales numbers up against an Xbox 360 and a PS3 priced $100 more; the 360 outsold the Wii over Christmas, and the PS3 was close. Don't wait around, either. Drop that price now, before the 3DS dominates the story. Renew your commitment to the Wii; make sure the fans know about some killer new games coming for it. At $149, it should see a nice sales boost. Plan to send it into orbit for Christmas 2011 by dropping the price to $99 in September. Let's see Microsoft and Sony go broke trying to match it. Use the higher sales numbers by making a greater effort to attract third-party developers. Revamp your publishing program completely; you want Nintendo to be know as the easiest manufacturer to work with, rather than the most difficult one.

Get creative with the Wii. A price drop is nice, but you need some innovation. Look for a deal with a TV maker to build a Wii into their TV sets. Get the Wii built into minivan entertainment systems for the kids. Make a special bundle for afterschool programs with fitness titles. Create some PR! Get out there and generate some more stories.

The Wii 2 is overdue. You've missed the window for 2011; the clock is ticking for 2012. If you still want to sell a lot of consoles, you're going to need a new one. The Wii is underpowered and not HD capable, and the games are showing it. The Xbox 360 and the PS3 now have motion control options, taking away the Wii's one unique ability. So it's time to change the equation.  Sure, better graphics performance and HD output are a must. Don't try to outmuscle the competition, though. You need to outsmart them. Some spiffy new interface idea would be great, if you've got one tucked away. Improvements to motion control? Other types of sensors? Whatever you can throw in there. Most important, though, is a strong online component, traditionally your area of weakness. This has to change. You need the best online interface, the best environment for players, the best set of downloadable software. And price it all at $299 for the hardware, if not less.

Make the 3DS more than just a game device. You're competing against smartphones with thousands of capabilities. You should at least make it easy to play music and videos. There have been hints you'd like to play 3D movies; get busy and make it happen. I don't see a downside to putting a music and video player on this thing, though I guess storage is the main constraint, but since you have an SD card slot you'll at least be able to put a few GB in there (and it comes with a 2 GB card). While you're at it, open up the eShop to non-game apps, and let developers expand the machine's capability. The whole App Store thing has been instrumental in Apple's iPhone success; why not use that idea yourself?

Reduce the DSi price. Yes, I know you're hoping everyone buys a 3DS, but $249 is too much for many people. Drop the DSi to $99 and watch the sales soar again, especially when you point out they can use the DS games they buy on the 3DS when they get one of those later.

Really leverage your library. Yes, it's cool you can buy old NES games for your Wii... but the pricing is absurd. Why not experiment with prices and see what price point maximizes your revenue? You can always change those digital prices. While you've got the hood open, why not steal Sony's great idea and make your old games available on iOS and Android? It's more revenue; it's great advertising; and it might get people hooked on your iconic characters, whose latest adventures are only available on your proprietary hardware. I know you've been afraid to do this lest you slow sales of your hardware, but that that's not really an issue for old NES and SNES titles, is it?

Innovate. It's really nice that you have a slew of great characters that people love: Mario, Donkey Kong, Link, Kirby, Samus... but when's the last time you created a new one? Sure, keep doing new titles with familiar characters, but take a stab at making some new ones, too. Innovation is not doing a new Mario game, or even coming out with a Wii in a red case instead of white. Come up with something new in your games. More than that, innovate with your business models. Really embrace digital distribution. Try different monetization schemes; have you heard about free-to-play and how much money it's making? Enable in-game purchasing and watch the dollars roll in.  Try licensing some of your characters to an MMO or a PC game... or a theme park or a new animated series.  Hell, just a series of digital comics released on the 3DS... 3D digital comics, that is. Get some buzz going about all the cool stuff Nintendo is doing... which means you have to do some cool stuff. Get busy!

Will Nintendo actually do any of these things? Maybe, but they'll probably do them later rather than sooner. Management seems averse to sudden movement or change. Perhaps continued poor financials will goad them into swifter action, but I'd hate to see it get to that point. If Nintendo can rev up their engine this year, we'll look back on this as just a minor rough patch for them. I hope that's what happens.

Wii at $99? If Only...

Pressure is growing on Nintendo to do something, anything about the Wii. Nintendo seems incapable of admitting there's even a problem, even though the Xbox 360 outsold the Wii handily in November despite the $100 or more price differential. EA's CEO is complaining publicly about the Wii's price point, practically begging for a $99 Wii. Of course, third-party publishers are less than happy with Nintendo's support, which mostly consists of benign neglect.

Check out the chart from Silicon Alley Insider, showing how the Wii's sales have been tanking this year. Analysts are looking for a price cut, or a Wii 2/Wii HD, or something to ignite sales. Nintendo basically shrugged and said "We're happy making our smallest annual profit in six years." It's nice that they're trying to revive the DS line with the 3DS, but that's not going to do anything for the Wii regardless of how well it sells. A price cut is the obvious move while marking time to a new console; at $99 the Wii should zoom to the top of the charts again, and maybe revive some interest among third-party publishers in doing a Wii title or two.

The longer term problem for Nintendo is what exactly a Wii successor would do. Sure, they could add HD output, and a faster processor... but then all you have is a closer competitor to the 360 and the PS3, without any of their advantages (like a hard drive, a robust online service, advanced motion control...). Nintendo will certainly want to have something different up their sleeve, more than just horsepower. Perhaps the delay in creating a Wii successor means Nintendo is having problems coming up with something they think people will like, at an affordable price, that gives them an edge in game development like motion control once did.

I'd like to see innovation in the business model, with a revolutionary jump in their online store, to outpace their rivals and get ready for the Apple TV onslaught. But given Nintendo's track record, they will be slow to innovate on the way they do business.

Game Sales Up

For the first time since 2008, game sales have actually gone up over the previous year's sales. The NPD figures have arrived (perhaps smuggled out from behind their pay wall by heroic resistance fighters) and reveal that November sales were up 8% over last November... they even made it to the level of Best Sales Month Ever, ringing up $2.99 billion. Software was up 4%, hardware was up 2%, but the big winner was the accessories category, which was up 69%. Thank you, Kinect and Move.

Sales were also helped by Call of Duty: Black Ops, which in one month has become the 7th best-selling game ever with 8.4 million units sold. Sales were so good that overall sales for the year are now down only 5% instead of the 8% it was at last month.

Looking more closely at the data we find some sore spots. Portable hardware and software was down over last year. So Nintendo's troubles continue. The Wii was outsold by the Xbox 360, which is impressive especially when you consider the price differential. (Sales data put the 360 at 1.37 million units, the Wii at 1.27, and the PS3 at 530K.)

The disturbing part is that the joy was not widespread. It's not like sales were up for everything; take away Black Ops and the Kinect and the picture looks pretty dismal. This does not look like a resurgence in the game industry; it looks like a couple of new products did really well. Which doesn't mean that the industry is looking at a good 2011.

Wii Move Kinect! Sales Are In Motion

The big story of the holiday season for the videogame industry is this: Who will win the battle of the motion controllers? Some information from the front has come in from all three combatants, so let's look at the body count and see if we can figure out who's winning.

Nintendo crowed about their sales figures over the Black Friday week (November 21-27): They sold 900,00 DS's and 600,000 Wii's. An impressive amount given the anemic sales of the last few months... Nintendo sold more than two month's worth of Wii's, at their latest rate, in one week. They claim the pretty new colors are the reason... OK, maybe, or maybe it's just the price point and the software bundles.

Wow, who could top those sales numbers? How about Microsoft, announcing that another 1.5 million Kinects have been sold, for a grand total of 2.5 million in 25 days. I guess that $149 price point isn't dimming the enthusiasm... although we don't really know what they could have sold if the price was $99, do we? You have to admit Microsoft's numbers look impressive compared to the Wii, since they've sold roughly 2.5 times what Nintendo has sold in the same period of time, at nearly the same price point... and the Kinect isn't even a complete game system.

Microsoft clearly crushed Nintendo in that time period, so how about Sony? They couldn't resist chiming in with their sales numbers for the Move: 4.1 million Moves sold worldwide so far. OK, they did have an extra week or two of sales over Kinect, and the price tag is roughly 1/3 to 1/2 the Kinect (depending on the configuration)... but it's still a big number. And, once again, this is not a complete game system. Nintendo who?

The big caveat with all the waving of sales numbers in the age-old game of "Mine's bigger!" is that these numbers most likely represent sell-in, not sell-through. Sell-in is much easier for the companies to track, because that number is in their sales software. To get sell-through numbers (that is, what customers have actually purchased and taken home), they have to rely on retailers... a notoriously secretive lot. Still, I don't think there's huge numbers piling up at retailers. But some analysts are wary of the reports of "shortages", sensing an all-too-common manipulation of inventory in order to create the appearance of overwhelming demand. In the hopes of actually creating more demand, because it's scarce, so you have to get it now before it disappears...

It will be educational to see the overall numbers for the 4th quarter, both for consoles and for the add-ons. So far, based on these early numbers, it looks like Microsoft and Sony are crushing Nintendo. New technology beats old tech in new colors, I guess.

The Wanting

If you're looking for another reason to be pessimistic about the holiday sales picture for videogames, here's one: Nielsen's got a survey of kids about what they're looking for for Christmas. Number 1 for kids age 6-12: The iPad. Followed by a computer, and an iPod Touch. At least when you get to the number 4 slot it's a Nintendo DS, and then number 5 is a PS3. But it's kind of interesting how far down the Wii, and the Move, and Kinect are... and the Xbox 360.

The picture for kids age 13+ is also interesting:

A computer is number 1, followed by a TV (high-def, no doubt, not 3D); and then we get into smartphones and the iPad.

You can understand by looking at this survey why handheld videogames are lagging, and why publishers should be concerned about sales of them in the future. If kids are all going to be getting smartphones, it's harder to convince them to carry yet another portable device around to play games. If they have a spiffy smartphone that can play games (and games that are cheap), why have another device? Juggling two pocket devices gets tricky. And you have to have your phone... otherwise, how will you get and send text messages? (Gee, you'd think handheld consoles might be able to do that... what if you added a 3G chipset? The rumored PSP phone might be what you get.)

If you extrapolate this to see what can happen in the family room when you have mobile device app markets available, you can see where the whole industry is headed. The high growth rates are going to continue to be in the non-traditional areas. The old school industry, currently showing negative growth rates for the past two years, isn't likely to jump into high growth rates any time soon. Or ever.

http://www.gamasutra.com/view/news/31673/Nielsen_iPod_Touch_iPad_Outpace_Game_Systems_On_Kids_Want_Lists.php

Nintendo's Very Bad Year

Over at Gamasutra, Matt Matthews has analyzed the sales figures for console game software in 2010 versus 2009, and the results are interesting. As you'd expect, the older systems aren't selling much software; the PS2 really slowed down. The PSP was having a hard time selling software, too; perhaps because developers have been pulling back, and anticipation is growing for the PSP2. The DS's software slowdown is harder to explain, especially when you consider that it still sold 4.5 million units this year, making it the best-selling platform, and it's got a huge installed base of over 125 million. Yet software sales still dropped 12%, far more than average. I think it's partly due to the effect of iPhone games and Android games, but there's no way to know for sure.

The big story here is the collapse of the Wii. It's fallen to third place in software sales, despite having a much larger installed base than either of the other two consoles. Clearly Wii owners just aren't buying much software, and the issue is probably made worse by publishers backing off on Wii support (especially for major titles). The Wii's lack of hardware power will probably hurt it more and more in the next few years, as publishers continue to wring out more performance from the Xbox 360 and the PS..

Also, the HD output of the PS3 and the Xbox 360 will be increasingly important, as the adoption of high-def TV sets increases. Wii titles are going to look increasingly dated compared to titles for other consoles. Worse, the Wii's motion control is no longer unique, as both Microsoft and Sony have better solutions. The only thing the Wii has left in its favor is price, and that advantage will continue to erode unless Nintendo takes some drastic pricing action.

Let's also note that Microsoft is having a great year with the Xbox 360, and Sony is doing well, too. They seem to have finally hit their stride, and third-party support for their consoles is strong. They still have the competitive threat from the Apple TV/Google TV juggernaut on the horizon, but otherwise they seem well-positioned for the next year.

If Microsoft and Sony really want to slide the knife in deeper, they'll cut the prices on their motion control hardware next year (after they've gotten all they can from the early adopters who don't mind paying the premium). This will really make life difficult for Nintendo. At this point, only a new console will really rescue their sales. A price cut on the Wii would help, but it's unlikely to bring back big-time support from third-party publishers. Without that, the Wii will continue to sink into obscurity.

Nintendo must be hoping the 3DS is a huge success, because there's nothing in the Wii outlook that makes one optimistic. Nintendo needs to get a new console out there by Christmas 2011 if they hope to be relevant to the market, and they are already behind if they really wanted to do that.

It's going to be an interesting year in the console wars...

October Sales Were Scary

They aren't laughing at the sales charts.

Numbers have been shared for the game industry's October sales, despite the best efforts of NPD to put their data behind a paywall. As you might have expected, it's not all that pretty. Total sales dropped 4% over last year, but the real downer is the 26% drop in hardware sales. Software sales were actually up by 6%, and accessories (like Kinect and Move) jumped 18%.

Still, when you consider some of the high-profile software releases lately you can understand why that category rose. What's more disturbing is the huge drop in hardware sales. Nintendo sold just 232,000 units of the Wii console for a third-place finish, a decline of 54%, while the PS3 sold 250,000 units (a drop of 22%, but of course last year they had just dropped the PS3 price at this time). The Xbox 360 was the big winner, with sales of  325,000 units, a gain of 30% over last year.


NPD tried to put a happy face on things by saying that, well, these days not all of the revenue in the game industry is captured by these numbers; there's digital distribution, social games, used games, DLC, etc. True enough, but the key fact is most of the companies dependent on the traditional industry revenue don't see much of this other revenue. Sales continue to be in the dumper, and the happy holidays have not yet materialized. Except maybe for Microsoft, whose Xbox 360 continues to gain due to Halo: Reach and Kinect. I wonder if Microsoft will be able to continue their streak... or if Nintendo will manage to break their losing one.

Nintendo can try to say Wii sales will be fine, but the numbers don't bear that out. And while they are looking forward to the 3DS reviving handheld sales, meanwhile DS software sales sank 32%. Not something to make third-party publishers happy with Nintendo. Of the three manufacturers, Nintendo seems most in need of newer hardware, yet is the one most consistently saying they aren't even considering it. Maybe Nintendo wants to get back into playing cards...

Kinect, Move Both Selling Well

The two big gaming hardware introductions for the holidays, Microsoft's Kinect and Sony's Move, are both selling well out of the gate. Microsoft has boasted of selling more than 1 million Kinects in 10 days, and they expect to exceed their enhanced target of 5 million units through the holiday season. They also noted it would be launching in Asia in a few days, though anyone who knows how poorly the Xbox 360 has done in Japan would know not to expect too many sales for Kinect from there.

Sony, not to be outdone, has also stated that Move has sold more than 1 million units in North America and 1.5 million in Latin America, though they haven't provided recent updates for those figures. Of course, the Move is only $49 compared to the Kinect's $149... though of course you really want to get a couple of Moves to equal what the Kinect gives you.

Both motion control packages seem to be doing well, and probably will continue to do so during the holidays. The big loser in all of this is Nintendo, as Microsoft and Sony have just taken away one of the Wii's major selling points as the only console with motion control. Both Microsoft and Sony now offer better motion control solutions than Nintendo, though Nintendo still has them on price.

But I think this changes much of the argument over which console to get. When the Wii was first introduced, I think part of why it did so well was because it was a great family-oriented console, as well as being $200 to $300 cheaper than what Sony and Microsoft were selling. Now, all three consoles have a nice array of family-friendly, easy to play titles (Kinect being even easier with no controllers whatsoever), and the price differential is down to $150 or even $100 (not if you count the motion control bundles, true). So the kids can argue more successfully for the Xbox 360 or PS3 with all the cool games they really want... because the family can play games on them too. (And if you want a Blu-ray player, the PS3 becomes an even better deal.)

Is it a coincidence that Wii sales are off 60% over last year? Yet Nintendo seems to be content to rearrange the deck chairs rather than changing course. I think Santa's gonna bring them a lump of coal for Christmas.

Holiday Fables Told Anew By Nintendo

This will save Nintendo's holiday sales? Ho ho ho!

It's that magical time of the year when fairy tales are told and wishes are magically fulfilled. Which is really the spirit of Nintendo of America president Reggie Fils-Aime's remarks to investors. Money quote: "The holidays are more important to Nintendo than to other manufacturers," he said. "We have a distinct edge when it comes to gift-giving, and it's no doubt because of the familiarity and recognition of both our brand and key franchises." He added, "The Nintendo difference continues to attract new consumers. ... For us at Nintendo, it's full speed ahead."

Yes, he'd like us to recall the golden years of past Nintendo holiday sales... not the harsh reality of this year, when sales are off more than 40% for the Wii. It gets worse: Industry analyst Michael Pachter is predicting a 60% drop in Wii sales for October, and the rest of the holiday season doesn't look much cheerier. Ouch is too mild a word... is there a word for when you take a sword blow to the intestines, or somewhat lower?

Oh, but Nintendo has a solution for the holidays: "From a Nintendo perspective, we have two red bundles in the marketplace that we didn't have last year." Right, of course, how could consumers resist buying a red Wii? I already feel this urge to replace my anemic white Wii with a spiffy new red one. That is, if I could find out where it's been gathering dust in the house while the 360 gets all the action.

I do plan to dust off the Wii and fire it up when Epic Mickey comes out, just so I can see what Warren's been up to. I have no doubt it'll be awesome. I also have no doubt that Nintendo's gonna get stomped this holiday season by people rushing to buy 360's and PS3's. For October sales Pachter expects the Wii to drop 60% to just 205,000 units sold, while Xbox 360 is forecast to grow 58% to 395,000 units sold. Sony's PS3 is expected to dip 17% to 265,000 units. I see no reason for the general pattern to change for the rest of the holiday season.

3DS Online Shop

Nintendo has figured out that their online shopping for the Wii and the DS might be less than optimal, so they're planning to improve the experience for the 3DS. They're changing the interface, adding videos and more information, and even allowing (gasp!) user ratings. Software you buy will be downloaded onto a 2 GB SD card (apparently included with the 3DS). You can (somehow) transfer previously purchased downloaded titles from the DSi to your 3DS.

Iwata-san even mentioned that there will be 3DS software for download... though I'm not sure he meant titles that would also be available on cartridges in stores. The real revolution will be when you can buy all software from your 3DS and never have to go into a retail store, and when all your games can be stored digitally in your 3DS so you never have to worry about which game you have with you.

Though Nintendo has even bigger plans for shopping: shopping for real stuff from your Wii, according to this post. Pretty neat, you can actually shop for goods on your TV screen. Imagine if you could do that from your computer, or even somehow hook your computer up to a TV and do that! Oh, wait a minute... something tells me this may not be an entirely new idea.

Here's what their press release says the selling points are:

• Ease of use through the Wiimote
•  Customers can enjoy shopping 24 hours through their television.
• The service will offer over 10,000 items, from including food, fashion and furniture.
• The service will offer exclusive items that will not be sold elsewhere.
• Buyers will be able to make payments via credit card, cash on delivery and payment at nearby convenience stores.
• The service will also allow orders to be placed via the phone.

No word on whether they'll try something like this outside of Japan. I don't think the Home Shopping Network needs to be worried though. Or Amazon. I guess for Japan it's revolutionary, though.

I'm not sure that Nintendo is inventing the future any more; seems more like they're inventing 1997.

Earnings Roundup For The Big Three

Sometimes it can be hard to sort out what's going on at the Big Three console manufacturers when their PR machines are churning out clouds of smoke. Fortunately, every once in a while we get financial reports that slip a few facts in there. Let's look at what's being reported. (I'm only going to cover revenue for the games divisions of Sony and Microsoft, but for both of those companies it's usually true that if the games division is doing well, the whole company is doing well.)

Microsoft, as you might have expected, had a great quarter with the release of Halo: Reach. The Xbox 360 business went up 33% over the same quarter in 2009. They sold 2.8 million Xbox 360's, about 38% higher than last year. Total revenues for the game section were $1.2 billion, with Halo: Reach accounting for over $350 million of that all by its lonesome. The division made $382 million in profit for the JAS quarter, which was a 46% increase from last year. Looks like a AAA sequel can still rake in the bucks, and doing an Xbox 360 themed around the release certainly didn't hurt. Microsoft expects to do well for Christmas, too with the Kinect poised to enter the market. They expect a 30% boost over last year's sales for the entire Entertainment and Devices division, though some of that is due to Windows Phone 7.

Looks good for Microsoft, but how's Sony doing? It's a mixed report for them. The PlayStation section had overall sales drop by almost 13% over last year, down to $2.12 billion. The PS3, though, had its number of units sold increase 9% over last year due to the PS3 Slim and the Move introduction, with total units sold hitting 3.5 million. Software sales rose from 23.9 million units to 35.3 million units. Why did sales overall drop? It's all thanks to the PSP, which saw sales drop by 50% year-over-year (I believe the technical term you see in the financial press is "plummet"). The PSP sold only 1.5 million units in the quarter, matching the 10-year-old PlayStation 2. PSP software saw a 2 million unit drop to 13 million, and PS2 software was almost halved with a drop to 5.6 million units, versus 11.4 million last year. Sony expects the PlayStation division to sell 15 million PlayStation 3s, 8 million PSPs, and 6 million PS2s for the year. Not bad, but not as good as Microsoft.

Looks like Nintendo gets to be the bearer of purely bad news. They lost almost $25 million over the last six months (compare that to the same period last year, when they had a profit of over $75 million; that's a $100 million dollar swing). Nintendo saw DS sales drop 43% over that period, down to 6.69 million units (about 1.1 million per month on the average). Wii sales dropped over 14%, down to 4.97 million units for that six-month period, with Wii software sales dropping a similar amount. DS software sales only dropped 23%, which I guess is cause for celebration compared to all the other numbers.

Some analysts think Nintendo can still pull out a good Christmas, but others (like this one) disagree, and don't see any happy surprises under the tree for Nintendo. Put me in the "Nintendo's gonna get worse before it gets better" camp. Though I'm not sure how much better they're going to get. I'm sure the 3DS will have a good launch, but that still doesn't solve the Wii problem, which probably wouldn't get new hardware until next fall at the earliest. The 3DS may have a rough time maintaining good sales with an impending PSP2 launch, and the continuing successes of the iPhone, iPod Touch, iPad, and Android devices.

It gives you some perspective when you look at the sales numbers from the Big Three and compare them to iPhone numbers (currently selling close to 5 million per month) or Android numbers (6 million per month) or even iPad numbers (currently at 1.3 million per month and rising). When iPads are outselling DS's, and the iPad is at least 5 times the price on average, you know Nintendo has a long-term problem. At least Nintendo is finally acknowledging that Apple is a threat. Of course, that's not the same as actually doing something about it, like opening up the DS to all kinds of software development with little or no bureaucracy.

We'll see where the industry sits once the glow of Kinect and Move introductions has worn off. I expect 2011 to be another lackluster year for software sales on traditional consoles.

Nintendo In Crisis

The DS as a shopping tool? I don't buy it.

Nintendo is in an interesting position these days... as in the old Chinese curse, "may you live in interesting times." Their flagship product, the Wii, was declared the early winner of the latest console generation as it handily outsold the XBox 360 and the PS3. Publishers were scrambling to shift development dollars away from PS3 and XBox 360 titles to the Wii. That was then... and now, Wii sales have fallen 45% from last year and is being beaten handily by XBox 360 and PS3, thanks to their new low prices. Worse, publishers found that the attach rate (the rate at which console owners bought software) was far lower for the Wii than for the other platforms. Sure, Nintendo could sell a new Zelda or Mario title for the Wii, but sales of anything else were disappointing despite the large installed base of Wii. The installed base doesn't help publishers if they don't buy software.

Well, that's OK, because Nintendo still has the best-selling DS line. Well, it was best-selling... this year sales are down 25%, with both hardware and software taking a hit. The introduction of the DSi XL was undercut by Nintendo's announcement of the 3DS. An amazing blunder, or perhaps it was just that Nintendo realized a larger DS was not going to solve the sales problem, they needed some new technology. So they stepped on the product they had just announced.

Now we're looking at a very bleak holiday season for Nintendo. No new Wii on the horizon; no price cuts; no killer software for Christmas. The DS line has slowed to a crawl as the 3DS is announced for March. What's the big N going to do?

There is an interesting twist; a patent application they have in the works that details how you could use the DS as a shopping tool, assuming the store had information on products stored in a wireless network in the right format. On the positive side, it shows Nintendo is thinking about the DS as more than just a game-playing device. On the negative side... it's pretty lame compared to what you can already do with a smartphone by reading UPCs and comparing prices to other vendors.

Nintendo is hoping the 3DS sells big; they are so confident they are charging a premium price (and possibly raising software prices as well). Even assuming they are right, though, this does not help the Wii. The answer to that one is really pretty simple: Drop the price to $99. And do it before Christmas. Meanwhile, crank up the engineering on a new console, whatever you decide to call it. More horsepower would be nice (and relatively inexpensive), but it really needs some new gimmick. Sony and Microsoft have now copied the Wii's gestural interface, and improved on it considerably (in two different ways). Can Nintendo think of something new?

Really, though, the answer doesn't require hardware innovation; they need business model innovation. Look at what's driving the success of iOS and Android; it's their huge market of Apps, with an amazing variety of uses at low prices. Nintendo could create such a market, and even integrate it between the DS and the family room console, giving you an additional reason to use the handheld device as an optional controller for the family room console. All it requires is that Nintendo completely upend the way they do business now and reinvent their approach to online connectivity, throw open the doors to developers and make the tools easy and inexpensive, and make the approval process transparent and so swift it only takes a day or two.

You may doubt that Nintendo can reinvent themselves so completely. Well, they were once a company that produced playing cards... there's been a few changes since then. It's possible, especially if their sales don't recover as much as they hope.

Still, my guess is that Nintendo will not do anything so dramatic. They tend to be conservative. Perhaps the Wii may see a price drop next year, but probably only to $149. They will hope the 3DS reignites the DS line; the real effects won't be known until some months after the introduction, when sales settle into a predictable level. (Though, thanks to NPD hiding the numbers, we may not really know whether that's happening or not.)

Marketers need to predict where the market is going in order to guide their planning. It looks to me like the momentum is heading away from Nintendo.

Nintendo Admits Failure

Nintendo actually owns up to their lameness in WiiWare and DSIWare, their online stores for digital distribution.
 They admit they haven't done a very good job, and plan to do better in some unspecified fashion, at some point int the future. Of course, no mention of this was made at E3, but then again E3 is all about the traditional retail channel and you wouldn't want to piss those guys off by talking about digital distribution.

What could Nintendo do better? Well, offering demos for all of the titles would be a good start. Allowing a wider range of titles would be nice. How about allowing all sorts of price points? Or maybe even making it easier for developers to put titles into the store? Free-to-play titles?

I'm afraid that the high-growth areas in the game industry, like social games and free-to-play games, are just not going to be in the classic manufacturer's strategy plans. They are too cautious about alienating the current retail channel, especially after Sony got hammered for the PSPGo (which attempted to make digital distribution the only way to get games). Of course, the PSPGo had other problems, like a high price point and insufficient flexibility compared to an iPod Touch.

Nintendo has traditionally been slow to adopt any changes in their business model, even as they like to innovate on the hardware side. Of course, their innovations always tend to be very cost-effective; they never push the envelope on losing money on their hardware sales. Nintendo resisted the move to CD-ROM for a long time, preferring cartridges that gave them a better control (and profit margin), even though in the end that let Sony pull way ahead with the Playstation. The Wii didn't offer much of a horsepower advantage over the Gamecube, and no HD support; what it did have was an innovative control option (which Sony and Microsoft are finally getting around to imitating, in a much more expensive way).

I don't think that Nintendo will be a good place for small independent developers to invest resources. The Flash game market, the downloadable PC game market, the Facebook game market, and the iPhone/Android markets are all easier to get into and less expensive to develop for. Marketing is a problem for all of them, but that's pretty much true these days for any game market. You have to develop a brand name and an audience.

I just don't think Nintendo is going to offer any help to developers, whatever changes they make. They have never cared much about third party developers, except as a source of licensing fees. (Kind of like Apple.) Don't expect that to change.

Kinect Revisited

Microsoft is being coy about Kinect's lag issues; the lack of responsiveness in this interview was deafening. Concerns are still an issue, as this article on 1Up shows (Rare denies it's a problem, but then says in their Kinect Sports title it's 150 ms, which is nontrivial for action gamers); and showing the Kinect on Jimmy Fallon you can see where lag is still a big problem.

Meanwhile, Microsoft's online store has Kinect priced at $149, so I guess I shouldn't give Microsoft the benefit of the doubt about holding off on pricing. Looks like it's a done deal at the $149 price point. Which seems odd for a device clearly targeted at casual gamers, who can get a Wii for just a little more (if they don't already have one, that is). Hardcore gamers might drop $149 if the hardware made their games cooler, or there were interesting titles that were Kinect-only, but that doesn't look to be true at all, or even possible given the amount of lag. Perhaps you could enhance gameplay a bit with Kinect, but not if your buddy online kills you every time because he's using a controller.

Bottom line: The Kinect looks like a loser to me. It will sell some units, but the Wii was there years ahead and already captured the market, and still has a price advantage. The Kinect will not be for hardcore gamers, and unless it sells a lot of units quickly (which seems highly unlikely at $149), developers won't be rushing to support it... and it will never take off. Perhaps they can incorporate the technology into a next version of the 360 (if there is one), and at that point maybe advances in processor power can make the lag issue go away inexpensively. Until that happens, don't expect much from the Kinect.

Sony's Move? A little better, because at least it offers a $49 entry price (which quickly mounts when you look at all the other stuff you probably want to buy, though... and then each player will need one, too). Lag should not be an issue, so it's possible to see the Move being used for action games. Still, it all comes down to installed base. If Sony can get enough units out there fast enough, developers will support it. I predict mediocre success; more units than Kinect, and another reason to buy a PS3, but not a huge industry boost.

Meanwhile, Wii trundles forward... and if either Kinect or Move starts to look like a threat, Nintendo can drop the price to $149 and stab their grandiose dreams through the heart.

It's kind of sad when you think of all the marketing effort and dollars that went into these motion control devices. That was their best shot? Wasted effort... should have spent more pushing their games. If they really wanted an influx of players, they should have cut deals with social game companies or opened up their download markets even more. That would have been a... smooth Move? Added some Kinect energy to the game industry? I guess Wii'll never know...