It was not long ago that Nintendo was setting the video game world on fire with the two most popular gaming systems on the market. Sony and Microsoft were in an epic battle for second place, because there was no point in even trying to beat the Wii in console sales. Nintendo was literally outselling the Xbox 360 and PlayStation 3 combined without even breaking a sweat and on top of it, their system was actually profitable, whereas Sony and Microsoft were initially posting losses on every unit sold. The Nintendo DS could have easily been the only handheld gaming system on the market, because the PlayStation Portable was selling like a lead balloon.
All this leads me to one question – what the heck happened? Nintendo announced their earnings, or lack thereof, for the 6 months leading up to September 2011, and they posted a $926 million (70.3 billion yen) loss. That number is staggering. The company which seemingly could do no wrong two years ago is losing almost a billion dollars in a period of only 6 months. This obviously is not a matter of luck, or unfortunate timing. There has to be a reason Nintendo is taking a financial beating.
They Entered the Fad Market
How many people do you see riding around town on a Razor scooter? Do you still see little kids walking down the street playing with their Tamagochi? Do you remember when Tickle Me Elmo was not available in any store because every kid had to have one? This is exactly the market Nintendo entered with the Wii. They tried to capture the interest of the casual gamer, and left the hardcore gamers behind. At the time, you could not argue with the results. Their system was selling gangbusters, and the money was coming in huge in a way that Nintendo had not seen in a long time.
Things were looking great for Nintendo, but slowly console sales slowed down, which is pretty standard in the console business, as Microsoft and Sony were not moving anywhere near the units they used to. The difference between their situations is that the Wii was a fad for all these “casual” gamers. They bought their Wii, played Wii Sports and never went to the store to purchase another game again. This meant that once the initial sale of the console was complete, Nintendo and third-party developers were not seeing another cent from those customers.
The fact is, fads are great for a short time but it is the “hardcore” gamers, who support a company for the long haul by purchasing software, downloadable content and accessories for their console, and with the Wii, Nintendo did not capture much of that market, and they are taking a financial beating because of it.
The 3DS Price Fiasco
The Nintendo DS has sold an insane amount of units throughout its life. Part of the reason for this was innovative dual screen design, and the awesome touch screen interface. A huge part of this was also the fact that the system was affordable for pretty much anyone. For gamers, being able to take all their favorite Nintendo games like Mario, Zelda and Pokémon with them on the go for a reasonable price was a winning proposition.
Flash forward a few years and along comes the Nintendo 3DS. It stole the show at E3, the first year the press could actually play with the device. Members of the media (myself included) waited in line for half a day at E3 just to get our hands on the device for a few minutes. We were blown away. The graphics looked great for a portable system, and the 3D actually worked. It looked like another big win for Nintendo.
After a time of happiness, Nintendo announced the price. $250 for a portable system sounded like an absolute formula for disaster. To put in perspective, an Xbox 360 starts at $199, a PlayStation 3 starts at $249, a Wii starts at $139, and a Sony PSP starts at $139. It seems hard for me to accept purchasing a portable system for the same or more than an Xbox 360 or PlayStation 3 (although I bought one for the full 250, go figure).
Of course, Nintendo lowered the price of the 3DS to $169, and gave people who bought the system at full price 20 free downloadable games, but the damage had been done already.
This one might sound a little crazy, but it is hard to ignore the power of iOS as a gaming platform. The recently launched iPhone 4S sold over 4 million units in the first weekend. All of those people, plus the millions of other iPhone and iPod Touch users are potential customers for Apple’s app store. Each one of them could become a gamer, even if they only spend a dollar on Angry Birds or Words With Friends.
I will admit that I prefer to do my portable gaming on my iPhone because I do not have to carry an extra piece of hardware with me, and I am sure there are other people who feel the same way. Nintendo’s President has even said that the iPhone is hurting gaming because their prices for games are too low, and they devalue games in general. If Satoru Iwata is taking notice of the iPhone, we know it has to be more than just a small blip on Nintendo’s radar.
There was a time when gaming on a phone meant nothing to a company like Nintendo. Playing snake on a phone just could not compare to playing games like Mario Kart and Zelda on a handheld gaming system, but times have changed, and some iPhone games look better than DS and 3DS games. It is hard for Nintendo to sell a system for $169 and games for $30 when you can get an iPod Touch for $199, and quality games for around a dollar.
Nintendo is releasing a new Wii, which will have much improved graphics and another completely new and creative controller design. I hope that the Wii U, along with the price reduction on the 3DS will pull them out of this slump. Only time will tell, but Nintendo has a track record of correcting the ship when it seems like they are dead in the water.
What do you think are the reasons Nintendo is suffering financially now? What could they do to get back on track? Let us know in the comments!
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