Has Nintendo Cooked the Golden Goose?
The biggest threats to Nintendo's success in 2009.
Australia, May 8, 2009 - Complacency in the face of consumer doubt in the marketplace. It's a dangerous thing – particularly for the market leader, Nintendo – the fiscal king of gaming. However, this is exactly the situation the gaming goliath has found itself in at time of writing – precariously balanced atop the tower as two other competitors scramble at its heels.
With the global recession now finally taking its toll against the so-called evergreen gaming market, we're examining the latest global sales trends – and the results are surprising. While still churning out impressive profits, Nintendo may have finally hit its peak with the Wii – and with a lack of stand-out titles hitting the market in the last 12 months, it's possible Nintendo has been too complacent and the market is threatening to move on to the next-big-thing.
Off the back of recent profit posting, we examine some potential threats to Nintendo's ongoing successes.
PS3 outsells Wii in Japan
March and April have been some of the PS3's strongest months since launch for Sony's PlayStation 3, and the first time the Wii has dropped behind the PS3 in 16 months. This is a big deal. On the surface, sales can be directly attributed to the release of Final Fantasy VII: Advent Children on Blu-ray – coupled with the demo for Final Fantasy XIII.
Naturally, Sony has a stable of potential buyers who are waiting for this series to land before putting down the dollars on a PS3. However the demo alone was enough to shift 62,527 units during the week ending April 24. During that same period, the Wii shifted only 13,221 units. Critically, the PS3 has just overtaken the Wii for raw sales since the start of 2009 in Japan too.
Why does this matter? Japan has long been an excellent market for measuring upcoming trends. If the Japanese gaming enthusiast is moving on from the Wii – and if game sales are down – then it's a trend that may translate globally down the line. Nintendo is going to have to act fast to stem the PS3's progress in the Japanese market if they are to retain their market-leading position long-term.
Game and console sales are down
The all-important market research firm, NPD Group, paint an interesting picture of the market right now. NPD, who base their figures on sales data from the North American retail sector, has shown that the global recession is slowing down hardware sales. That's natural – people are being more cautious with their money.
In 2008, the US market made an estimated US$1.43 billion, which is down 17 percent from US$1.72 billion. That's still nothing to sniff at – Nintendo still earned an operating profit of US$5.6 billion globally, too. However, the only company to make year-on-year console hardware sales grown wasn't Nintendo – it was Microsoft. Wii is still on top in the US (and Australia, for that matter) – but Microsoft is truly making up ground.
While February and March are traditionally quiet months, if the industry continues to decline and Nintendo's hardware sales have in fact reached saturation point, the door will be open to Sony and Microsoft to aggressively price-cut, release Wii-like hardware add-ons and further eat into Nintendo's market share.
Where are the games?
It might seem like a simple point, but the Wii has not had a blockbuster 'pure' gaming title since Super Smash Bros. Brawl, which landed in the US in March 2008. Without support for traditional gamers – users who influence friends and family with infectious passion – the level of grassroots marketing and excitement is drastically reduced. If people aren't talking about your brand, then there's a problem.
Sony has seen incredible successes with its SingStar brand of karaoke games in PAL markets, capturing the casual and female demographic, and much of this is due to regular injections of fresh content – either on disc or through the SingStore. Whereas WiiSports brought in a similarly broad demographic, there hasn't been a fresh WiiSports yet. That's a serious problem. Wii Fit has captured a lot of users, too – but there's simply a lack of fresh content for both casual markets to keep them in front of their TVs and using Wii every day. We're not saying there needs to be a new WiiSports title every month – but there needs to be more consistency in releases throughout the year.
Wii Music was a strange miscalculation for the company, too – trying to capture that same SingStar 'lounge-room performer' market – but with a product that lacked the wide appeal of licensed songs and fresh, regular content updates. For a company that prides itself on leading the pack and innovating, it was a bit of a 'me-too' manoeuvre. Such a game also came at the expense of development time that could've been invested in bringing games like WiiSports Resort to shelves sooner – to likely greater fiscal result.
Software sells hardware...
But what if the software just isn't selling? Guitar Hero and Rock Band are responsible for one-half of all Wii software sales in the US. That's a little-known fact, but a telling one – something akin to Sony's successes with SingStar, as outlined above. Third-party companies who aren't on the music game or sports bandwagon are having a hell of a time trying to make any serious profits with their Wii products, according to Cowan & Company analyst, Doug Creutz. A significant factor is that many consumers who buy a Wii simply don't buy any other games – rather, just sticking with the included Wii Sports.
As such, Doug Creutz likens the Wii to 'fool's gold'; in essence, a large install base is great, but just because you produce a title for the highest selling console doesn't mean your title will benefit from those numbers. The ultra-casual crowd has even affected major players like EA, with their Wii-specific versions of games, garnering criticism from EA's Peter Moore about the system's under-performing attach rate.
The sheer cost of development, combined with Nintendo's licensing fees and sales cut are a major issue. However, the other problem revolves around overcrowding on shelves. There are simply an overabundance of 'shovelware' titles that are all competing for the same dollars. Very few stand out – most simply fail to make their money back. That's not good business – and certainly not a healthy way of encouraging ongoing third-party support. Once burned, twice shy.
Is the DSi a distraction?
With so much focus on the handheld scene right now – a lot of it in response to Apple's tremendous success with iPhone as a development platform, the Nintendo DSi is making a lot of headlines. With more than 100 million DSs on the market, the DSi hopes to eat into the iPhone's app-centric market share, further bolstering the DS brand's status.
The flipside of all this media attention on DSi and iPhone is that the Wii – once the technological darling in the media spotlight – has now become yesterday's news. There are fewer and fewer headlines about the Wii's motion control, novel Channels and new content. With less exposure, demand is lessened. Less demand means fewer sales – and on it goes.
The E3 Conundrum
Punters have tipped both Sony and Microsoft to reveal new hardware and some major announcements concerning full-body motion control and interactivity for the PS3 and 360. Nintendo, who we all know pioneered this stuff with the Wii, is now seeing the effects of being first to market: you get outpaced eventually by new hardware innovations.
The real question is: can Wii Sports Resort, Red Steel 2 and a bevy of Tennis Games create enough stir to convince gamers that MotionPlus is as significant a jump as that of its competitors? New hardware announcements always tend to garner the most attention – and with a year now between its original announcement and today, is MotionPlus still as tantalising? Moreover, the current less-is-more approach to software releases only works if the games that do get released are of exceptional quality and generate interest. In the last twelve months, looking at Wii Music and Animal Crossing: City Folk as examples, they aren't, and they haven't.
E3 2009 will be a pivotal showcase for all three companies. However, Nintendo has the most to lose, and therefore the most to prove. We're eager to see what's in store, then. Best case scenario, we'll see a stronger showcase of pure gaming titles than we been hoping for, as well as a key piece of hardware that is capable of putting the Wii back into the media spotlight once again.
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