• Register
  • TOS
  • Privacy
  • @NeoGAF

Snowden's Secret
Banned
(08-26-2013, 03:59 AM)
WARNING: Some math and assumptions. I've been working on the budgets and forecasts for my company over the weekend and so I was in the mood for something in this vein.

Originally Posted by facts

-Wii U is already being sold for a loss
-Margin of loss is within the reach of a single game per Reggie (means Nintendo is taking anywhere from a $7-$30 bath on each Wii U)
-Any additional price cut would add to this loss

-As of the Q1 results Nintendo has sold 3.61m Wii U consoles and 14.44m Wii U games (4.0 attach rate)
-Total attach rate for Wii, DS, 3DS, & Wii U is 6.65 games/console (1929.05m software/290.06m hardware)

So everyone is together up until this point, we're all mostly on the same page and agree. Many, though, argue that Nintendo needs to further cut the price on the Wii U, and this is where we split. Even if Nintendo spurred the growth of Wii U's install base at the cost of per unit losses, that's still a losing strategy for Nintendo

Originally Posted by Some base assumptions:

-If we assume (for simplicity sake, also this is favorable to Nintendo for the sake of my projection) that Nintendo Land and NSMB U (essentially Nintendo's only first party software through Q1) have a 1:1 attach rate, that means half of Wii U's software sold is third party
-Nintendo makes roughly $7 (revenue) for every third party game sold as a royalty
-Nintendo makes roughly $30 (revenue) for every first party game sold

-We will generously assume that 10% of all software sales are digital (seems to be about the upper bound)
-This part is a wild guess, but I am assuming that Nintendo's cut doubles for both third party and first party digital software (because of no retailer cut) ($14 and $60, respectively)

-That means Nintendo earns an average of $20.35 in revenue per software sold (at full price)

Originally Posted by relative pricing

-Wii U currently costs $300 ($300 w/o a game, $350 w/ a game, all comes out roughly the same)
-Both previous gen HD consoles currently cost $200
-PS4 is $400
-XBONE is $500
-Relative price (lowest to highest) is: PS3/360 < Wii U < PS4 < XBONE
-Nintendo cannot change the relative price of the Wii U without at least a $100 price drop (to match PS3/360) or more (to be cheaper)
(Personal note: I feel the relative pricing point is probably enough to have ever ruled out a price drop as the Wii U is already $100 cheaper than either other next gen system)

So, how much price drop are we talking? Nintendo goes super aggressive and cuts the price another $100, pricing the basic model at $200 and the deluxe (packed with a game) at $250?

Originally Posted by price cut

-Nintendo is now losing an additional $100 per console sold
-That means Nintendo has to sell FIVE games (at an average revenue of $20/game) just to make up the loss (in addition to the one game they already have to sell to break even)
-Wii U's current attach rate is FOUR games
-If Nintendo sold 10m Wii U consoles after the price drop, they'd have lost approx. four hundred million dollars in revenue)
-If Nintendo sells half that many (5m) Wii U consoles but with no price drop (and the same attach rate and average revenue etc and still needing a game sale to break even) they'd bring in approx. two hundred and fifty million dollars in revenue
-This doesn't even take into account the number of copies each first party game (roughly half the units sold) have to sell in addition to the above to break even on their development costs
-Also the assumption for Nintendo Land and NSMB U at 1:1 each is pretty generous (meaning that the average $20 revenue/game is probably too high, meaning Nintendo would have to sell even more software to make back the $100)

So, if Nintendo cut Wii U's price $100 prior to the holiday, each Wii U sold at that price would almost certainly be a net loss for Nintendo, even over the entire course of the generation. At the average attach rate of 6.65 units/console, Nintendo would likely never make this money back. The argument in favor of price cuts is generally "it increases install base" but the point of increasing the install base is to sell them games, and if you're still losing money even after they've bought all their games, what's the point? You were better off never selling them a console in the first place.

Of course, the winner in this scenario is third party publishers, who don't have to eat the cost of the Wii U, and would see their gains go up with the install base. So there'd be some value (not sure how to measure that) in Nintendo "taking one for the team" and losing tons of money for the sake of third parties.

What is obviously a better idea is aggressive bundling (which is why we always see so many bundles). A $100 price drop translates into less than two games for the consumer, but giving away two games only costs Nintendo an average of $40 (this is why the Deluxe bundle has all the bells and whistles that add up to more than $50 for the purchaser). If Nintendo begins bundling Wii U consoles with a game (Wind Waker, NSMB U, Call of Duty, etc) + a pre-installed Nintendo Land that's only costing Nintendo an additional $20 but offering the consumer +$60 in value.

Obviously this all excludes normal price drops as manufacturing costs go down etc.

Sorry if this was confusing, I've been typing this (and double checking my numbers) for almost two hours now, just to make a thread that is essentially "tl;dr Nintendo would lose a ton of money they'd never make back by cutting the price $100"
freefornow
Member
(08-26-2013, 04:01 AM)
freefornow's Avatar
Price cut would make sense to me as a consumer.
Consumers don't care if the company is making a loss on what they sell.
McDougles
Member
(08-26-2013, 04:01 AM)
McDougles's Avatar
Sub N64 numbers confirmed?
$h@d0w
Junior Member
(08-26-2013, 04:01 AM)
$h@d0w's Avatar
Price is not the issue.
JordanLMiller
Member
(08-26-2013, 04:02 AM)
JordanLMiller's Avatar

Originally Posted by freefornow

Price cut would make sense to me as a consumer.

Would it though? Price cut won't help the tiny library.
Soulflarz
Member
(08-26-2013, 04:03 AM)
Soulflarz's Avatar

Originally Posted by JordanLMiller

Would it though? Price cut won't help the tiny library.

.
FZZpure
Member
(08-26-2013, 04:03 AM)
FZZpure's Avatar
The console needs a steady stream of software, a price cut combined with software would be the best option though.
Skelter
Member
(08-26-2013, 04:04 AM)
Skelter's Avatar
More games would help not a price cute.
Hip Hop
Member
(08-26-2013, 04:05 AM)
Hip Hop's Avatar
What they need to do is start packaging in different games and keep them in rotation. Nintendo Land is essentially not worth a thing as you can find for $10 or less.

To me, the Wii U Black is worth $300 being sold as $350.

They need to pack in a Mario game or something, and keep the games moving after they drop in value.
fallagin
Member
(08-26-2013, 04:06 AM)
fallagin's Avatar
They really have to find some way to reduce production costs, otherwise they are in a huge bind.
mishakoz
Member
(08-26-2013, 04:06 AM)
mishakoz's Avatar
Nor does having a console at a pricepoint that no one wants to pay for.

At the very least, Nintendo needs to expand the userbase. the reason EA isnt interested in the Wii U at the moment is because there is no one there, and the console has little to no hype. Theres a minority out there right now saying that "Ill buy it when there are games" but theres many more saying "i rather get a PS4/Xbone for the money"

If the userbase doesnt expand, it isnt going to attract 3rd parties. no 3rd parties, no chance of success. A price cut would at least put it on par with the Wii, which sold so well because it was at a $250 price point, half the 360 and less than half the PS3. It looked and felt like a budget console, and thats what people want. It was silly of them to ever build hardware that was going to be sold at a loss at $350, but you know, its not going to gain them any traction, even after SSB comes out.


Bottom line, it needs to be cheaper if they want it to sell, and expand. If they want to recoup their money, they need to do it the old fashioned way, sell at a loss and make up for it in software sales.
Jackson
(08-26-2013, 04:06 AM)
Jackson's Avatar

-Wii U is already being sold for a loss
-Margin of loss is within the reach of a single game per Reggie (means Nintendo is taking anywhere from a $7-$30 bath on each Wii U)
-Any additional price cut would add to this loss

MS was taking a $300+ (some say as high as $425) loss per console on the 360's launch (that # shrunk with updated console versions).

Nintendo is the only console company to not do this.
Iorv3th
Member
(08-26-2013, 04:08 AM)
Iorv3th's Avatar

Originally Posted by JordanLMiller

Would it though? Price cut won't help the tiny library.

Might not. But I would be more inclined to play Zombi U and Wonderful 101 if I could get the system to play it on for 200$ or less.
Supermanisdead
Wishes he was as cool as MC Miker G & DJ Sven
(08-26-2013, 04:08 AM)
Supermanisdead's Avatar
i agree with you. they just need better software, and we'll be getting it this holiday and through next spring. the problem is that so is everyone else AND PS4/X1 excitement is coming.

wii u will finish a distant third, but will hopefully make enough money to be supported by nintendo, sega and some other randoms. i'm okay with that.
RagnarokX
(08-26-2013, 04:08 AM)
RagnarokX's Avatar

Originally Posted by freefornow

Price cut would make sense to me as a consumer.
Consumers don't care if the company is making a loss on what they sell.

If the loss reduces software quality/quantity and the overall survivability of a unique set of products consumers care.
Snowden's Secret
Banned
(08-26-2013, 04:09 AM)

Originally Posted by freefornow

Price cut would make sense to me as a consumer.
Consumers don't care if the company is making a loss on what they sell.

Just curious, which one would you pick:

$250 Deluxe bundle (includes Nintendo Land)

or

$350 Deluxer bundle (includes Nintendo Land, Zombi U, and Call of Duty)

You spend $100 less money in the first but get a better value ($120 free games) in the second?
Regiruler
Member
(08-26-2013, 04:09 AM)
Regiruler's Avatar
I always thought the price cut should be $50 w/ good bundling. I was never a proponent of the $100 price drop.
Tuck
Member
(08-26-2013, 04:09 AM)
Tuck's Avatar
The console will not sell at $349.99. Period. So yes, a price drop is necessary. Not my problem if Nintendo chose to sell a console at a loss.
Mauricio_Magus
Member
(08-26-2013, 04:10 AM)
Mauricio_Magus's Avatar

Originally Posted by JordanLMiller

Would it though? Price cut won't help the tiny library.

I understand that Nintendo can't and I don't ask for price cuts, but I'm waiting for a cheaper Wii U. Pikmin 3, W101, and Donkey Kong are enough for me to want a Wii U, but I believe it's overpriced. Nintendo probably can't cut the price because, but that's their problem.
Master Milk
Member
(08-26-2013, 04:11 AM)
Master Milk's Avatar
The one thing I've been getting from Nintendo's Wii U situation is that every possible course of action sucks in a big way for someone, whether us as gamers or Nintendo.

It really seems like the winning move would have been to not include that expensive gamepad.

Originally Posted by Jackson

MS was taking a $300+ (some say as high as $425) loss per console on the 360's launch (that # shrunk with updated console versions).

It made sense for MS so it makes sense for Nintendo?
HamPster PamPster
Member
(08-26-2013, 04:11 AM)
HamPster PamPster's Avatar
This thread is going to look kind of silly when Nintendo drops the price in 3 months
Regiruler
Member
(08-26-2013, 04:11 AM)
Regiruler's Avatar

Originally Posted by Tuck

The console will not sell at $349.99. Period. So yes, a price drop is necessary. Not my problem if Nintendo chose to sell a console at a loss.

Having a net loss over the course of a generation is not a good thing. Even Sony and MS only take temporary losses.

OP, I do admit there are two factors you forgot to take into effect: exchange rate, and manufacturing getting cheaper over time.
Lunzio
Member
(08-26-2013, 04:11 AM)
Lunzio's Avatar
While a price cut may not help the games library, it would, however, make the console more attractive when compared to the competition in the eyes of the average consumer.
Jackson
(08-26-2013, 04:12 AM)
Jackson's Avatar

Originally Posted by Master Milk

It made sense for MS so it makes sense for Nintendo?

Sony and Sega did it too. Everyone but Nintendo has done it.
Fandangox
Member
(08-26-2013, 04:13 AM)
Fandangox's Avatar

Originally Posted by Jackson

MS was taking a $300+ (some say as high as $425) loss per console on the 360's launch (that # shrunk with updated console versions).

Nintendo is the only console company to not do this.

Sony/Microsoft have other divisions to cover the loses?
Regiruler
Member
(08-26-2013, 04:13 AM)
Regiruler's Avatar

Originally Posted by Jackson

Sony and Sega did it too. Everyone but Nintendo has done it.

And that worked out perfectly for Sega.
Hip Hop
Member
(08-26-2013, 04:13 AM)
Hip Hop's Avatar

Originally Posted by Snowden's Secret

Just curious, which one would you pick:

$250 Deluxe bundle (includes Nintendo Land)

or

$350 Deluxer bundle (includes Nintendo Land, Zombi U, and Call of Duty)

You spend $100 less money in the first but get a better value ($120 free games) in the second?

NintedoLand has been about $10.
Zombi U has been about $20 or less.
Call of Duty has hit the $20.

That's the problem with these bundles.

Rotate the games, don't keep an essential worthless game (Nintedo Land) and keep charging $350.

The Wii U Deluxe is basically worth $300 right now with a $350 price sticker.
RagnarokX
(08-26-2013, 04:14 AM)
RagnarokX's Avatar

Originally Posted by Jackson

Sony and Sega did it too. Everyone but Nintendo has done it.

Well, Sega is the only other company that didn't have some other major divisions to make up the losses of their gaming division. How'd that work out for them? :P
Master Milk
Member
(08-26-2013, 04:14 AM)
Master Milk's Avatar

Originally Posted by Jackson

Sony and Sega did it too. Everyone but Nintendo has done it.

Hmmmmm.

So then . . . it makes sense for everyone else, so it must make sense for Nintendo?
bobbytkc
ADD New Gen Gamer
(08-26-2013, 04:15 AM)

Originally Posted by JordanLMiller

Would it though? Price cut won't help the tiny library.

It can if it drives adoption of the platform.
dragonflys545
Junior Member
(08-26-2013, 04:15 AM)
dragonflys545's Avatar

Originally Posted by Regiruler

And that worked out perfectly for Sega.

No price cut will work like wonders for Nintendo then...
fallagin
Member
(08-26-2013, 04:15 AM)
fallagin's Avatar
The wiiU will eventually get a price cut, it might be a good idea to do so right now just before the release of the new consoles.
JordanN
Junior Member
(08-26-2013, 04:15 AM)
JordanN's Avatar
Wii U's value looks horrible at any price.

It's $50 less than a console that's 10x better than it in every-way with third party support it wont ever get. But dropping the price puts it at PS3/360 territory which have a bigger library of games and the graphics are not that different.

Nintendo's marketing department didn't think this through. Their last option is to give the gamepad one final push (since that's the only thing going for it right?). If that doesn't work, nothing will.

Edit: Ah, but there's another problem. Nintendo pushes the gamepad, for a system they can't get consumers to stop thinking is the exact same as the Wii. Yeah, the alternatives are looking dry.
Last edited by JordanN; 08-26-2013 at 04:31 AM.
NinjamicWZ
Member
(08-26-2013, 04:16 AM)
NinjamicWZ's Avatar

Originally Posted by Regiruler

Having a net loss over the course of a generation is not a good thing. Even Sony and MS only take temporary losses.

OP, I do admit there are two factors you forgot to take into effect: exchange rate, and manufacturing getting cheaper over time.

Yeah, with manufacturing getting cheaper as sales ramp up, I can't see how Nintendo wouldn't make a profit on the dozen or more games they'll have released by the generation's end.

Perhaps an official price drop isn't a good plan, but what seems like a retailer initiated sale would do the trick... that way the sale price can be temporary over the holidays and revert to normal by year's end without a backlash. By then, with a larger install base, perhaps more 3rd party support and an even stronger Nintendo line-up would compel sales at normal prices for a little while before finally biting the official price drop bullet next summer or fall.
Gurrry
Member
(08-26-2013, 04:16 AM)
Gurrry's Avatar
Weve been down this road before.

Whether its 300 dollars. 250 dollars. 200 dollars. It doesnt matter.

There still isnt anything to play.... yet.
weevles
Member
(08-26-2013, 04:16 AM)
weevles's Avatar

Originally Posted by RagnarokX

If the loss reduces software quality/quantity and the overall survivability of a unique set of products consumers care.


People have clearly decided they do not want a Wii U at $350 no matter what quality it is.

The new Wind Waker bundle SKU was already leaked at $350, though so Nintendo has already decided that they are going to stick with that price this year, no matter what happens. You can do that if you are sitting on piles of cash I suppose.
Jackson
(08-26-2013, 04:16 AM)
Jackson's Avatar

Originally Posted by Master Milk

Hmmmmm.

So then . . . it makes sense for everyone else, so it must make sense for Nintendo?

Originally Posted by RagnarokX

Well, Sega is the only other company that didn't have some other major divisions to make up the losses of their gaming division. How'd that work out for them? :P

Originally Posted by Regiruler

And that worked out perfectly for Sega.

Originally Posted by Fandangox

Sony/Microsoft have other divisions to cover the loses?

Trust me. I want the WiiU to sell well more than all of you combined. :)

But the OP's comment about how selling at more of less is bad I disagree with. They should price drop this holiday. Big fat price cut combined with titles could boost sales like the 3DS.
Aquamarine
GAF's Resident Waifu
(08-26-2013, 04:17 AM)
Aquamarine's Avatar

Originally Posted by Fandangox

Sony/Microsoft have other divisions to cover the loses?

Exactly. Their deep pockets allow their gaming divisions to take bolder risks and sustain losses, as long as these losses are put towards good use.

A Wii U price cut doesn't make sense because Nintendo is not in the business of being a loss leader. They may have billions in cash, but they have shareholders to answer to...shareholders who won't take kindly to massive company-wide losses.
Sonson21
Junior Member
(08-26-2013, 04:17 AM)
Sonson21's Avatar
They don't have to be super aggressive with a $100 price cut when a $50 dollar price drop would be enough to encourage more purchases. I think they have to distance themselves further from PS4's price tag, or they're really going to feel it.
Snowden's Secret
Banned
(08-26-2013, 04:17 AM)

Originally Posted by Jackson

MS was taking a $300+ (some say as high as $425) loss per console on the 360's launch (that # shrunk with updated console versions).

Nintendo is the only console company to not do this.

I think that's a little unfair; Microsoft had XBL Gold subscriptions for one (Nintendo doesn't charge for online); other non-gaming revenue sources to cover any games console losses (Nintendo only does games); and (this is a combination of the first and second points) Microsoft has other reasons to push install base (putting boxes in the living room is a goal in and of itself) where install base is only a means and not an ends for Nintendo (if Nintendo only makes money on gaming, and they have taken a loss even after selling games, what was the point of the venture at all?)

Though I guess this could lead to an argument that consoles should only be made by multifaceted tech giants that can subsidize console losses through other aspects of the business?
RoombaDance
Member
(08-26-2013, 04:17 AM)
RoombaDance's Avatar
I think most reasonable assumptions are a $50 price drop if anything.

Deluxe Model at $300, and a bigger bundle at $350. Basic Model axed.
freefornow
Member
(08-26-2013, 04:18 AM)
freefornow's Avatar

Originally Posted by Snowden's Secret

Just curious, which one would you pick:

$250 Deluxe bundle (includes Nintendo Land)

or

$350 Deluxer bundle (includes Nintendo Land, Zombi U, and Call of Duty)

You spend $100 less money in the first but get a better value ($120 free games) in the second?

$250 for the win. The bundle is "perceived" value.
JordanLMiller
Member
(08-26-2013, 04:18 AM)
JordanLMiller's Avatar

Originally Posted by Snowden's Secret

Though I guess this could lead to an argument that consoles should only be made by multifaceted tech giants that can subsidize console losses through other aspects of the business?

Well, that's a scary thought.
StevieP
Member
(08-26-2013, 04:18 AM)

Originally Posted by Aquamarine

Exactly. Their deep pockets allow their gaming divisions to take bolder risks and sustain losses, as long as these losses are put towards good use.

A Wii U price cut doesn't make sense because Nintendo is not in the business of being a loss leader. They may have billions in cash, but they have shareholders to answer to...shareholders who won't take kindly to massive company-wide losses.

Shareholders aren't happy with MS taking those massive losses. You see the results. Gaming as a service. Sony is moving in this direction as well (though I think they're still taking a more-than-small loss on the PS4). You can't bleed forever without the bosses being on your back.
goldenpp72
Member
(08-26-2013, 04:19 AM)
goldenpp72's Avatar
It would if it was substantial, if it's like 50 bucks, not much. The system needs to be seen as significantly cheaper than the Ps4 imo.

If Nintendo got the deluxe U down to say, 250 and bundled in Mario 3d World? Thing would fly off the shelves for a good long while and definitely help when other titles release. I don't know why Nintendo is losing money on such a weak system but, they need to find a way to reduce the cost to themselves and the consumer or they will be screwed.
Fandangox
Member
(08-26-2013, 04:20 AM)
Fandangox's Avatar
A $50 price-cut for both models sounds like the sweet pot in terms of both favoring the company and the customer, but they need to ride it out until they have a lot of more first party software out there. 2014 seems about right to make it.
shagg_187
lapdance transform pants
(08-26-2013, 04:20 AM)
shagg_187's Avatar
Every time someone brings up the whole "Nintendo would lose a ton of money they'd never make back by cutting the price", all I can do is to remind them that Nintendo is rolling in billions; cash. No other gaming company can confidently say that at this moment.

You have to start making executive decisions that are more long term than short term. If Sony can take billions in losses, then Nintendo should be ready to lose some chump change to make shit happen.
Slixshot
Member
(08-26-2013, 04:20 AM)
Slixshot's Avatar

Originally Posted by RoombaDance

I think most reasonable assumptions are a $50 price drop if anything.

Deluxe Model at $300, and a bigger bundle at $350. Basic Model axed.

Boom. I'm sold.

Luckily, I'll probably pick up the Zelda console bundle when that comes out (that's $350, yes?)
Aquamarine
GAF's Resident Waifu
(08-26-2013, 04:20 AM)
Aquamarine's Avatar

Originally Posted by StevieP

Shareholders aren't happy with MS taking those massive losses. You see the results. Gaming as a service. Sony is moving in this direction as well. You can't bleed forever without the bosses being on your back.

At least Microsoft (overall) is making profits.

When shareholders invest, they invest in the entire company...so it's more tolerable when one division sustains losses (but the company is still growing overall), compared to when the entire company suffers net losses.
Regiruler
Member
(08-26-2013, 04:21 AM)
Regiruler's Avatar

Originally Posted by Hip Hop

NintedoLand has been about $10.
Zombi U has been about $20 or less.
Call of Duty has hit the $20.

That's the problem with these bundles.

Rotate the games, don't keep an essential worthless game (Nintedo Land) and keep charging $350.

The Wii U Deluxe is basically worth $300 right now with a $350 price sticker.

I actually think that Nintendoland is valued so low because the basic Deluxe version is the better selling console overall. Most people who would care to have it already bought it.

There are also savings numbers to take into account involving the digital deluxe promotion. If you bought 4 full price games (full price being $50 - $60 and 4 because that was the low end of the attach rate) digitally, assuming there wasn't a sale on their retail counterpart, you get back $20.
Take the $300 base + $30 for Nintendoland (that is the price on Amazon currently so that is the price I will use), and add on the $20 and you have essentially justified the $50 extra, not including some of the cool little trinkets like the charging stand (<3 charging cradles) and the slight increase in internal storage.
Last edited by Regiruler; 08-26-2013 at 04:23 AM.

Thread Tools