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[Aquamarine]

Patcher being born is a mistake that we will never recover from.

What an INCREDIBLY offensive, thoughtless attack. The guy is reading this thread, and his arguments are absolutely logical and sound.

 

[Quadraphonic]

I really don't see Nintendo ever going third party. Everything I have learned about them over the years suggests that their success is in equal part due to the fact that they own the hardware that their top quality software runs on. It could be that their familiarity of the hardware is why their software is so good and going third party would see their software quality decline.

Plus, Nintendo is a very controlling company, they have always kept as much control over third parties as possible. They see themselves as the leaders, not the followers. I think Nintendo would go back to taxi cabs and playing cards before going third party.

Of course, I could be wrong, this is all just my opinion.

Spoken as they lose control of the Pokemon company and more and more Pokemon apps are going into the Android and iOS marketplace. (Remember, they barely control 1/3 of that company)

 

[H_Prestige]

cause sony themselves don't give a fuck about the vita and will only be giving it cursory support as they focus on their core competency in the ps4

Not to mention that dedicated portable consoles aren't even a big deal for Sony's gaming division. Much less for Sony corp.

 

[UberTag]

I have wondered why he never seems to mention the vita anywhere near as much he has talked about the 3DS.

The Vita just did 35k for FFS and is has bombed hard in Japan yet his still banging on about the 3DS.

Nobody in the media cares about the Vita. He wants to get attention.
Furthermore, bringing up the Vita when he's talking about Nintendo hardly makes much sense.
If you need your daily fix of Vita trolling, you can find it by the barrel-full here on GAF.
Pachter would rather spend his time talking about systems that are actually relevant.

(

Spoiler

I love my Vita. I have so many games on you and nobody realizes it. It'll be our little secret.

)

 

[Empyrean Heaven]

I really don't see Nintendo ever going third party. Everything I have learned about them over the years suggests that their success is in equal part due to the fact that they own the hardware that their top quality software runs on. It could be that their familiarity of the hardware is why their software is so good and going third party would see their software quality decline.

Plus, Nintendo is a very controlling company, they have always kept as much control over third parties as possible. They see themselves as the leaders, not the followers. I think Nintendo would go back to taxi cabs and playing cards before going third party.

Of course, I could be wrong, this is all just my opinion.

Well, yes. Part of why Nintendo is so successful is because to play their games, you have to do so on their consoles. Many find this a worthwhile expense since Nintendo's games are so good, but they've usually had one or two good third party games to at least back up the experience.

Now, we have the Wii U, which may be the true test of the question, since Nintendo's own games are pretty much the only thing set to be released for the damn thing this year, and third parties have pretty much abandoned them. Right now, the answer is a concise "no" but with the big guns set to roll down the pipe, things might change.

 

[fart town usa]

What an INCREDIBLY offensive, thoughtless attack. The guy is reading this thread, and his arguments are absolutely logical and sound.

Seriously.

He's an analyst, it's not like his word is gospel or the be-end-all of videogamedom. Sometimes people need to just relax a bit and enjoy the ride.

 

[wildfire]

Patcher being born is a mistake that we will never recover from.

Wow. Shut up.

Jesus christ pachter tldr; that essay. who the fuck is gonna read all that

People who don't want to be assholes when the respond after he makes an insightful post.

Sounds like your backtracking , you stated Nintendo would "probably never recover" , thats just sensationalist bullshit. You talk of profit and losses whilst failing to address the currency conversion issues Japan has faced nor hold Sony nor Microsoft to the same profit expectations.

MS and Sony shouldn't be held to the same standards because they never aspired to them even with a lot of grumbling from their investors.

Nintendo has always talked about how proud they were of being a profitable company and how they won't follow in the footsteps of their past and previous competitors.

Most importantly, Ninteendo has to be held to this standard because that is the past performance investors have known them for and have poured money into them with that understanding. For Nintendo's revenue efficiency to become downgraded to the level of MS and Sony means they are under-performing and you should either sell now or if you expect them to do better in the future wait until the stock price keeps on falling until it can safely be brought without your shares being devalued further.

Good analysis, but it doesn't stop the original statement from being outlandish to get attention.

That can be true. Yet in this case it clearly means soundbites didn't allow you to see a person's entire thought process.

 

[faridmon]

To be fair to him, Nintendo have never acted like this before. They were all about quality first and foremost and the WiiU launch is the most un-Nintendo like from them in like forever.

I do disagree with him though. The 3DS will just make the money they may lose on the WiiU.

 

[GulAtiCa]

*long analysis post*

All good points. Thank you for explaining what you mean. Now I understand what you meant more clearly.

 

[AdventureRacing]

I think that Nintendos home console business will struggle to recover. MS and Sony are now in a position to really put Nintendo into a terrible position.

I disagree about the 3DS though. If it wasn't for the wii U dragging them down i would think that the 3DS would be making a profit. If it wasn't last year i have no doubt the 3DS will now be making a nice profit.

 

[michaelpachter]

Here's the question I got:

From: Jeff Grubb [mailto:jeff.grubb@venturebeat.com]
Sent: Thursday, February 14, 2013 8:56 PM
To: Jeff Grubb
Subject: If you're Nintendo, what do you do next?

Let's forget what we think Nintendo will do. What would you do if you were Nintendo?

Apparently, according to the NPDs, the Wii U only sold 55,000 units in January.

First of all, are you worried about NIntendo?

Second, what would you do to turn things around?

I'll assume there's a possibility you will say "get out of the hardware business and make iOS games," and that's fine, but I'd also like to know what you would do to turn around the Wii U.

Thanks. Look forward to hearing from you.


--
Jeff Grubb
Reporter
VentureBeat | GamesBeat

Notice the time stamp, 8:54 p.m. on Thursday night. Please note that I get up at 3:15 a.m. every weekday, and had to do so on Friday to speak to my sales force about the NPD data. I finished writing my NPD note around 9:35 p.m. at the office, was about to log out and go home, and decided to answer Jeff.

My answer, time stamped 9:37 p.m.:

I think they misfired on the Wii U. It’s just not that differentiated from the other two consoles, and the game play isn’t as unique as the Wii. They made a mistake, it’s something they probably can’t recover from.

I do think iOS games would be smart, especially if they recycled old GBA games and converted people to Nintendo fans. I don’t really think they can recover, think that they have made a costly mistake, and their handheld business can’t save them in the face of cannibalization from smart phones and tablets.
______________________________________________________________________

The point is that I needed to get home (at 10:20), get to bed, and get up to work the next day. I decided to answer Jeff's question, and "misfired" and "can't recover" were my words, but I wasn't in a position to look up all the numbers and address profitability. Notice how my comments were edited.

Anyway, my day job takes from 4:20 a.m. till 9 p.m. at least 100 days a year, this was one of them. I don't have a lot of time to reflect on my answers, don't actually know what the article is going to say, and certainly don't know which other analysts are going to be contacted or quoted, or even whether they will use what I say. I try to be responsive, and to work with the limited time I have.

I don't think Nintendo is going bankrupt, ever. I do think that they will have trouble making money on the Wii U, since I see the installed base ending up pretty small, and don't think they will see the strength in handhelds they saw last generation. At least, that's what I thought I said ;-)

 

[USC-fan]

First, I must apologize for calling two thirds of you assholes. It's probably more like 5%, so I was overly sensitive in my generalization.

Second, and to the point, there is actually some reasoning behind my comments that the Wii U is a mistake from which Nintendo may not recover, and I threw the 3DS' cannibalization from smart phones and tablets in there to make a point.

Nintendo has historically made money, and a lot of money, on each hardware unit sold. The DS at $99 US is more profitable for them than the 3DS at $169 (see many quotes from Nintendo in Kyoto about losing money, or being barely profitable). The DS sold 23.5 million units in FY:07 (ended March 31), 30.3 million in FY:08, 31.1 million in FY:09, and 27.1 million in FY:10. Nintendo made money, and a lot of money, in each of those years.

I think it is instructive to use operating income in Yen as a guide, since Iwata said he would consider resigning if Nintendo did not earn ¥100 billion in FY:14. Nintendo made ¥90 billion in FY:06, ¥226 billion in FY:07, ¥487 billion in FY:08, ¥555 billion in FY:09, and ¥356 billion in FY:10. In FY:11, DS sales dropped to 17.5 million units, and operating income fell to ¥171 billion; in FY:12, combined DS and 3DS sales were 18.6 million units, but operating income disappeared, and Nintendo generated a LOSS of ¥37 billion. Obviously, the loss was impacted by lower Wii sales and lower software sales, but the point here is that the 3DS doesn't generate much of a profit per unit, if any, and the DS did.

Over the same period, Wii hardware sales were 0, 5.8 million, 18.6 million, 25.9 million, 20.5 million, 15.0 million, and 9.8 million. We have been repeatedly assured by Nintendo that the company makes a profit on every Wii sold, but as sales leveled off at 10 million, the company printed its first loss ever.

In FY:13 (the current year, ending next month), Nintendo is projected to sell 17.3 million DS and 3DS units combined, and to sell 8 million Wii and Wii U units combined, and is projected to generate an operating loss of ¥20 billion. That means that current levels of sales keep the company at roughly breakeven.

My comment about the Wii U being a "mistake" from which the company "may not recover" was intended to say that if Wii U sales don't materially improve, Nintendo is unlikely to be profitable. They have around ¥1 trillion (around $11 billion) in cash, so they aren't in danger of going out of business for decades. However, if they aren't profitable, they aren't doing a good job for shareholders.

To elaborate, if the Wii U is not generating profits, and if the 3DS is not generating profits, the only thing that will generate profits is software. Nintendo is ensured high sales of its proprietary software, but it makes the most money on its royalty business, collecting fees from third parties for the privilege of letting them put out games on Nintendo platforms. Publishing (software) revenues peaked at ¥675 billion in FY:09, and are on track to come in around ¥235 billion this year; my call is that if hardware sales don't materially improve above current combined levels, software sales are unlikely to materially grow. If software sales don't materially improve, losses or break even will become the norm. Nintendo will not "recover" to its formal highly profitable glory.

The poor sales of the Wii U in January are likely to impact third party publisher plans to support the console. Notice that GTAV is not on the Wii U; that wasn't a typo, they don't see enough promise in sales to cause them to spend extra development dollars on a Wii U version. I have spoken to several publishers who are skeptical, and I think that the Wii U will see a lower level of third party support than the Wii did, unless sales materially improve. If I'm wrong, I'll admit it, but without third party titles, Nintendo will not generate its customary levels of royalties, and losses or break even could become the norm.

Many of you point out that the 3DS is selling better than the DS at a similar point. That's true, but the DS was always profitable, and the 3DS is not. Also, the DS saw sales go from 8.8 million units in its first four quarters to 18.0 million its next four, to 20.2 million in its third full year; I'm pretty confident that the 3DS will not get to 20 million units, but even if it did, it would generate little profit from hardware. Keep in mind that the DS redesign to a lite version boosted sales, and there was little competition for 12 year-old and older from smart phones and tablets. Now, parents who can afford it are opting for Kindles, iPads, and smart phones for their teenagers, and the more casual of those are perfectly happy playing Angry Birds and putting their DS or 3DS into a drawer.

The important point is that if 3DS sales level off at 15 million and Wii U sales level off at 8 - 10 million, software sales will be much lower than they were in the past. If Nintendo doesn't make a profit on hardware, they can't afford to cut prices further. If they do cut price, it will likely occur as their manufacturing costs come down, but I don't expect big hardware profits in the foreseeable future. They are stuck with software profits, and at current sales levels, they are unlikely to make an overall profit from software.

That's it, not trolling, but that is my reasoning.

To the 5% of you who ARE assholes, bring it on ;-)

Great post! I agree with everything you said...

 

[Refreshment.01]

I didn't say it made his analysis more valid though - I just said it made him earn my respect. The key to respect is that you can have it for someone even when you disagree with them. Of course there's no way I can agree with most of Michael Pachter's consistently incorrect predictions, but at least now I know that sometimes he has a real perspective and explanation for why he feels the way he does, and he can describe it in detail. That's all that matters to me.

But here he is, explaining in extreme detail what he meant (and, in this case, he actually did raise some valid points in his explanation), and even going so far as to try to reduce some of the bad blood that has been going on between some of neoGAF and himself. I think it is a pretty good example of a post that can spur a discussion that means something. It's not always about just agreeing with everything all the time.

When you said you respected him, i thought you were impressed by his analisys leaving "agreement" aside. I on the other hand expect a professional analyst to always back up his claims with in depth reasoning.

Regarding bad blood, well that's part of the curse with internet debates lack of comrpomise or danger frees people to behave like total "troglodytes", is not something only Pachter has been victim off.

Only problem i could see with Mr. Pachter is the following: He could, in some situations, be a very dangerous mouth piece. Since he is not very well versed in videogames, he tends to go with the flow and pick up points of views or agendas (ones that tend to favor corporate level) and irresponsably run with them. This is agravated because he has some public exposure. I don't really care that he is not alwyas right, aren't we all human after all XD

 

[Baconsammy]

Again thank you for the insight, Michael. Even those of us in the non-5 percentile wonder how you do what you do.

 

[Vane_MagicCity]

Seriously.

He's an analyst, it's not like his word is gospel or the be-end-all of videogamedom. Sometimes people need to just relax a bit and enjoy the ride.

It doesn't matter who he is, it's offensive to say that anyone's birth is a mistake. People on all sides of the debate can see that, surely?

 

[Pie and Beans]

Wow! A pretty swell Pachter post there, I'm impressed! Touches on all the bases of why Nintendo's in the shit with loss of revenue from not just hardware (being sold at a "loss"), but also the ever thinning parade of pubs that want to pay that royalty to a clueless platform holder.

Iwata is going to have to roll for all this really. You go from being the King of the Market on high and then allow yourself to become the paupers once again. Investors must be fucking furious.

 

[MikeE21286]

Patcher being born is a mistake that we will never recover from.

C'mon man...really?

 

[peanutbutterlatte]

Hm, now I feel bad. Could Pachter be simply a victim of Kotaku style "Quoterific!" headline journalism?


i.e. Nobody wants to post in-depth financial analysis because it isn't "must-read" journalism, interesting as it is.

 

[yunta_gohan]

Patcher being born is a mistake that we will never recover from.

jajajajajajaja lol

 

[Amir0x]

Here's the question I got:

From: Jeff Grubb [mailto:jeff.grubb@venturebeat.com]
Sent: Thursday, February 14, 2013 8:56 PM
To: Jeff Grubb
Subject: If you're Nintendo, what do you do next?

*stuff*

The point is that I needed to get home (at 10:20), get to bed, and get up to work the next day. I decided to answer Jeff's question, and "misfired" and "can't recover" were my words, but I wasn't in a position to look up all the numbers and address profitability. Notice how my comments were edited.

Anyway, my day job takes from 4:20 a.m. till 9 p.m. at least 100 days a year, this was one of them. I don't have a lot of time to reflect on my answers, don't actually know what the article is going to say, and certainly don't know which other analysts are going to be contacted or quoted, or even whether they will use what I say. I try to be responsive, and to work with the limited time I have.

I don't think Nintendo is going bankrupt, ever. I do think that they will have trouble making money on the Wii U, since I see the installed base ending up pretty small, and don't think they will see the strength in handhelds they saw last generation. At least, that's what I thought I said ;-)

You really don't need to describe any further the way you decided to eat Breakfast on this day; you're giving more detail now than Barack Obama gave on Benghazi (heyo!).

Seriously, you really did yourself a favor in this topic, elaborating at length on your thought process. I think that people who can't see that for what it is don't really need further explanation, they're set in stone.

I don't have to agree with your analysis to respect your thought process, and while before I was skeptical, you've won me over here.

 

[OryoN]

Betting against a - primarily - software company before their 'software engines' have even been set in motion isn't what I'd consider to be the smartest wager. I'd be worried if Nintendo had spent considerable time/effort putting out games, only to face the same underwhelming results. But, they hardly even got started yet, so witing off the console at this point is as premature as Wii U's launch ever.

As though history haven't taught us - on numerous - occasions that "software sells hardware," I guess another demonstration of this concept is due. While it's true that the effects due to a lack of compelling software is clearly evident with Wii U, some people tend to forget that the concept works the other way around also.

 

[Steve Youngblood]

Here's the question I got:

From: Jeff Grubb [mailto:jeff.grubb@venturebeat.com]
Sent: Thursday, February 14, 2013 8:56 PM
To: Jeff Grubb
Subject: If you're Nintendo, what do you do next?

Let's forget what we think Nintendo will do. What would you do if you were Nintendo?

Apparently, according to the NPDs, the Wii U only sold 55,000 units in January.

First of all, are you worried about NIntendo?

Second, what would you do to turn things around?

I'll assume there's a possibility you will say "get out of the hardware business and make iOS games," and that's fine, but I'd also like to know what you would do to turn around the Wii U.

Thanks. Look forward to hearing from you.


--
Jeff Grubb
Reporter
VentureBeat | GamesBeat

Notice the time stamp, 8:54 p.m. on Thursday night. Please note that I get up at 3:15 a.m. every weekday, and had to do so on Friday to speak to my sales force about the NPD data. I finished writing my NPD note around 9:35 p.m. at the office, was about to log out and go home, and decided to answer Jeff.

My answer, time stamped 9:37 p.m.:

I think they misfired on the Wii U. It’s just not that differentiated from the other two consoles, and the game play isn’t as unique as the Wii. They made a mistake, it’s something they probably can’t recover from.

I do think iOS games would be smart, especially if they recycled old GBA games and converted people to Nintendo fans. I don’t really think they can recover, think that they have made a costly mistake, and their handheld business can’t save them in the face of cannibalization from smart phones and tablets.
______________________________________________________________________

The point is that I needed to get home (at 10:20), get to bed, and get up to work the next day. I decided to answer Jeff's question, and "misfired" and "can't recover" were my words, but I wasn't in a position to look up all the numbers and address profitability. Notice how my comments were edited.

Anyway, my day job takes from 4:20 a.m. till 9 p.m. at least 100 days a year, this was one of them. I don't have a lot of time to reflect on my answers, don't actually know what the article is going to say, and certainly don't know which other analysts are going to be contacted or quoted, or even whether they will use what I say. I try to be responsive, and to work with the limited time I have.

I don't think Nintendo is going bankrupt, ever. I do think that they will have trouble making money on the Wii U, since I see the installed base ending up pretty small, and don't think they will see the strength in handhelds they saw last generation. At least, that's what I thought I said ;-)

Why do you want Nintendo to fail so badly?

 

[Metal Gear?!]

Hmm. Nah, I think people just like to call a professional analyst 'stupid.'

While he may be a professional analyst, what you and everyone else here has to remember is that his public pronouncements are NOT what he gets paid for.

Wedbush Morgan isn't paying him to make his actual good analysis and predictions public knowledge, which means that his public pronouncements are either just random conjecture or intentionally misleading market manipulation.

 

[SMD]

First, I must apologize for calling two thirds of you assholes. It's probably more like 5%, so I was overly sensitive in my generalization.

Second, and to the point, there is actually some reasoning behind my comments that the Wii U is a mistake from which Nintendo may not recover, and I threw the 3DS' cannibalization from smart phones and tablets in there to make a point.

Nintendo has historically made money, and a lot of money, on each hardware unit sold. The DS at $99 US is more profitable for them than the 3DS at $169 (see many quotes from Nintendo in Kyoto about losing money, or being barely profitable). The DS sold 23.5 million units in FY:07 (ended March 31), 30.3 million in FY:08, 31.1 million in FY:09, and 27.1 million in FY:10. Nintendo made money, and a lot of money, in each of those years.

I think it is instructive to use operating income in Yen as a guide, since Iwata said he would consider resigning if Nintendo did not earn ¥100 billion in FY:14. Nintendo made ¥90 billion in FY:06, ¥226 billion in FY:07, ¥487 billion in FY:08, ¥555 billion in FY:09, and ¥356 billion in FY:10. In FY:11, DS sales dropped to 17.5 million units, and operating income fell to ¥171 billion; in FY:12, combined DS and 3DS sales were 18.6 million units, but operating income disappeared, and Nintendo generated a LOSS of ¥37 billion. Obviously, the loss was impacted by lower Wii sales and lower software sales, but the point here is that the 3DS doesn't generate much of a profit per unit, if any, and the DS did.

Over the same period, Wii hardware sales were 0, 5.8 million, 18.6 million, 25.9 million, 20.5 million, 15.0 million, and 9.8 million. We have been repeatedly assured by Nintendo that the company makes a profit on every Wii sold, but as sales leveled off at 10 million, the company printed its first loss ever.

In FY:13 (the current year, ending next month), Nintendo is projected to sell 17.3 million DS and 3DS units combined, and to sell 8 million Wii and Wii U units combined, and is projected to generate an operating loss of ¥20 billion. That means that current levels of sales keep the company at roughly breakeven.

My comment about the Wii U being a "mistake" from which the company "may not recover" was intended to say that if Wii U sales don't materially improve, Nintendo is unlikely to be profitable. They have around ¥1 trillion (around $11 billion) in cash, so they aren't in danger of going out of business for decades. However, if they aren't profitable, they aren't doing a good job for shareholders.

To elaborate, if the Wii U is not generating profits, and if the 3DS is not generating profits, the only thing that will generate profits is software. Nintendo is ensured high sales of its proprietary software, but it makes the most money on its royalty business, collecting fees from third parties for the privilege of letting them put out games on Nintendo platforms. Publishing (software) revenues peaked at ¥675 billion in FY:09, and are on track to come in around ¥235 billion this year; my call is that if hardware sales don't materially improve above current combined levels, software sales are unlikely to materially grow. If software sales don't materially improve, losses or break even will become the norm. Nintendo will not "recover" to its formal highly profitable glory.

The poor sales of the Wii U in January are likely to impact third party publisher plans to support the console. Notice that GTAV is not on the Wii U; that wasn't a typo, they don't see enough promise in sales to cause them to spend extra development dollars on a Wii U version. I have spoken to several publishers who are skeptical, and I think that the Wii U will see a lower level of third party support than the Wii did, unless sales materially improve. If I'm wrong, I'll admit it, but without third party titles, Nintendo will not generate its customary levels of royalties, and losses or break even could become the norm.

Many of you point out that the 3DS is selling better than the DS at a similar point. That's true, but the DS was always profitable, and the 3DS is not. Also, the DS saw sales go from 8.8 million units in its first four quarters to 18.0 million its next four, to 20.2 million in its third full year; I'm pretty confident that the 3DS will not get to 20 million units, but even if it did, it would generate little profit from hardware. Keep in mind that the DS redesign to a lite version boosted sales, and there was little competition for 12 year-old and older from smart phones and tablets. Now, parents who can afford it are opting for Kindles, iPads, and smart phones for their teenagers, and the more casual of those are perfectly happy playing Angry Birds and putting their DS or 3DS into a drawer.

The important point is that if 3DS sales level off at 15 million and Wii U sales level off at 8 - 10 million, software sales will be much lower than they were in the past. If Nintendo doesn't make a profit on hardware, they can't afford to cut prices further. If they do cut price, it will likely occur as their manufacturing costs come down, but I don't expect big hardware profits in the foreseeable future. They are stuck with software profits, and at current sales levels, they are unlikely to make an overall profit from software.

That's it, not trolling, but that is my reasoning.

To the 5% of you who ARE assholes, bring it on ;-)

The problem (aside from the constant changing of opinion) is that you discuss hardware sales without any sort of context. Forget Nintendo, industry wide you can't just pluck numbers in isolation or even just tying it to price.
Hardware and software go hand in hand, you have to look at what titles are coming out. It's all well and good talking about the need for the Wii U to see more games to do better, anyone can say that - but Nintendo have resorted to short run ups from announcement to release for most games now. Mario Golf, for example, was announced this month slated for summer release. In contrast, you've got Bungie teasing Destiny and we're unlikely to see it for at least 12 months, if not longer.

Without a genuine insight in what the hardware manufacturers have planned for their console and first party line ups, you're just plucking numbers out of the air. Everyone's expecting Microsoft and Sony to announce new consoles because if you look at the release schedule, there's practically a black hole beyond September. Machines need titles and games need hardware.

Third parties are also a terrible indicator of long term trends - they'd gladly just sell you the same games over and over again, look at how Activision rode the 'Hero' series into the ground. In the 32-bit era, Dance Dance Revolution was the big hit with whatever you want to call 'casual' gamers. Last gen you had Guitar Hero and Rock Band. The analyst who can predict what the next fad will be is the analyst that makes mountains of cash consulting for third parties.

It's a bit facetious saying "if Nintendo's software sales don't improve" when by definition they increase as a platform matures.

You're a professional analyst, could you point me towards any studies that breaks down how parents tend to approach purchases for their children? You say that they're buying Kindles, iPads and smart phones, as if these are substitutes. How does the Kindle Fire sell and is it in the same ballpark as a handheld games machine? What about iPads - the price difference is pretty big, regardless of the cost of the apps/games. Is there any sort of correlation that you're drawing from?
Even with smartphones, cheap models won't be able to compete with the 3DS on the same level, unless you're suggesting that the actual tastes of people who bought the DS have changed?

In which case, I ask - do you not think that the worldwide release of Pokemon towards the end of the year is going to be a big USP for Nintendo over what you suggest are substitutes?

The DS may have been more profitable for Nintendo at $99 but how long did it take to get there? Did Nintendo not struggle to keep the cost of dual screens down at first?

My personal opinion is that it would be easier to take your analysis seriously if it didn't seem to go to extremes. Searching on Google with different time frames will show you go from extreme optimism to similar levels of pessimism. As it is, whenever I see your name quoted in the press, I roll my eyes and expect the opposite to be the result.

Good luck to you.

 

[Y2Kev]

Patcher being born is a mistake that we will never recover from.

Why do you think you can do this? You cannot do this.

 

[Tobor]

I don't think Nintendo is going bankrupt, ever. I do think that they will have trouble making money on the Wii U, since I see the installed base ending up pretty small, and don't think they will see the strength in handhelds they saw last generation. At least, that's what I thought I said ;-)

In other words, the company isn't going anywhere, but current management is hosed.

 

[Anticitizen One]

You guys can shit on Pacther all you want but he's right about this. If you think Nintendo is going to be market leader this gen you are grossly mistaken. Wii U will be this generations Sega Saturn/Nintendo Gamecube

 

[oneils]

Why do you want Nintendo to fail so badly?

This is a joke, right? I can't tell anymore.

 

[Nothing1016]

First, I must apologize for calling two thirds of you assholes. It's probably more like 5%, so I was overly sensitive in my generalization.

Second, and to the point, there is actually some reasoning behind my comments that the Wii U is a mistake from which Nintendo may not recover, and I threw the 3DS' cannibalization from smart phones and tablets in there to make a point.

Nintendo has historically made money, and a lot of money, on each hardware unit sold. The DS at $99 US is more profitable for them than the 3DS at $169 (see many quotes from Nintendo in Kyoto about losing money, or being barely profitable). The DS sold 23.5 million units in FY:07 (ended March 31), 30.3 million in FY:08, 31.1 million in FY:09, and 27.1 million in FY:10. Nintendo made money, and a lot of money, in each of those years.

I think it is instructive to use operating income in Yen as a guide, since Iwata said he would consider resigning if Nintendo did not earn ¥100 billion in FY:14. Nintendo made ¥90 billion in FY:06, ¥226 billion in FY:07, ¥487 billion in FY:08, ¥555 billion in FY:09, and ¥356 billion in FY:10. In FY:11, DS sales dropped to 17.5 million units, and operating income fell to ¥171 billion; in FY:12, combined DS and 3DS sales were 18.6 million units, but operating income disappeared, and Nintendo generated a LOSS of ¥37 billion. Obviously, the loss was impacted by lower Wii sales and lower software sales, but the point here is that the 3DS doesn't generate much of a profit per unit, if any, and the DS did.

Over the same period, Wii hardware sales were 0, 5.8 million, 18.6 million, 25.9 million, 20.5 million, 15.0 million, and 9.8 million. We have been repeatedly assured by Nintendo that the company makes a profit on every Wii sold, but as sales leveled off at 10 million, the company printed its first loss ever.

In FY:13 (the current year, ending next month), Nintendo is projected to sell 17.3 million DS and 3DS units combined, and to sell 8 million Wii and Wii U units combined, and is projected to generate an operating loss of ¥20 billion. That means that current levels of sales keep the company at roughly breakeven.

My comment about the Wii U being a "mistake" from which the company "may not recover" was intended to say that if Wii U sales don't materially improve, Nintendo is unlikely to be profitable. They have around ¥1 trillion (around $11 billion) in cash, so they aren't in danger of going out of business for decades. However, if they aren't profitable, they aren't doing a good job for shareholders.

To elaborate, if the Wii U is not generating profits, and if the 3DS is not generating profits, the only thing that will generate profits is software. Nintendo is ensured high sales of its proprietary software, but it makes the most money on its royalty business, collecting fees from third parties for the privilege of letting them put out games on Nintendo platforms. Publishing (software) revenues peaked at ¥675 billion in FY:09, and are on track to come in around ¥235 billion this year; my call is that if hardware sales don't materially improve above current combined levels, software sales are unlikely to materially grow. If software sales don't materially improve, losses or break even will become the norm. Nintendo will not "recover" to its formal highly profitable glory.

The poor sales of the Wii U in January are likely to impact third party publisher plans to support the console. Notice that GTAV is not on the Wii U; that wasn't a typo, they don't see enough promise in sales to cause them to spend extra development dollars on a Wii U version. I have spoken to several publishers who are skeptical, and I think that the Wii U will see a lower level of third party support than the Wii did, unless sales materially improve. If I'm wrong, I'll admit it, but without third party titles, Nintendo will not generate its customary levels of royalties, and losses or break even could become the norm.

Many of you point out that the 3DS is selling better than the DS at a similar point. That's true, but the DS was always profitable, and the 3DS is not. Also, the DS saw sales go from 8.8 million units in its first four quarters to 18.0 million its next four, to 20.2 million in its third full year; I'm pretty confident that the 3DS will not get to 20 million units, but even if it did, it would generate little profit from hardware. Keep in mind that the DS redesign to a lite version boosted sales, and there was little competition for 12 year-old and older from smart phones and tablets. Now, parents who can afford it are opting for Kindles, iPads, and smart phones for their teenagers, and the more casual of those are perfectly happy playing Angry Birds and putting their DS or 3DS into a drawer.

The important point is that if 3DS sales level off at 15 million and Wii U sales level off at 8 - 10 million, software sales will be much lower than they were in the past. If Nintendo doesn't make a profit on hardware, they can't afford to cut prices further. If they do cut price, it will likely occur as their manufacturing costs come down, but I don't expect big hardware profits in the foreseeable future. They are stuck with software profits, and at current sales levels, they are unlikely to make an overall profit from software.

That's it, not trolling, but that is my reasoning.

To the 5% of you who ARE assholes, bring it on ;-)

This is actually a reasonable outlook on Nintendo's future. Many of us don't see this side of your analysis because of how the media represents you, so we have this pre-concieved notion that you are a nintendo hater. I disagree only because I refuse to count out Nintendo. But I'm still impressed in what your saying.

 

[Game Guru]

I'm not an analyst like Pachter is, and kudos to him for explaining... But the question is how Nintendo is actually going to recover from this. The 3DS software is seen as too expensive by most people and it is easy to see why when one compares it to the mobile platforms. iOS and Android usually sell their games for $1 or give them away for free. Even though I am a sucker for Nintendo, even I don't think Nintendo can compete with either Apple or Google.

Okay let me explain... Nintendo follows the traditional console model, namely of making money through licensing of software while taking a loss on hardware. This is the model the 3DS follows. Apple makes money on hardware and sells their mobile devices though subsidizing with mobile service providers. Google makes their money off of advertising and sells their mobile devices through subsidizing with mobile service providers. So long as Apple's selling hardware and Google's selling ads, they're making money. iPhone, iPad, and iPod all make money because they are expensive, but also devices that people want. Android meanwhile gives Google a platform with which they can use for their advertisements. Neither really cares about games even though like every other digital shop, they charge the typical 30%.

Basically, Apple, Google, and Nintendo each have different goals for their platforms and Apple's and Google's goals (sell hardware and sell advertisements, respectfully) is cannibalizing Nintendo's goal (sell video game software) because the former two will let anyone put a game out for their platform and charge whatever they want for the games. This is something that has not been seen since the Atari 2600. So why no crash like the Atari 2600? The difference between Atari then and Apple and Google now is that Atari relied on the traditional console model and as I've pointed out Apple and Google do not follow that model.

In fact, one could say that smartphone and tablets are getting major focus because they are cannibalizing the core competencies of all the console makers. Microsoft's core competency is Windows, and most consumers who only use their PCs casually will likely be happy with smartphones and tablets, which Microsoft has been having a tough time breaking into. Sony's core competency is electronics used to access media and it appears that smartphones and tablets are eating the market up because they can play digital media which most people are happy with, and which Sony has been having a tough time breaking into. It's like how Kodak went bankrupt because no one cared about cameras and film when their cellphone does it well enough. Everything is being absorbed into smartphones and tablets and all three console makers are poorly positioned to take advantage of it. That's the rub.

 

[BlackJace]

You guys can shit on Pacther all you want but he's right about this. If you think Nintendo is going to be market leader this gen you are grossly mistaken. Wii U will be this generations Sega Saturn/Nintendo Gamecube

Why does most of GAF speak in absolutes?

 

[Steve Youngblood]

This is a joke, right? I can't tell anymore.

Yes, I was being very facetious there.

 

[onQ123]

I hate to say it but I think Nintendo messed up this time, but hopefully they can get the price down & release really good games & keep moving forward.


but I wouldn't count them out & I wouldn't be so sure of the PS4/'Xbox Next' success either.

 

[Y2Kev]

Mr. Pachter, if you're reading (and thanks for your responses), what should Nintendo do with their warchest? They don't seem to be using it to purchase exclusives or to widely expand internal development and deliver value to their shareholders through their core operations. Hell, even their dividend is small. I am just not understanding why they have it save to stave off a potential hostile takeover (which, among other things, seems to exhibit internet message board levels of paranoia). Why do you think they are storing so much cash and how can they use their cash stores to return maximum value to shareholders?

 

[SMD]

This is why Pachter holds that 6 figure income paying job and most of GAF do not. When he stops trolling GAF and brings out the truth bombs, he earns every dime.

Because using numbers means you automatically defer to his opinion?

 

[oneils]

Yes, I was being very facetious there.

Phew!

 

[Refreshment.01]

Mr. Pachter, if you're reading (and thanks for your responses), what should Nintendo do with their warchest? They don't seem to be using it to purchase exclusives or to widely expand internal development and deliver value to their shareholders through their core operations. Hell, even their dividend is small. I am just not understanding why they have it save to stave off a potential hostile takeover (which, among other things, seems to exhibit internet message board levels of paranoia). Why do you think they are storing so much cash and how can they use their cash stores to return maximum value to shareholders?

Nintendo is indeed expanding internal development althought very late. If you are really interested there's a GAFer here with a lot of knowledge in terms of Nintendo as a corporation. He's name eludes me now... Shikamaru i think. My apologies for a sucky memory.

 

[Hero]

First, I must apologize for calling two thirds of you assholes. It's probably more like 5%, so I was overly sensitive in my generalization.

That's it, not trolling, but that is my reasoning.

To the 5% of you who ARE assholes, bring it on ;-)

This is a great post. I wish you would explain yourself as well as you have done in this post when you make your crazy accusations. I agree with some of the things you said and disagree with others but you have clearly outlined your outlook on why.

 

[Mlatador]

The problem (aside from the constant changing of opinion) is that you discuss hardware sales without any sort of context. Forget Nintendo, industry wide you can't just pluck numbers in isolation or even just tying it to price.
Hardware and software go hand in hand, you have to look at what titles are coming out. It's all well and good talking about the need for the Wii U to see more games to do better, anyone can say that - but Nintendo have resorted to short run ups from announcement to release for most games now. Mario Golf, for example, was announced this month slated for summer release. In contrast, you've got Bungie teasing Destiny and we're unlikely to see it for at least 12 months, if not longer.

Without a genuine insight in what the hardware manufacturers have planned for their console and first party line ups, you're just plucking numbers out of the air. Everyone's expecting Microsoft and Sony to announce new consoles because if you look at the release schedule, there's practically a black hole beyond September. Machines need titles and games need hardware.

Third parties are also a terrible indicator of long term trends - they'd gladly just sell you the same games over and over again, look at how Activision rode the 'Hero' series into the ground. In the 32-bit era, Dance Dance Revolution was the big hit with whatever you want to call 'casual' gamers. Last gen you had Guitar Hero and Rock Band. The analyst who can predict what the next fad will be is the analyst that makes mountains of cash consulting for third parties.

It's a bit facetious saying "if Nintendo's software sales don't improve" when by definition they increase as a platform matures.

You're a professional analyst, could you point me towards any studies that breaks down how parents tend to approach purchases for their children? You say that they're buying Kindles, iPads and smart phones, as if these are substitutes. How does the Kindle Fire sell and is it in the same ballpark as a handheld games machine? What about iPads - the price difference is pretty big, regardless of the cost of the apps/games. Is there any sort of correlation that you're drawing from?
Even with smartphones, cheap models won't be able to compete with the 3DS on the same level, unless you're suggesting that the actual tastes of people who bought the DS have changed?

In which case, I ask - do you not think that the worldwide release of Pokemon towards the end of the year is going to be a big USP for Nintendo over what you suggest are substitutes?

The DS may have been more profitable for Nintendo at $99 but how long did it take to get there? Did Nintendo not struggle to keep the cost of dual screens down at first?

My personal opinion is that it would be easier to take your analysis seriously if it didn't seem to go to extremes. Searching on Google with different time frames will show you go from extreme optimism to similar levels of pessimism. As it is, whenever I see your name quoted in the press, I roll my eyes and expect the opposite to be the result.

Good luck to you.

Now this is a good post!

 

[-MB-]

The problem (aside from the constant changing of opinion) is that you discuss hardware sales without any sort of context. Forget Nintendo, industry wide you can't just pluck numbers in isolation or even just tying it to price.
Hardware and software go hand in hand, you have to look at what titles are coming out. It's all well and good talking about the need for the Wii U to see more games to do better, anyone can say that - but Nintendo have resorted to short run ups from announcement to release for most games now. Mario Golf, for example, was announced this month slated for summer release. In contrast, you've got Bungie teasing Destiny and we're unlikely to see it for at least 12 months, if not longer.

Without a genuine insight in what the hardware manufacturers have planned for their console and first party line ups, you're just plucking numbers out of the air. Everyone's expecting Microsoft and Sony to announce new consoles because if you look at the release schedule, there's practically a black hole beyond September. Machines need titles and games need hardware.

Third parties are also a terrible indicator of long term trends - they'd gladly just sell you the same games over and over again, look at how Activision rode the 'Hero' series into the ground. In the 32-bit era, Dance Dance Revolution was the big hit with whatever you want to call 'casual' gamers. Last gen you had Guitar Hero and Rock Band. The analyst who can predict what the next fad will be is the analyst that makes mountains of cash consulting for third parties.

It's a bit facetious saying "if Nintendo's software sales don't improve" when by definition they increase as a platform matures.

You're a professional analyst, could you point me towards any studies that breaks down how parents tend to approach purchases for their children? You say that they're buying Kindles, iPads and smart phones, as if these are substitutes. How does the Kindle Fire sell and is it in the same ballpark as a handheld games machine? What about iPads - the price difference is pretty big, regardless of the cost of the apps/games. Is there any sort of correlation that you're drawing from?
Even with smartphones, cheap models won't be able to compete with the 3DS on the same level, unless you're suggesting that the actual tastes of people who bought the DS have changed?

In which case, I ask - do you not think that the worldwide release of Pokemon towards the end of the year is going to be a big USP for Nintendo over what you suggest are substitutes?

The DS may have been more profitable for Nintendo at $99 but how long did it take to get there? Did Nintendo not struggle to keep the cost of dual screens down at first?

My personal opinion is that it would be easier to take your analysis seriously if it didn't seem to go to extremes. Searching on Google with different time frames will show you go from extreme optimism to similar levels of pessimism. As it is, whenever I see your name quoted in the press, I roll my eyes and expect the opposite to be the result.

Good luck to you.

If you want his professional analysis you will have to pay him for it.

 

[MikeE21286]

In other words, the company isn't going anywhere, but current management is hosed.

 

[Wickerbasket]

Because using numbers means you automatically defer to his opinion?

Are you saying the don't place more weight in opinions that are backed up by data?

 

[RedAssedApe]

Wouldn't mind playing Nintendo titles on my PS and next-gen Xbox.

 

[kingocfs]

Pachter is the fucking man

 

[michaelpachter]

Michael, if you're reading (and thanks for your responses), what should Nintendo do with their warchest? They don't seem to be using it to purchase exclusives or to widely expand internal development. Hell, even their dividend is small. Why do you think they are storing so much cash and how can they use their cash stores to return maximum value to shareholders?

I haven't looked it up, but as far as I can remember, they haven't bought anything big of bought back stock for close to 10 years. They have been sitting on their profits, have lost a bunch on foreign currency translation (not their fault, of course, but they could have purchased assets in the U.S. and Europe where their cash is located, and it would have cost less), and have been paying a dividend of 1/2 of their profits for the last 10 years or so.

They SHOULD consider licensing their content more, much in the way Disney does. It wouldn't hurt game sales if they licensed Mario pajamas or Link Halloween costumes, but they don't. They should also consider making iOS and Android games of their old content, like the original SMB on the GBA. Those games aren't selling now, could be sold on phones and tablets for $5, and might convince new players to buy Nintendo hardware in order to play newer titles.

As far as use of cash, it is probably best if they just buy back stock, since it is trading so cheaply. If they can't invest the money at a higher rate of return than they expect their stock to return, they should buy stock. I am clearly not a creative guy (even less so than a technical guy), so I can't tell them to buy studios. There is something to be said for the Nintendo magic, they really make great games, and if they bought more studios, they risk diluting their product. Software isn't the issue, it's their stubborn reliance on hardware. If the hardware isn't working as well as they would like, they should consider other forms of revenue, and licensing is an obvious one.

 

[JDSN]

I always found really funny to see the words "may" followed by "never".

 

[KidGalactus]

Pachter x GAF love affair begins here

 

[oneils]

Because using numbers means you automatically defer to his opinion?

Well you can't really have securities analysis without analysing data. I'm not really sure what your point is.

The other questions you asked are good questions, but I doubt Pachter is about to give you the answers here. He is posting probably from his office. I'm guessing that if you want the answers you will have to become one of his paying customers.

 

[dragonfart28]

Pachter's only true (and reasonable) prediction is about next gen graphics underwhelming compared to expectations.

Everything else is mostly hyperbole for the moneyhats (no offense).

 

[soundahfekz]

A real gamer is someone who considers video games to be more than just a futile exercise in jumping from one platform to another. Someone who realizes its potential as an art form, someone who supports constant innovation and ingenuity shown by the best artists in the industry. Unfortunately such companies as Nintendo keep thinking that video games are for man children unable to distinguish real works from cheap reproductions. But as the numbers lately show, they are a dying breed. Soon they will be an insignificant minority forever trapped in their own unfullfilled fantasies of plumbers having an affair with dumb-looking blond girls.

Of course you can simultaneously have a Nintendo console and be a real gamer as most likely you own at least one since childhood. But when you reach puberty, you realize there is more to life and upgrade to better, more mature gaming systems that show the potential of gaming in its true form.

What a beautiful disaster this post is. LOL