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An analysis of Nintendos financials

jvm

Gamasutra.
Jun 22, 2004
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Didn't think you'd be on the "Nintendo needs to go third party" bandwagon, jvm. ;)
I didn't say I was. I was simply asking Captain Smoker to think beyond his simplistic response to the simplistic request for an App Store Nintendo.

I think Nintendo needs a new model. What that model turns out to be, I don't really care. What I care about is that the video game business remains healthy, and having Nintendo in the business I think is helpful.

Personally, I don't play any Nintendo systems anymore, but I've owned everything they put out for decades. Previously for my own uses, and currently for my family's enjoyment. But even without my intervention my kids are playing more Minecraft and more tablet-focused software and more PlayStation software (it's what they have easiest access to outside of their own Nintendo systems). When they finally leave Pokémon behind, I'm not sure there's a single thing to draw them back. Maybe Animal Crossing, but they've never really enjoyed Zelda and Mario is merely a passing fancy for them.

I thought I got this wrapped up in the gross profit part. ;)

They usually sell their hardware with income, 3DS & Wii U are not following this route.

You can make your own calculations how much money they earn with hardware (usually) and how much this is when they sell 10.000.000 to 20.000.000 of hardware units.

Furthermore, their financial reports don't give me any hardware margins of course, that's why I can only argue with the overall gross profit, which also includes the software.
You can be more adventurous, and make some educated guesses. We'd have fun discussing that, and I mean that seriously -- not as a joke.

Suppose Nintendo never had to invest in hardware, hardware support, accessories, and network infrastructure ever again. Suppose, instead, they could put their massive warchest of money toward blowing the doors off everyone with their software quality and stable of imminently recognizable properties. Suppose they also started buying up other established properties that they began developing and exploiting ruthlessly. Long term overhead goes down significantly, where do you think that leaves them?
I didn't want to write an essay since the OP is already quite big.
Really? Who the hell cares? It's a message board where people write long, passionate essays about the things they care about. Feel free to do the same.
 

ajjow

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Dec 20, 2012
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That's one thing I concluded.

I actually tried to figure this out by subtracting their own software sales from the chart at got something like 2 $ to 5 $ per game.

But I didn't have all my Nintendo software shipment data at hand.


This would be my 14 conclusion. If thats true, IOS issssss baaaaaaaaad for this industry. Apple royaties are much bigger than Nintendo, Sony and Microsoft. Besides the games are cheaper there. If thats the case, people dont have any idea about this market and this whole goooooo mobile will destroy Square Enix pretty fast, unless people starts buying games in IoS or android for 40 dollars.
 
Jun 7, 2007
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13) even though this charts are about revenue, it is pretty clear that everytime a system is launched, in the 3 following years, their gross profit increase a lot. It means the hardware is really important for the profit margin. If the software is 90% of their gross profit, they would have abandoned hardware production a long time ago because it wouldn't change gross profit. Besides, the following years of console launch wouldn't make any difference in gross profit, or the last years of a system. Look how the graphs grow and declines accordingly with hardware cycles.
I added this sentence in the OP:

Since we don't have hardware margins and software margins, I'm concentrating on the revenue-part (information that we have) and trying to analyze their profitability with the gross profit ratio in the end.

We don't have exact margins and I can only work with the data that we have.


1.) Show overall revenue
2.) Show revenues in detail
3.) Show the gross margin (net sales - production cost of hardware + software)


Depending on the margins, let's say 10$ to 50$ per hardware unit, that's still 100.000.000 $ to 500.000.000 $ of income if the sell 10.000.000 hardware units.

Not to mention the synergy-effects produced by the hardware.
 

beril

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Aug 25, 2010
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That's one thing I concluded.

I actually tried to figure this out by subtracting their own software sales from the chart at got something like 2 $ to 5 $ per game.

But I didn't have all my Nintendo software shipment data at hand.

Also a possible explanation for the relatively high figures in recent years could be the increase in digital markets since they obviously take a much higher percentage on eShop/VC, where they handle the distribution and the store-front as well.

This would be my 14 conclusion. If thats true, IOS issssss baaaaaaaaad for this industry. Apple royaties are much bigger than Nintendo, Sony and Microsoft. Besides the games are cheaper there. If thats the case, people dont have any idea about this market and this whole goooooo mobile will destroy Square Enix pretty fast, unless people starts buying games in IoS or android for 40 dollars.

You can't really compare Appstore royalties to hardware license cost for retail games. On digital platforms everyone takes about the same amount, but for retail games you also have production costs, distribution costs and the retailers cut, which is all merged into one on digital platforms. I have no idea how the overall costs compares though
 

Majukun

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Jun 19, 2009
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maybe they can continue producing portables like the 3ds and stop making home consoles and still get a decent revenue.
because if they really don't want to compete with microsoft and sony as they said,then they are going nowhere with the home market
 
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You can be more adventurous, and make some educated guesses. We'd have fun discussing that, and I mean that seriously -- not as a joke.
Haha, you're right, I'll consider this. ;)

But it's 03.00 am here, so I'll respond tomorrow to this:

Suppose Nintendo never had to invest in hardware, hardware support, accessories, and network infrastructure ever again. Suppose, instead, they could put their massive warchest of money toward blowing the doors off everyone with their software quality and stable of imminently recognizable properties. Suppose they also started buying up other established properties that they began developing and exploiting ruthlessly. Long term overhead goes down significantly, where do you think that leaves them?
 

The Boat

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Sep 22, 2010
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Great work OP.
About licensing fees, we know that Nintendo lowered royalties because they were too high, it's just an incentive for 3rd parties to make software on Nintendo platforms.
 

Game Guru

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Dec 14, 2010
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In this thread: People don't read that Nintendo always made profit with their hardware.


Exception:

3DS = wasn't profitable / currently profitable

Wii U = currently isn't

Yeah, it appears Nintendo's biggest problem is having loss-leading systems. Nintendo's goal would be to make their successor systems so that they are profitable at launch. They appear to be doing that since they are going to likely use similar hardware for their ninth-gen handheld and console and are gearing up the pipeline of theirs to do exactly that. They should also make the Wii U hardware profitable. A secondary goal for them should be to improve their own online infrastructure so that they can make all the money off of their own software, instead of having to share with retailers, and to continue their own indie focus.

In essence, while people joke about the pointlessness of the Ouya, Nintendo, and specifically Nintendo, could be in the best position to capitalize on the microconsole market. For Nintendo, going that route would only involve a switchover from discs to downloads, or cards if they want to keep retailers happy. Nintendo already makes their systems weaker than Sony's or Microsoft's and they traditionally charge $150 for their handheld and $200 for their console as well as make profit on them, which is a lower price than anything but the Ouya and GameStick. If I were running Nintendo, I would at least seriously consider going that route, especially if Nintendo decides to make their handheld and console libraries cross-compatible.
 

oneils

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Mar 2, 2011
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You have revenue by hardware and by software. It would be interesting to see the same charts for profits with a breakdown of costs. It would give a better idea of opportunity costs.

I also wonder if the wii-u is a harbinger of a new reality for Nintendo or just a blip.
 

Faustek

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Apr 25, 2013
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This is sad as hell..sitting here reading this wonderful piece by Mr.Strange GAF:er and its still ten times better than any Mr.Games Journalist ever accomplished when going down this path.

Just another thing, Nintendo needs to sell 759.319.667 games per year at 5 $ in the App Store to account for the same hardware revenue. And 30 % goes to Apple. (Comparing last fiscal year)

Does there even exist that many active iPhones?
 
Nov 20, 2010
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Is the actual cost of producing all this hardware revenue in here, because I don't see it? I don't care if, for example, giving up hardware requires selling eleventy billion games on iOS to generate the same revenue if (again, for example) selling eleventy million games ultimately gets me to the same level of profitability. Putting context around revenue is important. One piece of that context is the cost of it. Another piece of context is the cost of not doing something else.
 
Nov 20, 2010
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If you lose 60% of your income it doesnt matter that 10% of your people were making that 60%, the other 90% of your people are going to suffer no matter what.

If you lose your biggest player, the team is going to suffer even if you get a new guy.

Income != revenue. If I willingly cut out $1 billion in sales that cost me $1 billion to generate in the first place, then I've lost no income whatsoever. Hypothetically. Since the box is a platform and not just a device representing only one sale, it's a bit more complicated than that.

Now, that's not to say the workforce isn't impacted, because you're not keeping Hardware Designer Joe when you're not making hardware anymore (Joe is part of the cost you get rid of when you abandon the pursuit of the revenue stream), but the loss of that revenue need not necessarily impact Game Designer Catherine.
 

legend166

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Jan 31, 2007
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The GamePad is going to be an albatross around Nintendo's neck in terms of the manufacturing cost of the Wii U.
 
Oct 30, 2011
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Except the 3DS is profitable, right NOW, and IIRC Sony expects the PS4 to hit the even mark if not profitable soon as well right? Your statement is just flat out false.

I think its time to just admit that the logic behind the "Make their games for smartphones" nonsense is... well.... nonsense, and not based in, or on any form of arithmetic at all. Just a bunch of people shouting random stuff about today's latest craze. I think most people knew it wasn't that simple anyway, but its interesting to look at the numbers and see just how hilarious it is. With the way people have been going on, you would expect it to be a no brainer. However when you look close enough, you find yourself having to make some serious leaps of logic and concessions just to make the idea of going mobile only competitive.

This has been the rule for over 15 years, and a rule that Nintendo has always broke. Just because they're playing by conventions now doesn't mean it's permanent.

I personally bet the Wii U will become profitable next year.


3DS is profitable, yes, but the growing trend is seeing 3DS less profitable than the DS was. They are currently getting squeezed on margins due to the growing mobile/tablet space, and this will continue into the future as most of the same audience Nintendo used to have is now gaming specifically on these platforms instead.

PS4 will hit profitability soon, and the Xbox One may already be profitable, but they are not going to make huge margins on the hardware; Sony and Microsoft are competing with eachother, as well as PC gaming, and are vying for much of the same space. Sony and Microsoft will cut prices as soon as they can in order to make money on volume.

Nintendo can't make huge margins on hardware, and their software won't be able to be hugely profitable unless they can sell units in volume. Looking at Mario 3D World's sales, the Wii U platform is seriously hindering their ability to sell software.

Gaming platforms are so entrenched right now with online services and ecosystems that Nintendo cannot reasonably compete in the hardware space going after the core market, and tablets/phones have taken over their casual base, leaving nothing but the extremely hardcore Nintendo gamer as their consumer.

So unless they have a new blue ocean strategy that succeeds (unlikely), they will need to significantly revamp their business model to reflect the new climate they are faced with. It's as simple as that. Wii was an anomaly, not the norm, and N64 --> GC transition already showed signs that their business model wasn't working and they were having difficulty competing with Sony and Microsoft.
 

Alcibiades

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Jun 6, 2004
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A lot of the third party success on Wii was unfortunately budget $20 shovelware with probably less than a $5 licensing fee. Compare that to a regular $50 or $60 title where the licensing fee is probably $10-$12.
 

Striek

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Jan 24, 2005
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Some of your conclusions aren't supported by the data on offer. As has been brought up by others.

ie.
Considering this, you can say that people saying that Nintendo should abandon their hardware is quite a crazy idea, because it makes up to 60% of their business.
We don't have and can't get gross margins on hardware specifically. We know they can generate significant losses, but we do not know how significant the profits can be, nor what proportion they make up. All we know is they are naturally lower than software margins.

People saying that Wii U should be 200 $ or less is wishful thinking and not really an option considering this. It's their fault though, because they should've planned this better (and other things like marketing, etc.),
but ok, this is quite an unpredictable market if you want to predict long term sales.
Not at all. This is faulty logic. A $100 price drop has more or less the same impact on the bottom line for a profitable or unprofitable product. The same amount less revenue per product sold, the same writedown on inventory, and the same impact on the bottom line. Thus the process of deciding when to cut the price is the same, ie.

- Is the system selling as well as it needs to be?
- Is the price drop the most viable option?
- Will a price drop achieve the desired impact? Does it set the system up for (greater) future success?
- Can the company afford it?

Spending $1 billion now (to shift an extra 10 million units) is the same as spending $1 billion later. It may even accelerate production costs downward. You have to weigh the pros and the cons. Its not simply a case of "its losing money, we can't cut the price". The PS3 is an example of a system that was sold at a huge loss, and then generated more losses by cutting the price. But it was vital to act quickly to set it up for any future success in the marketplace and ultimately the best course of action to try and recoup some of the losses in the long term was to keep the system viable in the short term. Sony wouldn't still be making consoles today if they hadn't acted fast (IMO, obviously).
 

numble

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Apr 22, 2007
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Except the 3DS is profitable, right NOW, and IIRC Sony expects the PS4 to hit the even mark if not profitable soon as well right? Your statement is just flat out false.

I think its time to just admit that the logic behind the "Make their games for smartphones" nonsense is... well.... nonsense, and not based in, or on any form of arithmetic at all. Just a bunch of people shouting random stuff about today's latest craze. I think most people knew it wasn't that simple anyway, but its interesting to look at the numbers and see just how hilarious it is. With the way people have been going on, you would expect it to be a no brainer. However when you look close enough, you find yourself having to make some serious leaps of logic and concessions just to make the idea of going mobile only competitive.
The 3DS is selling at a lower clip than its predecessor. If the successor continues to see similar decline in overall sales, simply being profitable isn't enough for investors, especially if it is less profitable than the past. Blackberry, Nokia, and HTC had many profitable years despite declining sales, for instance.
 

BengaBenga

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Oct 24, 2010
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Some of your conclusions aren't supported by the data on offer. As has been brought up by others.

....

Spending $1 billion now (to shift an extra 10 million units) is the same as spending $1 billion later. It may even accelerate production costs downward. You have to weigh the pros and the cons. Its not simply a case of "its losing money, we can't cut the price". The PS3 is an example of a system that was sold at a huge loss, and then generated more losses by cutting the price. But it was vital to act quickly to set it up for any future success in the marketplace and ultimately the best course of action to try and recoup some of the losses in the long term was to keep the system viable in the short term. Sony wouldn't still be making consoles today if they hadn't acted fast (IMO, obviously).

That's not true. Spending a dollar today is more expensive than spending a dollar tomorrow. Therefore all unplanned expenses early in the system's life will have a significant impact on the profitability.

Nevertheless spending the money upfront to drive hardware install base might be the best option though, but I'm sure Nintendo has models that predict average software income per console owner.
 
Jun 7, 2007
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Some of your conclusions aren't supported by the data on offer. As has been brought up by others.

ie.

We don't have and can't get gross margins on hardware specifically. We know they can generate significant losses, but we do not know how significant the profits can be, nor what proportion they make up. All we know is they are naturally lower than software margins.
1.) We know that Nintendo hardware has never been sold at loss, otherwise it's highly unrealistic that they generated 37 years of operating income. Maybe some hardware was sold at loss at some points (GCN for example), but this was outweightet by the GBA.

2.) We can also conclude from the gross profit chart that their profitability was worst after a hardware launch (but still highly profitable) and highest after a few years: Good hardware salaes -> less production costs -> higher margins

3.) We also know that 3DS & Wii U have been sold at loss, unlike the other hardware, that's why the gross profit ratio sinks rapidly.



But ok, let's do a breakdown of this whole thing.

I'm going to take FY3 2009 for example.


Net Sales: ¥ 1.838.622.000.000

Hardware Revenue Consoles: ¥ 617.326.000.000
Hardware Revenue Handhelds: ¥ 426.151.000.000
Hardware Revenue Other Hard.: ¥ 116.270.000.000

Software Revenue Consoles: ¥ 400.398.000.000
Software Revenue Handhelds: ¥ 260.288.000.000
Royalties & content income.: ¥ 14.909.000.000

Cost of Sales: ¥ 1.044.981.000.000

Gross Profit: ¥ 793.641.000.000


In this period, Nintendo shipped:

GBA: 420.000
NDS: 31.180.000 (¥ 426.151.000.000 revenue)

WII: 25.950.000 (¥ 617.326.000.000 revenue)


So we can cunclude:

Average selling price to retailers [ Wii ]: ¥ 23.789,06 (that's 236,75 $ in that period)


Average selling price to retailers [ GBA + NDS ]: ¥ 13.485,79 (that's 134,21 $ in that period)



Now, moving to the Cost of Sales: ¥ 1.044.981.000.000 - section.

In that period, this was 10.399.890.525 US Dollars.


Nintendo had 27 million sellers in that period, which shipped around 126.050.000 units.

Overall game shipments (including 3rd Party) have been 402.510.000 units.

So Nintendos overall game shipments could've been around 150.000.000 to 200.000.000 units.


According to some sources (#1; #2), the disc production costs are around 3$ to 5$.

Combining this with their shipped games, you get costs around 450.000.000 $ to 1.000.000.000 $.



Now moving on to the hardware we have these average selling prices:

Wii: 236,75 $

GBA + NDS 134,21 $

Let's say that they generate around ~35$ of income per unit, that leaves us production costs of 200 $ for the Wii and 100 $ for the NDS & GBA.

25.950.000 * 200 $ = 5.190.000.000 $

31.600.000 * 100 $ = 3.160.000.000 $

That gives us a cost of 8.350.000.000 $. Combined with the software cost we get around 8.800.000.000 $ to 9.350.000.000 $ for the production costs.


That's still lower than the exact 10.399.890.525 $ figure.

So, that means that our multipliers aren't correct. Maybe the software production is more expensive (especially Wii Fit, Wii Play, Mario Kart had all hardware bundles) or the hardware production is slightly more expensive.


But it shows us that the overall average margin of 35$ for the hardware in that period could be a good guess.


But we know that this year (gross profit ratio) has been the most profitable in the Wii & NDS - era, so the margins should've benn lower if you analyze older years.


Of course, you could analyze the prices for the hardware components at that time, but I don't know what the Wii & NDS consinst of.


So, if they can sell 13.950.000 3DS units like last year with a profit of 10$ to 30$, you get an income of 139.500.000 $ to 418.500.000 $.

And as I said, this gives them the opportunity for their own ecosystem.


We know that licencing fees cost 3$ to 7$. If Nintendo sells 100.000.000 units of software on other hardware that's 300.000.000 $ to 700.000.000 $ of additional costs right from the start.

And going digital on iOS means that they enter a very risky market.
You can say that they're going to earn billions and billions however you wan't, but in a market where video game giants like EA are easily outpaced by no-name-developers everything can happen.

And EA is the closest comparison to Nintendo, a lot of strong franchises and a traditional video game company. Their mobile revenues in the last fiscal year have benn 274.000.000 $, that's how much they earn with one big hitter like Pokemon in a fiscal year.
 

RibbedHero

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Oct 27, 2010
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We have no idea if the hardware division, despite providing the majority of revenue, is profitable based on the OP.

If it's not profitable, despite greater revenue than software, then a switch to third party SHOULD AT LEAST BE CONSIDERED.
 
Jun 7, 2007
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We have no idea if the hardware division, despite providing the majority of revenue, is profitable based on the OP.

If it's not profitable, despite greater revenue than software, then a switch to third party SHOULD AT LEAST BE CONSIDERED.
Do you really think that they could generate 35 years of operating income if the hardware wasn't profitable?

Furthermore, see my post above.


We know that 3DS wasn't profitable and Wii U isn't, that's why they have their first operating losses.*

*Plus the fact that software is more expensive to produce.
 

numble

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Apr 22, 2007
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And EA is the closest comparison to Nintendo, a lot of strong franchises and a traditional video game company. Their mobile revenues in the last fiscal year have benn 274.000.000 $, that's how much they earn with one big hitter like Pokemon in a fiscal year.

EA had $383 million in mobile revenue in the last year, a 28% increase in revenue over the year before.
 
Jun 7, 2007
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EA had $383 million in mobile revenue in the last year, a 28% increase in revenue over the year before.
Not according to their slide presentation:


http://investor.ea.com/common/downl...084a&filename=Q4FY13_EarningsSlides_FINAL.pdf


It's 370.000.000 $ if you include handhelds, feature phones and all the stuff. And the increase is 55%.
 

Jintor

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Oct 22, 2009
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Great read Smoker. I don't know enough to contribute meaningfully, but I'll keep an eye out here to see if I learn something.
 

TunaLover

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May 13, 2007
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No wonder why they don't give two shits about third parties, the loyalty fees are quite insignicant to the gross sales of first party titles =/
 

Bizazedo

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Nov 13, 2010
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Just another thing, Nintendo needs to sell 759.319.667 games per year at 5 $ in the App Store to account for the same hardware revenue. And 30 % goes to Apple. (Comparing last fiscal year)

You shouldn't have posted that, since the main point of the cheap / free games is microtransactions and to hook the people who spend $100 on crap like Candy Crush.

Well, that and they'd have a much bigger userbase to exploit.
 

GodofWine

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May 8, 2008
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Just because hardware 60% of revenue, doesn't mean its profitable, don't mix revenue with income with profit. I assume they are losing money on hardware due to marketing / logistics , etc.

And I also think they'd sell more Nintendo games on PS4 and XB1 over the next 5 years than they will on WiiU (total hypothetical thats unable to be proven), so the whole 'providing a platform' to sell their software theory I dont think holds up in the WiiU vs. Sony vs MS sceanario.

100m users, vs. 15m users (just using some numbers that people float for potential lifetime sales) , is doing nintendo no favors on Hardware or Software revenue/income/profits.
 

BengaBenga

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Oct 24, 2010
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We have no idea if the hardware division, despite providing the majority of revenue, is profitable based on the OP.

If it's not profitable, despite greater revenue than software, then a switch to third party SHOULD AT LEAST BE CONSIDERED.

The main problem with the third party strategy is that Nintendo is not set up for this. Without the need to support a platform there's no reason for them to release a broad range of software anymore. Rather they would focus on the most profitable software (Mario, Zelda, Pokemon) and ditch everything with low returns on investment. Developing stuff like Fire Emblem or Xenoblade would probably not be approved anymore, thus making Nintendo something more like EA or Activision. However it would change the way Nintendo is run in such a massive way, that it's far from certain this would allow Nintendo to maintain their incredible quality.

It might be more profitable in the short run, but it would also make Nintendo a far smaller company in market capitalization and assets, which is not necesarily good for the shareholders. Nintendo now still has the same market cap as Sony. As a third party it would shrink dramatically.

Aside from that, Nintendo publishes quite some third party games outside of Japan. Without Nintendo as a platform holder this would also be a thing of the past, which for gaming in general would be a bad thing imo.
 

H_Prestige

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Aug 2, 2008
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We know that 3DS wasn't profitable and Wii U isn't, that's why they have their first operating losses.*

*Plus the fact that software is more expensive to produce.
You think that trend won't continue? Hardware and software costs aren't going to get magically cheaper. Especially not with Sony and MS in the game. It's impossible to make N64/GC type hardware now and expect it to sell. The hardware landscape is completely different compared to the 90's. It's useless to bring up charts from back then, that was a completely different world.

The main problem with the third party strategy is that Nintendo is not set up for this. Without the need to support a platform there's no reason for them to release a broad range of software anymore. Rather they would focus on the most profitable software (Mario, Zelda, Pokemon) and ditch everything with low returns on investment. Developing stuff like Fire Emblem or Xenoblade would probably not be approved anymore, thus making Nintendo something more like EA or Activision. However it would change the way Nintendo is run in such a massive way, that it's far from certain this would allow Nintendo to maintain their incredible quality.

I know this notion gets thrown around a lot, but logically it's just the opposite. Nintendo has more pressure to double down on their popular franchises when they are trying to prop up a failing hardware. Because stuff like Fire Emblem has no chance in hell of selling consoles, when even Mario is barely doing it. If they just made software for ps4/xb1, they could use the profits they make off of Mario and Zelda to make the more niche stuff, or heck, maybe even some new IP for a change. Their software dev costs might even go down a bit since both Sony and MS offer far better development tools.
 
Jun 7, 2007
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Just because hardware 60% of revenue, doesn't mean its profitable, don't mix revenue with income with profit. I assume they are losing money on hardware due to marketing / logistics , etc.
Maybe you read more than just the beginning of the OP next time.

And I also think they'd sell more Nintendo games on PS4 and XB1 over the next 5 years than they will on WiiU (total hypothetical thats unable to be proven), so the whole 'providing a platform' to sell their software theory I dont think holds up in the WiiU vs. Sony vs MS sceanario.

100m users, vs. 15m users (just using some numbers that people float for potential lifetime sales) , is doing nintendo no favors on Hardware or Software revenue/income/profits.
This is just trivial short-term-thinking in my opinion (as BengaBenga explained).

Furthermore, you completely ignore the 3DS.


You think that trend won't continue? Hardware and software costs aren't going to get magically cheaper. Especially not with Sony and MS in the game. It's impossible to make N64/GC type hardware now and expect it to sell. The hardware landscape is completely different compared to the 90's.
And yet we see that Xbox One and PS4 are almost profitable at launch.

It depends on Nintendo, you have to consider that graphical jumps are going to be smaller and smaller, thus you don't need the beefiest hardware to create good visuals. It's going to be important who has the overall best console concept and software offerings.

I know this notion gets thrown around a lot, but logically it's just the opposite. Nintendo has more pressure to double down on their popular franchises when they are trying to prop up a failing hardware. Because stuff like Fire Emblem has no chance in hell of selling consoles, when even Mario is barely doing it. If they just made software for ps4/xb1, they could use the profits they make off of Mario and Zelda to make the more niche stuff, or heck, maybe even some new IP for a change. Their software dev costs might even go down a bit since both Sony and MS offer far better development tools.
Yes and they pay 3$ to 7$ licensing fees.

Let's be realistic, calculate how much games they could sell per year, not to forget that they need at least 1 or 2 years of restructure, it's not like they switch a button and that's it.
 

BengaBenga

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Oct 24, 2010
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Just because hardware 60% of revenue, doesn't mean its profitable, don't mix revenue with income with profit. I assume they are losing money on hardware due to marketing / logistics , etc.

And I also think they'd sell more Nintendo games on PS4 and XB1 over the next 5 years than they will on WiiU (total hypothetical thats unable to be proven), so the whole 'providing a platform' to sell their software theory I dont think holds up in the WiiU vs. Sony vs MS sceanario.

100m users, vs. 15m users (just using some numbers that people float for potential lifetime sales) , is doing nintendo no favors on Hardware or Software revenue/income/profits.

They might sell more software, as undoubtedly the install base for Xbone, Ps4 and Steam will be way beyond Wii U - but I think that only applies to their big names. I don't think the audience that buys Pikmin or Fire Emblem is scalable to a non-Nintendo install base.

However it's very likely that the profit margin will decrease dramatically for Nintendo. First of all they will have to pay royalties but more importantly they'll have to learn to devlop games for different hardware, when Nintendo has zero experience developing games outside of their own hardware (hardware that's developed in very close collaboration with the software teams nonetheless). This will surely affect the bottom line.

Aside from that Nintendo will have to learn how to compete with EA, Activision, Ubisoft, etc with regards to marketing and product placement, which is also something outside Nintendo's expertise.
 
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They might sell more software, as undoubtedly the install base for Xbone, Ps4 and Steam will be way beyond Wii U - but I think that only applies to their big names. I don't think the audience that buys Pikmin or Fire Emblem is scalable to a non-Nintendo install base.

However it's very likely that the profit margin will decrease dramatically for Nintendo. First of all they will have to pay royalties but more importantly they'll have to learn to devlop games for different hardware, when Nintendo has zero experience developing games outside of their own hardware (hardware that's developed in very close collaboration with the software teams nonetheless). This will surely affect the bottom line.

Aside from that Nintendo will have to learn how to compete with EA, Activision, Ubisoft, etc with regards to marketing and product placement, which is also something outside Nintendo's expertise.
Furthermore, while all these companies made millions/billions of losses in the last years (aside from Activision), Nintendo sustained profitable over it's whole history, so their model works quite good.

It's not working good in the last few quarters because they didn't made 3DS & Wii U profitable from the beginning and other problems.


But they restructered their company because of this, more employees, emphasis on the online business, 3DS is profitable again, plans to enhance the profitability of future platforms, new facility to unify development, etc.
 

H_Prestige

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And yet we see that Xbox One and PS4 are almost profitable at launch.

It depends on Nintendo, you have to consider that graphical jumps are going to be smaller and smaller, thus you don't need the beefiest hardware to create good visuals. It's going to be important who has the overall best console concept and software offerings.

They're only profitable because they're selling at $400/$500. That's not a price range Nintendo belongs in. Unless they start making machines that go toe to toe with ps4/xb1. And even if they do that, they'd probably lose still, because MS/Sony are better at making and selling high end consoles.


Yes and they pay 3$ to 7$ licensing fees.

Let's be realistic, calculate how much games they could sell per year, not to forget that they need at least 1 or 2 years of restructure, it's not like they switch a button and that's it.

Their software sales are directly tied to how much hardware sells. If their hardware sells like the Wii, software sales explode. The Wii U? Look how much NSMB has sold so far, about 1-2 million. That's not much. That's like a LBP game. 3DW will probably end with a similar amount. If these games were multiplatform, they would be selling 10 million easy. That's way more profit, even including royalties. If Skylanders or Lego games can sell crap loads on Sony/MS machines, then there is no reason Nintendo games can't.
 

Kouriozan

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Mar 22, 2012
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Dat Gross profit. Hardware making up 60% of their revenue is insane. Going third party would kill them and lead to so many layoffs.

Just like with Sega, releasing less and less games every years, only safe AAA games or nothing.
Yep it's sad.

Anyway, their new HQ should help them a lot for the next generation.
 
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(...)

They're software sales are directly tied to how much hardware sells. If their hardware sells like the Wii, software sales explode. The Wii U? Look how much NSMB has sold so far, about 1-2 million. That's not much. That's like a LBP game. 3DW will probably end with a similar amount. If these games were multiplatform, they would be selling 10 million easy. That's way more profit, even including royalties. If Skylanders or Lego games can sell crap loads on Sony/MS machines, then there is no reason Nintendo games can't.
But you forget that Super Mario 3D World sells hardware too, which opens up their whole ecosystem.

1 Hardware = More Software + More Royalties + More Accessories + More Digital Sales

That's how Nintendo works, you completely ignore the synergy effects.


And now imagine how profitable this is if the hardware itself is profitable too, it's not the case for the Wii U currently, but for the 3DS.


Furthermore, NSMBU was at >2.000.000 in March 2013.

When was the last time they spent a big chunk of money to build facilities?
The last restructure was the first big restructure in 9 years.
 

Screamapillar

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Apr 23, 2012
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Well, they profit off of the 3DS.

One of Wii U's problems is that it doesn't sell well so they probably don't get good contracts for mass-production.

The one and only way to solve that problem is with attractive software to entice people to buy into the new hardware. Price cut, marketing, demos, etc, are all secondary to unique content that consumers must buy your hardware for in order to play. That is golden rule that people often forget. Wii wouldn't have sold nearly as well without Wii Sports to show what the system could do. Wii U will not sell in big numbers without a couple pieces of software that make people say: "Wow". Wii U doesn't have that yet. 3D World is merely keeping the system from sinking to the floor.
 
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The question is why don't they build western studios....
Yes, this is certainly something they should consider too.

I hope that Iwata, since he's the CEO of NoA currently, realises that now.


I'm also really curious what N.E.R.D. is working on, they mentioned Cloud services in the Iwata Asks.
 

H_Prestige

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But you forget that Super Mario 3D World sells hardware too, which opens up their whole ecosystem.

1 Hardware = More Software + More Royalties + More Accessories + More Digital Sales

That's how Nintendo works, you completely ignore the synergy effects.


And now imagine how profitable this is if the hardware itself is profitable too, it's not the case for the Wii U currently, but for the 3DS.


Furthermore, NSMBU was at >2.000.000 in March 2013.


The last restructure was the first big restructure in 9 years.

You're asking me to imagine a lot of things because they aren't actually happening. There is no way for the Wii U to make profit per unit unless they increase the MSRP. Because they aren't selling anywhere near enough to get bulk cost reductions at the factories. And yes, that's with NSMB and 3DW on shelves, so no those games obviously aren't selling hardware. No hardware sales = no software + no royalties + no accessories + no digital sales. Some synergy there.
 

Maxrunner

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Jun 19, 2009
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Yes, this is certainly something they should consider too.

I hope that Iwata, since he's the CEO of NoA currently, realises that now.


I'm also really curious what N.E.R.D. is working on, they mentioned Cloud services in the Iwata Asks.

They should have stayed with RARE....now its a corpse sitting in MS dungeons....so many good ips that would fit Nintendo users...
 
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You're asking me to imagine a lot of things because they aren't actually happening. There is no way for the Wii U to make profit per unit unless they increase the MSRP. Because they aren't selling anywhere near enough to get bulk cost reductions at the factories. And yes, that's with NSMB and 3DW on shelves, so no those games obviously aren't selling hardware. No hardware sales = no software + no royalties + no accessories + no digital sales. Some synergy there.
This whole topic is not just about the Wii U, these are short-term effects.
Furthermore, don't forget the 3DS in this discussion.

NSMBU & 3DW aren't the only thing that matter, it's a combination of far more factors.

Their next console can be profitable from the beginning and I think that they're going to produce it like that after the Wii U & 3DS - problems.
 

metalslimer

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Jun 9, 2012
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Basically Nintendo needs to release an extremely cheap system next time that is very profitable from the get go. Because the other two options are releasing an expensive console that will just get them killed by Sony and MS, or they could take a loss which it seems is the biggest cause of their problems the last few years. Of course this is completely Nintendo's fault for going for that energy efficient nonsense. The Wii U could have easily been profitable at launch.

Question: Do you think it would be worth it to create another system even if it only sold 10-15 million units assuming it was profitable to begin with?
 

QaaQer

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Jun 13, 2012
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Basically Nintendo needs to release an extremely cheap system next time that is very profitable from the get go. Because the other two options are releasing an expensive console that will just get them killed by Sony and MS, or they could take a loss which it seems is the biggest cause of their problems the last few years. Of course this is completely Nintendo's fault for going for that energy efficient nonsense. The Wii U could have easily been profitable at launch.

I'm not sure how effective that will be once Amazon's $99/$149 console comes out with a bunch of really cheap games and/or their content subscription model. Staking out the low end without a raft of free/cheap content is going to be really hard in the future.

If a company is going to sell premium priced games they really need to pair that will a decently powered console.