• Hey, guest user. Hope you're enjoying NeoGAF! Have you considered registering for an account? Come join us and add your take to the daily discourse.
  • Hey Guest. Check out the NeoGAF 2.2 Update Thread for details on our new Giphy integration and other new features.

An analysis of Nintendos financials

Jun 7, 2007
5,732
69
1,240
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 think one advantage in the future are the shrinking graphical jumps.

So they need to invest less money to achieve good graphics and to be closer in "psychological value" to their competitors.

At some point, as I already mentioned, it's going to be more important who offers the best services, exclusive games, the best idea, etc.


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?
The thing is, we don't know how good it sells. ;)

What if they can sell 40.000.000 units next time.

The only thing that Nintendo can do is producing high quality software so that people have to come back and buy their hardware if they want to play those games, that's how they sustain as a company in long-terms. Every hardware generation is different.

And they certainly have to enhance other things like the overall console / multi-media experience (I think the Wii U offers quite a good amount of services, while it has it's flaws of course).
 

Bizazedo

Member
Nov 13, 2010
7,021
0
680
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?

Short term, yes, because Nintendo die hards don't care about power. They believe in magic.

Long term, in my opinion obviously, no, they can't keep going the cheap route because people are just more and more gravitating towards current tech.
 

beril

Member
Aug 25, 2010
3,993
0
0
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.

I'd love to hear you elaborate on that one, unless it's just a general assumption that nintendo are incompetent.
It's been a while since I did any work on PS3/360, and I never did low level stuff on those platforms, but I don't really remember there being a massive difference in the tool quality and can't really think of any features I miss when debugging on Nintendo platforms, and all the APIs are straight forward and well documented.
 

Screamapillar

Member
Apr 23, 2012
1,573
0
0
Michigan
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?

The video game industry is cyclical. MS and Sony are giant corporations with multiple branches that create many different products. Nintendo doesn't have that luxury. They exist as a hardware and software entertainment company. They don't sell Windows OS software or have their own giant movie studio, and they don't make TVs or stereos. MS and Sony have a lot of capital to spend on consoles and studios because the funding for that comes from elsewhere. Xbox One and PS4 wouldn't exist as they do today if those two companies were based solely on their success in the video game industry. The fact that Nintendo has existed in this industry as one of the top 3 since the very beginning in the early 1980's should tell us that they know what they're doing. As gamers for most of our lives, we've seen many console manufacturers come and go. Sega, Atari, 3DO, Wonderswan, Jaguar, etc.

Horsepower has never lead to industry-leading sales in the console market, ever. In fact, the opposite is true. Usually the least-powerful system tends to be the most successful. So I think that you're premise is flawed. Nintendo has earned a lot of extra money from being so successful, and they can afford to spend a few years in deep R&D on some amazing games and services while the other two battle it out for a while. Wii U will pick up, it will just take some time.
 

H_Prestige

Banned
Aug 2, 2008
15,476
0
0
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.

What are these other factors? Because if those games aren't moving hardware out the door, nothing they do will.

Making a cheap hardware with positive margins isn't difficult. Actually selling it is. Just see the Ouya. I don't think Nintendo wants that.

And no, I'm not forgetting the 3DS. That system isn't the money printer the Wii and DS were. And why is that? Because the mobile market has become extremely competitive and cutthroat.

Horsepower has never lead to industry-leading sales in the console market, ever. In fact, the opposite is true. Usually the least-powerful system tends to be the most successful. So I think that you're premise is flawed. Nintendo has earned a lot of extra money from being so successful, and they can afford to spend a few years in deep R&D on some amazing games and services while the other two battle it out for a while. Wii U will pick up, it will just take some time.

Not this again...

Every dominant system in each gen was a cutting edge, groundbreaking console. The only exception to this was the Wii, which came a year after the far more advanced 360. And it failed to truly dominate the other two in LTD sales after all was said and done.

This is also ignoring that every successful system had the lion's share of software. Something Nintendo does not have and never will have.
 

Jackano

Member
Jan 19, 2006
5,228
1
1,280
France
twitter.com
Just to drop a GJ at CptSmoker, awesome OP!

Imo it doesn't change the problem for Nintendo, of course they aim at selling hardware at a profit (even if Iwata's choices to sell hardware at a loss at first seems to be a mistake period, I believe this is more because of the cost of individual components (3D screen, gamepad) rather than just the high price -and of course the lack of perceived value because of the lack of software-).

And to me it also shows how they still have potential to further enhance incomes through selling hardware with more 3rd party games on it. I would like to see more data about sony/MS 3rd party royalties income as well as the royalty % they asks.
 

Air

Banned
Aug 26, 2008
7,648
0
0
Nintendo should create their own in house animation studio and movies of all their franchises. That'd be an excellent 3rd stream of income.
 
Jun 7, 2007
5,732
69
1,240
Another important thing are new markets like India and China, South America and so on.

If Nintendo can expand to these markets, they could also sell more hardware.


But Microsoft and Sony seem far better in reaching those markets than Nintendo. This was also one topic in the last Nintendo investor meeting, I hope they announce further plans for this in the future:


I would like to ask again about the expansion of new markets. I believe that for now the European and American markets are the priority regions, but can you tell us your thoughts on expansion targeting the middle class in new markets where there is vast market potential? Nintendo 2DS is already available in Europe and the U.S., but I would like you to tell us whether there are plans to roll out Nintendo 2DS in other regions as well.

Nintendo’s current business is centered on Japan, the U. S., Europe and Australia, but as a company proposing interactive entertainment, the matter of what steps to take in developing markets is an extremely important medium-term issue. On the other hand, the manufacturing cost of hardware tends to increase, and there are cases that smart devices are advancing ahead of game consoles around the world, including in developing nations. Therefore, we have to consider various things in relation to whether we can perform well in new markets simply by continuing with the same approach – namely, the concept of selling products slightly cheaper in developing nations than in developed nations. However, I have not prepared material to discuss this matter today. We are intending to hold a Corporate Management Policy Briefing together with the Financial Results Briefing after the end of Q3, probably at the end of January 2014, and we would like to talk then about our ideas for Nintendo’s medium-term approach to developing markets as well as the immediate future. So please understand that I am not planning to discuss this today.
 

metalslimer

Member
Jun 9, 2012
26,528
0
0
The video game industry is cyclical. MS and Sony are giant corporations with multiple branches that create many different products. Nintendo doesn't have that luxury. They exist as a hardware and software entertainment company. They don't sell Windows OS software or have their own giant movie studio, and they don't make TVs or stereos. MS and Sony have a lot of capital to spend on consoles and studios because the funding for that comes from elsewhere. Xbox One and PS4 wouldn't exist as they do today if those two companies were based solely on their success in the video game industry. The fact that Nintendo has existed in this industry as one of the top 3 since the very beginning in the early 1980's should tell us that they know what they're doing. As gamers for most of our lives, we've seen many console manufacturers come and go. Sega, Atari, 3DO, Wonderswan, Jaguar, etc.

Horsepower has never lead to industry-leading sales in the console market, ever. In fact, the opposite is true. Usually the least-powerful system tends to be the most successful. So I think that you're premise is flawed. Nintendo has earned a lot of extra money from being so successful, and they can afford to spend a few years in deep R&D on some amazing games and services while the other two battle it out for a while. Wii U will pick up, it will just take some time.

Yes, 3rd party support determines the winner (well outside of the Wii), and Wii U has none of that so no Wii U will likely never truly take off. You can wait till next year or the year after if you want but we are long past the "power doesn't sell consoles, Wii U will have a magical recovery" phase, and more at the how does Nintendo design their next system

The thing is, we don't know how good it sells. ;)

What if they can sell 40.000.000 units next time.

Without 3rd party support, no I think we have a pretty good idea of the range a Nintendo system is in barring some crazy innovation which is much harder to do in today's tech market.
 

InsaneZero

Member
Jul 25, 2008
3,960
0
0
Nintendo should create their own in house animation studio and movies of all their franchises. That'd be an excellent 3rd stream of income.

I concur. I think Nintendo does have the right mindset to do well in animation, although I think that they should start with working with an established animation studio rather than creating one from scratch immediately to get a feel for working in a different industry.
 
Jun 7, 2007
5,732
69
1,240
(...)

Without 3rd party support, no I think we have a pretty good idea of the range a Nintendo system is in barring some crazy innovation which is much harder to do in today's tech market.
I just mentioned new markets, maybe, with the addition of them, the overall market could grow and Nintendos hardware sales too. They probably won't be as high as the competitors numbers, but higher than what they would achieve normally.

But all in all, we can't tell such things, noone saw the Wii coming, noone saw the Wii U coming as it is.


The only thing they can bet on, as I said, is that they need to produce high quality software so people come back to buy it. That's why they tend to delay games even if the Wii U sells quite bad.
 

H_Prestige

Banned
Aug 2, 2008
15,476
0
0
I just mentioned new markets, maybe, with the addition of them, the overall market could grow and Nintendos hardware sales too. They probably won't be as high as the competitors numbers, but higher than what they would achieve normally.

But all in all, we can't tell such things, noone saw the Wii coming, noone saw the Wii U coming as it is.


The only thing they can bet on, as I said, is that they need to produce high quality software so people come back to buy it. That's why they tend to delay games even if the Wii U sells quite bad.

Plenty of people knew the Wii U would bomb relative to the Wii.

But you're right, what do I know. Maybe releasing hardware bomb after hardware bomb, sinking the company war chest, in the hope that one of them will become tickle me elmo again is a safer long term strategy for a company whose specialty is video game software...than to just become a software company.
 
Jun 7, 2007
5,732
69
1,240
Plenty of people knew the Wii U would bomb relative to the Wii.

But you're right, what do I know. Maybe releasing hardware bomb after hardware bomb, sinking the company war chest, in the hope that one of them will become tickle me elmo again is a safer long term strategy for a company whose specialty is video game software...than to just become a software company.
Your sarcasm doesn't change the fact that they earned more money than any other company in the business, despite the era.

The current problems are known, it doesn't mean that they have to repeat themselves and it's highly unlikely that they're going the same production route in terms of profitability.
 

metalslimer

Member
Jun 9, 2012
26,528
0
0
I just mentioned new markets, maybe, with the addition of them, the overall market could grow and Nintendos hardware sales too. They probably won't be as high as the competitors numbers, but higher than what they would achieve normally.

But all in all, we can't tell such things, noone saw the Wii coming, noone saw the Wii U coming as it is.


The only thing they can bet on, as I said, is that they need to produce high quality software so people come back to buy it. That's why they tend to delay games even if the Wii U sells quite bad.

A good amount of people predicted the Wii U would fail. I don't think anyone saw it doing how it is doing right now though. I'm not really on the 3rd party train myself, I just think there has to be a vast change in strategy besides releasing the content that they continue to do. I think they have to go outside the box (like they did with the Wii) , but more in terms of software than with hardware. Sequels to Mario, Smash, Zelda,etc. are great, but they are a declining fanbase.
 
Jun 7, 2007
5,732
69
1,240
A good amount of people predicted the Wii U would fail. I don't think anyone saw it doing how it is doing right now though. I'm not really on the 3rd party train myself, I just think there has to be a vast change in strategy besides releasing the content that they continue to do.
I refer the hardware itself, not it's performance, because of the "innovation - part" you mentioned. ;)
 

apana

Member
Feb 21, 2010
11,850
0
0
Selling hardware always makes more sense for Nintendo. Unless they are absolutely kicked out of the business, meaning no one buys their hardware, they will continue to make it. That being said the Wii U was a horrible idea and if they continue with some of their shady practices like letting their consoles suffer long droughts, they will be kicked out of the home console business at least.
 
Oct 30, 2011
6,013
4,119
995
This is just trivial short-term-thinking in my opinion (as BengaBenga explained).

Furthermore, you completely ignore the 3DS.

And what about the 3DS?

A platform that, when launched, needed a dramatic price cut in order to save it. One that will trend lower than the DS in the coming years, and generate far less income than its predecessor.

Investors want to see growth; not decline. And 3DS's decline may be far less than the Wii U relative to the Wii, but it's still decline. And what happens with their next-handheld? Is it OK for them to continue seeing declines in this sector while mobile and tablet devices continue robust growth?

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.

.

Almost profitable? Again, Microsoft and Sony are going to cut the price on their consoles as soon as they can. They are not in the business to make margins on hardware, they make their money with online services, licensing fees, and software sales.

The graphical jumps aren't going to really get smaller. With the advent of VR, they only become even more important in order to create immersive worlds.

And Nintendo is far behind when it comes to the entire 'console concept' ecosystem....so far behind that they won't be able to compete against Sony and Microsoft's offerings.

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.

It's only going to be profitable if it's a desired product. Wii U was designed to be profitable as well, we all saw how that turned out. Nintendo's next product could be just as big of a failure as the Wii U without a place in the market, but sure, it could initially be selling above its production cost. But if no one is buying it then they have to cut price and take losses.

I think one advantage in the future are the shrinking graphical jumps.

So they need to invest less money to achieve good graphics and to be closer in "psychological value" to their competitors.

At some point, as I already mentioned, it's going to be more important who offers the best services, exclusive games, the best idea, etc.



The thing is, we don't know how good it sells. ;)

What if they can sell 40.000.000 units next time.

The only thing that Nintendo can do is producing high quality software so that people have to come back and buy their hardware if they want to play those games, that's how they sustain as a company in long-terms. Every hardware generation is different.

And they certainly have to enhance other things like the overall console / multi-media experience (I think the Wii U offers quite a good amount of services, while it has it's flaws of course).

It's not just graphical jumps. It's online infrastructure. It's things like Live streaming. It's friends lists. It's how quickly you can move throughout the UI. It's forward thinking objectives like Gaikai streaming.

Nintendo is never going to be able to compete there. The playstation audience this gen will be massive and no one will be jumping ship just because Nintendo now produced a console with "good enough" graphics.

Hell, they already did that last year with the Wii U. Arguably, slightly better graphics capabilities than PS3/360, and did the market care? Nope.

And by the time Nintendo does release their next console, PS4 and XBO will probably be below $299, so they can't compete on price, power, library, OR features...so what will they compete on? Nintendo games alone? We have a Wii U situation all over again....
 

Goldmund

Member
Sep 1, 2009
4,550
0
0
Munich
If your numbers and extrapolations are accurate, OP, this thread and references to it will end a lot of discussions prematurely. Thank you.
 

Zinthar

Member
Feb 27, 2008
1,072
0
0
As other have pointed out, this is an interesting but ultimately short-sighted analysis of information that many of us who followed the industry already knew. The fact that Nintendo has been abundantly successful in the hardware business in the past by managing to attain significant market share while simultaneously selling the hardware at a profit for the entire generation is beyond irrelevant in a market where Nintendo is taking a loss on hardware while selling Dreamcast-like numbers of its home console.

The traditional handheld market is gong to continue to erode in the coming years, which is leaving the home console market as the best place to sell full-priced games in quantity. Sony will probably drop out of the handheld space completely, at least. But they're probably still looking at a similar install base drop to what happened from DS to 3DS.

In the home console space, the hardware situation is much worse. Not only is the hardware loss more than offsetting the profits of the entire rest of the company's operations, but they're also missing out on selling millions of copies of software due to addressing only a small portion of the home console market.

A proper analysis of the opportunity cost of remaining a home console platform holder has to include not only the losses they're taking on the hardware currently (as well as future expectations of profit/loss), but also foregone sales of their software.

For instance, NSMB U has sold nearly 2 million units, correct? NSMB on Wii sold nearly 30 million units. How many sales would NSMB U have had if it were a 360/PS3 game? Definitely at least 10 million, but probably at least 20 million. There's a good $600 million of foregone profit. That's part of the opportunity cost of the Wii U.
 

Zinthar

Member
Feb 27, 2008
1,072
0
0
If your numbers and extrapolations are accurate, OP, this thread and references to it will end a lot of discussions prematurely. Thank you.

The numbers are accurate, but the extrapolations are not only wrong, but misleading because they make sense to armchair analysts who want to make the "iOS lol, that's so stupid" and "35 years of profits" arguments without thinking it through.
 

NolbertoS

Member
Dec 28, 2006
4,826
0
0
Great read, OP, puts alot of armchair analysts and GAFer fanboys at bay. Can't wait to see what else nintendo is planning to release to right the Wii U ship :)
 

vcc

Member
Jun 4, 2013
1,969
1
0
Canada
The video game industry is cyclical. MS and Sony are giant corporations with multiple branches that create many different products. Nintendo doesn't have that luxury. They exist as a hardware and software entertainment company. They don't sell Windows OS software or have their own giant movie studio, and they don't make TVs or stereos. MS and Sony have a lot of capital to spend on consoles and studios because the funding for that comes from elsewhere. Xbox One and PS4 wouldn't exist as they do today if those two companies were based solely on their success in the video game industry. The fact that Nintendo has existed in this industry as one of the top 3 since the very beginning in the early 1980's should tell us that they know what they're doing. As gamers for most of our lives, we've seen many console manufacturers come and go. Sega, Atari, 3DO, Wonderswan, Jaguar, etc.

Horsepower has never lead to industry-leading sales in the console market, ever. In fact, the opposite is true. Usually the least-powerful system tends to be the most successful. So I think that you're premise is flawed. Nintendo has earned a lot of extra money from being so successful, and they can afford to spend a few years in deep R&D on some amazing games and services while the other two battle it out for a while. Wii U will pick up, it will just take some time.

That statement is oft repeated but lacks context. What happens is usually the most appealing of the first waves gains more momentum which pulls in the third parties and then the back library of good games and install base keeps the momentum up and subsequent competitors just can't overcome that back library no matter their features. A significant part of the appeal is the systems power and for many of the generations the most powerful of the first wave won.

This happened in the Atari 2600, NES, PS1, PS2, and Xbox 360 era's with the only notes being that the wii sold like hot cakes because it found a new but apparently fickle audience and the SNES caught up and surpassed the genesis due to stronger game library despite broad third party support of the genesis.

What generally happened is the most powerful of the FIRST WAVE of consoles tend to win out and build momentum and then newer competitors can't fight the game library.

There are a variety of other issues like the how much support and marketing the company could put in and how friendly they were to third parties. SNES era Nintendo burned a lot of bridges and the N64 had much worse third party support due to that; and MS in the 360 era successfully courted away third parties from Sony because their install base lead AND because the PS3 was so hard to code for and most PS3 exclusives were much delayed. Price in a issue and influence install base in well understood ways.

But Power is a Factor and almost always determines the winner of the first wave. When the winner of the first wave is apparent the subsequent competitors just can't break the stanglehold.

Power wise atari 2600 (77) > Fairchild Channel F (76). Magnavox Odyssey² (78), Intellivision (80) and Atari 5200 (82) came later.

Power wise NES (83) > SG-100 (83). Master System (85) and Atari 7800 (86) came out later when the NES already had a huge lead.

SNES (90) > Genesis (88) > TG16 (87). NeoGeo was both later and MUCH more expensive.

PS1 (94) > Saturn (93) > Jaguar (93) > 3DO (93). The N64 (96) came later.

PS2 (00) > DC (98). GC (01) and Xbox (01) came later.

The weird generation is 360* (2005) > PS3* (2006) > Wii (2006) were the Wii won in units sold, the 360 won in software and services sold, and the PS3 is mostly less powerful unless you put in a lot of dev time to tune a game for it then you have a image quality lead due to technically having a exotic CPU which can do GPU work.
 

Mr. Wedgewood

Member
Aug 17, 2013
753
8
495
I'd love to hear you elaborate on that one, unless it's just a general assumption that nintendo are incompetent.
It's been a while since I did any work on PS3/360, and I never did low level stuff on those platforms, but I don't really remember there being a massive difference in the tool quality and can't really think of any features I miss when debugging on Nintendo platforms, and all the APIs are straight forward and well documented.

Would love for him to elaborate on it also.
 

numble

Member
Apr 22, 2007
28,682
0
0
If your numbers and extrapolations are accurate, OP, this thread and references to it will end a lot of discussions prematurely. Thank you.

The extrapolations are misleading because they focus on revenue and profit ratio instead of total profit, the most important number. It doesn't matter much if the 3DS is profitable if it is making much less profit than the DS, it doesn't matter that there is $4 billion in hardware revenue if that $4 billion sees zero or minimum profit. It doesn't matter that Nintendo has a higher profit ratio on its own software for its own platform if that profit ratio is increasingly addressing a smaller market. Finally, it assumes that one can simply prepare for the future by making more profitable hardware, without recognizing that profitability is tied to sales of the system. Do you think 35 years of selling profitable hardware led to the Wii U being designed to be a loss leader for 3 years? More likely is that the system was designed for making a profit at higher sales. At the current rate, Nintendo has to deal with added costs of inventory, retail returns, manufacturing volume penalties (they are doubly punished here, lack of volume makes it much slower to have the costs scale down, lack of volume also results in penalties imposed when they cut orders with suppliers).
 
Jun 7, 2007
5,732
69
1,240
And what about the 3DS?

A platform that, when launched, needed a dramatic price cut in order to save it. One that will trend lower than the DS in the coming years, and generate far less income than its predecessor.

Investors want to see growth; not decline. And 3DS's decline may be far less than the Wii U relative to the Wii, but it's still decline. And what happens with their next-handheld? Is it OK for them to continue seeing declines in this sector while mobile and tablet devices continue robust growth?
This "shareholders want to see growth" thing is fine, but it's absolutely not managable in reality, because it's an unpredictable market. If Nintendos shareholders would follow this trend there wouldn't be a Wii or Wii U, because their console hardware sales decreased for 4 consecutive generations. (NES > SNES > N64 > GCN) (GB/C > GBA).

Furthermore, this is a cyclical industry, if the 3DS doesn't achieve a certain amount of sales it doesn't mean that the following handheld won't do it. It also doesn't mean that they can't generate bigger incomes with less hardware sales due to profitability maximation.

Additionally, most of Nintendos shareholders don't even have voting rights.

And I mention the 3DS because it's part of the business, they don't need to achieve NDS - numbers to be successfull in reality, noone is going to ditch Sony because they can't achieve PS2 sales.



Almost profitable? Again, Microsoft and Sony are going to cut the price on their consoles as soon as they can. They are not in the business to make margins on hardware, they make their money with online services, licensing fees, and software sales.
That's your assumption.

Why would Sony cut the price of a profitable hardware if it sells anyway? Or why would they cut so much that it's under production price again? Just because they worked like this in the past doesn't mean they have to follow the route. As you can see, a profitable hardware market can bring you a lot of income.

Wouldn't the shareholders tell you that this isn't as profitable? /sarcasm


The graphical jumps aren't going to really get smaller. With the advent of VR, they only become even more important in order to create immersive worlds.
Of course they are, this is just the natural way of things. People are even moaning about this generation from time to time.

And it's easier to create graphical jumps from this:

Than this:


And Nintendo is far behind when it comes to the entire 'console concept' ecosystem....so far behind that they won't be able to compete against Sony and Microsoft's offerings.
Well, Sony & Microsoft have more to offer but Nintendo offers already the most important stuff:

• Online Focus (eShop / Indy / Digital / BC)
• Their own social network
• Possibility of every monetazation method
• Online streaming services

There are other things like the hardware-tied downloads which they have to improve of course.


It's only going to be profitable if it's a desired product. Wii U was designed to be profitable as well, we all saw how that turned out. Nintendo's next product could be just as big of a failure as the Wii U without a place in the market, but sure, it could initially be selling above its production cost. But if no one is buying it then they have to cut price and take losses.
That depends highly on the product itself, we can't say this as we don't know what they are creating, what they earn per unit and how it's going to perform.


It's not just graphical jumps. It's online infrastructure. It's things like Live streaming. It's friends lists. It's how quickly you can move throughout the UI. It's forward thinking objectives like Gaikai streaming.

Nintendo is never going to be able to compete there. The playstation audience this gen will be massive and no one will be jumping ship just because Nintendo now produced a console with "good enough" graphics.
They have an online infrastructure, they have friend lists, the UI is fast enough currently and Gaikai isn't even up by Sony (and Nintendo researches this technology too).

While they don't have live streaming they have their own social network, something that Sony & Microsoft don't offer.


As other have pointed out, this is an interesting but ultimately short-sighted analysis of information that many of us who followed the industry already knew. The fact that Nintendo has been abundantly successful in the hardware business in the past by managing to attain significant market share while simultaneously selling the hardware at a profit for the entire generation is beyond irrelevant in a market where Nintendo is taking a loss on hardware while selling Dreamcast-like numbers of its home console.
Again, this refers to the current generation, it doesn't mean that they have to follow the same route in the future.


(...)

For instance, NSMB U has sold nearly 2 million units, correct? NSMB on Wii sold nearly 30 million units. How many sales would NSMB U have had if it were a 360/PS3 game? Definitely at least 10 million, but probably at least 20 million. There's a good $600 million of foregone profit. That's part of the opportunity cost of the Wii U.
First of all, you compare the first year sales of NSMBU with the lifetime sales of NSMB Wii. I don't see the logic, even if NSMBU won't reach those numbers.

And furthermore, while you talk about opportuniy cost, you also ignore the synergy effects.

What if one copy of New Super Mario Bros. can sell one hardware unit which leads to more software purchases, more digital purchases, more accessory purchases and so on?


And Nintendo sells their software for usually 50$. Retailer cut is around 15$ + 5$ production cost. That's what they pay currently. On the eShop they earn 100% of this.

If you distribute it on other systems you have to consider additional 5$ to 7$ of licencing fees + fees for the online distribution, they have to sell more units per game anyway.
 
Jun 7, 2007
5,732
69
1,240
The extrapolations are misleading because they focus on revenue and profit ratio instead of total profit, the most important number. It doesn't matter much if the 3DS is profitable if it is making much less profit than the DS, it doesn't matter that there is $4 billion in hardware revenue if that $4 billion sees zero or minimum profit. It doesn't matter that Nintendo has a higher profit ratio on its own software for its own platform if that profit ratio is increasingly addressing a smaller market. Finally, it assumes that one can simply prepare for the future by making more profitable hardware, without recognizing that profitability is tied to sales of the system. Do you think 35 years of selling profitable hardware led to the Wii U being designed to be a loss leader for 3 years? More likely is that the system was designed for making a profit at higher sales. At the current rate, Nintendo has to deal with added costs of inventory, retail returns, manufacturing volume penalties (they are doubly punished here, lack of volume makes it much slower to have the costs scale down, lack of volume also results in penalties imposed when they cut orders with suppliers).
This is true for the Wii U currently, but we're looking beyond these things.

Nintendo restructered themselves in the last two years, more employees, a focus on the online market, focus on the independent developer market, possibility of new markets (India, China, South America, etc.), and so on.

Of course, they still have to work hard on other things like 3rd Party relationships, focus on multi-media, etc.


All comments that I read ere are about the current Wii U performance and that it's bad, I know that too.


Then I read other comments (and these are comments without any further elaboration) that their handheld market will vanish, while the smartphone market is on the edge to reach market saturation before Nintendo releases their next handheld. The mobile market can't grow to infinity and it doesn't seem to generate great innovations either, one reason why we see new products like Smartwatches or VR glasses like Google Glass, because those companies need to expand beyond the smartphone market.*

*I'm talking about the western territories, they also have markets like China & India to grow further, but the video game companies can survive without those markets as we know.
 

James93

Member
Nov 26, 2013
859
0
0
This is true for the Wii U currently, but we're looking beyond these things.

Nintendo restructered themselves in the last two years, more employees, a focus on the online market, focus on the independent developer market, possibility of new markets (India, China, South America, etc.), and so on.

Of course, they still have to work hard on other things like 3rd Party relationships, focus on multi-media, etc.


All comments that I read ere are about the current Wii U performance and that it's bad, I know that too.


Then I read other comments (and these are comments without any further elaboration) that their handheld market will vanish, while the smartphone market is on the edge to reach market saturation before Nintendo releases their next handheld. The mobile market can't grow to infinity and it doesn't seem to generate great innovations either, one reason why we see new products like Smartwatches or VR glasses like Google Glass, because those companies need to expand beyond the smartphone market.*

*I'm talking about the western territories, they also have markets like China & India to grow further, but the video game companies can survive without those markets as we know.

The problem is, they are in a horrible spot right now outside of first party, they already are losing third party support. Handhelds will be killed by tablets and smart phones and the wii u doesn't have a place in the market
 

numble

Member
Apr 22, 2007
28,682
0
0
This is true for the Wii U currently, but we're looking beyond these things.

Nintendo restructered themselves in the last two years, more employees, a focus on the online market, focus on the independent developer market, possibility of new markets (India, China, South America, etc.), and so on.

Of course, they still have to work hard on other things like 3rd Party relationships, focus on multi-media, etc.


All comments that I read ere are about the current Wii U performance and that it's bad, I know that too.


Then I read other comments (and these are comments without any further elaboration) that their handheld market will vanish, while the smartphone market is on the edge to reach market saturation before Nintendo releases their next handheld. The mobile market can't grow to infinity and it doesn't seem to generate great innovations either, one reason why we see new products like Smartwatches or VR glasses like Google Glass, because those companies need to expand beyond the smartphone market.*

*I'm talking about the western territories, they also have markets like China & India to grow further, but the video game companies can survive without those markets as we know.

What about the 3DS? It is selling at a lower rate (therefore lower total profit) when compared to the DS. It is selling less than the 3DS in 2012. It doesn't matter to investors that it is a profitable device overall. After all, Blackberry and Nokia were still making profitable devices when their sales started declining in comparison to their previous devices. Declining from last year's sales and declining from the sales of the DS are more important to investors than the fact that it sells for more than it costs.

Regarding other markets: They've already been trying in China for several years. There may be a market but that is still minimal when you consider the average income, the faster adoption rates for cheap smartphones and cheap smartphone games, and the fact that entrance to the market will still demand an income split with a Chinese partner.

I don't think something like Google Glass is created to expand beyond the smartphone market. For Google, it is a profit opportunity since they will sell devices instead of providing a free operating system to manufacturers. For smartwatches, it is a desire to capture more profit from the smartphone market. Both these products require smartphones after all, and are geared to make you want to stick with the manufacturer's platform.
 

Fourth Storm

Member
Feb 17, 2006
6,713
1
1,040
A big problem for Nintendo this gen is that their gimmicks/hooks were quite costly in comparison to previous consoles. Think of the N64's analog stick or Wii's accelerometer. Not that expensive. Then look at the Wii U Gamepad or the 3DS' autostereoscopic screen. Much more expensive and Nintendo cannot risk being backed into such a corner again on price.

Looking at those graphs, it is clear that Nintendo must return to making a profit on their hardware next go around. That must involve settling on cheaper gimmicks or just letting their software/back catalogue do the talking.
 
Jun 7, 2007
5,732
69
1,240
What about the 3DS? It is selling at a lower rate (therefore lower total profit) when compared to the DS. It is selling less than the 3DS in 2012. It doesn't matter to investors that it is a profitable device overall. After all, Blackberry and Nokia were still making profitable devices when their sales started declining in comparison to their previous devices. Declining from last year's sales and declining from the sales of the DS are more important to investors than the fact that it sells for more than it costs.
Quoting myself:

"This "shareholders want to see growth" thing is fine, but it's absolutely not managable in reality, because it's an unpredictable market. If Nintendos shareholders would follow this trend there wouldn't be a Wii or Wii U, because their console hardware sales decreased for 4 consecutive generations. (NES > SNES > N64 > GCN) (GB/C > GBA).

Furthermore, this is a cyclical industry, if the 3DS doesn't achieve a certain amount of sales it doesn't mean that the following handheld won't do it. It also doesn't mean that they can't generate bigger incomes with less hardware sales due to profitability maximation.

Additionally, most of Nintendos shareholders don't even have voting rights.

And I mention the 3DS because it's part of the business, they don't need to achieve NDS - numbers to be successfull in reality, noone is going to ditch Sony because they can't achieve PS2 sales."


Regarding other markets: They've already been trying in China for several years. There may be a market but that is still minimal when you consider the average income, the faster adoption rates for cheap smartphones and cheap smartphone games, and the fact that entrance to the market will still demand an income split with a Chinese partner.
The problem with China is that consoles have been banned there for a long time. I think this was lifted a few months ago.

I'm talking about new possibilities, they don't have to conquer these markets in the pace of smartphones to generate additional, good profits. Same for Microsoft and Sony.


I don't think something like Google Glass is created to expand beyond the smartphone market. For Google, it is a profit opportunity since they will sell devices instead of providing a free operating system to manufacturers. For smartwatches, it is a desire to capture more profit from the smartphone market. Both these products require smartphones after all, and are geared to make you want to stick with the manufacturer's platform.
If someone already has a smartphone, I can sell him another, new smartphone or additional devices which open up new possibilities, because, like you said, if shareholders want to see growth, they won't see any growth in a market where everyone already has a smartphone.
 

witchedwiz

Member
Mar 22, 2007
5,432
1
1,030
Milan
Thanks for this. The fact that Nintendo makes more money from hardware than software is surprising to me. And LOL at that 760 million iOS games figure!
Let's put it like this..
Hardware cost is usually a LOT of r&d and then they have to huge their contract ora for raw piece, assembling, etc..
In nintendo case r&d cost may indeed be high, but the hardware cost is
1) way lower than any body might expect
2) low quality hardware as in low spec hardware, will easily fall, as other companies will focus on more state of art components: thus wiiu will have access to second grade components at a lower price
3) production cost will get even smaller due to production expertise

Imho, say a wiiu atm has a pure cost of 130 eur (personally i think much less but w/e)
In 2 years the manifacturing price will drop to 2/3 of this price..

The interesting point that is not covered is this One..
Given that among the big 3, ninty is the only hardware company that has been always on the plus side of the balance, and given that after wiiu/ds their wallet was FILLED ( REALLY filled) with money.. If we consider the current market loss a trend that will go on for 4 years, aka until the wiiu ends its product lifecycle..
In this case would nintendo still operate on positive or it will be able to burn all the wii-stash of money?

Keep i. Mind that microsoft has been continually operating on a HUGE losse.. And i mean huge... That's Why some members of the bod spoke towards selling that division.
Sony wasted a LOT on ps3.. Sure they sold a shitton, but the r&d of cell, the initial sales problem and the rise of wii as a major presence and the xbox360 as a real competitor put a dent in their economy, damaging greatly their psx/ps2 stash of money
 

numble

Member
Apr 22, 2007
28,682
0
0
Quoting myself:

"This "shareholders want to see growth" thing is fine, but it's absolutely not managable in reality, because it's an unpredictable market. If Nintendos shareholders would follow this trend there wouldn't be a Wii or Wii U, because their console hardware sales decreased for 4 consecutive generations. (NES > SNES > N64 > GCN) (GB/C > GBA).

Furthermore, this is a cyclical industry, if the 3DS doesn't achieve a certain amount of sales it doesn't mean that the following handheld won't do it. It also doesn't mean that they can't generate bigger incomes with less hardware sales due to profitability maximation.

Additionally, most of Nintendos shareholders don't even have voting rights.

And I mention the 3DS because it's part of the business, they don't need to achieve NDS - numbers to be successfull in reality, noone is going to ditch Sony because they can't achieve PS2 sales."



The problem with China is that consoles have been banned there for a long time. I think this was lifted a few months ago.

I'm talking about new possibilities, they don't have to conquer these markets in the pace of smartphones to generate additional, good profits. Same for Microsoft and Sony.



If someone already has a smartphone, I can sell him another, new smartphone or additional devices which open up new possibilities, because, like you said, if shareholders want to see growth, they won't see any growth in a market where everyone already has a smartphone.

Voting rights don't have much to do with anything. They can easily vote with their shares by selling and having share value plummet.

I don't see a path to greater sales and larger income on the next handheld if the current sales trend continue. The cyclical nature of the industry usually means that revenue and marketshare is being lost to a competitor, not that the industry (handheld) shrinks dramatically in one generation.

Nintendo has always been able to tap the Chinese market through their partnership with iQue. The recent changes in law don't affect things. Again, this is a market where cheap gaming is even more popular than the West. They've already been able to sell the DS and 3DS there for years with little uptake.

Shareholders can see growth in the smartphone market because every consumer is basically up for grabs every 2-3 years. I can try to sell an iPhone to a Galaxy user and vice versa. I can sell a smartphone to the 50% of consumers who are still using non-smartphones.
 
Nov 20, 2010
26,037
1
0
Charlotte, NC
Quoting myself:

"This "shareholders want to see growth" thing is fine, but it's absolutely not managable in reality, because it's an unpredictable market. If Nintendos shareholders would follow this trend there wouldn't be a Wii or Wii U, because their console hardware sales decreased for 4 consecutive generations. (NES > SNES > N64 > GCN) (GB/C > GBA).

That is a total cop-out meant to simply excuse Nintendo's lack of foresight and the resulting poor performance over the past few years. The video game industry has been in growth mode, and is projected to continue to grow. The sources of revenue might be shifting, and are predicted to continue to shift (I saw one recent report projecting overall growth of 20% by 2015, but with handheld contracting by 33% over the same period, for example), but that doesn't mean that Nintendo's ability to grow is unmanageable, nor does that mean shareholders are complacent with a Nintendo that can't make it happen (for a very real indicator of this, just look at Nintendo's stock price in 2007 as compared to now).

Nintendo's management is absolutely tasked with seeing where the industry is headed and positioning Nintendo to grow with it. It's not easy, but then, it's not being asked of low paid and unqualified staffers. The executives at Nintendo and their teams are tasked with doing the extremely difficult, and are highly compensated for it. Their inability to do that shouldn't be excused just because the landscape is changing. Nintendo is charged to see it coming or, at the very least, to change with it. If Nintendo doesn't, or if Nintendo makes the wrong changes, then that is absolutely the fault of management and is contrary to the very realistic expectations of shareholders.
 

Zinthar

Member
Feb 27, 2008
1,072
0
0
Again, this refers to the current generation, it doesn't mean that they have to follow the same route in the future.

That's true, of course. But to succeed in the future they'll have to adjust to market conditions that are far less favorable to their traditional business strategy than the market has been in the past. The competition from increasingly advanced and ubiquitous smartphones and tablets is going to continue to put pressure on their handheld business.

Meanwhile, the home console market looks even more difficult for Nintendo. Repeating the success of the Wii, or even getting anywhere close to it, would probably require a type of innovation on the level of the Wiimote, which is far from guaranteed.

First of all, you compare the first year sales of NSMBU with the lifetime sales of NSMB Wii. I don't see the logic, even if NSMBU won't reach those numbers.

And furthermore, while you talk about opportuniy cost, you also ignore the synergy effects.

What if one copy of New Super Mario Bros. can sell one hardware unit which leads to more software purchases, more digital purchases, more accessory purchases and so on?


And Nintendo sells their software for usually 50$. Retailer cut is around 15$ + 5$ production cost. That's what they pay currently. On the eShop they earn 100% of this.

If you distribute it on other systems you have to consider additional 5$ to 7$ of licencing fees + fees for the online distribution, they have to sell more units per game anyway.

At this point, it appears that for NSMB U to reach the same sales as NSMB Wii, it would require everyone who ever buys the Wii U to buy at least two copies of the game -- unless sales of the console suddenly take off in the next year or so.

The benefits of synergy can potentially be substantial, but at the moment it doesn't appear that even having two high-profile Mario games (one 2D, one 3D), Pikmin, a Zelda re-make, and some half-decent third-party support is enough to move many units of hardware. And even if they were moving the hardware, Nintendo is still losing money on the hardware anyway right now. If they can hold off cutting the price for a while, then there's a good chance the hardware can be profitable, but it will come at the expense of the install base and sales of first-party software and mindshare, so it's not an easy call.

The analysis would be much easier if we knew precisely what Nintendo's per unit production costs are for the Wii U, as well as what roadmap looks like for lower cost components. The loss must be fairly significant if they managed to lose $187 million during the middle 6 months of 2013 despite selling many times more units of the profitable 3DS than the money-losing Wii U. Of course, part of this is due to production costs of games being incurrred that won't pay off until the holiday quarter, but it's clear that the Wii U is an enormous weight around their ankles, and isn't anywhere close to the favorable cost structure of the Gamecube, where Nintendo could afford to cut its price aggressively and not incur major losses in doing so.
 
Jan 6, 2009
923
3
765
Firstly congratulations on providing some actual analysis, its a rare treat to read an OP like this, so well done.

Second, could you provide a link to Nintendo's financial reports and the sources of your data?

Finally, I think the biggest take away here is the importance of hardware to Nintendo's revenues, its a huge chunk and looks like a very profitable part of their business.

Also interesting to see just how successful both the Wii and DS were - huge spikes around the time they are introduced.
 

Aquamarine

Member
May 24, 2012
18,812
119
780
Firstly congratulations on providing some actual analysis, its a rare treat to read an OP like this, so well done.

Second, could you provide a link to Nintendo's financial reports and the sources of your data?

Finally, I think the biggest take away here is the importance of hardware to Nintendo's revenues, its a huge chunk and looks like a very profitable part of their business.

Also interesting to see just how successful both the Wii and DS were - huge spikes around the time they are introduced.

Here are his primary sources for Nintendo sales / profit data:

FY 3/2001 Earnings: http://www.nintendo.co.jp/ir/pdf/2001/010524e.pdf

FY 3/2002 Earnings: http://www.nintendo.co.jp/ir/pdf/2002/020530e.pdf

FY 3/2003 Earnings: http://www.nintendo.co.jp/ir/pdf/2003/030522e.pdf

FY 3/2004 Earnings: http://www.nintendo.co.jp/ir/pdf/2004/040527e.pdf

FY 3/2005 Earnings: http://www.nintendo.co.jp/ir/pdf/2005/050526e.pdf

FY 3/2006 Earnings: http://www.nintendo.co.jp/ir/pdf/2006/060525e.pdf

FY 3/2007 Earnings: http://www.nintendo.co.jp/ir/pdf/2007/070426e.pdf
FY 3/2008 Supplemental: http://www.nintendo.co.jp/ir/pdf/2007/070427e.pdf

FY 3/2008 Earnings: http://www.nintendo.co.jp/ir/pdf/2008/080424e.pdf
FY 3/2008 Supplemental: http://www.nintendo.co.jp/ir/pdf/2008/080425e.pdf

FY 3/2009 Earnings: http://www.nintendo.co.jp/ir/pdf/2009/090507e.pdf
FY 3/2009 Supplemental: http://www.nintendo.co.jp/ir/pdf/2009/090508e.pdf

FY 3/2010 Earnings: http://www.nintendo.co.jp/ir/pdf/2010/100506e.pdf
FY 3/2010 Supplemental: http://www.nintendo.co.jp/ir/pdf/2010/100507e.pdf

FY 3/2011 Earnings: http://www.nintendo.co.jp/ir/pdf/2011/110425e.pdf
FY 3/2011 Supplemental: http://www.nintendo.co.jp/ir/pdf/2011/110426e.pdf

FY 3/2012 Earnings: http://www.nintendo.co.jp/ir/pdf/2012/120426e.pdf
FY 3/2012 Supplemental: http://www.nintendo.co.jp/ir/pdf/2012/120427e.pdf

FY 3/2013 Earnings: http://www.nintendo.co.jp/ir/pdf/2013/130424e.pdf
FY 3/2013 Supplemental: http://www.nintendo.co.jp/ir/pdf/2013/130425e.pdf

FY 3/2014 Earnings (six months): http://www.nintendo.co.jp/ir/pdf/2013/131030e.pdf
FY 3/2014 Supplemental (six months): http://www.nintendo.co.jp/ir/pdf/2013/131031e.pdf

I have data prior to this (back through the 1980s), but it can't be shared publicly (aka. not a link on the forums).

Any quotes from Iwata are most likely from investor presentations of some sort, and they can be found on Nintendo's IR website.
 

Imperfected

Member
Jul 17, 2013
12,888
0
0
Seattle
Their software dev costs might even go down a bit since both Sony and MS offer far better development tools.

You're right, but for the wrong reasons.

Nintendo actually spends quite a bit of money on software R&D building the custom APIs for their hardware. There's nothing wrong with those tools, though a lot of developers would prefer to use something with a bit more general applicability for the sake of transferability of knowledge and skills to other projects. (That's a mush-mouth phrasing; what I mean to say is that a lot of software development jobs call for engine or hardware experience, and a more generalized API like you'd find on the PS4 makes it easier to transition to PC development as opposed to Nintendo's more specialized tools.)

They could save quite a bit of money by not having to develop APIs that are used literally only by their proprietary hardware, but it wouldn't be because the tools are "better", just because someone else is footing the bill for their development. The argument as to whether or not they would lose overall efficiency by not having tools custom-built for their software development teams rages eternal, and is honestly somewhat outside the scope of this topic.
 

mckmas8808

Ah. Peace and quiet. #ADayWithoutAWoman
May 24, 2005
46,115
11,781
2,000
Good, but I think the focus on revenue is unfortunate. As already pointed out, that's irrelevant, given that they're drowning there. And while it is simplistic to say that they should simply become a pure software company, it's equally simplistic to say "but look at the hardware business!" in response. Rather, you should make an argument that they can't be a profitable company with a long future without hardware -- that's a different challenge for you, since Nintendo without being saddled with hardware development, network infrastructure, and all the support that it entails might well be a company more able to succeed in this new world of software and services.

By focusing on annual reports, you're missing some details. One of them is that 1Q and 2Q this year both had the same amount of digital revenue -- that was not true last year. For a company whose hardware base continued to expand, and whose digital software offerings continued to expand, it strikes me as unusual for digital software revenue to be flat from 1Q to 2Q.

So it's smart to throw away all that 3rd party royalty money too?
 

mckmas8808

Ah. Peace and quiet. #ADayWithoutAWoman
May 24, 2005
46,115
11,781
2,000
And what about the 3DS?

A platform that, when launched, needed a dramatic price cut in order to save it. One that will trend lower than the DS in the coming years, and generate far less income than its predecessor.

Investors want to see growth; not decline. And 3DS's decline may be far less than the Wii U relative to the Wii, but it's still decline. And what happens with their next-handheld? Is it OK for them to continue seeing declines in this sector while mobile and tablet devices continue robust growth?

Yes it's okay for them to continue making handhelds. You thinking otherwise is crazy. Declines in of themselves is not bad. Investors aren't smart all of the time.
 

RedSwirl

Junior Member
Mar 29, 2009
28,093
0
0
noplatform.wordpress.com
From their last investor meeting (October 2013):

"The gross profit ratio of 31.6% was produced by a number of positive and negative factors. Although software, which has a relatively high margin,
constituted a higher ratio of the total sales and the profitability of the “Nintendo 3DS” hardware improved, these factors were outweighed by
the effects of the production costs of the “Wii U” hardware remaining higher than its selling price and the price reduction of the “Wii U” hardware in the overseas markets.
"


http://www.nintendo.co.jp/ir/en/library/events/131031summary/index.html



Yes, it's their first operating loss.

I haven't been able to read the whole OP, but does it cover the possible causes of revenue changes over the years? Production costs? Sales? Exchange rates?

Also it'd be a bit more informative if you compared this to Microsoft's and Sony's financial histories (in regards to video games) on the same chart.