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Lets talk about Nintendo going 3rd party (from an economics perspective)
- Thread starter MercuryLS
- Start date
That's like saying, "why does cost matter if we're making profit?" Because revenue and cost determine profit. You can improve profit both by increasing revenue and decreasing cost.
You're taking a complex issue and simplifying it to "Well they're negative now!"
People brought up revenue, saying they cannot give up on the hardware business because revenue of that is so big. That's simply wrong, because costs are neglected. If we take the historical data of revenue posted in this thread, these revenues cannot change anymore. Same holds true for the costs. You are mixing historical data with future data now. But yet again, focusing on revenue even for future determination of the viability of the hardware unit is still stupid. Nobody in a decent bank or consultancy would do that.
Edit: To clarify, it started here:
http://www.neogaf.com/forum/showpost.php?p=107349554&postcount=20
After that post, various posters - apparently without any knowledge about business (valuations) - said that this ends the discussion and meant that Nintendo would be stupid to leave the hardware business. But this is not an adequate way of determining whether the hardware unit should be continued as the share of revenues or these historical revenues don't tell anything if costs are left out of consideration.
sörine;107800173 said:
The data showed that take a multi-hundred dollar loss on a video game console is really fucking dumb. And that eating a billion dollars due to poorly-built hardware is another good way to lose money.
It's not like it's terribly difficult to figure out what went wrong with Sony and MS last gen, and it appears that both have learned their lesson. I don't see any obvious ways for Nintendo to right their hardware ship. Dedicated handhelds are either massively contracting or dying, and no one wants their console.
Starfish Hero
Member
Despite massive loses, the 360 put Microsoft in a really good position for this gen. They went from the new kid to a gaming power (at least in the west) within the generation. Whether or not the Xbox One capitalizes on these loses to move the Xbox brand into the green, the 360 was a huge success. It takes money to make money.
I'm not talking about the Hardware division.
If you axe the HW division, it have a direct effect on the SW shops they have AND they revenue they bring.
The cost of making software is absolutely not going to be reduced if the HW part is gone or relegated to accessories.
The revenue the SW will bring will also go down.
In that scenario how does profit grow?
Actually the making of their systems and their games indicate that they're closely connected.
You are also under the impression that Nintendo is not making HW to suit their SW needs (which flies in the face of everything Nintendo have shown to the public so far, whether by leaks or not).
If the HW is unsuitable, it's actually because the SW side asked it to be this way, that's how it works at Nintendo.
I never said in this topic anything about my personal wish in them going 3rd party or not.
Going by how the company is run, from a business perspective there's no way this is happening.
They clearly had no intention in making Wii Fit U a big seller considering the marketing campaign they run for this particular product, regardless of what Iwata said.
They also had no intention of making WiiSports sequel a success either.
If the Wii audience is not coming back, looking at WiiU it's clear that it's because they don't want to make software for that audience.
Doomed since 1889. That's the Nintendo way.
Thankfully, Nintendo will never follow the armchair analysts that tell them to do stupid things like go third party or develope for iOS
Most people here think Sony should drop their handheld division and focus on just consoles, and it seems like that's what they'll be doing.
I'm still not sure if completely abandoning handhelds is a good call, but I'm too conservative with these things anyway.
Easy in hindsight perhaps but the prevailing wisdom of the day was that PlayStation was virtually unstoppable during Xbox's massive losses and pathetic hardware sales and later that Sony was utterly incapable of putting together an affordable/desirable box while 360 and Wii were running away with both sides of their core/casual PS2 market. Those observations weren't set in stone though and your "lessons learned" evaluation really just shows you consider MS/Sony fundamentally more capable of course correction than Nintendo. Maybe they are, maybe they're not, but the raw data didn't really support either continuing with hardware at those points either if that's what you consider Nintendo's current situation reflective of.
Right but I was referring to the original Xbox. 360 was the PS4 of it's day.
TheOnePercent
Member
Thanks, Nostradamus. I'm glad to know things will never ever change with Nintendo, no matter what their financial situation.
Do you have tomorrow's lotto numbers?
Don't forget to add the substantially increased cost of developing for more powerful hardware to any calculations you make.
Nintendo saw the increasingly unviability of outside developers a decade ago. Why do you think they got rid of all those second parties? They're definitely not going to jump into that unhealthy market segment.
Nintendo saw the increasingly unviability of outside developers a decade ago. Why do you think they got rid of all those second parties? They're definitely not going to jump into that unhealthy market segment.
Dear Mael, do you really think I don't notice that you are shifting the goalpost?
http://www.neogaf.com/forum/showpost.php?p=107378414&postcount=158
There, you reference the post which focuses on historical revenues and say: "Seriously the thread was over at this post". Subsequently, I pointed out that this sentence was utter crap and doesn't make any sense from an objective point of view.
In that scenario grows as the costs of hardware development and loses from hardware production disappear.
True, that's why most people question whether the Gamepad has any use, right? Get out of Iwata's bubble and arrive in reality, man.
So you say that Iwata lied to investors last September?
Sorry if I sound a bit annoyed, but I am when goalposts are moved.
http://www.neogaf.com/forum/showpost.php?p=107378414&postcount=158
There, you reference the post which focuses on historical revenues and say: "Seriously the thread was over at this post". Subsequently, I pointed out that this sentence was utter crap and doesn't make any sense from an objective point of view.
In that scenario grows as the costs of hardware development and loses from hardware production disappear.
True, that's why most people question whether the Gamepad has any use, right? Get out of Iwata's bubble and arrive in reality, man.
So you say that Iwata lied to investors last September?
Sorry if I sound a bit annoyed, but I am when goalposts are moved.
Sony should (and will, I believe) get out of the handheld business. And the TV business, too, while we're talking about them. Oh, and they just jettisoned the PC business. And they're not doing just fine, either, which is why they're dumping unprofitable businesses.
But Nintendo has two product lines. One is doing mediocre at best, one is doing terrible. Are we supposed to pretend this isn't a problem?
Well then the prevailing wisdom was stupid. Anyone who thought Sony was utterly incapable of putting together an affordable/desirable box simply wasn't paying attention. It's also worth noting that Sony's entire executive team from the PS3 launch is gone. There were consequences for their poor management.sörine;107803770 said:
No, my lessons learned evaluation shows that i think Sony and MS's problems were relatively easy to diagnose and fix, and Nintendo's aren't. The PS3's problem was that it cost too much, not that the dedicated gaming console market was getting clobbered by a new technology. I ask myself what Nintendo's next gen hardware should look like to fix the problems of this gen and I just don't have an answer. And I don't believe Nintendo has an answer. I'm not even convinced Nintendo understands the scope of the problem. That's what's worrying about Nintendo.
The prevailing wisdom today is that Nintendo can't possibly put together a desirable box either. In fact that seems to be your argument. It's also stupid.
Sony's complete realignment of their hardware R&D isn't quite the simple thing you're making it out to be either.
PS3 to PS4 wasn't a simple or easy solution and your revisionist take on it is really just dumbing down what Sony's actually managed to accomplish here. That's sort of beside the point though since "the data" didn't really support Sony even trying by your standards. Which was my point.
sörine;107809401 said:
Look, I'll make it very simple. All Sony had to do to get back on track with PS4 was return to what made PS1 and PS2 successful. make a gaming focused device with a reasonable cost and a reasonable retail price.
All Nintendo has to do to get back on track with their next handheld is [what?]. All Nintendo has to do to get back on track with their next console is [what?]
Fill in those blanks for me. Where is Nintendo's road to first party profitability in a world where almost everyone has a smartphone or tablet?
CassiusKnight
Neo Member
Nintendo has more genre-defining and generation-defining games than any other game developer in history.
Right now the Wii-U is my favourite console in my house. I still play the other consoles, but seeing Nintendo games in 1080p 60fps is a glorious experience.
The only people who want Nintendo to go third party are the ones who want to play their games but refuse to buy their console, and that's fair enough. But I believe part of the reason Nintendo puts such incredible effort into creating such stunning first-party titles is because they know their games will need to sell their systems as well.
Sega games have never been as astounding as they were since they stopped making consoles.
Right now the Wii-U is my favourite console in my house. I still play the other consoles, but seeing Nintendo games in 1080p 60fps is a glorious experience.
The only people who want Nintendo to go third party are the ones who want to play their games but refuse to buy their console, and that's fair enough. But I believe part of the reason Nintendo puts such incredible effort into creating such stunning first-party titles is because they know their games will need to sell their systems as well.
Sega games have never been as astounding as they were since they stopped making consoles.
You don't have to be a psychic to know that any business that follows GAF's advice would fail nearly instantly.
Harlock
Member
In the Wii case dont make a lot of sense because everyone with PS3/360 had a Wii too. But now I would play the last Mario over any next-gen game. But not going to buy a console just for a few games. I imagine 3 to 5x more sales if the the last Nintendo Wii U games were on the Sony and MS consoles. It is going to be each time more hard to justify this for Nintendo shareholders.
rokkerkory
Member
If they can't sell consoles / handhelds then yes they should go 3rd party, there is huge upside for doing that. H/W costs a shitload to R&D, manufacture, market, blah blah.
If they can consoles / handhelds then don't go 3rd party. I think Nintendo will give at least one more try at a home console.
If they can consoles / handhelds then don't go 3rd party. I think Nintendo will give at least one more try at a home console.
TheOnePercent
Member
Who's GAF? Does he have my lotto numbers?
A 3rd party Nintendo is not a "stupid" prediction to make. It has happened before, first with Atari, and then with Sega. I'm sure neither of them wanted to give up their hardware divisions, but they were forced to. Of course, Nintendo is in a better position now then either of those companies ever were, but that is not guaranteed to always be the case.
So it's not stupid, just pessimistic. You obviously think Nintendo can get out of their slump and turn things around. I think that their problems are too numerous and too entrenched to carry on with business as usual. There will have to be some catastrophic change to their business. Going 3rd party is just one of several possible outcomes.
Tye The Czar
Member
We all know the company would rather commit seppuku than put their flagship games on other consoles or smartphones.
The worst I think they would do is simply set up shop with their own PC Digital Distribution. It would be very smart if the games could be played between Wii U and 3DS as well. They would still have complete control over their IP while opening up to a bigger audience.
Any proof for the likelihood of this happening?
http://www.pokemon.com/us/pokemon-tcg/play-online/
It would be much less likely for them to put their games on Steam due to costs of putting them up unless they had a really good partnership with Valve.
The worst I think they would do is simply set up shop with their own PC Digital Distribution. It would be very smart if the games could be played between Wii U and 3DS as well. They would still have complete control over their IP while opening up to a bigger audience.
Any proof for the likelihood of this happening?
http://www.pokemon.com/us/pokemon-tcg/play-online/
It would be much less likely for them to put their games on Steam due to costs of putting them up unless they had a really good partnership with Valve.
Starfish Hero
Member
And it didn't work out well for either Atari or Sega, which is why it's stupid.
Well, something has to give. Iwata can't continue to run the company like the same-old Nintendo, so it's not insane to ponder rather radical changes as being required to right the ship.
Pureauthor
Member
Yeah, and both those companies ended up getting dragged through the mud. Atari never recovered, and Sega sticks around by virtue of the Sammy side being so filthy rich off Pachinko that they just let Sega flail around being incompetent because who gives a shit.
Starfish Hero
Member
"Radical" change isn't necessarily a good idea. Nintendo has to do something different, yeah, but going third party is just not a good idea from a business standpoint, at all.
TheOnePercent
Member
Right, I did not say it was an enviable position for either company to be in, just a desperate last gasp.
Although I think Sega is doing alright for themselves these days. They've made some smart acquisitions of western devs like Creative Assembly and Relic, and of course they just bought Atlus.
Starfish Hero
Member
Nintendo isn't in the position where it has to make "desperate last gasps" which is, once again, why it's stupid.
And Sega didn't acquire anything: Sammy did. The Sega we used to know is just a subsidiary, Sammy was just nice enough to put their name on the parent company for brand recognition.
TheOnePercent
Member
You say that as if it is an absolute, as if nothing could ever go wrong for Nintendo simply because they are Nintendo.
That would be naive, arrogant, and ... stupid.
vinnygambini
Why are strippers at the U.N. bad when they're great at strip clubs???
1 - Sony as a whole is suffering. If it weren't for their financials services, they would of filed for bankruptcy protection a long time ago.
2 - Nintendo is in a peculiar position as their main source of revenue, handheld division, is suffering and the 3DS has not quite attained the level of success they were anticipating - though profitable nonetheless.
Their console division on the other hand, is in disarray and are negatively affecting Nintendo's profit margins.
Last year, Nintendo merged its R&D divisions and integrated the handheld device and home console development teams into one division. Furthermore, Iwata has mentioned that they will actively pursue the advances they've made with the Wii U architecture and integrate it in their next-platform; thus, home consoles and handheld devices will no longer be completely different, and they will become like brothers in a family of systems.
They know their resources are spread thin between two consoles (3DS, Wii U), shortages of software availability are rampant and so forth - Iwata is tackling those issues now. I sincerely believe we will see their next-generation platforms share the same similarities as PSV-PS4, only better implemented.
I'm excited at the prospect of Nintendo's future as they have everything at their disposal in order to be successful; though their execution as of late, leaves to be desired.
They are a diamond in the rough in my opinion and that is why I have invested a significant sum in that company - their Intellectual Properties are worth much more than their Market Cap. Much like my investment in Marvel several years prior to the Disney acquisition, I hope my investment is fruitful.
Starfish Hero
Member
I'm not saying they can't be, I'm saying they aren't. Don't talk down to me.
Apophis2036
Banned
There is no home console profit at the moment though (they are actually losing money on each WiiU sold) and very little licensing fee's from third party publishers for multiplatform games, that's the main point.
There is nothing to suggest that if Nintendo release another home console anything would be different even with improved hardware for third party ports and better online / account systems because all of that is already offered by Sony and MS.
If they go for something totally unique from PS4 and XBone they are again relying on catching lightning in a bottle to be successful.
Going third party in the Wii era would have been beyond crazy but this is not the Wii era, it's an era where all their home console is doing is losing them money and drastically limiting their own first party software sales.
Whether it's in the next few years or the early 2020's there is no doubt in my mind Nintendo will have to go third party for home consoles, to become profitable again. Their appeal is diminishing with every passing generation.
TheOnePercent
Member
The purpose of this thread is to speculate on a 3rd party Nintendo in the future. There is no definitive, correct answer. Myself and several other have tried to explain why this might, might be a possible future for Nintendo. Not that it is a clever business move, but an inevitability. It is not a stupid opinion, it one based precedent, what we know about Nintendo's current business, and where we predict this industry is going to go.
Apophis2036
Banned
Sometimes people should look at the positives of them making games for Sony and MS consoles more than the negatives -
Imagine what revolutionary experiences Nintendo could come up with using Kinect or even Project Morpheus.
Considering how great MK8 looks, imagine what their first party games would look like on consoles 7-10x as powerful as WiiU.
Imagine using Nintendo games with the PS4/XBone UI/OS, standard controllers, much better/stable online environments and them having Trophies/Achievements.
Most exciting of all to me is imagine Nintendo's IP's reaching a whole new audience who previously thought Ratchet & Clank, Knack, PS All Stars and LBP Karting were the pinnacle of 3D platformers, fighting games and kart racers.
Imagine what revolutionary experiences Nintendo could come up with using Kinect or even Project Morpheus.
Considering how great MK8 looks, imagine what their first party games would look like on consoles 7-10x as powerful as WiiU.
Imagine using Nintendo games with the PS4/XBone UI/OS, standard controllers, much better/stable online environments and them having Trophies/Achievements.
Most exciting of all to me is imagine Nintendo's IP's reaching a whole new audience who previously thought Ratchet & Clank, Knack, PS All Stars and LBP Karting were the pinnacle of 3D platformers, fighting games and kart racers.
Dedicated handhelds, obviously. They've been their bread and butter for years. And now that entire sector of market is getting clobbered, which isn't something computers ever did to consoles.
Aquamarine
Member
Of course you don't see it...yet. It's Nintendo's burden to demonstrate successful corporate strategy. What you can't do is write an entire division's potential off just because they had a failed product. Clearly with the success of the PS4 and smartphones Nintendo can still find success with dedicated hardware.
Competition doesn't immediately imply vast hardships. Nintendo could enter the market with just the right amount of innovation and ingenious marketing and explode past potential competitors, like they did with the Wii.
In this case, yes, revenue streams are relevant. Obviously the end game here is profits and growth and costs are an important factor. But if you slash 62.4% of revenue streams overnight, that fundamentally inhibits potential for growth because the hardware business still has capacity to grow and demonstrate profits through its robust infrastructure and industry relationships, like through QoL or a Nintendo phone.
The rapid sales of the PS4, and the fact that the 3DS continues to enjoy profitability for Nintendo demonstrate that the gaming hardware business has potential to grow profits. It's only the Wii U that's causing problems at the moment.
The implicit opportunity costs that Nintendo incurs from giving up such a potentially valuable source of profits is greater than the risky and fickle waters of mobile and third-party development considering Nintendo's history and unique position in the market. I agree with J.P. Morgan Chase's Haruka Mori in that regard.
Long-term growth is also an important factor to keep in mind. Chasing immediate short-term fads may not be appropriate if you can successfully orient your hardware business towards recurring profitability.
And, you can't make that claim about "Major investors wanting to go to mobile." The questions are posted anonymously in the Q&A sessions, and you and I both know that just because you have the authority to ask a question at these Q&A events as an investor doesn't mean you understand the company or know how to best approach profit growth.
Many larger institutional investors in Nintendo understand this position, like J.P. Morgan Chase's equity research department (they own 12.7 million shares, or 9.8% of Nintendo pre-Yamauchi sell-off).
Garrett Hawke
Member
How are we supposed to get numbers for this? It's pretty obvious. You can just tell by the number of people who are SAYING stuff like this. TALK to gamers. You'll hear them say that they would play old Nintendo games on mobile, that they'd play Nintendo games on other consoles etc.
bishopcruz
Member
Really? Well, first off, there are less data points with Sony, and the massive success of the PS4 does not indicate the beginnings of a trend down from the PS3, if anything, Sony has been relatively stable, more so than I would have expected at the launch of the PS3 honestly. The Nintendo history of consoles drops gen to gen, pretty badly, until we hit the extreme outlier that is the Wii, and once we are done with that, they go right back to the same decline we saw before. Not a decline compared to the Wii, a decline compared to the GCN, which Nintendo already considered a failure. The GCN was down compared to the N64, which in and of itself didn't even match the Super NES in any single territory, and performed well below it in others.
A completely different world. Smartphones and Tablets are individual and portable in a way that only handhelds were in the past. PCs were popular, but for a LOT of the country the PC was shared by the family, and it was not the primary casual gaming device. Consoles were.
NIntendo wasn't competing with computers when it released the Wii, nor was it really competing with anyone in the portable space when it released the Gameboy. Sony became the first credible threat to Nintendo on a worldwide basis both at home and in the portable arena. The Wii sidestepped this by going after a different market, the DS as well. The problem is their console market has evaporated, and their handheld market is on a downward trend.
I understand the difficulties involved in moving to a software only model, so I'm not saying that third party is the way to go, however there is a whole lot of ignoring the very real problems Nintendo is facing in this thread, a lot of which comes down to:
Nintendo will be ok, because reasons.
Right, but doesn't that part of the business look less and less worthwhile when 3 of its last 4 home console releases have severely under-performed?
Those times where everything lines up perfectly and you get a success like the Wii or the NES tend to be few and far between though, in any business. Part of the concern when it comes to Nintendo's strategy has to do with their complete inability to retain the market that they captured with the Wii, and to a lesser extent the DS. Competition for the casual space ate their lunch, and their fumbling of the Wii U has given up their advantage in the console space as well. Nintendo doesn't compete well. They are at their strongest when they are going after underserved or new markets, and they are at their weakest when their competitors can copy their success and do it better and cheaper. You can't always count on new markets either panning out, though.
InsaneZero
Member
You say that it's impossible to get numbers, then you propose a method that you could use to get numbers. If it's so obvious that people would rather play Nintendo games on other systems then it shouldn't be too difficult to get data to prove it.
bishopcruz
Member
So where is the evidence, or the means to get the evidence that Nintendo software wouldn't succeed on another platform? Don't see much of that either. Just saying, the asking for numbers schtick is getting old. Outside of possibly doing a bunch of surveys there is no way to know. Even then it wouldn't be definitive. Of course we can go with the conventional wisdom which is that selling to a larger number of people is better in general than selling to a smaller number of them. Hell, RE4 came out 9 months later on PS2 and it doubled the sales of the Gamecube version. This was after a concerted effort to make the Gamecube the home of RE.
Unless the argument that people are making is that Nintendo games don't have an audience outside of hardcore Nintendo fans, which seems patently absurd.
Now I'm not saying that third party is what Nintendo needs to do, but the dismissive attitude to the very IDEA that Nintendo games could sell on a non Nintendo system is just plain weird.
Apophis2036
Banned
How many shares or what percentage of the company do you have to own in order to field a question to Mr.Iwata in a Q&A session ?.
Also why is it so black and white, go third party or keep making hardware, why couldn't they do both ?. Concentrate on their successful handheld market while making games for Sony and/or MS consoles in the home arena while porting only much older NES and SNES games to iOS/Android.
It would be Nintendo sticking to their strengths (handheld hardware/making software) while raking in unbelievable amounts of money from mobile while that platform is "hot", it would also make the transition to being a third party in the home market much easier financially.
Don't you agree with Michael Pachter's assessment that there could be as much as $3 billion per year in releasing older games on iOS/Android ?. Who cares if it's only a short term thing, take the money while smartphones/tablets are extremely popular. Releasing older games on smartphones/tablets would also be free advertising for their other products and hook another generation of kids to their IP. The mind boggles as to why they have not at least done a trial run with the original Mario Bros.
GAF is not the majority of gamers. I don't talk to the majority of gamers. That's why I want some better evidence. Polls, market research, that sort of thing. Anecdotes aren't good evidence.
good one, lol.
It's not quite the same, however. Smartphones are a necessity for an increasing number of people every year. So, we have this new class of hardware that is increasingly ubiquitous, always within reach, and highly personal. The fact that the devices also play games that are cheap/free and good enough for most people is where the trouble begins.
[slightly OT: my wife is a teacher and occasionally she has to confiscate a phone from a student. It's not that uncommon for the student to have a physical reaction from the separation from their phone.]
The question that faces Nintendo wrt their handheld business in 2014 is 1) how do we sell dedicated hardware to the smartphone crowd? 2) how do we sell premium games at a premium price to them? I have yet to hear good answers to these questions.
As to the collapse in their console sales, I believe that the audience for Nintendo console games who are willing to buy a console for them isn't that big, maybe 5 or 10 million.
As others have pointed out, the big sales driver for the wii was motion controls, not Mario Galaxy, Xenoblade, or Zelda. Once the console had been purchased, people did buy Nintendo games in droves. But the games themselves only pushed a small fraction of those 100 million consoles. I think Iwata knows this and that is why he pushed the tablet gimmick above games and is setting up the QoL division.
Things look tough at the moment for the big N. But I'm rooting for them.
JordanN
Banned
This meme is getting old. Nintendo has been losing for quite some time now and are easily in their most cornered position ever. That is doom.
Whether or not that means the company going bankrupt is another matter. But the attitude of "they can do no wrong because they've been around for so long" is of both arrogance and ignorance.
There was a Canadian store called Simpsons founded in 1858 that went out of business in 1991. That's older than Nintendo so anything can happen. I'm sure there are other examples of older companies that have too met troubled endings.
Nintendo has really only posted a loss for a year, and are still in a fairly healthy position, despite what people here think.
They are not doomed. They are not even close to doomed. They are certainly in a worse position than during the Wii's boom, but they are not on the way out.
The "meme" exists because people have been calling for Nintendo to go third party for decades. DECADES. And yet, they are one of the few gaming companies that have been growing and thriving while Sony and MS cut jobs left and right.
So don't give me this "Oh! This stupid meme! Nintendo really is doomed!" crap unless you have real evidence that they are, in fact, doomed.
I'm cheap. I don't want to spend $750-$850 on a console/subscription fees just to play Mario Kart online for a generation. Simple as that for me.
JordanN
Banned
They've posted their first loss in over 30 years. That's definitely troubling.
You also have to look at their market position. Wii U is selling at the same rate (or lower) than the Dreamcast. No other console has come close. PS3, even in its worst years, was still selling higher than Wii U.
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