In my previous article, I wrote about what I felt Nintendo’s real problem was. I felt they abandoned their core gamer market with the Nintendo Wii to pursue a broader market. This is a highly unorthodox strategy, as target markets allow a product to make market penetration. This strategy was highly successful with the Wii, though now it’s caused great difficulty with the Wii U. There’s no need to do a full recap of the entire argument. You can see the article here as well as some interesting answers to it below.
What I want to do with this article is to address some of the criticisms waged on my previous article. It’s very important to make sure the problem, or problems, are all identified and understood. It’s the only way to realistically address possible solutions. After this, several ideas on how Nintendo can turn itself around can be considered. Some of the ideas will come from Nintendo itself. Others will come from me.
Addressing Concerns About The Problem
1. Is the Wii-U selling well?
Answer: No. Nintendo said so. At their 73rd general annual meeting of shareholders, Nintendo was very clear.
“Owing to the fact that the ‘Wii U’ hardware sales have a negative impact on Nintendo’s profits, the operating loss was 36.4 billion yen” (Source document, click here)
When the console is causing Nintendo to take a loss, there is no way it can be considered to be selling well, regardless of how many units it moved.
2. Doesn’t the Wii U’s high attach rate indicate the console is going strong?
Answer: No. The attach rate is a ratio expressed in the following way: Games Sold / Consoles Sold. Normally, it’s used to entice 3rd party developers to make games for consoles. Nintendo’s numbers should indicate strong game sales for the Wii U, as it has an attach rate of 5.01 (source here, thanks to Paul Cek for link). That means 5 games are sold for every console purchased. The problem is, these are pretty much first party games.
Nintendo president Iwata said as much when he was addressing weak third party support during the Q&A session after the annual meeting of shareholders. 3rd party software is not profitable on the Wii U due to weak sales. (Source document, click here). So the attach rate is not a good indicator of the Wii U’s current state.
3. Why should it matter if the investors of Nintendo are upset at the falling profits?
Answer: They own the company. If they are upset, they will expect the company to make a drastic turnaround very quickly. They are starting to get up in arms with all the calls to implement micro-transactions and make games for mobile devices.
4. Nintendo built a $100 million R&D center. Doesn’t this show Nintendo is doing fine?
Answer: No. Just because companies build new buildings and open up new centers does not mean they are doing fine. Square Pictures was founded in 1997 and SquareSoft built a nice building in Honolulu as their headquarters. They worked and researched for three years, developing new technology in order to bring video game technology and movies together. They released their first movie: Final Fantasy – The Spirits Within. This movie lost SquareSoft so much money, they closed Square Pictures. SquareSoft was forced to merge with Enix soon after because of the massive losses.
Just because a company may be investing in something that could have long term benefits is no indication that it will be successful. It’s just an indication they are looking toward the future.
5. Doesn’t the success of the 3DS offset any difficulties Nintendo may be having with the Wii-U?
Answer: No, unfortunately. While it is true the 3DS is Nintendo’s most successful console they are currently supporting, the Wii-U is very much dragging the entire company down (see quote from first answer).
6. Nintendo is sitting on a lot of money/assets and has no outstanding debt. Doesn’t this clearly indicate they are not in trouble?
Answer: No, unfortunately. I am looking at current trends that Nintendo displayed. It is true they have a lot of money they are sitting on. But they are not going to spend a penny of it. Iwata said so himself:
“However, if we tried to do nothing but buying our way to create such a good condition for developers, our own business could collapse.” (source document, click here)
They plan on taking a specific action to try to turn things around, which will be discussed next.
7. Sony and Microsoft are taking losses. Doesn’t that mean they are doing just as poorly?
Answer: Not a clue. I haven’t looked at Sony or Microsoft. I am saying that Nintendo’s central problem is that they walked away from their traditional target market to appeal to a wider audience. Lower sales and an inability to gain traction within the gaming community. My only concern is the success or failure of Nintendo. How Sony and Microsoft are doing doesn’t concern me. Comparing them can only lead to fanboy arguments where one side picks their favorite console. I’m indifferent to the current generation of consoles and want to see all the companies do well.
This may be a misnomer. The goal of this section is to simply present plans that could help turn Nintendo around. The first two are straight from Nintendo. Nintendo does seem to have more than this, but they seem to be a derivative of the first two or just common sense business practices, so I did not see the need to mention them (expanding digital access to games, restructuring to streamline business practices, etc). None of the plans are quick fixes. Rather all of them will take months, if not years, to see a full turn around for the company.
1. Nintendo’s Plan: In order to attract 3rd party developers to come to the Wii U, Nintendo plans on releasing a number of quality 1st party games to build momentum that will lead to the success of 3rd party games that will soon be released on the Wii U. Other third party developers will see the success will reconsider developing games for the Wii U because it will be profitable to do so. (Source, click here)
To phrase it differently, Nintendo plans on releasing high quality 1st party games to drum up interest in the system. Games like Donkey Kong, Smash Brothers, and Mario Kart. These are proven and time tested franchises that are always best sellers. Anyone who was on the fence on buying a Wii U will most likely purchase one with that. As long as the releases are timed right, gamers will most likely purchase a 3rd party game along with the 1st party one, allowing everyone to make a profit.
2. Nintendo’s Plan: Use the Miiverse to maintain and expand gamer excitement for the Wii U and Nintendo products. Gamers will use the Miiverse to share their gaming experiences and be able to socialize. This will help create a strong network of Nintendo fans and potentially generate strong word of mouth to stimulate sales. (Source, click here)
3. My Plan: Take a market survey and find out what the gamers want. When reviewing every document Nintendo has for their investors over the past three years, there wasn’t a single mention of a single survey (see site here). In fact, if you explore, you can see that the Wii was designed entirely inhouse. They didn’t consider looking or asking to see what the gamers wanted. Same with the Wii U. It was all the engineers deciding everything with Iwata being the final arbitrator (check out all the links here to prove that). I strongly suspect Nintendo didn’t do one market survey, as they would have mentioned something to the investors when they were justifying their actions.
In order for Nintendo to appeal to the gaming community, they really need to figure out what the gaming community wants. The first step is to ask them. After that, find ways to give the gaming community what they want while staying true to the core values of their company.
4. My Plan: Take a survey with the 3rd party developers to see what it is they are looking for in consoles. Do the same with indie developers as well. Nintendo needs to become far more open with the developers as a whole. It may not be too late to make modifications to the Wii U (update the coding within the hardware maybe?) or to see what sort of support that can be offered to 3rd party and indie developers to make it easier to make games.
No Really. Is Nintendo In Trouble?
Nintendo is only in as much trouble as the rest of the consoles are, in reality. No, I’m not backtracking. I truly do believe that when Nintendo decided to be as general as possible with their marketing, it was a huge mistake. But, no matter how much evidence that I can put forward, I recognize this is just an interpretation that’s prone to errors. It’s necessarily an incomplete picture, as I do not have all the evidence to make a perfect conclusion. I will stick to my guns with my argument, but with the realization others will have data that I do not and I have data others do not. That’s the fun of this sort of debate. If I end up being wrong, nothing lost. If I end up being right, nothing gained.
But in reality, all consoles are in trouble. This is something that, I suspect, is undeniable. They are all competing with almost every entertainment medium out there. Movies, television, internet, PC games (Steam, etc), mobile games, and so much more. It’s one of the broadest markets there is. And they are all competing for the attention of the customer, and the market is becoming much more crowded every passing day.
This is why it is so important for Nintendo to do the surveys and figure out what the market wants.