Nintendo in the red; can the tide be turned as Wii U sales forecast is drastically cut?

Date Posted Author
22nd January 2014 Matt Bailey

Nintendo released its financial forecast this past week and it's not looking pretty. The company's year end is on 31st March and at that point it expects to make an operating loss of 35 billion yen, or about £204 million - not only a significant amount of money to lose, but also a dramatic downgrade from the projected 100 billion yen (£584 million) income.

Looking at the sales numbers you can see why the loss has come about. The company is making significant cuts to its projections for 3DS and Wii U games and systems, in particular after "significantly lower" sales across the Christmas period - the time in which they would normally expect to gain the most sales. The Wii U has been downgraded from 9 million consoles and 38 million games to 2.8 million and 19 million respectively. Even the 3DS has received a notable downgrade in projections, despite generally being perceived as doing well - especially in comparison to Sony's PS Vita. Now, instead of 18 million handhelds and 80 million games in the 2013/4 financial year, they expect to sell 13.5 million and 66 million respectively.

Maybe there isn't too much to worry about with the 3DS, and that the company may have just been overly optimistic; 13.5 million and 66 million are still impressive numbers, and likely to be generating a healthy profit by themselves. The Wii U, however, is in danger of becoming a complete flop. Based on trends in 2013, many saw the 9 million figure as unlikely, but I don't think anyone was quite prepared to see the number cut by over two thirds; whatever way you look at it, it's just not good enough for Nintendo, and the Wii U is currently dragging the company down. In the last generation of consoles Nintendo were the winners, at least in the first few years, so what's gone wrong?

Even FIFA 14 did not appear on the Wii U in 2013

Even FIFA 14 did not appear on the Wii U in 2013

There are many factors which have made the Wii U a difficult sell for Nintendo. Firstly, they were too late to the market with what is essentially an underpowered console. By the time it arrived there was already a lot of talk about the next PlayStation and Xbox, even though neither machine had been announced. The existing Sony and Microsoft boxes were also significantly cheaper than the Wii U, when Nintendo's console was only marginally more powerful. Even then, if they had been more aggressive on pricing, and had a solid line-up of games in 2013, Nintendo might have had a fighting chance when the PS4 and Xbox One arrived at the end of the year, able to sell themselves on the basis of offering a cheaper alternative to the pricey new machines with a lack of games. Games, however, have been the biggest problem for the Wii U; in 2013 the only big name Nintendo games were Super Mario 3D World and the HD update of The Legend of Zelda: The Wind Waker, both arriving at the tail end of the year hidden behind coverage of the PS4 and Xbox One. Pikmin 3 pleased fans but likely didn't sell systems. Nintendo need showcase games, not least because they need to justify why the Gamepad exists and why you would want the Wii U instead of its more powerful rivals.

The third-party reception has been even worse; disappointing sales in the first few months resulted in a lot of publishers pulling back from releasing games on the console, or in the case of Rayman Legends, giving up on exclusivity to ensure good sales numbers for the game. Industry giant EA seems to have given up on the Wii U completely (although they are not ruling out a future return), so even FIFA 14 - a game which even appeared on just about everything, including the PS2 - didn't make an appearance last year on the Nintendo machine. Without the support they were expecting, Nintendo have been struggling to sell Wii Us, and thus even more publishers are looking at it skeptically - a cyclic problem. Nintendo's marketing also hasn't helped. It starts with the name - the Wii U. The Wii managed to reach out to a much wider mainstream audience who don't follow gaming websites and magazines, and to some of this audience the Wii U was being seen as an add-on for the Wii, an optional extra tablet with some more games. By tying the brand of the new machine in with the highly successful predecessor Nintendo created more problems than they solved. However, even with a good name, Nintendo may still have had a hard time to reach that wider audience considering the lack of a notable mainstream advertising campaigns. Yes, Nintendo have been advertising here in the UK, but I just haven't seen the kind of TV, cinema and print advert that I've often seen from Sony and Microsoft - and that's for both their old and new machines.

That's just some of the surface problems of the Wii U, but what about solutions? With the PS4 and Xbox One out of the door and doing extremely well, it's hard to see what Nintendo can do to turn the ship around. The Wii U is almost certain to end up in third place behind those devices in terms of numbers sold, but that doesn't mean that Nintendo can't build up a sizable user base and make some good money back. An aggressive price cut such as the one to £179.99 we've seen at Argos and Amazon.co.uk this week would certainly help shift more machines, but Nintendo will likely be concerned about increasing their losses if those extra sales don't make up the difference. If they can't win around third party publishers, then it will be up to Nintendo themselves to win the buying public round with impressive games. Thankfully they have a new Donkey Kong Country and even more importantly, a new Mario Kart, set to arrive in the next few months, as well as Super Smash Bros. at some point this year. We're still waiting for a new Zelda, but E3 should provide details of that. However, more big hitters (e.g. a new Metroid) and more Gamepad-selling ideas are going to be essential to winning people over.

As pretty as Wind Waker HD is, a brand new Zelda is needed to help sell Wii Us

As pretty as Wind Waker HD is, a brand new Zelda is needed to help sell Wii Us

For Nintendo's future, many have speculated about a move into smartphones and tablet games. With the 3DS doing well - even if not quite as well as hoped for - I think this move is unlikely. While the company is making big losses which could be mitigated in the short term by selling games on the iOS App Store and Android's Google Play Store, it would risk damaging its profitable portable business in the long run. One move they should make is to work on some companion applications for Wii U games like those we have seen on the PS4 and Xbox One, and possibly even make companion games which would require a 3DS and/or Wii U version to get the most out of them. Giving up on the Wii U is another option, but it would be a move which would leave them in a very difficult position for launching another console at any time in the future as no one would be willing to invest in a machine which might be abandoned soon after.

Whatever move Nintendo makes, it needs to do it quickly and clearly. It needs a public-facing long-term strategy to regain confidence from potential buyers of their output and investors in the company following these drastically poor results. The share price certainly suggests this is not happening so far, with the company's response to the problems so far being seen as weak. However, there are interesting months ahead, and E3 could prove particularly exciting if a bold plan is being formulated. We'll be keeping our eye on Nintendo as things unfold, and hope to see the company make a turnaround in the near future.

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