Rough Patch Ahead for Nintendo
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Six plus years after the Wii launched it has proven itself a huge Success for Nintendo (NASDAQOTH: NTDOY.PK) outselling the competition and changing the video game market with its motion based gaming. However the Wii has come to the end of its life and the next big challenge for Nintendo is whether they can pull off another huge success with the Wii U which is set to launch late this year and is the successor to the Wii. With Nintendo's latest mobile gaming device the 3DS flopping despite a huge price cut and Wii sales dropping as consumers wait for the Wii U, Nintendo has recently posted the companies first quarterly loss. This quarterly loss will not be their last as Nintendo faces tougher than ever competition and the Wii U will not be enough to keep Nintendo from having a very poor few years starting in 2012.
The PlayStation 3 made by Sony (NYSE: SNE) and Xbox 360 made by Microsoft (NASDAQ: MSFT) have both had price cuts since they were released and they both have competitors to the Wii Mote for motion based gaming; the PlayStation has the Play and the Xbox the Kinect. These consoles both have more powerful hardware and the PlayStation three has a Blu-Ray player built in. They also support HD and have some entertainment apps such as Netflix so consumers can watch HD TV from their console; the Wii doesn’t support HD, though it does have apps. As these two consoles continue to appeal to traditional gamers and continue to get the best single player titles combined with price cuts and new motion based technologies, their sales will rise in 2012. The Wii does not have this traditional gamer market and does not get the latest single player titles. So why would you buy a Wii right now? You wouldn’t.
When the Wii U comes out it will have a higher price point than the Xbox or PlayStation because it is a new product and it is likely the Xbox and PlayStation will get another small price cut in 2012. The Wii U will have fewer games available than the other two platforms and it will not be able to replicate the ‘revolution’ that the Wii brought to the gaming world. Though the Wii U will have new technology and a new controller with a screen built into it, this is nothing compared to the wave of casual gamers the motion based Wii Mote brought to Nintendo with the Wii. Nintendo is in a tough position as they are attempting to keep the family oriented multi-player casual gamers who bought the Wii and at the same time appeal to the traditional gamers who largely play the Xbox 360 and the PlayStation 3. Nintendo will not be able to captivate both markets and since the Wii U will not have the novelty that the Wii had, it will not sell as well as the Wii sold. Single player first person game makers are already satisfied with the Xbox and PlayStation and don’t have a large enough incentive to re-make their games for Nintendo’s consoles. Getting these types of titles on the Wii U should be a major push for Nintendo. On top of this, the 3DS will continue to be sold at or below cost and Nintendo will continue to lose money throughout 2012.
One bright spot is that Nintendo continues to have a highly popular library of games that they can re-release on their new systems and that will not cost them very much to so. This will help the initial sales of the Wii U. Additionally Nintendo is sitting pretty on fourteen billion dollars so they can afford to put a huge marketing campaign behind the Wii U and attempt to get everyone who has a Wii to upgrade. Nintendo set a record for themselves when it spent hundreds of millions on Wii advertising and marketing, they should spend significantly more on the Wii U to ensure successful early sales. If they have to they should also incentivize game makers to release more single player titles that will appeal to ‘traditional’ gamers.
ded004 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.