Hello all, I am Lord Spencer, your friendly neighborhood royalty. Yes, the ancient bloodlines are letting absolutely anyone in these days.
Being the lurker that I am, I have been following Destructoid for more than four years. Well, its 3 AM where I live now, and I just plunged in getting HUGE in the way.
Here is hoping for a fun time.
Oh yes, here is a little more info about me that is probably not as interesting as I think it is:
-I am an Iraqi-Saudi living in Saudi Arabia.
-I owned and played about 1000+ games.
-I owned and read about 2000+ books (I counted comic books I read as a kid so this is not as impressive as it sounds).
-I absolutely love Legos.
Out of all the games I played, I only regret playing a few. I am a big fan of gaming, and thus I really like most of what I play.
Seeing as my top 10 games of all time would change depending on the day you ask me, I am just going to put in Random games I don't think are in anyone's top 10 list:
-Blood Will Tell
-Mega Man Legends 2
-Mystical Ninja Starring Goemon
-Donkey Kong Country 2
-Some weird game in the PS1 that caused my grandfather to kick me out of the house because it had me giving a girl an orgasm by massaging her feet.
Naturally, the dire financial news of Nintendo had the wheels of Journalism, fanboyisim, anti-fanboyisim, and every other relevant -ism out there producing articles after articles about Nintendo's future, the Wii U's lack of future, and sometimes even dragging in the shaky industry into the conversation as well.
This blog can be seen as an attempt to contextualize the amount of DOOM Nintendo are in these days. I am not trying to suggest hints for Wii U's future, and I am not going to analyze all the things Nintendo did and/or are doing wrong. ctg867 wrote a wonderful blog with suggestions for the Wii U and you should go and read it if you are interested here:
Although I am not going to talk about things the Nintendo should do to "save themselves" I put in the above blog because those solutions wouldn't be possible if Nintendo were facing a Sega-like situation. I am going to attempt to answer three questions about Nintendo today, which might give an idea of their direction in the future.
1- Why will this fiscal year end in a loss?
2- What does this loss mean for Nintendo and their fans?
3- What are Nintendo doing behind the scenes?
First, I would like to explain why this topic is actually personal to me.
Starting from the shambolic release of the 3DS and the subsequent drop in stock value, I have regularly owned about 5000 shares myself. With the last peak at $19 when the China console ban was lifted, me, and other shareholders were in prime position to sell. Despite my own judgment, and my father's advise, I did not sell the whole 5000 but only half of it.
With the obvious news of the slashing of the Wii U's forecast, the stock went down to about $13 and I bought more of it myself. By short-selling, I managed a rough profit of $15k. However, by holding on to half of my original 5000 shares, I lost the opportunity to gain another $15k.
The reason I held my shares earlier is because an illogical part of me hoped Nintendo would turn things around for itself despite knowing fully that it was impossible.
However, with the stocks down, I went in and bought another 5000 shares. Knowing Nintendo's position, this might not be a wise investment. Yet, here I am trying to contextualize why I am now willing to put my money in the table by answering the above three questions.
1- Why Will Nintendo End this Fiscal Year with a Loss?
Outside of the obvious answer of failing to meat their original forecasts, I am going to name three major reason I believe are responsible for this loss. Of course, we first need to understand that $240 million dollars is not a catastrophic loss in and of itself. Nevertheless, Nintendo lost money where they traditionally don't, which actually makes this a significant fact above the actual amount itself.
[u]A) THE WII U PRICE DROP AND SUBSEQUENT FAILURE TO SELL WELL:[/u]
Failing to sell well is a self-explanatory reason for loss. However, when this failure to sell well happens after a price drop, expect a double jeopardy of loss. Remember back when Nintendo said they needed ONE game to sell in order to recoup the loss.
What they meant was the licensing fee of any game would do, which takes the amount the needed to make to about $10. Now, they would either need to sell roughly six 3rd party games, or 3 retail first party games to recoup that loss (based on the fact Nintendo does not take all that $60 you give Gamestop).
By the time people bought the Wii U in the holiday season, games already are in the used market and/or sold at discounts to make recouping that loss harder for Nintendo. It meant that for every Wii U sold in discounted territories, Nintendo actually lost money instead of gaining it.
Also of note, is that in Japan, the Wii U is doing well without the reduction in price. This must be frustrating for Nintendo who must feel that the Wii U would be doing just as bad in the west but without losing them money if the didn't jump the gun and reduced its price. Nintendo rarely if ever sold their systems at a loss, and now they are in the unorthodox situation where each sale "decreases" their income instead of increasing it.
[u]B) THE WONDERFUL 101 & PIKMIN 3:[/u]
Both of these titles made huge dents in Nintendo's pocket for two completely different reasons.
First, you have the wonderfully brilliant and very different W101 from Platinum. According to many sources, this is Platinum's most expensive game, and the one that took the longest time to make. All around it, you have a recipe for disaster.
And then the game bombs. I am confident in saying that the W101 might be the biggest financial flop in Nintendo's software history. Simply put, the game was a complete financial disaster, and I wouldn't be surprised that it is responsible for at least a quarter of Nintendo's losses this year.
Not only doe this game (and others like it) make fun of the incessant demands gamers make for "new, original, unique" IPs. It proves that a brand sells far more than the games themselves. At this point, a sequel using the same assets as fast as possible would be the only thing that might at least reduce the losses this game occurred.
As for Pikmin 3, which sold well considering the small install-base. I would bet that the numerous delays it had are obvious indications of Nintendo's HD growing pains. This reflects not only on Pikmin, but also on the slowing down of all of Nintendo's production lines.
Both these examples illustrate an alien trend for Nintendo which usually does not register losses from their software. This means that Nintendo might end up after all in the current vortex in the industry where games don't begin profiting until the 3 Million mark is breached.
[u]C) NINTENDO IS EXPANDING AND RESTRUCTURING:[/u]
In the current fiscal year, Nintendo announced they are going to:
-Expand their online infrastructure.
-Expand their development houses.
-Expand relations with Japanese 3rd parties.
-Expand relations with Indies.
-Restructure their R&D labs.
-Restructure their administration Hierarchy.
All of these are costly maneuvers that don't bring in immediate income. It means that as Nintendo were failing with the Wii U, they were actually spending more money expanding their business.
Nintendo is a small company, and such expansions undoubtedly cost/are costing a lot of money, money that is not being recouped by the Wii U.
This a rare move for Nintendo to make, and it means that they are committing themselves to the market for better or worse.
2-What Does this Loss Means?
Of all the possibilities being thrown around about Nintendo going out of the console business and/or going 3rd party. None makes sense for Nintendo financially. If anything, this loss means that Nintendo needs both their handhelds and consoles to do well in order to profit.
However, this probably means the Wii U is dead. IMO, 40 million consoles sold is the highest possible benchmark (here is hoping I am wrong). Simply put, this means that Nintendo messed up with the Wii U.
This also means Nintendo now knows it messed up, and it actually knew that earlier this year which is why they began their expansions and their restructuring. Hence, we should expect a significant change in Nintendo's next attempts at both the console and handheld space. We should also expect significant changes in their business model in the future as well.
There is still another major important point that I did not see addressed a lot in the gaming websites and blogs. The fact that the 3DS is not going to sell its expected 19 Million units despite being by far the number one selling console globally. What this means for the greater industry is that a console that is cheap, the right blend of casual and hardcore, that has a ton of quality exclusive games, is not selling as well as it should.
If the 3DS is not doing as well as it could despite having one of the best years gaming-wise for any console, what does it mean for the rest of the industry.
If anything, I expect gaming is reverting back to its niche roots, but that is a conversation for another day.
3-What is Nintendo Doing Now?
Well, not being a Nintendo employee, I cannot but guess at this final and most important question. We already know about their expansion plans, and there are rumors about their next console starting now.
What I guess Nintendo will do with the Wii U is that they are going to ride it out. Basically, they need to try and get as much from it as possible while situating themselves for their next attempt.
Seeing from their dealings with Atlus, Koei, and Bamco, Nintendo might be strengthening their relationship with other Japanese developers (who are all not doing as hot). These deals won't do a lot for the poor Wii U, but Nintendo plays the long game, and they will focus on what those deals can do for them in the future.
Seeing as this is basically an unanswerable question, I will leave it to you reader to imagine the answers.
Seriously, this is Nintendo's situation, what are they doing now? (Not that they should do, ctg867's blog answered that already)