Where To Go Next: Nintendo

By Ishaan . November 1, 2009 . 3:32pm

Earlier in the week, Nintendo Co. Ltd. (NCL) announced their first profit drop in four years. The company’s first half profits for the current fiscal year declined by 59% as a result of sluggish Wii sales in both Japan and North America. NCL president, the often frank and amicable Satoru Iwata stated in an earnings press conference: “We didn’t release strong software continually [for the Wii] and let the good mood cool down.”

 

It’s no surprise that Nintendo haven’t had the best six months. The big question on everyone’s minds is, what is Iwata going to do about it?

 

Putting it in perspective

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Despite a steep decline in profits, Nintendo have and still are selling more videogame hardware worldwide than both Sony and Microsoft. There’s no doubt their competition would love to swap places with them, given the sales of the Wii compared to the PS3 and Xbox 360. The problem becomes more evident, however, when you compare the first half of this year’s sales to last year’s H1, when the company released Super Smash Bros. Brawl, Mario Kart Wii and Wii Fit, all of which helped drive both hardware and software sales across all three major territories (EU; US; JP) and continued to do so for the next several months.

 

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The downhill drive began in the second half of 2008 when NCL banked on Animal Crossing: City Folk and Wii Music as their major releases for the holiday season, neither of which performed in line with their high expectations. Since Nintendo hardware typically receives a big boost during Thanksgiving and Christmas on the grounds of being popular gift items, the effects of their miscalculation weren’t felt until 2009 when Wii sales dropped off precipitously in Japan and remained that way until the release of Wii Sports Resort in June — just as H1 was coming to an end. It’s no surprise profits dropped the way they did and that the PS3 and Wii have been on equal footing this year — a drastic change from the situation last year.

 

Factors contributing to the problem

 

Obviously, this situation could have been avoided and Iwata’s comments both recently and in the past indicate that he understands the issues at hand all too well. Nintendo’s problems in this regard are severalfold:

 

1. Constant delay of high profile software: While Nintendo are no Blizzard, they do have a tendency to delay their high-profile games often — the most recent example of this being Wii Sports Resort, which was originally scheduled for release in Spring and would have contributed nicely to H1 profits had it done so. The company’s Entertainment Analysis & Development (EAD) division — managed by Shigeru Miyamoto and Takashi Tezuka — in particular has a reputation for not being able to hit a deadline. Of course, EAD are also known to produce some of the company’s biggest hits; but while putting out quality content worthy of the Nintendo name is important, it isn’t the only priority.

 

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2. Allocation of resources: If one were to look at the number of companies that undertake second-party development for Nintendo, they might be surprised. There are more than you’re probably familiar with and chances are, you haven’t even heard of a lot of their games. Companies like Genius Sonority (Pokémon Colosseum), Noise Inc. (Custom Robo), Paon (Klonoa / Donkey Kong Barrel Blast), Skip Ltd. (Captain Rainbow) and Ambrella (WiiWare Pokémon) are certainly not sitting on their laurels, but at the same time, they aren’t producing software that performs particularly well either. Someone on the outside could never claim to be completely familiar with Nintendo’s internal structure, but it does make you wonder if there is a body at the publisher (similar to SPD3…more on them in a bit) tasked with the job of helping these companies grow into better developers that put out more…notable games that are worthy of a marketing budget.

 

Given that Nintendo have historically been excellent at identifying assets and liabilities, their relations or agreements with these developers must obviously be profitable on some level. However, one could still argue that developers like Monolith Soft and Genius Sonority are good examples of teams that could produce fantastic and popular software, were they only given direction, and that they could have helped fill in the gaps when the Wii was in need of new releases to sustain its sales.

 

3. Third-party relations: There has always been a certain uneasiness between Nintendo and third-party developers. While the situation has improved somewhat with the Wii, the majority of third-parties still put out either mediocre or low-profile or just ill-suited games on the system and fail to understand why, when they sell poorly to an audience that is (a) far more familiar with mainstream titles, and (b) used to getting shafted. You can’t release a spin-off of your company’s most niche IP or an unproven franchise with minimal marketing effort behind it and hope for it to compete with better marketed, more high-profile efforts. However, the pendulum swings both ways.

 

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Nintendo, too, have dragged their feet when it comes to encouraging developers — especially in Japan — to invest in meaningful Wii development. President Iwata has stated on many occasions that his general policy is not to assimilate third-party developers, but rather to improve Nintendo’s relations with them. I believe Internet terminology for this is "moneyhatting," which encompasses outright funding of development and / or providing a great deal of marketing support, which is something that has worked wonders for Microsoft in their efforts to encourage a culture of spending amongst their audience.

 

Unfortunately, the first and last time Nintendo tried anything along these lines, it didn’t quite work out the way they intended, which may explain the company’s reluctance to try again. Recently however, Tiger Woods PGA Tour 10, Monster Hunter 3 and Tales of Graces have been the first legitimate examples of Nintendo and third-parties collaborating in a mutually beneficial manner on the Wii.

 

4. Marketing and perception: Games need to be marketed, especially when you’re selling to an incredibly mainstream audience. The majority of the Wii audience likely hasn’t heard of most games we cover on sites like Siliconera. They have, however, heard of Final Fantasy and Call of Duty. Give them names they can trust and provide suitable marketing so you can establish a fanbase on the system. Capcom did it with Resident Evil on the Gamecube and it is an effort that paid off, judging by the sales of Resident Evil games on the Wii. One could argue that marketing is also perceived as a reflection of a publisher’s confidence in their product, and plays an important role in converting enthusiasts that are on the fence or would rather wait for a price drop while keeping themselves entertained with games they perceive to be better.

 

Where to go next

 

Unfortunately, listing out problems is the easy part. Actually providing solutions and raising profits is far harder, much more so in the case of a bi-polar organization like Nintendo that tries to cater to such a wide audience. Still, Iwata’s comments indicate he understands what needs to be done and judging from the past few months, he has made an active effort to address the aforementioned issues.

 

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1. Short term: In the short term, it seems as if — at least in Japan — NCL are focusing on catering to the enthusiast gamer in an attempt to sustain Wii sales. Monster Hunter 3 enjoyed a Wii bundle when it released and Tales of Graces will share the same rare luxury. With New Super Mario Bros. and Tales of Graces both releasing within a month of each other, the Wii might be able to retain or even build upon the momentum it gained with the recent price cut, even with Final Fantasy XIII releasing on a rival system within the same timeframe.

 

Judging by the Metroid and Super Mario Galaxy 2 reveals at E3 2009, it is likely they understand the importance of not only satisfying, but impressing their enthusiast audience in the West as well.

 

2. Long-term: This is where things get dicey because no one can predict the ways in which NCL work. Again, catering to the enthusiast gamer does seem to be part of the plan judging by the foundation of Project Sora and the Monolith Soft acquisition. Beyond the enthusiast demographic, the Wii Vitality Sensor is set to launch in 2010; however, details of the device and the kind of software that will support it are still vague at best. Rumours of a Wii version of Netflix in the U.S. have also been making the rounds this past year.

 

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Analysts — the ones in Japan that actually count — have a new DS and Wii pegged for 2010. Historically, releasing new hardware to boost sluggish sales is a strategy Nintendo have always employed efficiently; and judging by recent interviews, their next DS revision might be a little more ambitious than simply providing a gaming platform.

 

Despite being wary of subjecting consumers to expensive service rates, Iwata recently expressed interest in the possibility of offering a service similar to that of Amazon Kindle, where charges for downloading applications are included in the hardware’s upfront cost, and not paid separately by the consumer. Were the DS2 to offer a steady stream of enough useful applications like a GPS or a functional Internet browser with a similar service, the need for it to include a telephony function at all to compete with the iPhone might be offset.

 

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In the software department, it might be prudent to hire another producer similar to their SPD3 division’s Kensuke Tanabe, who oversees and guides all external development. Tanabe has had his fingers in several pies these past few years, acting as producer on games like Metroid Prime, Excitebots and Punch-Out!!, all of which — while not runaway hits — have been popular nonetheless and have played an important role in filling in the gaps between NCL’s own internal line-up of games. A division dedicated to providing support and guidance to Nintendo-funded external development would help avoid scenarios where games like NST’s Project H.A.M.M.E.R. get canceled partway through development. Western development is something Nintendo have yet to fully embrace, but faced with stiff competition from Sony and Microsoft and the dwindling popularity of franchises like Zelda, it might be a necessity in coming years.

 

Coming back to the vitality sensor, the device could perhaps be an indication of Nintendo delving even further back into their roots and expanding outside of the entertainment market. Back to the days of devices like the Nintendo Love Tester and their love hotels business (which happens to be a very lucrative business in Japan at present). It might seem far-fetched, but Iwata’s strategy for setting Nintendo apart from the competition seems to involve turning the publisher more into a "lifestyle" company going forward, not merely one meant for providing entertainment.

 

Given his foresight and the way his company seems to be able to predict market trends, it wouldn’t surprise me if they managed to accomplish such a feat, at least in their home country. The real question is, how do you strike that balance between expansion and being conservative with investments in new ventures.


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  • Joanna

    Nice article Ishaan. I haven’t been here for awhile, so I now see that the comment system has been redone. Pretty~ :D

    My 2 cents: While lack of software is probably contributing to falling Wii sales, I think the major factor is that a lot of people already have a Wii. The thing sold like crazy, and if you already have one, you are not going to buy another (unless your a collector, but not a lot of people are, so collectors are negligible). Such growth cannot be sustained indefinitely, it will slow down. So I don’t see this as doom and gloom, although if Nintendo wants to make more quality games because of the slow down, more power to them!

    • http://www.siliconera.com/ Ishaan

      Welcome back! I love the new comments, too; they look so clean. :D

      The number of Wiis out there is definitely a contributing factor. I think you’re right with regard to the U.S. where the Wii is still selling more than the PS3 and Xbox, despite having moved so many units already. This is ironic because the U.S. has a significantly larger population than Japan, so you’d expect it to be the other way around.

      In Japan, however, weekly sales dropped waaaay below a certain threshold I’m sure Nintendo would’ve liked to maintain. The Japanese are known for double-dipping in consoles, which is something systems like the PS3 Slim and that FFXIII PS3 and the black Wii have shown…I think bundles like those are what they rely on to keep hardware moving over there. It says a lot that all it took was the launch of PS3 Slim for PS3 sales (for this year) to catch up with those of the Wii.

  • JeremyR

    I think Nintendo is best left ignoring what other companies (Sony/MS) do. So they aren’t gigantically profitable anymore, merely hugely.

    That’s the trouble with analysts and such, they focus more on marketshare and growth rather than actually making money. And Nintendo has never really lost the tons of money MS or Sony has, even when their console wasn’t as popular as the Wii. So it’s really the other companies that should be emulating them, not the other way around.

  • http://www.liquid-crystal.biz/ kryptonics

    Zelda’s support might be dwindling in Japan, but it’s still performing very well in the west. Twilight Princess has become the 2nd highest selling Zelda of all time, while The Phantom Hourglass has become the highest selling portable Zelda. I don’t remember Nintendo really pushing Twilight Princess like they have some of their other releases. At the time of release, I felt like Wii Sports was going to overshadow it.

    Nintendo should launch a new campaign for Twilight Princess. While sales will never reach Super Mario numbers, it could easily sell 1-2 million copies and secure its place as the top selling Zelda.

  • http://www.facebook.com/NintendoFanBoy Blaine Barber

    I really enjoyed your article. I think we should let Miyamoto take as long as he needs on his projects though. I’ll put it this way – in any other developers hands Wii Sports Resort would have been a failure. For that game in particular an extra coat of Nintendo magic was required IMHO. I think it’s up to the other teams to deliver some great software. But Nintendo has never really been interested in delivering a lot of titles in any given year. Last Christmas proved how painful that can be though. I really like both Animal Crossing and Wii Music but the facts are facts – the titles didn’t take off and it left them empty handed!

    It’s too bad, though, that for now they are leaning very heavily on Mario and Samus… I hope they don’t get too conservative after Wii Music… it sounds like Iwata has no intention of letting that happen and I say good for him! We need a company that thinks differently. :)

  • daizyujin

    One thing Nintendo needs to embrace is actually using all these dang addons that they bring out. The motion plus is a great piece of hardware, but they have yet to really use it effectively at all with the exception of Wii Sports Resort. It is downright shameful about the lack of use of it in more 3rd party games. It just seems to look like they have not really pushed it as hard as they probably could have.

    Regardless this is a good thing. Having them on an increasingly more level playing field with the competition will force them to put more money and effort into their projects instead of sending out half baked products like WiiMusic or minimal updates such as Animal Crossing City Folk, all while expecting full price for a product that is obviously not deserving of one. Consumers are not completely stupid. I suspect there was a little bit of arrogance on their part in banking on these as their big products of 2008 and it blew up in their face. The sad thing is though, it really don’t look like they learned, with still only supplying a measly two games the entire holiday period for the system. The quality is likely better, but both games still feel like they were not fleshed out as well as they could have been, with WiiFit+ being a mere expansion disc, and NSMBW lacking any online support despite the fact that it is a no brainer.

  • abasm

    I have one small question in relation to this: Why doesn’t the Wii have a “Greatest Hits” series? The Gamecube did, and the 360 and PS3 do.

    Implementing a sudden sharp price drop for many of their juggernaut titles could seriously rejuvenate sales.

  • daizyujin

    Why is Bayonetta the icon for this story on the front page? Are you trying to say something here Isshan? :)

    • Aoshi00

      And I thought there was something wrong w/ my browser..

      • http://www.siliconera.com/ Ishaan

        Ack, that’s a mistake. Will fix. Thanks for the heads up.

    • http://www.siliconera.com/ Ishaan

      Fixed. Thanks. :)

  • Ereek

    I think the main problem with the Wii, for me at least and I obviously don’t speak for the majority, is their lack of -good- Third Party games. It’s true that there are a few gems, but the majority I’m simply not interested in. I don’t like Nintendo’s first party games much, with a few exceptions, so for me their consoles and handhelds ride on their third party titles. As mentioned, I’d really like to see more support of second party companies, like Monolith Soft.

    Of course, major third party support, I feel, is one reason why the DS is doing extremely well.

  • kupomogli

    The Wii’s overall sales are crap because like Joanna T said, everyone owns one. The Wii’s sales should not be that high realistically regardless. How many people do you know who own a Wii and never touch it? I know a ton that own it, purchased it because of how overhyped and overrated it was and has regretted it for quite some time.

    What Nintendo needs to do regardless of slowdown or not is push third party developers to make better games. Maybe Nintendo can throw some good games out themselves as well. Their first party titles are few and far between while both Microsoft and Sony have been releasing a ton of first party titles on a yearly basis.

    Your library of Wii games suck Nintendo. Get to work on fixing that problem. Also, the DS is awesome, but not because of your pathetic company but rather all the amazing third party titles. How about we see some good first party titles instead of another port. We don’t care about your crap DS releases or your ports of old overrated SNES or N64 games as we don’t want them, unless they consist of the words F, Zero, X, and WiFi.

  • kylehyde

    Ishann, First of all I have to admit that I’ve been a kind of troll in your articles, but still I think that are good, because you really have talent for express your impressions.

    Second and more important, this is easily the best article that I’ve readed in the whole week (countig other sites of course), and one of the best on september. Seriously, everything writing in it is 100% accurate, nintendo needs to change their strategies, and even that is not too late, they have to do it as soon as possible.

    • http://www.siliconera.com/ Ishaan

      Dude, I don’t think you’ve been a troll at all. I think someone would’ve noticed by now. Now, if you’re trying to say you’re a good stealth-troll…well… ;p

      Also, thanks for the kind words. I pushed another editorial to next week to make room for this one, so I’m glad people like it. :)

  • http://www.facebook.com/bandaka Charles Chapman

    My solution, bring back the GameBoy line of handhelds damnit!

  • Advent_Andaryu

    Nintendo’s course for success is easy. Stop pushing towards non-gamers and return to making REAL games for us hardcore Nintendo fans that have been fans since we were 5 years old.

    Wii fit, and games like it, is just a fad. These players will not stay in the industry for long! The only reason I still have hope in Nintendo is because of New Super Mario Bros Wii and Galaxy 2.

    But where’s our beloved series’ like Starfox or Earthbound(Mother)? Nintendo… The tide is quickly turning in this war.

  • jarrodand

    Seems to me it’s more of a perception war at this point, which I think Nintendo has yet to grasp. No, games like Mother, Star Fox or F-Zero won’t be huge multi-million blue ocean sellers, but they hit a specific, loud demographic that Nintendo needs back on their side. The power of the enthusiast press and self-described “hardcore” may be on the decline, but they’re not dead yet.

    Efforts like Other M or Sin & Punishment 2 are an appreciated step in the right direction though, as is the new CC Pro push with “classic” 3rd party games (Monster Hunter, Musou, Tales, etc). I think Iwata’s slowly getting it…

    • http://www.siliconera.com/ Ishaan

      Great point. We’ve had these “how influencial is the hardcore demographic” discussions on Siliconera before, and it’s like you said: it’s a question of perception. It’s why Microsoft have all those big-name Japanese developers attend their conferences and why they focus so fiercely on their third-party line-up.

      Other M saved that E3 conference I feel. A lot of people would have come out of it disappointed if it hadn’t been there.

  • Tokyo Guy

    Hmm…Nintendo. To be fair I think people are a bit too harsh with it considering that the Wii and DS have both sold TONS and the consumer base can only grow so much more in the future. It’s not like it was 3 years ago. Of course, I would also add that Nintendo has shot itself in the foot by making the Wii a haven for crapware and gimmicky nonsense, the likes of which long term supporters don’t really care about. The company abandoned its real fanbase LONG ago, and now has to confront reality.

    And this new DSi LL thing is just…a joke really. I mean where does this company get off making a “new” DS whose only actual feature is a larger screen. Come ON. Everyone will agree that there was a real need for the DSLite after the DS, and even the DSi after the DSLite. But to make a new DSi not even one year later? That is just plain desperation.

    • http://twitter.com/argentinaboy101 addy bowler

      WERE DO SONY GET OFF MAKING DIFFERANT SIZED TVS MONITORS ETC SAME APPLYS PANASONIC LG SANYO SHALL I GO ON NINTENDO GIVES US A SIZE CHOICE THE WORLD TALKS POO POOO ABOUT NINTENDO TV MAKERS DO DIFFERANT SIZE TVS BUT THATS OK GROW UP MORON

  • http://twitter.com/argentinaboy101 addy bowler

    wait a second wii in lead AT PROFIT HUGE PROFIT

    FUTURE = HYBRID CONSOLE PLEASE

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