Tuesday, August 2, 2011

Lower price expected for Nintendo’s Wii U, company’s future hinges on it

After a historic turbulent week for Nintendo, the video game industry is expecting the company to make a much more aggressive stance when pricing their next system than ever before.  Investors did not react kindly to Nintendo’s discouraging financial news, sending Nintendo shares down 12 percent.

Bloomberg reported the drop as Nintendo’s biggest decline since January 2009 and it's the company’s lowest close since before the Wii console was introduced in November 2006. This year hasn’t been good for the Big N. Nintendo is down nearly 40% in 2011 and they slashed their FY 2012 earnings guidance by 82%.

Nintendo’s decision to be proactive and cut the price of the 3DS by $80 last week, just 6 months after the release of their next gen handheld, sent shockwaves through the industry. It’s believed that Nintendo, for the first time in their video game console business history, will take a loss on every 3DS sold after the price drop.

Nintendo is taking the stance that it doesn’t want the same fate happening to the 3DS that happened to the Gamecube and decided to do something about it before it was too late. According to Nintendo president Satoru Iwata, speaking during an investor Q&A session in Tokyo, the consensus among many top executives within Nintendo is that the company had a bigger chance with Gamecube that they failed to capitalize on.

Although that maybe the case, industry insiders cite many other explanations for the sudden price drop.  With Sony set to release their next gen handheld this fall to positive buzz, this maybe Nintendo getting a head start on the competition. The secular shift away from dedicated handheld gaming devices towards cheaper, smart phone based casual games, may also be a legitimate concern, even if Nintendo won’t publically admit it. Nintendo up till this point may still be living in the past, when it could release a new system and lets the company’s name sell it until the software caught up with it. In this new world of more options and cheaper alternatives, Nintendo just got served with a dose of hard-hitting reality. Games sell systems, not company brands (ask Sony, post PS3 launch).

 “It comes down to Wii U. If it is a failure, and doesn’t sell well at all, this company could just be at the beginning of its troubles,” said Asif Khan of Industry Gamers.

Iwata took responsibility for his company's performance in a shareholders meeting where he announced pay cuts for himself and others. "For cuts in fixed salaries, I'm taking a fifty percent cut, other representative directors are taking a 30 percent cut, and other execs are taking a 20 percent cut," said Iwata

Does this mean that Nintendo learned a valuable lesson from its botched 3DS launch and will release the more-important-than-ever Wii U with an aggressive price point and solid launch library? The answer is a resounding ‘yes.’ The old Nintendo would have continued in its arrogant ways as long as they continued making a profit in the short term. In 2012, they will be up against more competition than ever and will have to change their ways or they will be doomed to repeat their past (like 2011). Nintendo may stick with their tried-and-true $250 price point for Wii U and fast track some of their franchises to ready them for launch (if this is possible. Our Full EXCLUSIVE Story Here). It appears that they are already repairing relationships with 3rd party developers (Full Story Here), since the company will need them more than ever.

The bold moves Nintendo put in place over the past week, shows that Nintendo is waking up. It can’t be the lumbering, all-knowing elder of the video game business like it always has been and play by its own rules anymore. Nintendo needed a wakeup call and boy, they got a whopper.  Welcome to the new Nintendo.

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