Analyst: Low Support of Wii U By Game Developers Will Leave Nintendo Without Profits for Years

Paradox: The Choice to Save on Hardware May Leave Nintendo Without Profits

by Anton Shilov
07/31/2013 | 11:55 PM

Nintendo is about to find itself in a paradox situation. The company did not want to invest heavily into hardware development for Wii U and compete head-to-head with Microsoft Xbox One and Sony PlayStation 4 and not have huge business risks. However, its unwillingness to spend on hardware development may leave it without profits for the coming years.

 

Nintendo’s traditional choice of low-cost hardware for its consoles allowed it to make profits selling systems and in case the latter were successful also benefit from sales of first-party and third-party software. In this generation, Nintendo did not manage to design hardware it can sell with a profit. Moreover, since Wii U sales are low and the console more resembles existing offerings from market leaders rather than next-generation system, third-party game developers are reconsidering their plans. As a consequence, to keep Wii U alive, Nintendo will have to spend a lot on software development and create big titles itself. Such spending will not allow Nintendo to become profitable in the coming years, believes a market observer from IHS.

“While 3DS platform profitability has grown during the quarter, the traditional slow nature of sales from April to June means that any significant increase in R&D costs for Wii U software would easily overwhelm these profits. Even so, IHS expects R&D costs for Wii U software to continue to undermine profitability for at least the next four to six financial quarters, as Nintendo seeks to generate momentum for the stalled Wii U platform by spending more on developing its own software,” said Piers Harding-Rolls, a video game analyst from IHS, reports Games Industry web-site.

According to Nintendo’s recent financial report, from April 1 to June 30 shipments of Wii U game systems totaled 160 thousand units worldwide. Life-to-date sales of Nintendo Wii U are 3.61 million. It is interesting to note that Nintendo remains generally optimistic about the destiny of Wii U and expects its shipments to total 9 million units this fiscal year, which ends on March 30, 2014.

Nintendo has already begun increasing spending on new titles for Wii U in a bid to bring them to market faster. The company pledges to release such key games as The Legend Of Zelda: Wind Waker HD, Wii Party U, Donkey Kong Country: Tropical Freeze, Super Mario 3D World and Wii Fit U this fiscal year.

Nintendo is in a very complex situation. Customers are clearly not impressed by what Wii U offers, which is why software sales are slow. Game developers will not release exclusive titles for the platform until its installed base gets significant, which means that systems will not be able to demonstrate the whole potential of hardware. Next-generation games will inevitably look better on Microsoft Xbox One and Sony PlayStation 4, which will further undermine success of Wii U among core gamers.

“Until we experience a strongly backed holiday sales season for the Wii U, long-term outlook is less clear. If sales of the Wii U fail to impress during the holiday season, IHS will downgrade its outlook for the platform and implement a significantly shorter sales cycle for the Wii U compared to the other next generation consoles,” added Mr. Harding-Rolls.