Google+

Wii U will be sold at a loss in order to return to 'Nintendo-like profits'

In the wake of yesterday's news that Nintendo has slashed its profit predictions, it's quite surprising to hear from the company's president, Satoru Iwata, that Wii U will be sold at a loss.

Many companies in the games hardware race have utilised this tactic in the past, which involves taking a hit on every unit you sell, in order to give customers a cheap entry point and then make money back on the games they buy. But Nintendo has traditionally made a profit on every console it's ever sold, except for early versions of the 3DS after that massive early price cut.

Iwata's statement in full reads:

During the second quarter of this fiscal term, we have successfully eliminated the situation that we sell the Nintendo 3DS hardware below cost, which was the main reason our corporate profits fell in the last term. However, as we are in the phase of concentrating our development resources on software for the Nintendo 3DS system, which is still in an earlier stage of penetration than that of Nintendo DS, and as we have not yet launched the Wii U system, it is difficult to increase the total sales of software, which is generally profitable.

In addition to the yen’s continuous appreciation, the Wii U hardware will have a negative impact on Nintendo’s profits early after the launch because rather than determining a price based on its manufacturing cost, we selected one that consumers would consider to be reasonable. In this first half of the term before the launch of the Wii U, we were not able to make a profit on software for the system while we had to book a loss on the hardware, which is currently in production and will be sold below cost.

Our loss has therefore widened during the second quarter in spite of bringing the Nintendo 3DS hardware back to profitability. Although we expect our financial performance to be revitalized, under these circumstances, unfortunately we cannot say that we will achieve ‘Nintendo-like’ profits within this fiscal year.

"We will make best efforts to retrieve “Nintendo-like” profits by:

  • Boosting sales of the Nintendo 3DS system as a sound successor to Nintendo DS both in Japan and overseas during the year-end sales season,
  • Launching the Wii U system successfully in each part of the world in the year-end and maintaining the sales momentum next year, and,
  • Transforming our business structure in line with the times, including the expansion of our digital business to increase our business efficiency and profitability.

We daren't speculate on how much of a loss the Wii U will make if it does achieve the 5.5 million sales the company is predicting it will shift by April. A loss of £2 a console is £11 million, £10 a console would be £55 million... it's scary stuff. And then there's the old 'attachment rate' issue. Nintendo is expecting 24 million software units to be sold in 2013's financial year, which is over 4 games per console, if they meet their targets.

We don't normally report on industry analyst Michael Pachter's 'predictions', but he's got a point when he says the expected attachment rate is "highly unrealistic given the steep price of both console models (which will limit the applicable gamer’s ability to purchase additional games), 23 launch-day releases (with some likely to slip), a somewhat murky launch window that boasts many big names but lasts 4.5 months, and compelling competitive devices." It's hard to argue with that logic.

What do you think? Let us know in the comments.

Sources: Nintendo, Wired

We Recommend By ZergNet

7 comments

  • JarkayColt - October 25, 2012 3:24 a.m.

    Selling at a loss is certainly the better idea here if Nintendo want to get this thing into as many homes as possible off the bat. If they're only dropping a small amount per sale it can easily be recouped through software and (cough) peripheral sales, especially since WiiU games seem to be going for a premium now (for some weird reason). Also, yes, seriously Nintendo, sort the digital side of your business out. Like I said on the other article, if Virtual Console games were like £1-£2 they would probably increase their turnover a fair amount, since old games like this have already broke even with any previous costs at some point in history and therefore can pretty much only make MORE momey by this point. I already own a lot of the games, so I'm not gonna buy Super Mario Bros for nearly a fiver on 3DS again. However, if it was 50p, it might be a different story, and also a serious competitor to throwaway mobile gaming. Not to say Nintendo should cheapen its brands, but seriously, most people can get these games free on an emulator anyway, so if they were cheaper more people would be prepared to buy the real deal if it means they have better control options. Nintendo also 'proved' they're aware of competing with emulators by adding a save state option to the 3DS VC. If WiiU had GameCube downloads for about £5-£10 that'd make a killing too. Also massive tangent but still.
  • sternparez - October 25, 2012 5:37 a.m.

    His head is out of proportion with his his body like Elaine Benes!
  • ObliqueZombie - October 25, 2012 7:12 a.m.

    It sucks that they'll be taking a loss, but it seems like every company--no matter how big--never make enough money for themselves. Nintendo no doubt has billions of dollars in reserve, so a hundred or so million in losses probably won't cut them back for too long. That, and it's a pretty cheap entry price in comparison to past console releases, and it's Nintendo. Let that sink in. They WILL move units.
  • Mooshon - October 25, 2012 8:16 a.m.

    Nintendo and Wii U are bound to be absolutely fine. Even if they take a hit on the unit price, their standard license fee grab will see them right with the starter games alone. The launch is expected to be pretty slow but the company is rich enough to push it through regardless. The main thing I'm looking forward to is seeing if they pull the old stock shortages trick again. Conspiracy theories aside, the Wii was rare as rocking horse shit for 12 months post-launch. Nothing whips up the crowd more. Will everyone fall for it again?
  • CoolRanch - October 25, 2012 10:22 a.m.

    Gillette is the master at this strategy. Practically give the handle away then charge an arm and leg for the fusion carts.
  • ertywerty - October 25, 2012 2:26 p.m.

    For me I won't be getting the Wii U but I think the sales won't drop too much because the Wii U will be the most accesible system when it comes out.
  • Octaviux - October 25, 2012 6:35 p.m.

    haha they're going to fail so hard

Showing 1-7 of 7 comments

Join the Discussion
Add a comment (HTML tags are not allowed.)
Characters remaining: 5000

OR…

Connect with Facebook

Log in using Facebook to share comments, games, status update and other activity easily with your Facebook feed.