I have a few reports on Nintendo this week and I’ll be referencing quite a few articles and video links. First off, as I mentioned on Tuesday in class, Nintendo announced its second straight annual loss on Wednesday. According to the average of 15 estimates compiled by Bloomberg, Nintendo was projected to be losing 18.7 billion yen in the 12 months ended March 31 (http://www.businessweek.com/news/2013-04-22/nintendo-ceo-seen-missing-profit-target-as-wii-u-founders). It turns out this prediction was surprisingly underestimated (surprising that Bloomberg estimates are this far off, but not surprising Nintendo is suffering heavy losses). According to the article here: (http://www.businessweek.com/ap/2013-04-24/nintendo-returns-to-profit-on-weak-yen-boost) “Nintendo posted its second straight annual operating loss, reporting 36 billion yen ($364 million) of red ink for the fiscal year ended March”. That’s about double what the estimates were! Are they that far off because they are counting these losses in a different way? I don’t think their losses need much analysis since I’ve already talked about it quite a lot. It is merely an update on ongoing unfortunate results for Nintendo.
On a slightly better note, bringing up one of my first blogs about the weak Yen, because of this weak Japanese Yen, Nintendo actually recorded an “annual profit of 7.1 billion yen ($72 million), a reversal from a 43 billion yen loss the previous year” according to the previous article (http://www.businessweek.com/ap/2013-04-24/nintendo-returns-to-profit-on-weak-yen-boost). Nintendo still being profitable with such a heavy loss can be explained by the exchange rate. “Nintendo gained 39.5 billion yen ($399 million) from a favorable exchange rate for the year”. It’s truly amazing how much currency rates can do! This profit certainly isn’t something Nintendo should celebrate over, however. The favorable exchange rate won’t be there forever. They have to capitalize on it A.S.A.P.
And Nintendo plans on doing just that. According to another article, Nintendo’s President said “net income will rise to 55 billion yen ($553 million) in the 12 months ending March 31 from 7.1 billion yen a year earlier…” (http://www.businessweek.com/news/2013-04-24/nintendo-forecasts-profit-surge-as-new-games-drive-wii-u). He says that they will be so profitable for two reasons. The first is that the weak Yen will continue to make them a profit through currency exchange rates. The second reason, which I have discussed in previous blogs, is the fact that Nintendo has a lot of new games on the horizon that are projected to sell quite well and increase the sales of consoles along with the game sales. As I discussed previously, I feel that the consoles are not selling because die hard Nintendo fans are not getting the games that they grew up to know and love. Since Nintendo is projected to release tons of these new installments based on classic Nintendo games, if they are in fact released, Nintendo can certainly make a push for profit with the help of the currency exchange rate. On the topic of the current lack of quality games for Nintendo, I like that Iwata, the President admitted their flaws. “We seem to always end up with a lack of software in the beginning when we introduce a new platform,” Iwata said. “That’s a big regret.” I like his honesty, but how many systems are they going to release with a lack of good games. You’d think they would have learned by now that you shouldn’t be releasing new consoles if you don’t have games for them. This certainly isn’t the first time they’ve had a bad start to a console. With that being said, I feel confident that if they release the games that these die-hards are expecting, Nintendo can be quite profitable this year. If they released these games last fiscal year however they could have made a lot more money. They are coming out with these “good” games too late. They had the first mover advantage last year on the new generation console market, but now that the new Xbox and PlayStation systems are going to be released, those consoles will be taking sales away from the Wii U. Wii U can better compete with the competitors’ upcoming consoles with new games, but they should have started out stronger before the major competition made their push.
On the topic of new consoles for competitors, Microsoft announced that it plans to unveil the new Xbox console on May 21 in Redmond, Washington (http://www.businessweek.com/news/2013-04-24/microsoft-sends-invitations-for-may-21-xbox-event). More importantly, Microsoft announced that “It’s also adding features to the Xbox designed to help it withstand the shift to games downloaded to computers and mobile devices from packaged products”. They didn’t say what these features are, but the fact that Microsoft is realizing the changes in the game industry is good news for them. It also gives me a reason to harp on Nintendo. Nintendo is very set in their ways, not showing many signs of the adaptation to mobile devices. They’ve released a MiiVerse application onto phones, but that’s it. When the topic of phones comes up, Iwata seems to have very negative views on the topic. When presented with a new problem, it is best to complain for a second, and then realize you have to solve it and in this case, adapt to it. You can’t hold a grudge over mobile devices taking your sales away, be stubborn and not take action. Nintendo may have a good strategic reason for being so stubborn that I’m not aware of, though. They did have a reason for being so stubborn on the price of their Wii U consoles that for some reason, I had not thought of. I may have been too quick to judge.
On CNNmoney, there is a video (http://money.cnn.com/video/technology/2013/03/18/t-ts-nintendo-wii-u-teardown.cnnmoney) that takes the Wii U apart and breaks down the price of all of its components. In the end, it costs $228 to make a Wii U. They are selling it at $299, so $70 more than what it is costing them. They are taking losses on the console due to R&D expenses not factored into the production cost. If they sold the Wii U at a lower price, say $250, their profit on each console would be $20 and at the rate they are selling them it would take a long time for $20 profits to cover the huge hit they took in R&D costs. I now see why they don’t want to lower their price.
In my defense though, consoles are generally not what makes the gaming companies their money. Most companies take a hit on the consoles and make the expenses back along with a profit through software/game sales. I think we might see a cycle coming up in the near future here. If the “good” games that they plan on releasing this year increase profitability, Nintendo may have room to play with a price drop, increasing sales of consoles, further increasing game sales. The cycle should continue after that, if console price cuts are even necessary after the new games are released. This all goes back to the fact that they haven’t been releasing games that die-hards want to purchase. If they want to make this cycle a reality, they need two parts. One is the console, the other is the games. They only have the console right now, but once these games are released, Nintendo should be doing much better. Of course, as I said before, they should have thought of this earlier because the new PlayStation and Xbox will make it harder for Nintendo’s profits to reach their full potential.