Forums - Nintendo Discussion - Why Nintendo is losing money on each Wii U launch unit

Company is counting on strong software sales to turn a profit this year.

 

 

Nintendo is counting on a strong launch for the Wii U next month to help return the company to profitability this fiscal year, but the hardware itself isn't going to contribute anything to that bottom line. Nintendo has revealed that the Wii U will be sold below cost in order to attract more potential customers for what it hopes will be stronger-than-normal software launch sales.

"Rather than determining a price based on [the Wii U's] manufacturing cost, we selected one that consumers would consider to be reasonable," Nintendo President Satoru Iwata said in an investor conference call yesterday. Iwata didn't say how much of a loss the company would take on each system it sells, but he did indicate that the projected write-off from Wii U hardware is a big part of why "we cannot say that we will achieve 'Nintendo-like' profits within this fiscal year." Just yesterday, Nintendo slashed its profit forecast for the year by 70 percent, thanks in part to weaker than expected 3DS and Wii sales in the first half of the year.

Selling hardware at a loss is relatively common in the game industry: both the Xbox 360 and PlayStation 3 lost money when they were first put on the market, despite starting prices of $400 and $500, respectively. But Nintendo systems have recently been the exception to this rule: the low-powered Wii made a profit at its launch price of $250, and the 3DS was also profitable when it launched last year.

Of course, Nintendo stopped making a profit on the 3DS when it was forced to drastically cut the system's price just three months after launch to help slower-than-expected sales. The portable hardware has just recently returned to profitability, Nintendo said, thanks to lower component costs. Given that recent history, perhaps it's not surprising that Nintendo has decided to launch the Wii U at a below-cost price right out of the gate, rather than risking another embarrassing rapid price drop.

Expenses related to the Wii U's touchscreen-equipped GamePad seem to be a major contributor to the Wii U's overall manufacturing costs as well. While individual GamePads won't be available at launch in North America, they will be sold a la carte in Japan for ¥13,440 (about $172), or more than half the total price of a system and GamePad together.

Nintendo is optimistically projecting that it will sell an average of 4.4 games for each of the 5.5 million Wii U systems it expects to sell before the fiscal year is over in March. Those kinds of quick software sales will be important to make up for any accumulated hardware costs for the year, which the company has already written off as the system started production this fiscal quarter.

An attach rate of 4.4 out of the gate would be high but not out of the realm of possibility for the Wii U. Microsoft averaged 3.9 games per Xbox 360 just after the system launched in 2005, but the Wii only averaged 3 games per launch system, and the PS3 saw a paltry 1.5 games for each launch hardware unit sold. Everything is going to depend on how consumers react to the lineup of 50 launch window games Nintendo has revealed for the system, a list that is dominated by warmed over ports among a few promising original games.

Regardless of bottom line losses on hardware, it seems the price Nintendo has set for the Wii U isn't keeping away launch customers. Pre-orders for the system are sold out across major US retailers, leading to ridiculously inflated prices on auction sites. Nintendo says Gamestop already has a waiting list of 250,000 people asking to be notified about Wii U availability after its pre-order allocation is spoken for.

And Iwata is even optimistic that the original Wii will still be able to find new customers this holiday season after a recent $20 price cut to $130. "Since people will have time to enjoy family gatherings at the end of the year, we believe that Wii and Wii U will attract different consumer segments without cannibalizing each other," he told investors. That seems like a stretch to us—we find it hard to imagine the potential Wii customer who was just waiting for the system to break that mythical $140 barrier—but it might be Nintendo's best hope to actually juice its profits in what's shaping up to be a critical year for its financial future.

 

http://arstechnica.com/gaming/2012/10/why-nintendo-is-losing-money-on-each-wii-u-launch-unit/

How do you all feel about them losing money on yet another system? Can it be helped or did they make the right decision?



 Bananaking was right, I was wrong. Like he always is. About the 3DS not selling at least 19.999 million in 2013...

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I don't think this author realizes that the sales projections for hardware and software are retail figures, not consumer figures. Nintendo doesn't need to consumers to actually buy 4.4 units of software in that time period to hit their projections so long as there are that many units on store shelves, in transit, etc...

The rEVOLution is not being televised

"3DS drastically cut the system's price just three months after launch to help slower-than-expected sales. "

no, just no
get the facts before posting shitty articles...not you Ryan ;)

More than why I'm more interested in how much they are losing. I saw in another thread that the GC was sold at a $9 loss...I can't imagine the Wii U being sold with a loss higher than that, but times have changed. 



Nintendo and PC gamer

I doubt Nintendo will be losing a lot per console. Does it expand on the $349 model?

e=mc^2

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They did the right decision, I guess. But making such a pricy controller like the GamePad seems wrong. You know, they could've made it less complex and invested a little more on power and online structure.

We need moar Zelda, now!

We need moar Unchartedzz!

We need less DLCs.

Solid-Stark said:
I doubt Nintendo will be losing a lot per console. Does it expand on the $349 model?


I cannot believe that they are losing money with 349 dollars!  A console that is a bit bigger than the wii and a bit stronger. A game pad which cost 40 bucks to make probably, packaging, transportation, and a game.



 Bananaking was right, I was wrong. Like he always is. About the 3DS not selling at least 19.999 million in 2013...

Wow...just wow.

4.4 Attach Rate? There is no way in HELL this gets anywhere near that out of the gate.

I see a ton of people buying this on gimmick factor only. I saw one at Walmart yesterday and I have to say that it's neat but I can see a casual gamer getting confused about the controller. Weird comment I know but like someone said previously...I think they should have spent the money on beefing up the backend of the WiiU, not trying to hyper-invent the front end. I don't see the new controller making it easier to play games and it was pretty big. Felt like I was holding a brick in my hands(although not that heavy of course).

Sometimes there are times with technology where people go "ummm why?".



samuship said:
They did the right decision, I guess. But making such a pricy controller like the GamePad seems wrong. You know, they could've made it less complex and invested a little more on power and online structure.

I think they did the right thing. What could they have cut back on? Just about everything in the wii u pad makes sense and is needed. Maybe not the Sky Lancer like reader, but everything else. The system has enough power because I really doubt that the PS4 and 720 will be much more powerful than the U. There just isn't much reason to make them that powerful. 



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spurgeonryan said:
Solid-Stark said:
I doubt Nintendo will be losing a lot per console. Does it expand on the $349 model?


I cannot believe that they are losing money with 349 dollars!  A console that is a bit bigger than the wii and a bit stronger. A game pad which cost 40 bucks to make probably, packaging, transportation, and a game.

The Yen is the problem.   It's too strong.   The Japanese prices carried over to the USD should be $326 (basic) and $392 (premium).

Psyberius said:

Wow...just wow.

4.4 Attach Rate? There is no way in HELL this gets anywhere near that out of the gate.

Keep in mind that Nintendo sells hardware and software to retailers, distributers, etc....  Those projection figures refer to those sales, not consumer sales.  Consumers can buy far less but so long as retailers, distributers, etc...have ordered that many, they meet their target.



The rEVOLution is not being televised