Interview: Michael Pachter On Wii U, 3DS And The Challenges Facing Nintendo This Generation
Michael Pachter has been called a lot of things — not all of them repeatable on a family-friendly site such as this — but many of his harshest critics seem to miss the point of what he is actually saying; his job is to ensure that people invest their cash wisely and not to placate over-zealous fans. Nevertheless, his comments generate heat, stir debate and garner an incredible amount of interest — not all of it positive, it has to be said.
Given that his standing among Nintendo fans probably isn't all that great right now, we thought it was high time that Pachter was allowed to put across his own point of view. With that in mind, he graciously agreed to sit down for an interview. What follows is pure Pachter; it's honest and sometimes brutal reading for Nintendo lovers, but the man speaks an awful lot of sense and has an uncanny appreciation for the industry we all love.
Stow away your pitchforks and douse those flaming torches — it's time for a Pach Attack.
Nintendo Life: Firstly, let’s clear up a major misunderstanding - you don’t actually hate Nintendo, do you?
Michael Pachter: No, I don’t hate Nintendo at all. I think that they have missed several opportunities on the hardware side, waited too long to provide multiplayer options and generally have alienated third party publishers across the board. Each of those missteps is likely to cost them in the next console generation.
NL: Your predictions have generated a lot of heat online, but Nintendo fans tend to forget that you’re just doing your job: protecting investors from ploughing their money into a company which won’t give them a return. Do you ever get frustrated when people misconstrue your advice as a personal attack on individual companies?
MP: Nothing frustrates me. You accurately described my job; I don’t think Nintendo is a good investment, as I don’t see the company returning to its past success with its current products in a more competitive environment. Investors tend to behave rationally, so they accept my comments as rational and thoughtful. People who have an affinity for brands — or a political party, or a religion, or an alma mater — tend to be less rational and more emotional. It’s part of the job.
NL: You’ve had a lot to say about the Wii U lately. What specific challenges do you feel it faces during its lifespan in order to achieve success?
MP: I don’t think that the Wii U can succeed without a lot of third party software support, and don’t see third parties supporting it until it grows its installed base. Those things are correlated: a small installed base means less third party support, and the installed base can’t grow without third party support. If Nintendo can somehow convince third parties to develop exclusives and to develop cross platform games for Wii U, it has a chance. However, with games like Battlefield and GTA coming out without Wii U versions, it doesn’t appear that the third party support will be forthcoming any time this year.
NL: According to recent figures, the Nintendo Wii has sold 99.38 million units in its lifetime. Even the most stubborn of Nintendo fans will admit that the Wii U is unlikely to hit that total, but what are your predictions for the system? Can it achieve a healthy install base?
MP: The Wii U is closer to the GameCube (23 million) than to the Wii (99 million). At its current price point, I think it will sell as well as the GameCube. If Nintendo cuts price to $199, it will probably sell better than the GameCube. If they cut price to a point below $199, it should sell much better than the GameCube. All of this is dependent upon Microsoft and Sony pricing their new consoles above the Wii U price; if they price below, I think the Wii U is in trouble of underperforming even the GameCube.
NL: What impact will the PlayStation 4 and the next Xbox will have on Wii U sales?
MP: PS4 and next Xbox will impact the Wii U if competitively priced, and will impact it less if not competitively priced. Let’s wait and see what the price points will be.
NL: You’ve previously expressed the opinion that the next generation could fall short of people’s expectations from a graphical perspective. Does that not play into Nintendo’s hands?
MP: Yes, if graphics are a driver of console adoption, Wii U will have a chance. I actually think that software is the driver, and although Nintendo has better first party capability, it is likely going to fall far behind in third party support. Ultimately, that is going to hurt them more than competitive graphics will help them.
NL: With devices such as Ouya and GameStick attempting to marry android gaming to the living room TV, do you think they pose a genuine mainstream threat to Nintendo, Sony and Microsoft?
MP: I don’t think Ouya and GameStick are a threat to console gaming, any more than YouTube is a threat to TV viewing. They may have an impact on legacy console sales, but that is minor.
NL: It seems that everyone favourable to Nintendo - from fans to Satoru Iwata himself - are urging patience to let Wii U grow. Where do you draw the line? When can a console be considered a commercial failure?
MP: Patience is fine, and I’m sure Wii U sales will pick up when more software is released. I’d say we measure the success of the console after its third holiday. Sales as of the end of 2014 are probably a pretty good indicator of whether the console will succeed or fail.
NL: Software support has been an issue for the Wii U; why do you think Nintendo has struggled to secure key titles when the original Wii enjoyed such robust support at a similar point in its lifespan?
MP: First party software development is fully within Nintendo’s control. It seems to me that their internal studios started too late to support a holiday 2012 launch — they should have started in 2008 or 2009 — and that is solely the responsibility of the CEO to assure. I think third party support is a function of both the company’s relationship with third parties and whether Nintendo is prepared to help fund development. There is pretty good support from Japanese third parties, and relatively little support from others — with the exception of Ubisoft. I think that speaks to Nintendo’s relationship with each of those companies.
NL: From a purely gaming perspective, what are your thoughts on the Wii U itself, and the software you’ve seen so far?
MP: Nintendo first party games are really fun. I don’t particularly “get” the GamePad controller, and it seems like the lower half of the DS to me. I’m not a huge player of DS titles, so the controls are largely lost on me. I don’t understand games like ZombiU, for example, as I think they would be more fun with conventional controls. I understand the features of games like Call of Duty — which really does use two screens — but I think that we’re unlikely to see much support from third parties going forward. As a console, I don’t really think that the Wii U is anything special.
NL: Given that the 3DS had a poor start, did its recovery impress or surprise you?
MP: Yes, the 3DS is fine, and I was surprised at how strongly it is selling. However, the comparison to the DS is disingenuous, as the DS saw its sales virtually double when the Lite version was released, and I don’t see a doubling of 3DS sales happening ever. It will sell 15 million a year, and will make money, but I don’t see it selling 30 million a year, ever.
NL: How do you feel the rise of smartphone gaming has affected the portable side of Nintendo’s business?
MP: Tablet and smartphone games cut into the more casual end of Nintendo’s addressable handheld market, and definitely so at the older end of the demographic range. My guess is that 70% of DS sales were to people between 6 to 17 years old and the balance to older people. At least half of handheld players favour more casual games, and as those people buy smartphones and tablets, they are getting their gaming fix for free and are setting aside the handheld. Smartphones and tablets — especially the [Amazon] Kindle — are beginning to penetrate the younger demographic, people between 12 to 17, and I think that Nintendo’s addressable handheld market will continue to erode. I don’t think it will drop to fewer than 15 million hardware units per year, but that’s half of the former market.
NL: Another transition being made is the shift from physical to digital retail; how do you feel Nintendo is dealing with this tricky move?
MP: Nintendo is doing well with the eShop, and has executed quite well, although a bit late.
NL: Gaming is available in lots of different flavours these days - full-price retail, free-to-play, downloads for less than a dollar...what can all of these price points exist in tandem? Or do they represent different “tiers” for different quality experiences?
MP: Different gaming experiences are healthy for the industry, particularly at different price points that begin with free. More people are exposed to gaming, making it more likely that a greater amount can be charged for high quality experiences.
NL: It seems that everybody loves to play backseat analyst and so ideas of what Nintendo should and shouldn’t be doing fly wild online. Considering business analysis is your job, what are some steps that you feel Nintendo should be taking to secure their long-term success? Basically, what would you be saying to the head guys at Kyoto right now?
MP: Nintendo blew it by ignoring online multiplayer until 2012. That’s why I thought we would see a Wii HD in 2009 or 2010, because it was time for them to get serious about competing with Sony and Microsoft. I’m not sure that they can recover and think that they may have blown it on the console side forever. I think that they should consider exiting the console business — but keep the handheld side — unless they have a clear plan for success. “Be patient” is not a clear plan for success.
NL: Regarding the games industry in general, it’s become clear that western games are gaining more significance on a global scale when compared to Japanese games. Does this create an issue for Nintendo as a Japanese company which relies greatly on its domestic internal development studios, or is Nintendo somewhat exempt thanks to the evergreen nature of its key franchises? How long can Nintendo rely on Mario and Zelda before gamers get bored?
MP: Nintendo is more immune to shifts in culture than most Japanese developers. They really seem to understand the type of content that will resonate on a global scale, and I think their success with software demonstrates that.
NL: You’re a pretty busy guy. How much time are you able to spend actually playing games?
MP: I play around an hour a day, and three or four hours each day on weekends.
NL: Your responsibility in your day job, as we understand it, is to highlight if Nintendo is likely to make significant profits. Stepping away from that and considering the company’s stated goals and cash reserves, do expect them to stay in both the home and handheld console industries for years to come?
MP: As long as Satoru Iwata is president, I expect Nintendo to continue to do exactly what it is doing.
NL: Can Nintendo become an attractive target for investors again?
MP: As long as Nintendo continues to do what it is doing, I don’t expect the stock to be attractive to investors.
Thanks to Michael for taking the time to speak with us.