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Forums - Nintendo Discussion - Nintendo Fiscal Year In Review + Future

ZhugeEX on 30 April 2016

Hello all, 

I just completed my report on Nintendo's FY2015. It goes in depth in regards to how each segment of the business performed and what we can expect from that segment in the future. It also talks a bit about how 2017 is a make or break year for Nintendo and how Nintendo need to grow non traditional revenues. It's a bit long, 6000 words to be exact, and therefore I'll only post a short extract here. I fully recommend reading the full article and hope that we can discuss this topic in depth. Whether you agree with what what I've said? Whether you have anything to comment on regarding Nintendo's financials? etc... I've packed the article with some charts and graphs as well. 

 

FULL ARTICLE: https://zhugeex.com/2016/04/nintendo-fy-2015-report-in-transition/

 

EXTRACT:

Those of you who follow me on Twitter know that when it comes to Nintendo I always talk about two different revenue streams. There is Traditional revenue and New revenue.

In my model, Traditional revenue streams include Dedicated Home Console/Portable Hardware and Software as well as their Playing Cards segment. The New revenue streams I want to talk about today include:

  • Smart Devices
  • amiibo & Other Accessories
  • Download Contents
  • Content/Merchandise Licensing

So why do I now split Nintendo into two? It’s fairly simple. Nintendo, as of a few years ago generated more than 90% of its revenue from traditional revenue streams which are rooted in the traditional games console market. Now that’s great for Nintendo when they’re doing well in the console market, like they did with Wii and DS, but it’s a huge issue when they’re not doing well in the console market. Nintendo’s total revenue has declined each year for the past 8 years and Operating Income/Profit hasn’t fared well either with three years of losses for the company just recently. The reason is simple, Nintendo are not doing well in the traditional console market with both their home console and handheld device and this means that they have no new revenue stream to fall back on should traditional revenue dry up. Many use the argument that Nintendo have declined down to where they were during the Gamecube days but it’s important to remember that back then the Video Games Market was only worth $20 billion and Consoles were the biggest part. In 2016 the Games market will be worth $100 billion yet Nintendo are now generating lower revenue and income than they were during the Gamecube era. They are also in third place in the console market and nowhere to be seen on the larger than console, PC & Mobile markets.

Now I do want to make it clear that Nintendo aren’t on the verge of bankruptcy or anything, they have plenty of money and assets available and they’ve generated a small profit these last two years. They are now just much smaller than they were during the Wii era and are declining every year. The NX is Nintendo’s next attempt at being successful in the console video games market and it could succeed, but at the same time we’ve seen what has happened with the Wii U and so we have to assume this may happen again. Assuming the NX does fail then this leaves Nintendo with no other revenue streams and ultimately means they won’t be bringing in any money at all and that’s not something that Nintendo want to see happen. This is why Nintendo have recently changed their minds about Mobile, why they’ve introduced amiibo’s, why they are now focusing more on games as a service through download contents and why they are creating licensing deals and opening up theme parks with partners. It’s all about Nintendo being able to use their well known IP to generate revenue outside the traditional console space so that they have something to fall back on should the NX end up being another Wii U.

The issue is that they’ve left it a tad too late when it comes to generating revenue from these new revenue streams and right now these are very small, but growing, segments of Nintendo. What that means is that this really is Nintendo’s last chance to pitch a successful console. If the NX fails like the Wii U did then it’s very likely that we may not see anymore Nintendo consoles in the future and I’m hoping that this never happens because we need Nintendo in this industry. So let’s talk about these new revenue streams and what they represent.

 



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Frogger on 30 April 2016

With all due respect, isn't there a thing about self promoting here?



jason1637 on 30 April 2016

Interesting. Thanks for posting this. The last part about the NX failing means that it could be Nintendos the last console is very scary. Hopefully, it can succeed. But how many units do you think the NX would need to sell for Nintendo to continue in the console business if it has like ps4 power?



ZhugeEX on 30 April 2016
spemanig said:
With all due respect, isn't there a thing about self promoting here?

No Idea. 

I've posted plenty of things like this before and It's been fine in the past. Always to get discussion going. 

If it is against the rules then the thread can be locked. Sorry!



Teeqoz on 30 April 2016
spemanig said:
With all due respect, isn't there a thing about self promoting here?

http://network.vgchartz.com/terms-of-use.php

http://gamrconnect.vgchartz.com/forum-rules.php#content

I skimmed super quickly through those (+ some help from ctrl+f) and couldn't find anything that specifically limited you from posting articles you wrote yourself, or posting links to content you have produced yourself. As long as he doesn't break any other rules (such as, for instance, having an OP that consists of a link to another site and nothing/little else, which isn't allowed regardless of who wrote what you're linking to). Besides, even if the rules did state that you weren't allowed to share content you wrote on your own site, I think the mods would have enough sense to see through their fingers here.



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ZhugeEX on 30 April 2016
jason1637 said:
Interesting. Thanks for posting this. The last part about the NX failing means that it could be Nintendos the last console is very scary. Hopefully, it can succeed. But how many units do you think the NX would need to sell for Nintendo to continue in the console business if it has like ps4 power?

Yup, it certainly would look that way if the NX does worse than the Wii U for example. 

Nintendo are kind of stuck between a rock and a hard place to be honest as they've proven that a console with Nintendo IP as the main USP can't sell and that even with third party support there is already the PlayStation 4 and Xbox One on the market that are selling in healthy numbers with many people already having purchased the console for third party titles. Not to mention that many now already have their network service games and settings tied up in Xbox Live or PSN. 

Nintendo are always able to surprise though, so no one should be saying the NX will fail or that they can't do anything at this point. If any company is able to bring something unique to the table then it's Nintendo. It's certainly going to be interesting to see how the NX reveal goes and how the launch goes as well. They certainly need the NX to succeed for the long term future of Nintendo. 



Frogger on 30 April 2016

I was mistaken! Carry on!



ZhugeEX on 30 April 2016
RolStoppable said:
ZhugeEX said:

Yup, it certainly would look that way if the NX does worse than the Wii U for example. 

Nintendo are kind of stuck between a rock and a hard place to be honest as they've proven that a console with Nintendo IP as the main USP can't sell and that even with third party support there is already the PlayStation 4 and Xbox One on the market that are selling in healthy numbers with many people already having purchased the console for third party titles. Not to mention that many now already have their network service games and settings tied up in Xbox Live or PSN. 

Nintendo are always able to surprise though, so no one should be saying the NX will fail or that they can't do anything at this point. If any company is able to bring something unique to the table then it's Nintendo. It's certainly going to be interesting to see how the NX reveal goes and how the launch goes as well. They certainly need the NX to succeed for the long term future of Nintendo. 

First off, your article was a fair writeup for the most part and I read it in its entirety. In the home console hardware section you've the NX pegged for a March 2016 launch, you might want to correct that.

However, I am not satisfied with the handheld sections. For one, you have that comparison between 3DS software and Clash of Clans to highlight how big mobile games are. Okay, so there's this one huge mobile success, but it's obviously far from the norm that a mobile title accounts for roughly 5% of all revenue ($1.4 billion out of $30 billion). This is one of your fun-fact-of-the-day stuff. Secondly, and this is much more important than the previous point, there's no mention about Nintendo's future as far as handhelds go. You are treating NX as a home console, but Nintendo has obviously spoken about a more unified development approach in previous investors briefing, so somewhere there has to be a handheld component in the whole NX affair. Especially because the 3DS is the bestselling dedicated hardware in Japan by a comfortable margin, so the mere thought that there won't be another Nintendo handheld is preposterous.

Now for the quote above, I don't think it's fair to say that Nintendo has proven that a console with Nintendo IP as the main USP can't sell, because the Wii did just that. And before you say motion controls, you have to remember that a video game system is nothing without games. Therefore Nintendo IPs were the main draw. It's also the same situation with handhelds which were always dominated by the sales of Nintendo software and have consistently cleared the 50m mark in hardware sales. Nintendo IPs are very much a reason to buy Nintendo hardware. What the Wii U is proving is merely that Nintendo IPs can't sell just about everything.

I agree with you that a triplet joining the current twins will result in failure, but the situation overall isn't as hopeless for Nintendo as you make it seem. It shouldn't be forgotten that both the 3DS and Wii U were handicapped by hardware decisions for their entire lifetimes, so merely the absence of things that put people off should already improve Nintendo's chances to be more successful with NX. (The 3DS has the inevitable connotation with 3D, and that's something a lot of people would rather not have in their entertainment. The Gamepad is a controller that nobody asked for and virtually nobody likes to play with, but it's the central part of Wii U. Changing the image of a system is a very hard thing to do.)

If NX's unique concept resonates with the market, if the hardware is affordable and Nintendo's software release schedule is steady, then it should actually be quite easy for Nintendo to be successful, especially because the idea of synergies between the dedicated gaming hardware and the smartphones businesses will benefit even more. But even if NX fails, it should have high sales of Nintendo software anyway. And if Nintendo doesn't commit hardware mistakes that force them to sell NX at a loss, then the failure won't be as bad as it was for the Wii U and 3DS when we are talking about Nintendo's bottom line. In that case Nintendo will obviously be financially stable enough to launch another round of dedicated gaming hardware. Basically, I strongly doubt that an NX failure would mean game over for Nintendo consoles.

 

Thanks for the post Rol. I've corrected the date to March 2017, good spot!

The Clash of Clans comparison, as you say, is just a small fact. It's not really there to say that Nintendo could earn that much from one game but instead to point out how huge mobile gaming is today. I could very much do the same by providing total revenue numbers for dedicated handheld and mobile gaming and the gap would be even bigger. I wouldn't read too much into that to be honest. 

Yes, no denying that Nintendo will take a more unified development approach with their next generation of systems. Creating one software ecosystem in order to streamline development etc... I think a new handheld would still do well in Japan but the market for a dedicated handheld outside of Japan is very niche these days and whilst Nintendo could of course launch one here, I wouldn't expect it to do as well as the 3DS has done outside Japan. 

The Wii was a unique case as the games were created specifically to take advantage of the system features. For example the GameCube and Nintendo 64 too had great first party line ups but there wasn't anything else that was unique about the consoles to push sales above their competitors, even when they had the price advantage. I agree that Nintendo IP do sell hardware but that on its own won't be enough this time in order for Nintendo to see success. 

I see your points on 3DS and Wii and don't disagree there at all. But that doesn't disagree with my point either. I'm not saying that the situation is hopeless for Nintendo, I'm saying it's a difficult situation for them where having another Wii U would not work in their favour one bit. 

The good thing as you say is that Nintendo are clearly working hard on ensuring the launch has enough software (they've said as much) and that the hardware's USP's are relevant to the market today. As to how easy it is for Nintendo to be successful, it's hard to say because so far they haven't shown anything that can make me say they'll do well or that they'll do bad. My point was more along the lines that if they do badly then they've now got the Wii U and 3DS discontinued and a poor selling console (NX) unable to generate growth or high revenues etc... That, coupled with the fact that new revenue streams haven't taken off just yet could just mean that Nintendo don't look to launch another console.

 

In regards to smartphone business I can see how that may drive new users to console but I wouldn't expect it to have a huge impact to be honest. 



Kai_Mao on 30 April 2016

I think this is a fair assessment. It's not all doom and gloom, but there needs to be a sense of urgency within Nintendo in order to get back on their feet. I am intrigued on how the theme parks, anime/tv shows/films, merchandise, amiibo, mobile will affect Nintendo's bottom line and how people perceive their IPs. Their main goal for these outlets are to expose their IPs to greater audiences so this will be interesting to watch. As for NX, I'm not sure where it will go (sense we know jack about it) but I think they would have to really do bad to sell less than Wii U. Hopefully with all these rumors going around being close to true, it would help intrigue developers to develop games for NX. We'll just have to see from here on out.



ZhugeEX on 01 May 2016
RolStoppable said:
ZhugeEX said:

Thanks for the post Rol. I've corrected the date to March 2017, good spot!

The Clash of Clans comparison, as you say, is just a small fact. It's not really there to say that Nintendo could earn that much from one game but instead to point out how huge mobile gaming is today. I could very much do the same by providing total revenue numbers for dedicated handheld and mobile gaming and the gap would be even bigger. I wouldn't read too much into that to be honest. 

Yes, no denying that Nintendo will take a more unified development approach with their next generation of systems. Creating one software ecosystem in order to streamline development etc... I think a new handheld would still do well in Japan but the market for a dedicated handheld outside of Japan is very niche these days and whilst Nintendo could of course launch one here, I wouldn't expect it to do as well as the 3DS has done outside Japan. 

The Wii was a unique case as the games were created specifically to take advantage of the system features. For example the GameCube and Nintendo 64 too had great first party line ups but there wasn't anything else that was unique about the consoles to push sales above their competitors, even when they had the price advantage. I agree that Nintendo IP do sell hardware but that on its own won't be enough this time in order for Nintendo to see success. 

I see your points on 3DS and Wii and don't disagree there at all. But that doesn't disagree with my point either. I'm not saying that the situation is hopeless for Nintendo, I'm saying it's a difficult situation for them where having another Wii U would not work in their favour one bit. 

The good thing as you say is that Nintendo are clearly working hard on ensuring the launch has enough software (they've said as much) and that the hardware's USP's are relevant to the market today. As to how easy it is for Nintendo to be successful, it's hard to say because so far they haven't shown anything that can make me say they'll do well or that they'll do bad. My point was more along the lines that if they do badly then they've now got the Wii U and 3DS discontinued and a poor selling console (NX) unable to generate growth or high revenues etc... That, coupled with the fact that new revenue streams haven't taken off just yet could just mean that Nintendo don't look to launch another console.

In regards to smartphone business I can see how that may drive new users to console but I wouldn't expect it to have a huge impact to be honest. 

Let's talk a bit more about a possible NX failure, more specifically how bad it could be. Sony isn't doing great in Japan, so an NX home console and handheld should still be able to sell 15m+ units combined over a span of five years, unless the market for dedicated gaming seriously collapses in the near future. America is leading when it comes to multiconsole-ownership, so another 15m+ units aren't too farfetched (split between home console and handheld sales will obviously be different than in Japan). Europe and Others can add 10m+, so we'll get a total of 40m, about half as much as the Wii and 3DS sold.

That is a rather low installed base, but it's going to have access to a high density of Nintendo software, assuming that Nintendo gets the job done to have most of their games available on both devices. This steadier flow of software should lead to a higher retention rate of customers who actively use their NX. Regular DLC packs for online multiplayer games should also help to maintain a high number of active users which in turn will buy new software.

The above doesn't sound that terrible (by that I mean the chances that Nintendo might not make another console). If Nintendo can avoid to sell hardware at a loss, all the better. At an installed base of 30m it's already feasible to have multiple games that sell 10m+ copies. Well, the point here is that the installed base itself wouldn't pose a problem that has a significant impact on potential software sales, as opposed to the Wii U which forces a low ceiling on Nintendo IPs that could otherwise be much more popular.

Literally everything would have to go wrong for Nintendo to make NX their last dedicated video game hardware. I think it's more likely that NX sells 150m+ units.

 

Well we still don't know if NX is two devices (or more) and when they are coming out. It could be that they release multiple form factors together or it could be that we don't get another handheld/home console to 2018 etc...

So to say that its more than likely that the NX can sell 150 million is a bit of a jump. 

Note that my original article was providing a "What if NX did worse than Wii U" example, not a "What if NX did better than Wii U example". Therefore any doom and gloom talk in that article was referring to the former situation. 

If the NX does indeed to better than the Wii U then there is nothing saying that Nintendo will be in trouble and that gives them the opportunity to stablise their console business whilst growing out new segments in order to grow revenue and profits to "Nintendo like levels"