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.
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.