Put a fork in the Wii U, it is done. [Sensible discussion only, no flaming]

[Akvod]

Final-Fan said:

Akvod said:

Final-Fan said:

HAHAHA wow
If you ignore profits from first party software it's a lot easier to argue that Nintendo is not doing well...

I don't think you understood my post.

Point 1) I said "You mainly make money off of CONSOLES". You need to seperate out the revenue streams from the console and the software. Why?

Point 2) Pachter's point is that since Nintendo isn't gaining profit from the console business (due to low margins and lack of 3'rd party support), the software business is propping up a dead business. Pachter's arguing that Nintendo could make more money, by not selling Nintendo software on only one platform, but on three (and more with the next gens).

Is Pachter's argument completely full proof? No. You could take a very, very long horizon and say that Nintendo should stay in because they could do a better job with their next console. I would personally play the devil's advocate by saying that Nintendo's family friendly image and segment is valuable, and gives something Sony and Microsoft lack (although that could change with Microsoft ramping up Kinect).

But anyways, you didn't really understand the post and you didn't address Pachter's points.

1) Do you agree or disagree that the profits from the CONSOLES are high or low?

2) Do you believe that Nintendo's software business benefits more from only being exclusive to Nintendo's hardware (or by the hardware platform existing), or do you believe that Nintendo could make more money with its software business by selling on more platforms?

3) How long is your horizon, and how much future benefit do you think Nintendo will have by continuing it's current strategy now?

Fair enough, I didn't watch the video and thought the argument that Nintendo is doing bad, not that "Nintendo is doing fine but could do better by abandoning the console hardware market". 

1.  I don't know the data on how profitable Nintendo is on their consoles.  However, I do have a couple things to say on that subject.  Firstly, I had to stop the video when Pachter said that the WiiU is barely making a profit now per console, as opposed to "$100+" for the Wii at launch.  I think that is a hilarious criticism, not only because I find it hard to believe the Wii was that profitable at launch (though again I have no data) but because the fact that it is profitable at all is a much better situation than the two competitors' consoles were last gen, and I'd be very surprised if they did better than Nintendo is now with their upcoming consoles, and not at all surprised if they did worse (with respect to profit/loss per unit).  Secondly, I would point out that Nintendo also makes money on controllers and other peripherals which they would not, or to greatly lesser extent, were they to cease manufacturing consoles. 

Well, Pachter is the stock analyst that has 4 degrees (went to business school), and analyzes stocks and businesses for a living. So given that you have no data to say otherwise, I'm going to give Pachter the benefit of the doubt.

As for the other competitors selling at a loss, that's because their business model is more weighted towards royalty payments from 3'rd party developers, in contrast to Nintendo, who has been alienating 3'rd party developers.

Very, very good point with the peripherals. Although, I don't really see as much potential for peripherals with the WiiU, in contrast to the Wii.

2.  I think Nintendo benefits strategically from being in the position of dictating their own hardware abilities, like motion sensing on the Wii, or dual screens or a touchscreen on the DS, which would be basically impossible for a software developer to do.  The most they could possibly hope to achieve in that case would be via peripherals like the Wii Balance Board that Wii Fit uses, which was successful but nothing like the same scale.  They probably wouldn't be able to require players to get one for all their games and there would also probably be hardware limitations on the console end of what functionality would even be possible in a peripheral. 

I think you're putting too much weight on the hardware abilities. If you're arguing from a creative freedom perspective, that's a bit more compelling, but I don't see that really translating much in terms of business/sales. I'm not really sure if Mario or Zelda games are known for, or that people buy games from these two series due to "innovative" controls. And again, let's just assume sales will go down and/or the quality of the games will go down due to less freedom over hardware.

Will those be so large as to offset the expansion in customer base by selling on another platform?

Antoher aspect is that Nintendo obviously doesn't have to pay royalties to other companies while putting software on its own console, which they would have to do if they "pulled a Sega".  So I think that Nintendo may derive tangible advantage, and definitely derives intangible advantage, by maintaining itself as a console maker. 

Again, you need to look at it from a cost benefit perspective. Do you honestly believe that the royalties are so large that it'll offset the expansion in customer base?

The counterargument would be that being a console maker means they are effectively prevented from releasing major multiplatform games, because doing so would undermine their own console's software advantage (losing exclusives), and that this restriction loses them SO much market opportunity that it overwhelms any advantage they obtain by the ability to define their own hardware, get royalites, etc.  But I would argue that as the generation goes on, the amount of flagship Nintendo games becomes so great on the Nintendo console that a lot of the audience for their games might pick up the Nintendo console anyway.  But I may here be greatly overestimating the amount of multiplatform ownership.  Even if that reason isn't borne up by the evidence, I still think the benefits for Nintendo outweigh the drawbacks. 

The point is that there's no point in propping up the console with exclusives though. The console itself isn't making a large profit, and Nintendo's third party support doesn't seem strong. In addition to that, even if they did get developer support, will they get consumer support (again, Activision (?) executive saying that Nintendo fans are all talk).

3.  As I described in point 2, I think Nintendo draws great strategic benefit from being able to dictate the hardware on which they make games in order to be able to follow its vision on what kind of games it wants to be able to make (which depends to an extent on the hardware it is able to use to play those games on), which is an advantage it can obviously only maintain by continuing to make their own consoles. 

Nintendo's NES had the D-pad, which was univerally accepted; Nintendo's SNES included shoulder pads which were univerally accepted; Nintendo's N64 pioneered analog sticks and "rumble", both of which Sony quickly copied, etc.  You can argue that the advantage gained was fleeting because the competition was able to copy these developments, but the fact remains that if Nintendo hadn't done it first it might just not have been done, which would limit the games Nintendo could make.  At the risk of repeating myself, by remaining in a position to dictate hardware Nintendo will retain the ability to innovate in its games by innovating in player interaction. 

And again, you need to analyze things seperately.

Your claim is that: Dictating hardware->Better quality of software.

Before I go on, let me point out that this is a pretty big claim in and of itself. I'm not sure a majority of people will argue that the Wii controls were the main drivers of the quality of Mario or Zelda games (some people may say they hurt some of those games).

Now, what are the implications of your claim on the hardware and software business of Nintendo?

1) Hardware - Irrelevant. The point is that even if Nintendo's first party games are high quality, there's no point in having those games attract buyers, because of the lower profit of the consoles, and low revenue from royalties. Your best possible argument is alternative sources of revenue such as peripherals, or maybe whatever revenue Nintendo can get by having the WiiU become a living room "media center".

2) Software - Irrelvant. Unless you show that the decrease in the quality of games will result in such a decrease of sales for Nintendo that it'll result in a net decrease in sales, after Nintendo gains access to the other 2 consoles. You'll also have to show that the royalties are so onerous, that it'll lower the total profit below what Nintendo would have gotten by selling on one console, as opposed to 2 or 3.

Again, I like Pachter's argument due to it's simple logic. You have a much more uphill battle to climb, and need to do some number  crunching to prove your point IMO.