Should Nintendo produce a digital-only Wii U?

[fleischr]

Dusk said:

fleischr said:

I say yes.

One of the shortcomings of the Wii U is that it doesn't have DVD and Blu-ray playback. I'm not sure about CD playback, but who would care if it did? The disc drive on the Wii U really doesn't do much beyond play Wii U and Wii games (more on that in just a sec). But there's more to it than that, it ultimately adds to the manufacturing cost and means lost revenues because of costs of distribution for the games being sold (returns, cost of goods sold etc.).

I believe it's possible for Nintendo to offer a digital-only WiiU with a bundled game at $200 (or even less) that would fare far better in the marketplace  than the current WiiU SKUs. The advantages of digital-only would allow them to price the console and games more aggressively, while maintaining the same bottom line for each console and game sold.

Q: What would retailers think? Wouldn't they be mad they can no longer take a cut of the game sales because of digital distribution?

A: I don't think they'd really care. If they have a product that has more consistent inventory turns than the current Wii U and its slate of games, they'd actually be happier with a digital-only Wii U. You could always still sell download codes for the most popular Wii U games (Mario, Zelda) or package them in for games like Skylanders.

Q: Wouldn't that ultimately mean less shelf space made available for the Wii U? Isn't that bad?

A: It would likely mean less shelf space, but I think retailers could re-allocate some of that space to where it counts the most: offering a playable Wii U in store. It's far more meaningful for people to get hands on with a game like Mario Kart 8 then to have a copy of Splinter Cell Blacklist U staring the customer in the face.

Q: Wouldn't this possibly hurt third party sales? I mean if they don't see that the game is available, they won't buy it.

A: Few people buy Wii U third party games. That's a fact that isn't likely to change. For the few 3rd party sales made for the Wii U anyway, they'd also be better off with digital distribution as the primary sales channel because they too could earn higher revenues with digital only. If the retailer desires a physical retail presence (like say Ubisoft with Just Dance), they can retail download codes directly. But for now, 3rd parties and retailers look at physical WiiU games as liabilities -- inventory that won't sell unless a fire sale is started - that's not advantageous financially. However, since download codes aren't necessarily inventoried, it makes the financial statements look more favorable while providing the same choices to consumers.

Q: Wouldn't people miss the disc drive? The backwards compatibility? Owning a physical copy?

A: The only folks who'd care about backwards compatibility are those who don't own a Wii. The Wii's back catalog also arguably competes unfairly with new games coming into the system. For roughly a similar price, why would I buy Batman Arkham Origins on Wii U (a fairly average game) when I could pick up a used copy of Metroid Prime Trilogy for the Wii? Nintendo not only doesn't collect a royalty for a new game sale, but they in turn receive nothing for a resale of one of their popular games. A digital only console (as well as a bigger eShop selection that might include the Metroid Prime Trilogy) could solve that problem. If people want physical copies so badly, they can buy a WiiU with a disc drive and use it. And if they want to play a Wii game that wouldn't ever be availabe on eShop, they can buy a Wii.  That simple.

 

What are your thoughts?

Ummmm.... Not sure how you are getting to a 200 price point with a game. A disc drive is not a large espense for a system. For instance, you can go buy a blu-ray player at Costco or Walmart for 50 bucks. That is with their manufacturing, software and now there are even wireless NIC's built into these as well. All that and they make a profit off these. It would probably only save $25 off the price that would be more than eaten up by a large HD. They have designed their OS to run off a SSD, so it wouldn't be very simple to just toss in a traditional HD, but either way $25 bucks isn't going to go very far with an HD no matter how you look at it. 

The CNN cost breakdown amounts to $228 for the parts, yet there's still a loss on the console at launch. It's not just the retail markup -- it's other manufacturing costs.

When you simplify the manufacturing process there's the 'bullwhip' affect. The product requires less warehouse space and labor to manufacture, it costs less to package and ship. The savings from all these other costs allow you to cut the price by about $50.

In the 'Anatomy of a Retail Game' - $4 goes to cost of goods sold and $7 is allocated for returns. Those same costs are incurred regardless of the price point for a retail disc. Those costs practically vanish with digital.

Since the retailer doesn't actually have inventory with digital download codes, they can be more open about cutting their % royalty from about 25% probably to just under 20%. In financial accounting, lower inventory is associated with generally better financial standing. 

So to Nintendo and it's publishers, there's roughly almost $15 in new revenue per full retail game that you can either forgo to offer more competitive pricing or to make up the loss originally incurred by the hardware sale.