| ICStats said: How do you know their costs are evenly met? When they say hardware is not selling at a loss, it means they are making a "gross profit" on each console. However that doesn't say anything about wether it covers the R&D cost of the hardware, supporting software, marketing, devrel, etc. For example if they make $10 profit on each Wii U then that's a gross profit. But if they have say $200 million of associated R&D costs, the hardware is not profitable until they sold 20 Million units at $10 profit each. Ofcourse we don't know exactly what is Wii U's R&D cost, marketing costs, etc. As for software, there is a development cost, marketing cost, and a profit for each game. Selling to more userbase would give them more profit. Sure they would need to follow certain Sony/MS requirements, but they would have creative control over their games. I'd like to see a real argument why their game quality would suffer. As for cost, the cost of development tools for a platform is not high compared to the sales potential. For example for $10 million you can build a team of ~100 developers with tools, and have them port all of Nintendo's major games. It would be a drop in the bucket for Nintendo's $1.5 Billion yearly budget. Nintendo makes million selling games, so porting cost is not even a consideration. |
Firstly, Nintendo has consistently made more revenue from hardware than software, even in 2013.
http://abload.de/img/hard_soft_revj3ptw.png
That in addition to the knowledge that Nintendo has always made a profit up until very recently (low Wii, Wii U and 3ds sales; high software, hardware and investment R&D), allows us to conclude that software sales have never made up for hardware costs, including hardware R&D.
Now you might say, well it is handheld sales then, that make up for it. But that isn't entirely tru e either.
http://abload.de/img/nin_hard_rev9rqxd.png
Notice how the GC, while still netting less revenue than the GBA, was still pretty close. It wasn't until the DS was released and the GC became irrelevant that there was a huge dfference in revenue. Then the WIi made up for it. And it again, wasn't until the 3DS was released and the Wii beame irrelevent until there was another difference in total revenue. So it is a myth that Nintendo handhelds carry Nintendo's home consoles. They are pretty comparable in terms of revenue for Nintendo. This is despite the handhelds selling much more (albeit a t a lower price.)
That leaves one last argument in the favor of home console hardware revenue not recouping R&D, as opposed with my alternative. The R&D costs of a home console vastly exceed that of a handheld and that of software development. Firstly, we need to address the largest part of R&D - infrastructure. A huge portion of Nintendo's R&D budget is put into buildings. They spent $200 million on some of their newer buildings alone. Then you have software R&D, which is another huge portion of their R&D costs. At their peak spending, right before the WIi U in 2011-2012, Nintendo spent about $650 mil that year on R&D. If we say, a third of that budget was on Wii U hardware. That is about 200 mil spent on the Wii U in one year. Let's assume that is the average and not the peak. Then the WIi U cost about 600 mil to produce its hardware if we assume Nintendo started the brunt of its production three years before its release. That seems reasonable because much of its architecture was taken from the Wii/GC and much of the R&D costs were probably relevant to the tablet controller.
Anyway, if we consider the 60 million in losses from selling 5.86 Wii U's at a "small loss" which probably translates to $10 / console. Then that would mean Nintendo would have to make an average profit of about $40 / console and sell 20 million Wii U's total to meet R&D costs of $600 mil, if we disregard inflation and exchange rates. Now, remember the WIi U was Nintendo's most expensive and also its least profitable console. We are assuming that Nintendo's next console will take after the Wii U and not some of their other more successful consoles.
