| Analyst: Favorable Economics Should Drive Publishers to Wii Many publishers have already increased their focus on Nintendo's Wii and Lazard Capital Markets analyst Colin Sebastian only sees this continuing. The economics of publishing for Wii are just too appealing, he says. More within... |
| Lazard Capital Markets analyst Colin Sebastian has issued a new report on the publishing economics for Nintendo's Wii. Ultimately, he believes that the lower cost and broader audience on the Nintendo console should "encourage additional Wii support."
"Approaching the E3 industry conference next week, there appears to be lingering investor anxiety related to the impact on third-party publishers from a stronger Nintendo. However, our analysis of title economics suggests publishers should be able to tolerate lower retail pricing and attach rates on the Wii vs. PS3 and Xbox 360 without sacrificing title profitability," he said.
Why is Wii so attractive? According to Sebastian, the answer's simply in the economics: "Based on the typical front-line retail price for Wii titles, we estimate that publishers need to sell approximately 300,000 units per title to break even. Specifically, using $49 front-line software pricing, the wholesale price is about 80% off retail, or $39. Third-party software publishers pay royalties and disk and packaging costs of approximately $9, with license and distribution fees costing another $7 to $9, leaving a contribution profit of $22 to $23. Assuming development and marketing expenses of about $7.5 million, we reach the estimated break-even unit total. We believe this is a conservative assumption, given that the mix of Wii titles may be more balanced towards owned-IP (i.e., reduced or no-license royalties). In contrast, we estimate that breakeven units for front-line Xbox 360 and PS3 titles are in the 600,000-unit range, or at least double the Wii's break even level."
One of the criticisms of Nintendo platforms has typically been that first-party always dominates and Nintendo doesn't allow third-party to adequately compete with their own offerings. Sebastian sees a different scenario on the Wii, however.
"We believe investors should not be surprised that Nintendo titles are dominating bestseller lists early in the cycle, given the popularity of first-party franchises among Nintendophiles," he said. "But Nintendo does not want to predestine Wii to the lackluster market share achieved by the GameCube in the last console generation, and we believe the company has aggressively pursued third-party support and is offering new tools (such as the recently announced WiiWare) to expand content offerings. We believe that as the cycle progresses, it is possible for a more balanced blend between top first-party and third-party titles to emerge."
By the end of Nintendo's fiscal year in March 2008, Sebastian believes that the Wii will have an installed base of nearly 20 million worldwide. He also thinks that tie ratios on the platform will continue to improve and Nintendo will offer more in the way of DS-Wii connectivity. |
Article source: http://biz.gamedaily.com/industry/feature/?id=16727
Interesting stuff I think.
People are difficult to govern because they have too much knowledge.
When there are more laws, there are more criminals.
- Lao Tzu
