January 21

Nintendo’s Wii losing games race

The market has shifted to cheap downloaded games usable on smartphones and tablets.

By Cliff Edwards
Bloomberg News

SAN FRANCISCO — Nintendo is under pressure to consider ending production of video-game machines after reporting disappointing sales of its Wii U console and forecasting a surprise loss, prompting its stock to tumble.

click image to enlarge

A man looks at software for Nintendo’s Wii U consoles at a store in Tokyo. But cheap downloaded games for smart devices have devastated the market for Wii components.

Reuters

Nintendo, based in Kyoto, Japan, fell 15 percent to 12,445 yen, the biggest intraday plunge since 2011, in Tokyo trading Monday. The company on Jan. 17 projected an operating loss for the year ending in March and cut its forecast for annual sales of the year-old Wii U by more than two-thirds.

President Satoru Iwata should concede defeat with the Wii U, shut down production and open up Nintendo’s iconic software characters such as Zelda and Super Mario to the smartphones, tablets and consoles that have made a shambles of his strategy, said Michael Pachter, an analyst with Wedbush Securities in Los Angeles. Nintendo should exit hardware altogether, Pachter said.

Iwata “has to take responsibility for the Wii U missing the mark,” Pachter said. “He will be under pressure to make dramatic changes. If he can do so while remaining in charge, more power to him, but they need to make some changes.”

Iwata, 54, says he’s not going to step down and plans to see the company through its unspecified transition. To date, he has refused to offer Nintendo franchises for competing console systems or mobile devices. He said on Jan. 17 he’s considering changing the business model, without offering specifics.

“Given the expansion of smart devices, we are naturally studying how smart devices can be used to grow the game-player business,” Iwata said at an Osaka press conference. “It’s not as simple as enabling Mario to move on a smartphone.”

Tying Nintendo’s iconic characters to its hardware helped boost demand for the original Wii, which sold more than 100 million units and became the world’s best-selling console.

This time delays in its own titles hurt the Wii U’s sales. The console’s failure in the marketplace is dragging down its higher-margin software sales. The company, which had projected a $959 million operating profit for the fiscal year, now forecasts an operating loss of more than $30 million.

Nintendo on Jan. 17 lowered its annual sales forecast to 2.8 million Wii U units from 9 million, and halved its projection for game sales for the system to 19 million units. The company cut its forecast for the 3DS handheld player by 25 percent to 13.5 million units, a drop from a year earlier.

The casual gamers who made Nintendo the leader of a $93 billion industry have abandoned standalone systems like Nintendo’s 3DS and the Wii U for cheap downloads they can play on an Android phone or an Apple Inc. iPad. New, faster consoles from Sony Corp. and Microsoft Corp. ran away with the hardcore players still willing to plunk down $400 or more for a machine and $60 for a title like “Call of Duty.”

Even at $300, Wii U is doomed because it’s not popular enough for outside developers to make games for, said Ben Bajarin, an analyst with consulting firm Creative Strategies Inc.

“They need to go back to the drawing board to reinvent themselves,” Bajarin said in an interview.

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