Nintendo Reveals that Wii U Will be Sold at a Loss
I didn’t expect this, but now that it’s been reported, I’m not too surprised: according to Nintendo president Satoru Iwata, each Wii U console will be sold at a loss.
Here’s what he said in the company’s latest financial report:
“”The Wii U hardware will have a negative impact on Nintendo’s profits early after the launch because rather than determining a price based on its manufacturing cost, we selected one that consumers would consider to be reasonable. In this first half of the term before the launch of the Wii U, we were not able to make a profit on software for the system while we had to book a loss on the hardware, which is currently in production and will be sold below cost. […]
We will make best efforts to retrieve ‘Nintendo-like’ profits by: boosting sales of the Nintendo 3DS system as a sound successor to Nintendo DS both in Japan and overseas during the year-end sales season, launching the Wii U system successfully in each part of the world in the year-end and maintaining the sales momentum next year, and, transforming our business structure in line with the times, including the expansion of our digital business to increase our business efficiency and profitability.”
Most new consoles that come out these days are sold at a loss, with video game companies making up the difference in game sales. It’s a tried and true strategy that’s worked out well enough for Sony and Microsoft for the last couple generations—but these are also companies that have lots of revenue coming in from other divisions to help offset the costs of doing so.
Nintendo, on the other hand, has been able to sell most of their consoles above the cost of manufacture, meaning they can make profit on each unit sold. This, I believe, is what got them into trouble with the initial launch of the 3DS, since it cost more than anyone was willing to pay. When they cut the price, they did so at a pretty big financial hit. It helped them create the install base they’d always needed, meaning that software sales finally took off. But the consequence, of course, was a financial loss for 2011—a hole they’re trying to dig themselves out of now.
The Wii U and its touchscreen GamePad controller seemed like it might cost a decent amount of money to make. And the $300 price tag isn’t terribly high, either, meaning Nintendo wants that install base more than they want the short term cash they would get from a higher priced system. This strategy is part of what’s led to the lower expectations for the company’s profits this year, which was reported yesterday. But the important factor here is that Nintendo does plan on making a profit, something Sony hasn’t been able to claim for a while.
And with Wii U pre-orders having pretty much sold out, chances look pretty good that Nintendo will make a good chunk of change on games this holiday season. But will they make enough for longterm sustainability, and to erase the memory of last year’s loss?