Nintendo Following Sony's Business Model, Hopefully Not Fate - The UpStream

Nintendo Following Sony's Business Model, Hopefully Not Fate

posted Friday Oct 26, 2012 by Scott Ertz

Nintendo Following Sony's Business Model, Hopefully Not Fate

When Nintendo first introduced the WiiU at E3 2011, one of the things that seemed to surprise a lot of people was that the console would only support one new controller. While many industry insiders were surprised at the fact, I was surprised by their surprise. For me, it seemed obvious that only one controller would be allowed, since the addition of support for a second controller would mean increased hardware cost, probably pushing the console outside of the $300 sweet spot.

This year at E3 2012 we were treated to an update - two controllers per console. I knew what this meant - increased costs and, therefore, increased price. But then it hit - prices. $249 for the basic and $349 for the deluxe package could only mean one of two things: they found an efficiency to lower costs or they were going to sell the console at a loss in the hopes to get them out there. But Nintendo had just posted their first ever quarterly loss - only Sony has ever taken a loss on hardware after a massive loss. There was no way Nintendo would go the same way after seeing what has happened to Sony, right?

Wrong. Announced during this quarter's financial call, Nintendo will be taking a loss on sales of the WiiU in hopes of higher software sales. While it may seem crazy to follow in the failing footsteps of Sony, Nintendo does have a couple of things going for it. Nintendo has a unique, diverse and loyal group of customers. They also have a higher than average profit margin on software titles, considering so many titles are developed in-house, so there is no external costs. Add to that the availability of titles for digital download, meaning no packaging or production costs, also means higher profits, something Sony didn't really have going at the PS3's launch.

There is also a great collection of games available, as diverse as their customer base, including a large selection of titles for hardcore gamers, something lacking from the original Wii's launch. Will all of this translate into profitability for Nintendo upon the launch of the WiiU? Honestly, I have no idea, only time can tell on this one. As a Nintendo fan myself, with a collection including almost every console the company has ever sold, I certainly hope so, but we all wanted the DreamCast to succeed and it never stood a chance. At the end of the day, if Nintendo is going to take a loss on the console, they need to focus on software titles and not on the hardware itself, except to sell games. If they can position the console as the best way to play the best games, and encourage digital downloads to cut GameStop out of the equation, then they can make this happen.

Are you going to pick up a WiiU at launch, wait a little while for more titles to be added or pass on this generation of Nintendo console? Let us know in the comments.

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