The Financial Factor of Nintendo’s Current Position

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Very little news of the Wii U as of late has been good news, but some of the news has gotten especially dark with people — again, suggesting that Nintendo’s status as a console manufacturer is in trouble. I think most of these people have forgotten one very important factor in this whole ordeal:

Money.

Or more specifically, Nintendo’s actual financial position right now and going forward. It’s easy to make comparisons between Nintendo’s position right now and Sega’s position during the Dreamcast years for instance, but there are also extremely important differences, many of them financial.

Stories like Crytek’s revelation of why Crysis 3 on Wii U never came to fruition despite the game having run on the hardware — a mysteriously sour relationship between EA and Nintendo, reek of a problem with Nintendo’s ability to gain third party support.  Minecraft developer Mojang even recently stated that while they want a PlayStation version of the game, a Wii U edition is “very unlikely.” Most major right now is probably how the Wii U version of Rayman Legends — the system’s first major 2013 exclusive, was pushed back to September alongside newly-announced PS3 and Xbox 360 versions. All of this, especially the part about EA, makes it easy to look at Nintendo as being in a Dreamcast situation.

A Forbes contributor (and likely others) has already drawn the comparison in a short article. The EA comparison comes from EA’s refusal to support the Dreamcast back then, which many see as symbolic of lack of third party support and the platform’s ultimate demise. The main reason Nintendo right now isn’t Sega back then however is because Nintendo isn’t bleeding cash.

This isn’t some deep article I’m typing up right now so I’m not gonna research the actual numbers, but it’s pretty well-known in the gaming community that the Dreamcast was Sega’s last console because Sega was in a horrible financial position at the time. After the Saturn’s failure (which was more miserable than any Nintendo console), Sega just wasn’t on good footing, and when the Dreamcast couldn’t turn things around they had to step out of the console game or probably go bankrupt. Now they’re bundled together with Sammy — a Pachinko company.

Nintendo is nowhere near that bad a state financially. Again, I don’t have the numbers, but it was estimated a while ago that Nintendo still possesses a cash war chest somewhere just over 11 figures. For starters this is because despite the Wii’s lack of third party support, the platform still made enormous amounts of money for Nintendo (the DS likely did as well). Even during the Nintendo 64 and Gamecube years, Nintendo’s hardware still turned a profit for the company.

Nintendo’s choice to eschew the loss-leader strategy that Sony and Microsoft adopt in favor of hardware that turns a profit from day one allows them to keep going on like this. They also have to do it this way because unlike Sony and Microsoft, they don’t have an appliance or operating system business with which to subsidize gaming. Working like this, even if the Wii U turned out to be a “failure,” I think Nintendo could afford to limp through at least another console generation after the upcoming one.

“Doing a Sega” and strictly turning to software development would no doubt yield Nintendo far less revenue than they get now. That hardware revenue is likely part of what let’s Nintendo make games they way they do anyway. Knowing that their entire business doesn’t rely solely on software sales like it does for EA or Ubisoft probably affords Nintendo some room to polish games as much as they do and make truly unique games from time to time. Turning into a third party software developer wouldn’t make sense unless Nintendo’s hardware business completely fell apart and they no longer had the money to support it. Nintendo’s hardware business is years away from that kind of disaster.

The loss Nintendo posted for the last annual period was their first in 30 years, and a small one at that. That paints a stark contrast to Sony’s incredible losses during the PS3 years (which wiped out ALL of the profits from the PS1 and PS2 businesses). I’ll admit, if it turns out Nintendo is still losing money a year or two form now, then I’d start getting worried. Right now though, the Wii U has just entered its fourth month on the market, far too soon for them to turn things around.

BULLETS:

  • Assassin’s Creed IV just got announced and Dan Bull already has a rap out. http://flip.it/DDSFE
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One thought on “The Financial Factor of Nintendo’s Current Position

  1. volvocrusher says:

    Good blog. I’ve been thinking this as well, the Wii and DS just made too much money for Nintendo to go the way of Sega and even if the Wii U does make them take a hit, I think the 3DS will do well enough to carry them. Even though the reasons you said are good ones for them to stay in the market, I just like that I can buy a Nintendo system still.

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