Nintendo released their financial results for the first quarter of the current fiscal year and some of the numbers in there, mostly regarding sales, don’t look good. I think media overlooked some of the key points, so I’ll briefly try to point them out for you. Last, but not least, I will show the three key must-have and must-do moves that Nintendo has to perform if they want to get back on their feet.
You’ve all heard by now about the lousy Wii U numbers for these three months (April 1 – June 30 2013). Nintendo managed to sell only 160 000 units for the period. To date, they’ve sold 3.61 mil. units, with 3 mil. at launch or close to it anyway. Wii U indeed looks to be in a really bad shape now, but the truth is that it doesn’t have to be. Let’s dig a little deeper and see what we can find.
Looking at their financial data (page 5 of their financial highlights document) there are a few very interesting numbers we can see. First of all, their operating loss is half of what used to be last year. Despite the expenses increase, they’ve managed to cut the cost of sales by 25%, while keeping their sales revenues to roughly the same level. If you don’t believe that’s a good thing, please stop reading, as we’re clearly not on the same page.
Then, a friend of mine noted that Nintendo’s net income for this quarter is largely due to their foreign exchange gains. Thanks man! While I agree this is a welcomed bonus, I don’t agree this is the main reason for their performance. Foreign exchange gains come and go. Last year they had a huge foreign exchange loss, so that’s not something you can plan on, at least not for the long-term. If you just ignore these fluctuations, you can clearly see that Nintendo’s operational performance has improved, as they’ve managed to keep the same level of sales with a smaller cost. What this means is that there’s a healthy base to build on and that Wii U, if successful, will have a very positive impact on their financials. That’s not something they should worry about. For the moment, they’re doing fine, but what about the second part of the year.
If you take a look at the second document, you’ll see a very detailed line-up for 2013 and some of the titles planned for next year. Pikmin 3 is already available in Japan and Europe, while some other ten titles are nicely distributed over the second half of the year. This is important because Pikmin 3 already took second spot in the UK sales chart and it has been available for just a few days now. What this tells me is that people want to play and they are waiting for the Wii U titles to be launched. You don’t enter the chart second in line if nobody knows about you or if nobody wants to play your game. It means there’s lots of demand for Nintendo software products and that customers haven’t lost faith yet. Nintendo has to deliver a clear message with their software products calendar using a very direct approach and I think they’ve done a fine job by now.
Unfortunately, communicating a release schedule is never enough and this is the first must-have and must-do move. You have to respect the schedule, to keep your word and launch those games. Wii U needs games and more games. They’ll ALL hopefully arrive this year. Software sells hardware in this business, so if there’s no software to sell, you can have tons of hardware and no one is going to buy it.
Those titles would better be here by December but still, releasing them is not enough. This is the second must-have and must-do move that Nintendo has to perform. They have to promote their products, both software and hardware. They’ve said many times that it’s no use to invest in promotional campaigns during summer and I get that. I totally do, but hey, it’s August already and September’s after that. They’ve got to be ready by early September and kick off one hell of a campaign.
There’s also Tokyo Game Show later on, which Nintendo will probably not attend, but it doesn’t mean they shouldn’t have anything to tell their customers. In those financial highlights, there’s one particularly small sentence that I really, really love. It’s on page 3, at the end of their consolidated financial forecast. No one noticed it and it’s something like “we also strive to improve hardware profitability by reducing its costs”. If this doesn’t smell “price cut” to you, I don’t know what doesn’t. So, picture this! Microsoft and Sony are both attending Tokyo Game Show and it’s their last big showcase before the launch of both consoles. Nintendo doesn’t usually attend TGS, but their CEO can show up during another live stream and just say “299.99 USD”. That’s exactly 100 USD less than the PS4 and 200 USD less than the Xbox One and should provide a clear choice to any kind of consumer out there. On top of that, if pre-orders for the new consoles stop at any given moment in the near future, Nintendo could be in the very fortunate position of being the only console supplier with a NEW hardware product on the shelf THIS HOLIDAY. Do you know what this means for the holiday shopping spree or even for Black Friday? It means insane sales and a huge boost in revenues, as the Wii U will be the only choice out there to customers looking for a new system.
So that’s why I think Nintendo can score big this year if they play their cards right. It’s not an easy ride, but it can very well be a very profitable one. As for the next quarter, I sincerely hope that all those August and September titles will shake things up a bit and by the time their financial results are out (end of October probably), Nintendo’s campaign will be in full force and all this is going to be just a forgotten nightmare by then.