Nintendo's hard path to third-party support in 2013
We'd like to see the Nintendo Wii U attract great third-party software support -- but Nintendo's shrinking share among third-party publishers' revenues is difficult to ignore.
We'd like to see the Nintendo Wii U attract great third-party software support -- but Nintendo's shrinking share among third-party publishers' revenues is difficult to ignore. Gamasutra analyst Matt Matthews takes an in-depth look. With Nintendo's Wii U finally on store shelves, the company has a brief window during 2013 when it can lay sole claim to the "next-generation console" moniker. In a few short weeks, both Sony and Microsoft will make announcements for their next iterations of video game hardware, but these systems likely won't be in consumer hands until October, at the earliest. For the majority of the year the Wii U should technically be the system to watch. Regrettably, during what should be a honeymoon period, Nintendo is beset by troubling stories on all fronts. I wrote in January that the number of titles scheduled for release through the beginning of March seemed low, even though the system did launch with a large number of titles in November. In the company's third fiscal quarter briefing a few days later, Nintendo president Satoru Iwata addressed this very aspect of their business, saying "because of some delays on the development side, we were unable to continuously supply [Wii U] software at the beginning of this calendar year." On the technical side, Nintendo has been cagey about the full Wii U specifications but the investigators at Eurogamers' Digital Foundry believe that new high-resolution shots of the hardware inside the system "finally rule out any next-gen pretensions for the Wii U." In other words, the Wii U could still be a step behind in terms of processing power when newer systems from Microsoft and Sony launch later this year (though that didn't hurt the Wii so much, at least for its first few years on the market).
While everyone has suffered in the UK market, it is clear that Nintendo has suffered more than either Sony or Microsoft in the past year. In absolute terms, each lost between 200,000 and 300,000 units from January 2011 to January 2012. However the Wii lost 350,000 units of software from January 2012 to January 2013 while the Xbox 360 and PS3 saw their sales decline by merely 50,000 and 28,000 respectively.
More troubling, the decline in Wii software is eight times larger than the increase due to the introduction of the Wii U. This isn't to say that the Wii U should pick up right where the Wii left off. Rather, the timing of the Wii U launch so late in the Wii's life has all but guaranteed a very rough generational transition. The company appears to have abandoned the Wii too soon and now the Wii U is stumbling out of the gate.
A similar story is playing out with the transition from the Nintendo DS to the 3DS. Not only have sales of the Nintendo DS dropped over 75 percent in the past two years, but the Nintendo 3DS itself didn't see its sales rise from January of last year to January of this year. Far from making up for lost NDS software sales, the 3DS is itself contracting, at least in this first month of the year.
Back in 2010, Nintendo accounted for around 20 percent of the revenue for these publishers. That fell to 17 percent in 2011 and then only 12 percent in 2012. This isn't just a case of Nintendo maintaining the same level of revenue as the pie got bigger, however. In each year, the amount of revenue that Nintendo's platforms are contributing is also getting smaller.
By contrast, every other segment is seeing growth: the Xbox 360 revenue is up 18 percent since 2010 while revenue on Sony's PlayStation platforms has gone up 16 percent. That other segment, which contains PC video game revenue, revenue on mobile platforms, and (in the case of Activision Blizzard) all those Skylanders toys, has more than doubled in value, up over 140 percent in just two years.
The reality is that for every $8 of revenue these four biggest third party publishers generated last year, only $1 came from Nintendo platforms. And when they look back at prior results, they see that Nintendo is one of the segments where they are seeing contraction rather than growth. Even if that $1 has a higher profit margin than the other $7, it will likely be the Nintendo project that gets cut when a big publisher is making the tough decisions.
Nintendo has a rough road ahead of them this year. Once Microsoft and Sony make their announcements, Nintendo will need to work very hard to control the message that gets repeated in the media. They need third party developers out there putting the Wii U right at the top of their big software projects. The Wii U's exclusive features will need to be touted loudly and often, like the ability to take a game off the TV and continue playing it on the Wii U controller's screen. And the network capabilities of the Wii U will have to continue to improve, since Sony and Microsoft will certainly attempt to provide a generational leap over what their current systems offer.
Later this week, the NPD Group will release its estimates for January 2013 retail video game sales in the U.S. Those figures will give us our first glimpse of how Americans feel about the Wii U and Nintendo 3DS after the holiday rush. Look closely at what Nintendo says and does after that.
Early in the Wii's lifetime they gave a full-throated defense of third-party sales on the Wii, and with good reason. At that time, a few third parties did find very solid sales on Nintendo's platform alongside the platform holder's own evergreen titles. A lot of that success had to do with the rise of the plastic music instrument genre and the innate understanding consumers had for the Wii's controls.
The Wii U doesn't have as many natural advantages, and Nintendo needs to beat the drum for the third party titles every chance it gets, and build strong relationships to last them through a full console cycle. Really, they should have started that years ago. But here we are, and if those third parties are looking at the same revenue figures we can see -- what must they be thinking?