Nintendo's lagging 3DS sales present a 'chicken and egg' conundrum

While Nintendo is still firmly on top in its domestic Japanese retail video game market, it's having trouble cracking the overseas markets with its Nintendo 3DS. "Sales are largely behind our target overseas," admitted Satoru Iwata, Nintendo president, as part of the company's latest earnings briefing -- and he put this down to a lack of diversity in its software lineup. "In the overseas markets, Nintendo 3DS has not yet solved its chicken-and-egg problem as a platform," he noted. "To put it another way, we do not yet have a virtuous cycle where hardware sales and software sales drive one another. Because of this, our lineup lacks diversity, and as a result, Nintendo 3DS does not have as wide and diverse an appeal as Nintendo DS. As a consequence, software sales, which should ideally grow in proportion to hardware sales, did not grow as expected." Says Iwata, Nintendo is now looking at how to replicate its success in Japan everywhere else. "This problem did exist with Nintendo DS, which gained momentum in the order of Japan, Europe and the U.S.," he notes. "The U.S. and Europe certainly have much larger populations, so the market potential for us should be larger than the Japanese market. This year we will strive to bring out the market potential that we could not achieve last year."

Digital front

Part of this assault on overseas markets will no doubt focus on the Nintendo 3DS' digital offerings. Iwata explained that the number of 3DS units that have been connected to a network in Japan and the U.S. has now surpassed 80 percent, up from around 60 percent a year ago -- online levels the likes of which Nintendo has never seen before. In Japan, the release of Animal Crossing: New Leaf has seen somewhat of a breakthrough for Nintendo's digital sales. The game has sold more than 700,000 digital copies via the 3DS eShop, accounting for a quarter of all New Leaf sales -- "an unprecedented achievement," added Iwata. Again, U.S. and Europe is lagging behind Japan when it comes to digital sales. "In the overseas markets, there has been no packaged software title which marks such a high ratio of download sales," Iwata said. "The reason we made it in Japan is that, in addition to the unexpected shortage of supply and the nature of the game... we have diversified the sales methods of download versions including selling POSA (Point Of Sales Activation) cards." As a result, Nintendo plans to step up its digital game in 2013 in all regions. "This year we will try to diversify the sales methods to raise the ratio of download sales overseas with the aim of increasing our business opportunities and profitability," he added.