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Nintendo is undoubtedly the most successful video games company in
the history of the industry achieving a consistent level of sales and solid profitability year-in and year-out (at around $4.5bn-$5bn and $300m-$700m respectively). As a result, it has built up a vast $7.3bn+ cash
reserve. The Company has created or had a hand in some of the most successful and best-known intellectual properties not just in the games market but the associated TV, film and toy markets.
Despite this,
Nintendo had been a declining force in the home console market for the last 16 years. Nintendo achieved a worldwide installed base of 62m NESs, 49m SNESs, 33m N64s and, as at the end of March 2007 around 21m
GameCubes with current sales at an immaterial level. Indeed it could be argued that what sales have been achieved have almost entirely been driven by sales of Nintendo-created software. For the previous three
generations the company had consistently failed to secure meaningful third party publisher support alienating publishers either by using high cost/risk media (e.g. N64's cartridge media) or by offering unattractive
third party licensing terms and conditions. In addition, its restricted support for third party developers and relative unwillingness to court third party publishers was in stark contrast to Sony and Microsoft and
certainly contributed to its console market collapse. A key tactical error whas also its failure to re-stablish a full publishing office in Europe (rather than just a sales and marketing department) which has
resulted in the marked underperformance of the territory relative to others.
With the launch of Nintendo's latest console, the Wii, in November 2006, Nintendo's fortunes have changed dramatically. Eschewing
the need to launch the most advanced console technology and compete directly with Microsoft and Sony, Nintendo instead focused on a combination of low hardware price, innovation (such as it movement-sensitive
controller) and its perennially high quality software to sell the Wii.
In doing so, Nintendo aimed to capture the children and casual gamer market, a market that has only briefly flirted with console gaming at both PlayStation and PlayStation 2's sales apex. It's has been a huge gamble for Nintendo but with both Sony and Microsoft focused on the hard-core gamer market with consoles two the price of its Wii, Nintendo has found itself almost entirely unopposed run at its target market. Sales have been brisk and publishers have been leaping on board, many admitting that they underestimated the potential of the Wii. Nintendo's key challenge will be to maintain this third party support: most publishers are not used to publishing for the casual market and any sign of hardware sales weakness may well see this support evaporate rapidly as it has for Nintendo's previous consoles. In addition, Wii's relatively restricted processing power will limit the porting potential for publishers creating multi-platform titles for Xbox 360 and PS3. However, we now expect the Wii to obliterate the sales of GameCube (and match those of the N64) and will successfully carve out a market for itself amongst casual and younger gamers.
Following the 10 year shelf-life of its original Game Boy handheld console, Nintendo has released six different handheld platforms over the last seven years (GBC, GBA, GBA SP, GB Micro, DS and DS
Lite). The most recent machines, the Nintendo DS/DS Lite, a dual-screen, touch-sensitive and wireless enabled handheld, launched in Japan and the USA in November 2004 and Europe in early 2005 and was clearly
designed to counter the threat posed by Sony's multi-functional PSP. The DS has proven hugely successful, with over 43m units shipped as at the end of the first quarter of 2007, driven by a strong software line up
and compelling price point versus its rival Sony's PSP. Whilst current support for the DS remains strong from third parties, Nintendo's continued complete dominance of the DS software market (aping the market share
profile of previous handheld markets) will increasingly undermine the platform's appeal to third parties. However, with hardware sales continuing at a prodigious level, this support does not look like waning any
time soon.
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