Wii Hardware To Be Profitable At Launch

Next Generation reports on comments by Nintendo's Reggie Fils-Aime, stating that the Wii will be profitable out of the gate. It's been well-publicized that the consoles offered by Sony and Microsoft are subsidized by those companies. From the article: "Nintendo, however, has traditionally avoided the 'razor and blades' business model by selling its consoles above what they cost to make. Fils-Aime confirmed to Reuters that the Wii would carry on the tradition. 'We will make a profit on the entire Wii proposition out of the box -- hardware and software,' he said. 'That really is a very different philosophy versus our competitors. We are a company that competes only in the interactive entertainment space so we have to make a profit on every thing we do.'" The comment is undoubtedly meant to assuage analysts nervous about the relatively late release date and somewhat higher than expected price for the Wii.

Comments

nintendo is a game company

[192939495969798999]

Sony and microsoft are not game companies. They both make money from other things. Nintendo is a game company. They make money (i.e. NEED to make money) from the game system and games. OF COURSE they will sell them at a profit!

Re:nintendo is a game company

[antifoidulus]

Actually Nintendo, which started out(and still is) a card manufacturer did branch out into a lot of other industries, but nowadays aside from a large stake in the Seatlle Mariners and owning a big chunk of Gyration Inc(where they got most of the wii controller technology from) Nintendo really doesn't own much else outside of the realm of games.
At one point, yes they did own a taxi service and "love hotels"(which are not brothels, they are basically hotels rented by the hour with the express purpose of having consenting adults do things in them which one would rent a hotel by the hour for)

Re:nintendo is a game company

[squiggleslash]

This is really a misunderstanding of the issue here.

All three companies intend their console businesses to be profitable overall. While Sony and Microsoft clearly want to wipe each other out, none actually wants the businesses to make a loss at the end of the day.

Game console businesses have two sources of revenue (well, three now, with the recent addition of online services) - the major two being the console itself, and the game sales.

The expenses are the costs of making the consoles (including the costs of the console's development), and the costs of reproducing the games media together with the royalties that get paid to the developers to cover their costs and profits.

What Microsoft and Sony are doing is lumping the whole lot together. The problem for them is that the consoles cost considerably more to build than anyone would be prepared to pay. So they're selling them for a price that doesn't recover costs, and hoping revenues from game sales (and online services) will counter the losses they're making on that. This is called the razor blade model, as it reflects a supposed business model used by Gillette where the prices of razor blades were designed to offset subsidies given to razor blade holders.

Despite a prevailing wisdom that this is common in the games console industry, for the most part it's a recent development. Sega did it for one console, and failed miserably. Microsoft did this for the XBox, but there's no evidence that Sony or Nintendo did the same thing for the PS2 or Gamecube.

What Nintendo just said is that that's not the model they're using. The Wii is low cost because it's low cost, not because it's subsidized. While the exact hardware specs of the Wii are still unconfirmed, it is known that many developers received overclocked Gamecubes as development platforms early in the Wii's history. The graphics are designed to look good on standard definition TV sets (480 lines of resolution, or thereabouts.)

Nintendo plans to make a (small) profit on each Wii, and on the games. As such, each sell is guaranteed positive revenue. If it has to make more consoles and finds it sells fewer games than expected, they're not going to go into the red because of that.

Despite barely making a dent in sales last time around, Nintendo ended up being the most healthy in the games console business of all three players. Nintendo can follow this strategy for decades, be in "third place" every time, and, as long as they're realistic, they'll stay alive and healthy even if Sony and Microsoft, following the opposite strategy, end up close to death's door.

Re:Late? High??

[Maul]

Let's look at that "$200 Launch" thing. To keep the $200 price point, Nintendo has continually had to give us less with the system.

80s: The NES is $200 at launch. It comes with 2 controllers, 2 games, a light gun, and a crazy robot accessory.
Early 90s: The SNES is $200 at launch. It comes with 2 controllers and a game.
Late 90s: The N64 is $200 at launch. It comes with 1 controller.
2001: The GameCube is $200 at launch. It comes with 1 controller.

Re:In the realm of Video games, Nintendo INVENTED

[Churla]

I think you're confusing the concept of "razor and blades" marketing to "Intellectual Property" controlled marketing.

"Razor and Blades" is the concept that you sell the base unit (i.e. console or razor) at a loss becuase you sell the consumable (games or blades) as enough or a markup to make the money back and then some. Because once they buy a razor from you they have to come back and buy blades every week. In the long run that can be more profitable by giving the razor away.

"Intellectual property control" marketing is the process of licensing others to produce goods which work with your platform. This is what Nintendo did with the chips in the nintendo cartridges. Sony and MC both do this to developers of games for their respective platforms. In effect this is like patenting your razor, then charging the blade companies royalties to make blades for your razor.

Re:Late? High??

[Anonymous Coward]

Two annotations for you:

ROB was only in the NES deluxe set, which I believe cost more than $200 and was discontinued shortly thereafter.

Also, an often forgotten piece of trivia: Nintendo 64 was launched in Sept. 1996 at $200, but the price was announced to be $250 at the prior E3 (or spring TGS, I forget exactly) and was dropped only about a month prior to the console's release due to price changes from Sony and Sega.

Re:What happened to "Play together"?

[alvinrod]

But look at some of the games that are included in Wii Sports (bowling, baseball, and golf) which really don't need multiple controllers to be fully enjoyed by multiple people. Unless the baseball part of the game allows one person to pitch (I don't think I've seen this reflected in any of the commercials showing it off) and the other to swing, players would just take turns by passing the controller around. The same thing could be said of bowling and golf, where it's not necessary (or perhaps even possible in game) for multiple people to take their turns at the same time. To further this point, my friends and I used to play the golf mini-game from Monkey Ball. Even though we had four controllers plugged in, we still head to wait to take turns, so we really could have gotten by with only one controller.

Tennis (and perhaps boxxing if it supports two players) would require multiple controllers to enjoy fully in a group, but considering that this is at most 40% of the game, I'm not entirely sold on your comment. Perhaps Nintendo packaged Wii sports in such a way that users could get a taste of the games where only a single controller was necessary and have an enjoyable enough experience so that they would want to buy a few extra controllers to play tennis.

I think the fact that Nintendo even bothered to pack Wii Sports in with the console suggests that they are making a serious effort to appeal to other types of gamers. Wii Sports seems simple enough that just about anyone could enjoy it. It doesn't try to look graphically powerful or realistic, which might seem univiting to some people. If a mom who buys this console for her kid thinks Wii Sports is interesting and gives it a try she might start to use the console for other features (such as the news or weather channels on the system) or maybe buy that old Mario game that she used to play way back in the day.

I think Nintendo is trying more than ever to promote a console that can be enjoyed by everyone, at least on some level.

Re:Not really surprised

[rjung2k]

"Yeah... $60 for the full second controller hurts. Probably still won't stop me from getting one since it is necessary to play the Boxing game in Wii-Sports."

Nah. The videos of Wii Sports Boxing show that you can play it with one wiimote and a nunchuk. You can also play it two players simultaneously and beat up your buds virtually. ;-)

--R.J.

A Minor Correction

[A Brand of Fire]

Just a minor correction on your assumptions so far:

• I have to buy a wireless adapter -- No; 802.11b/g wireless ethernet is standard out-of-the-box for the Wii. A USB ethernet adapter is sold separately.
• You don't get Opera for free -- Yes, you do; Opera for the Wii is free to download until June 2007. Download cost after June has not yet been released to the public (to my knowledge).

You really ought to read rather than skim over the information released yesterday, or at the very least look it up on Wikipedia.

$249.99 for the Wii, one remote, one nunchaku attachment, a Wii Sports game, and Opera -- all ready to go out-of-the-box. Yeah, a Wii-mote costs $39.95, but one has to consider the technology going into that thing. Given what's in the box for the price, it actually isn't too bad a deal. Just a DualShock2 controller for the PS2 was $29.95 for several years, and it was just buttons, two analogue sticks and rumble.