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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.
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!
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the video game analogue of "razor blades": the Atari 2600 was not originally designed so that anyone could write software for it. However, other people did(something for which Atari received no royalties for) and eventually the glut of titles(some pushed out by Atari itself) helped to doom the system in the 83 crash.
Fast forward 2 years and Nintendo comes along with their new machine but a different outlook: Nintendo will approve or dissaprove each game released for their system. To enforce it, Nintendo patented a special type of chip that had to be put in each video game before it would play on the NES, and was able to collect royalties on every game sold.
Monstar L
Nintendo continues it's strategy of not being dumb. Of course they want to sell the console for a profit. The 360 and PS3 count on every sale leading to X number of games before they start turning a profit, whereas Nintendo counts on every sale turning a profit and every game turning more profit. Selling consoles at a loss is a risky business. Yes, it gets your console out there, but you then need to sell a good number of titles. Selling consoles at cost is the smartest way to do business, because you don't assume a damned thing and you make money on any games people buy. But yeah, being slightly above that doesn't hurt at launch. Nintendo does one thing and does it well: Video games. It's not that they are in dire straights right now, it's that they know this market very well. They made the Gamecube profitable. They know this industry. Selling consoles for profit is brave in that it can hurt your ability to get up your market share. But losing money on every single console so you can sell more consoles and lose more money doesn't make a lot of sense, does it?
IANA*
This is something new. Imagine a company making money by selling a product they manufacture. Bizarre. Wonder if this radical concept will ever catch on. It is truly shocking.
Well it always helps when you don't have to stick a $400+ BluRay drive in each unit.
The comment is undoubtedly meant to assuage analysts nervous about the relatively late release date and somewhat higher than expected price for the Wii.
People have predicted for months that it would be $250. Only recently did the media put their fingers in and try to 'predict' it would be $225 or even $200. The only reason they even considered those crazy prices was:
1) Every Nintendo console so far has been $200 at launch. Obviously, they couldn't keep that up forever, especially since this system is quite a bit more complex than the previous ones.
2) Exchange rates. Any fool knows that exchange rates only set the price range of a product, not the exact price. The fact that it was $225US when converted on that date didn't mean anything except that it wasn't likely to be $200 here. Nobody in their right mind uses an odd number like $225 when pricing here, at least at launch.
As for the late date... Are we still predicting the PS3 will actually be out before that? I'm still predicting shortages and mayhem for the ps3 launch... It's still a tossup on the Wii launch. I'm hoping they have enough that I get one, but who knows? If there aren't enough ps3's, Mommy and Daddy are gonna buy Wii's for Johnny instead, so he'll have a Christmas present to open.
And maybe that's Nintendo's logic... Capitalize on the failure of Sony. If they launch before Sony, they aren't quite as 'new'. If they launch soon after, amid Sony's sellout chaos, they can pick up extra launch sales and make the figures look better.
I could just see the media spin: Nintendo fails to sell out, slow start for Wii.
But if they wait until after: Sony sells out, loses sales to Nintendo's Wii Launch.
"If you make people think they're thinking, they'll love you; But if you really make them think, they'll hate you." - DM
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. :)
Wii + second remote + Zelda = $360 for unit and two games
PS3 = $600 with one controller and 0 games.
Math still works out for me.
You know, you bring up a good point I don't think a lot of people fully appreciate:
- and this should mean that the full-price games will be a lot cheaper, too, since Nintendo doesn't need to claw back money lost on the hardware.
Since Sony/MS are trying to claw that money back, it means that perfectly legal things that hurt their software license revenue will probably be targeted by them with lawyers who should know better. Imagine that because of the expensive PS3 titles, some kids in a dorm or the same college set up a system whereby the share their games with each other. Not copy -- just share the individual game. That's 100% legal. But then Sony will probably find some way to sue them on the grounds that it interferes with their business model.
Apology to Ubuntu forum.
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.
"You spoony bard!" -Tellah
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.
On the contrary. By buying off the used racks, you're making it possible for those who purchase new to continue doing so. Joe Gamer is more likely to purchase Madden 200X at $50 new if he can trade in the last two new games he purchased for credit; credit which comes from you buying used games. So, indirectly, Sony still sees your money.
Let's see Microsoft and Sony make billions in profit from their home console business...
That's hilarious. I was just thinking about this and have come to the conclusion that MS will be out of the console business within 5 years unless something extraordinary occurs this generation. They lost over 5 billion dollars on the Xbox. That is >$5,000,000,000! This all while they had Halo and Halo 2. You may recall Halo 2 sold over 2.4 million copies on its first day and over 7 million in its lifetime. MS even owns the freaking company that made it. They still couldn't turn a profit on that kind of success. The Xbox 360 looks to be heading the same direction. They've had nearly a whole year to without competition and they've only sold 5 million consoles. Considering the Xbox sold ~24 million in 4 years, that's 6 million/year, so they're behind, and this without any competition.
I predict, MS will flounder this generation, and if their investors allow a third generation, that will be their last. Right now, the Playstation name means more than Xbox, and Nintendo is actually profitable so Sony and Nintendo aren't going anywhere after this generation. MS absolutely needs to drop the price of the 360 to below that of the Wii this season if they want to survive.
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Just say no to irreversible processes!
The $250 would be a lot easier to swallow if there was a second controller in the package.
I mean come on, it is the Wii ("We") right? Play together? Wii Sports and one controller makes no sense.
I can see parents buying this for their kids. The kid opens the box, sets everything up and then wants to play baseball, or tennis, with dad. Oops, we can't experience this fun new system together because the system only came with one controller. You can sit still on the couch and watch daddy play though.
But as far as we know Nintendo has never sold a system at a loss. They generally optimize during the design phase to keep manufacturing costs low
And not only Mario & Luigi get lower salaries than their GTA counterparts, as they also help sell merchandise items, which would be hard to do legally in the case of GTA and similar franchises.
No, the combination of all the technological parts related to processing power in the Wii is a rip-off. With any console, you get more than the machinery, you get the fun value, which is basically everything else that the console can provide to you *through* its parts. The fun-value is only created through the purchase of games, though. The Wii is the only console of this (and the last, and arguably others) generation to really differentiate itself by what it offers above and beyond it's machinery, besides the titles unique to the system (notice I say "titles," not games. It's reasonable to believe that a Halo 2 clone could exist on the PS2, but it's still not "Halo" and doesn't have the value that Halo does). Additionally, the other consoles do differentiate themselves through their hardware (Cell vs. whatever the 360's got, compared in numerous ways), but at the end of the day, all that hardware does basically the same thing: crunch numbers and spit out graphics. Nintendo has created new hardware that does something besides that, and through that hardware, the experience on Wii is vastly different.
Finally, it's very important to understand that the value of the hardware and the fun-value are directly related. The value of the hardware is zero if no one writes anything for it, and very low if no one writes anything *good* for it. It's getting harder and harder to write something *good* because generally with video games, good and unique are directly related, meaning that a console's value is tied very closely to the games that are unique to itself (i.e. Madden 2007 raises the value of a console very little, if at all, because all consoles have virtually the same game. The value it delivers is based on what is different between each port). What does this mean? Sony and MS will have their blockbuster system-sellers that make the system, like Halo 3, obtained through exclusive licensing and contracts. The Wii will have more games unique to itself than the other systems combined because they are made possible through its unique hardware, and even if it has games that are available on other systems, the possibilities for differentiating the game through the unique controllers may make it more valuable on the Wii.
The fun-value is vital to a console's success because the raw hardware power isn't much of a differentiating factor anymore. Everyone can display 3d graphics at a pretty fast rate, so there's no ability to differentiate: every console can provide the same types of games that do the same thing. The Wii potentially has a much greater fun value because it has differentiated itself and will do things that the other consoles can't do, when the other consoles can virtually do the same things across the board. This, in turn, raises the value of owning the Wii hardware. The combination of the fun value, plus the hardware value that is affected by the fun value, dictate the total value of the Wii. The Wii's hardware *cost* may be low, but Nintendo can sell it at a profit because the fun value pushes the hardware value over cost. Sony and MS are forced to sell their consoles as loss-leaders because the market has dictated that the hardware's value isn't as high as its cost, due to lack of differentiation.
I'm sure an econ major is going to come along and kick my ass on this, but in general, it makes sense. You have to separate "value" and "cost." Value is acquired through many factors, and differentiation is a huge one.
"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.
--R.J.
Electric-Escape.net
MS achieved last place in profits and they did so with entirely borrowed funds. They are a business so in the end, profits is all that determines success. Which was my point. They made a splash, but even with such hits as Halo and Halo 2 they couldn't gain a profit overall.
For a citation, how about the same article you linked to. There they claim only 4 billion in losses, but I've heard 5 somewhere else which may or may not be true. In either case, that isn't chump change.
I'm sure people are. And from everything I've heard both on the internet and from people I know, there are essentially three camps: those who want a Wii, those who want a PS3, and those who already have a 360. That's not exactly a scientific study or good statisticaly analysis, but that's what I've seen.
Comparing two companies' total financials when you really mean to compare divisions is inaccurate to say the least. Microsoft is losing a lot of money on almost everything they do except for Windows and Office. They need to start turning a profit on those things or investors are going to be upset. Sony on the other hand does not have its entire financial future based on two things. They have a music, TV and movie division, they have the Playstation brand and video games, they have a broad range of electronics, and they have computers. They branched out and were profitable in the process, maybe not wildly profitable, but profitable nonetheless. MS is branching out and losing money everywhere they do. Investors may be a finicky bunch but eventually they would rather a small profit than a big splash that goes no where. And that is where my predictions are based. Unless MS really starts making profits investors are going to want them to get lean and that means cutting all sorts of unprofitable ventures.
Based on the above, I will restate, unless something really changes this generation, MS will leave the console business.
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Just say no to irreversible processes!
1. This is the console market, everyone else either grabbed first place on the first try or quickly faded into obscurity. Second place at a huge loss isn't something to brag about there.
2. The 5 billion dollars are mentioned in Microsoft's SEC filings (more exactly, added up from the filings over the lifetime of the XBox) and include the entire games division. Unless you believe MS is cooking the books that should include everything.
Justice is the sheep getting arrested while an impartial judge declares the vote void.
Just a minor correction on your assumptions so far:
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.
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The motion sensor technology isn't that expensive.
Bullshit. It has never been done right. There is a lot of R and D in that. Also, those controllers have to be nigh unbreakable. Nintendo spends money on system and controller durability. This time around, along with increasing the graphical power, RAM, and internal memory, they reduced the power consumption of the system and kept all GameCube ports. Add to that the fact you are getting built in wireless and a composite video cable in the box and you can see that there is some value to this machine.
They made it small because they wanted it to fit in tiny spaces with your TV (they stressed that EXTREMELY in the interview)... yet they removed DVD functionality so that you have to put a DVD player beside it to take up more space?
So you were going to throw out your DVD player when you bought a Wii?
Also, have you seen Virtual Console game prices? $5, $8, and $10 for NES, SNES, and N64, respectively. Why so much? All it costs them to sell them to you is the price of their auction software and the bandwidth and servers to get it to you. Way too high for what it is, even if it isn't THAT expensive.
The NES classic games for the GBA have been selling like hotcakes for $20. People who own Oblivion have been buying HORSE ARMOR for $2.50 on XBOX live. Why the hell would they give their shit away if they can make money off it? You also forget that their online gaming system will be free. People who want Tecmo Bowl get Tecmo Bowl for $5 and you get to play Super Smash Brothers online for free. Damn you, Nintendo!
Is it worth $250 for the technology you get? Probably not. I'd suspect the highest bang for the buck is the PS3 even if it is expensive. Xbox 360 isn't a bad deal either. The Wii, for what you get, is a rip off. Overclocked Gamecube with a new controller and (finally) online support.
Same argument was made for the DS vs. the PSP. Problem with the argument is that the PS3 and the Wii are two very different machines. The PS3 is a souped up PS2. The Wii is a kind of video game machine that has never been seen before. So you can pay $600 for $1000 of hardware and get a graphical upgrade, or you could pay $250 for $250 of hardware that you can't find anywhere else. It depends on your priorities. The PS3 may cost $1000 to make, but it's worth about $200 to me. The Wii may cose less than $250 to make, but $250 is less than I would have paid for what they are offering.
However, acting like Nintendo is better than Sony or Microsoft is stupid. If anything, they're just as bad, if not worse.
Every Nintendo console is nearly indestructable. They treat their customers well and fix and problems that do arrive without much hassle. Both Sony and Microsoft settled class action suits in the past generation for faulty componants that they would not replace.
Botched launch date for old technology, the Leizpeg event where they kicked Nintendo loyalists in the balls, dropping DVD to save money, $60 controllers for a system that is supposed to be heavy multiplayer, expensive VC games, overpricing, etc.
The wireless X360 controller is $50. The PS3 controller will likely be that much or more. Again, Nintendo's controller offers things that other controllers do not, and unlike Microsoft and Sony, you can be sure that it will be built like a rock. DVD playback is trivial and therefore unnecessary. I currently have 2 machines that play DVDs that are not DVD players. How many more do I need?
Serously, go buy a PS3 or a X360 if you want, just stop sucking Sony's and Microsoft's respective cocks.