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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.
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.
To look at it from another angle, Sony and Microsoft's strategies are only profitable when they max out the number of consoles they sell. The larger their userbase, the more game profits that roll in. Both companies need to be number 1, and thus the struggle. Nintendo on the other hand doesn't need to be number 1 at all. By turning a profit on each console plus each game, they're safe as a niche player and even better positioned if it really does take off. For me, I'll be first in line to get a Wii based on the type of games available and the novelty of their design.
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)
Monstar L
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
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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.
You are not alone. This is not normal. None of this is normal.
I would imagine that Nintendo has amassed a large amount of data about console price elasticity, game attach rates over console lifetimes etc. and set the Wii price to maximise their profit.
No no! It was because the receptionists kept telling them that the princess is in another castle!
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.
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.