Is Nintendo getting squeezed out?

[orfanotna]

Nintendo should swallow their pride and stop making consoles and stick to a) making handheld units and b) making software for both Xbox and PS. Sega bit the bullet and did it because it made sense.

Really? Try this:

MS should swallow their aspirations for world domination and stop making consoles and stick to a) making OSes and office suites and b) having Bungie, Rare, and whatever other development houses they own release their games on PS2/3.

Sounds a bit absurd? Actually it doesn't to me. MS pissed away ~2 billion ("where I'm from that's a lot of money" - Fitch) for "a chance to play again", as they put it. IF by the time this upcoming generation is over (I assume around 2011-2012) they can make up their loses, then they'll be right where they were 10 years earlier.

Why would Nintendo stop making consoles? Because you want to play their games on whatever system you have? I'd love to be able to play all the MGS games on my Gamecube, too.

Sorry, but I don't see Nintendo bailing out of the console business anytime soon. Doing that made sense for Sega because they were really at the end of their rope. It took like 4 or 5 failed systems to get them there. Last time I checked, Nintendo, a game-only company, had 3.5 times (please correct me if I'm wrong here) more $$ in the bank than Sony the "electronics giant".

 

[RancidLunchmeat]

I don't see that at all.

I don't see the Revolution as N's bid to win back market share, certainly not from what they've shown us so far (which I'll give you is very little).

At this point, it appears N is selling an underpowered console and their back library.

That's not going to reverse their shrinking market share trend, that's going to reinforce it. In politics, it's called playing to your base. Sony is trying to retain their base, MS is trying to expand theirs. N appears this gen to be focused on shoring up it's base, retaining it, and making it happy.

Perhaps waiting for something in the future? Like when MS and Sony eat themselves alive through billions of dollars of losses on hardware?

Whatever it is, it certainly doesn't appear at this point N is counting or even planning on the R to reverse their trend to a niche player.

 

[Carl B]

Last time I checked, Nintendo, a game-only company, had 3.5 times (please correct me if I'm wrong here) more $$ in the bank than Sony the "electronics giant".

Well it's actually roughly the same amount in the bank, with a slight edge to Sony, but I agree with the rest.

 

[RancidLunchmeat]

MS should swallow their aspirations for world domination and stop making consoles and stick to a) making OSes and office suites and b) having Bungie, Rare, and whatever other development houses they own release their games on PS2/3.

Sounds a bit absurd?

Yes, it does. Because you seem to be under the false impression that MS (or even Sony for that matter) give a damn about games, winning gamers over, winning the gaming market, or anything like that.

MS's goal is to get an easy to use, easy on the eyes, internet ready appliance into as many households as possible. (XBOX), now they are focused on actually getting all those households to actually hook up to the internet, rather than just be internet ready (X360).

As I've discussed in a different thread, I don't quite know how MS plans to make money if they accomplish this goal. But that's clearly their goal, it has nothing to do with games.. that's just a means to an end, the easy way to gain access.

So it makes absolutely no sense whatsoever for MS to get out of the console biz and sell games to Sony or N. Maybe sell their OS to Sony or N, but as Geezer pointed out in the other thread, if that had happened.. Xbox probably wouldn't exist.

 

[Carl B]

Well and that's the crux of the matter - the reasons why Microsoft got involved. It wasn't for games and games alone, it was to head Sony off at the pass in their effort 'for the livingroom.' A possible future in which consumers would rely much less on their PC's (running Microsoft) and rely much more on various Internet appliances styled as consumer electronics. They succeeded in establishing themselves, partly because Sony dropped the ball on their online vision. But now Sony's back to try and make Playstation the 'home server' they originally wanted, and Microsoft's ready to do battle with their own system, except in Microsoft's vision you see their goal begin to come through a little more clearly. They want to keep the PC relevent - they want you to network for additional functionality to a media center PC. They don't mind if you pass up 360 to buy Longhorn instead and purchase XNA-ported 360 games from Microsoft studios, to play using your identical 360 controller and identical access to Live.

 

[Acert93]

Well it's actually roughly the same amount in the bank, with a slight edge to Sony, but I agree with the rest.

Any links? The last numbers I saw showed Sony with a lot of debt, whereas Nintendo has zero debt.

Nintendo has not shown much about the direction the company is going. They may very well for an affordable console, something that ramps down to $100 quickly. They had some success at $100, and if they feel they are going after a different demographic they may not even try to play the Sony-MS game and go a totally different direction. And if they go with a low sticker price and are able to offer AAA quality games here and there they could find themselves in the homes of many hard core gamers as well.

But we just do not know yet. May Nintendo is doing some smoke screaning, they downplayed GCN and it was impressive. With IBM/ATI/NEC working on the machine there is always the possibility that it is a very elegant, powerful solution.

But Nintendo is also trying to open the doors more. They want the big budget games AND the small budget. I think Nintendo has seen how a lot of innovative games have been less than graphically appealing, especially on the GB.

Right now we are hearing a lot about how all three want to 1) make things easier 2) open the doors to new markets and new gamers 3) offer online type services and transactions. But they all seem to be going about it different ways (and in some ways, at least to the public, some of that just seems to be talk and no substance).

When Nintendo sets a goal to do something (like connectivity between GBA/GCN) they are pretty determined. I think it will be interesting to see what they do. I do not see them just giving up... but I don't see anything right now. But Nintendo may surprise. My guess is at the Xbox launch we will hear more.

 

[Carl B]

Any links? The last numbers I saw showed Sony with a lot of debt, whereas Nintendo has zero debt.

What is it with people and the debt thing?

Debt does not mean no money people! Debt is good! (Well, not good, but not unhealthy if done right)

Here's the links to my favorite site for free financials:

Sony

Nintendo

 

[g35er]

Regarding MS, Who knows why they fought to give away IE for free but they did. Hard to figure out all their internal motivations. But for a company whose overall profits continue to rise (in the billiions), whether they're doing it the ethical way or not, they're doing something right.

I see MS as one who wants to control your entire digital experience and Sony as one who wants to control your entire electronic entertainment experience. There's obviously a lot of overlap and it may actually be the same thing, but it's a bigger strategy than just xboxes and playstations. Nintendo, meanwhile is caught in this clash of the titans.

As for marketshare, wouldn't Nintendo prefer to have >20% in addition to being profitable (i.e. be more profitable--they are a public comp who's shareholders demand growth)? If (not saying it will happen) they go down to 10% (like macs), should they stay? I don't know.

 

[orfanotna]

Well it's actually roughly the same amount in the bank, with a slight edge to Sony

OK, my bad. I could swear I read about 2 billion somewhere.. Do you have a link to more realistic figures? Thanks

Because you seem to be under the false impression that MS (or even Sony for that matter) give a damn about games, winning gamers over, winning the gaming market, or anything like that.

Actually I'm not. I'm perfectly aware that all 3 companies don't give a damn about anything other than making money. And in that respect, I think PS2 was the biggest success, Xbox was a miserable failure, and Gamecube was somewhere in between (note that I don't count handhelds, only consoles).

All indications are that MS (as well as Sony) will continue to sell their systems at a loss, at least for the first couple of years, and most likely for longer because I think it's going to be one bloodbath of a price war between the two. And the possibility that MS will be able to even make up their losses from this generation is starting to look less and less real as time goes on.

I don't have a crystal ball in front of me, but here are my predictions for the next few years:

1) MS and Sony will be trying to outdo each other like crazy by dropping prices, buying up development studios, and snagging exclusives.
2) Nintendo will continue being profitable by staying out of all of the above.
3) As the generation draws to a close, we'll be seeing lots of posts on this and other forums about how Nintendo should swallow their pride and bail out of the console business.

 

[Carl B]

Regarding MS, Who knows why they fought to give away IE for free but they did. Hard to figure out all their internal motivations. But for a company whose overall profits continue to rise (in the billiions), whether they're doing it the ethical way or not, they're doing something right.

Who knows? I know! Microsoft doesn't want anyone else gaining a beach-head on their 'territory,' which to them is computing in general, and they are quite willing to go scorched Earth to do it. At the time they were giving IE away for free, Netscape was costing users money; powerful motivation. If you want to see the modern struggle play out once again, this time against a more agile company whose product is also free, stay tuned for the clash of MS and Google. This one's not going to go down like Netscape, and MS has already spent upwards of a billion developing their search engine to try and counter... to no avail thus far.

I see MS as one who wants to control your entire digital experience and Sony as one who wants to control your entire electronic entertainment experience. There's obviously a lot of overlap and it may actually be the same thing, but it's a bigger strategy than just xboxes and playstations. Nintendo, meanwhile is caught in this clash of the titans.

MS wants to control computing, that's it. Digital experience, I guess that's kind of the same thing. SCEI/Kutagari (not neccessarily Sony in general) would like to control the entertainment aspect, sure, but has bigger aspirations as well. One day a PSP2 or a Sony-Ericson phone might not be so different from a laptop afterall, nor maybe a PS4 from a computer, in terms of functionality.

EDIT: By the way, Microsoft is making a major push into developing their cell phone OS's for the very same reason.

Nintendo makes games, that's what they do. And as long as people want the games they make, Nintendo has a place and a market to sell their hardware to. I don't see them vying over the same long-term vision as MS and Sony; rather they're going into movies, anime, and literature next is the word.

As for marketshare, wouldn't Nintendo prefer to have >20% in addition to being profitable (i.e. be more profitable--they are a public comp who's shareholders demand growth)? If (not saying it will happen) they go down to 10% (like macs), should they stay? I don't know.

Would they prefer it? Probably. But I don't think Apple should get out, do you?

 

[see colon]

RE4 is relevant in this discussion as its one of N's very few system sellers. I'm aware of people who did purchase the GC just for RE4, especially now at the reduced pricing. That's like saying that GTA isn't a system seller for PS2 so it's not relevant to any PS2 discussion.

it's not relevant to a conversation about profits nintendo recieves from first party games compared to profits theymight recieve if those games were made for other hardware. re4 might have moved hardware, but the converstion is about nintendo software and the profits derived from nintendo software.

I don't see the Revolution as N's bid to win back market share, certainly not from what they've shown us so far (which I'll give you is very little).

At this point, it appears N is selling an underpowered console and their back library.

market share means nothing compared to profits. nintendo is perfectly fine selling software the developed 20 years ago on various hardware oven and over again. even if revolution is "underpowered" it could still be profitable.

 

[Carl B]

OK, my bad. I could swear I read about 2 billion somewhere.. Do you have a link to more realistic figures? Thanks

See links above for realistic figures.

 

[Teasy]

What numbers are you using to come to the conclusion that N makes more money selling 60 million units at a profit and virtually no profit on hardware sales VS selling 90 million units to other consoles? Where is that extra revenue gained by selling 30 million units less but only on their own console?

Nintendo would have to pay around $10 per game to sell on another manufacturers platform. They would also lose the same license fee's they get from the hundreds of millions of third party games that get sold on their own console. Plus they would lose the revenue from peripheral sales (controllers, memory cards, GB players ect). Why pay Sony and MS nearly $1 billion in license fee's (adding to Sony and MS's coffers) to sell 90 million games on PS3 and XBox 360 when Nintendo can make far more money selling 60 million games on their own system?

 

[Kolgar]

Just want to pipe in: this is one of the best, most intelligent and interesting threads I've seen in a long time. Kudos to the participants. We got some smart ones here.

 

[MechanizedDeath]

Nintendo's problem is now they've lost almost half the handheld market with the entrance of the PSP. Not sure how that's gonna hold up, seeing as the DS has now moved back ahead of the PSP for weekly sales, but should things stay the same, I can see Nintendo's bottom line taking a hit. That'll affect the warchest, and will light a fire under them. I think they've fallen off the map in the console race, eventhough they've sold the same amount as MS. But we'll see.

That warchest is like a bunch of 1ups. Well, a few of them at least. They got at least another decade left in 'em. If Sega could last as long as they did, bleeding profusely like they did, then Nintendo (a very competitive company financially) can last much longer. I honestly wouldn't be suprised if 20 years from now, they're still around, and still looking on the verge of irrelevance. PEACE.

 

[Acert93]

What is it with people and the debt thing?

Debt does not mean no money people! Debt is good! (Well, not good, but not unhealthy if done right)

Here's the links to my favorite site for free financials:

Sony

Nintendo

Nintendo
7.4B in cash plus no short term debt and 1.6B in total liabilities.

Sony
8.2B in cash plus 12B in short term debt and 64B in total liabilities.

While Sony has a lot of assets and some good products to push, balancing their cash against their assets is not too unreasonable. Someone had recently posted some info on different companies... obviously larger companies with large cashflow will have some, even if they have debt. Sony has a lot of assets, but they also have a lot of liabilities. On the other hand Nintendo's cash alone (not counting assets) far outstrip their liabilities.

And while not all debt is bad, it is not a "positive" and it definately can hurt a company if they get into a financial crunch. e.g. If Sony's consumer electronics division continues to flounder, BR gets in an ugly format war with HD-DVD, and MS makes some inroads into Sony console sales (does not even need to be big, even just 10%) Sony could feel some crunch.

My question is why is not Nintendo spending the money! Obviously their goal is just to continue doing what THEY want and to be PROFITABLE at that... but I think they could compete if they so chose. It is not like they do not have the financials, IPs, or savy to do it. Yet they continue to want to do it there own way...

And they continue to make money. I guess in 3-5 years when the PSP has played out more and we see where Revolution has headed we can see if they made good decisions. Even with deminishing power in the console arena Nintendo could always fall back on the hand helds. Now they are being assaulted at both ends. Just as MS wants to nip at Sony in the home consoles, Sony wants to nip at Nintendo in the hand helds.

 

[Carl B]

Nintendo's problem is now they've lost almost half the handheld market with the entrance of the PSP.

Now wait a minute, where does 'half the handheld market' come from? Hasn't the PSP sold under 4 million units so far? I mean don't get me wrong, I think PSP is great and I hope it flourishes, but I don't think it's turned into a Nintendo killer just yet.

But regardless of whether I agree or not, I liked your 1UPs analogy quite a bit!

 

[Carl B]

While Sony has a lot of assets and some good products to push, balancing their cash against their assets is not too unreasonable. Someone had recently posted some info on different companies... obviously larger companies with large cashflow will have some, even if they have debt. Sony has a lot of assets, but they also have a lot of liabilities. On the other hand Nintendo's cash alone (not counting assets) far outstrip their liabilities.

And while not all debt is bad, it is not a "positive" and it definately can hurt a company if they get into a financial crunch. e.g. If Sony's consumer electronics division continues to flounder, BR gets in an ugly format war with HD-DVD, and MS makes some inroads into Sony console sales (does not even need to be big, even just 10%) Sony could feel some crunch.

Yeah I don't disagree with you, don't get me wrong. Being debt-free and cash-rich is a position of strength in a lot of ways. Sony bought MGM recently, something that added roughly $5 billion to the debt pile, but will pay it's dividends down the line for sure. This, I consider a good use of debt. The liabilities (and assets) stem mainly from the fact that Sony is at it's heart a consumer electronics company and they have a lot of the 'bricks-and-mortor' junk, both asset and liability-wise, that go along with it.

I was actually in a debate on this same subject earlier today in Sony's defense so I apologize if I came off a little exhasperated at first.

Anyway in that same debate I learned some things myself on Sony's liabilities that I hadn't known/thought of before, and I'll go ahead and pass them on here. These aren't things many Western market followers like myself would necessarily be aware of because they focus on some of Sony's Japan-centric operations.

...Sony apparently has an insurance subsidiary, a banking subsidiary, and pension obligations... those 3 alone account for over half of the total liabilities. Specifically, approx. $23 billion of the liabilities is classed as "future insurance policy benefits and other"; another $5.1 billion is classed as "deposits from customers in the banking business"; and another $3.3 billion classed as "accrued pension and severance costs". Anyway, you guys can read the details...

(credit for the above goes to 'BigAl')

 

[Natoma]

I find it funny that people are calling the Revolution underpowered, when no one outside Nintendo and a few select partners knows the specs. But hey, that's just me I suppose......

 

[Acert93]

Good info X. Hopefully you don't think that I was saying Sony is "hurting". They are not, at least not right now. A couple (4 or 5?) they had a little crunch, and they will surely will again. They have missed the ball a few times (MP3 vs. Atrac for one which pretty much has cost them the lucrative MP3 market, at least for now), and financially their consumer electronics division scares me off as an investor. They are relying heavily on PS these days--and the PS is a STRONG brand that I EXPECT to do well into this coming gen and the gen after that (cannot forcast farther than 10years, sorry!).

But if they get stuff competition from HD DVD, and HD TV sales begin to sway toward their competitors, and Nintendo makes a push with GB2 and MS begins creaping up in sales (lets say they go from 20M to 35M consoles sales this gen, which I think is reasonable with how they have a lot more support now and moving in both on Sony and Nintendo some) Sony could find their cash cow hurting.

As an investor (or prospective investor) I would want to know some things. 1. How are they going to get back into the MP3 game? 2. What other mass consumer electronic devices are they trying to push? 3. If they are doing neck-and-neck sales with NDS, how will they respond to the GB2? 4. What are their solutions for their lagging consumer electronic division? 5. How quick can they put a format war in optical disks to rest?

There was a reason Sony had a big shuffle at top.

Thankfully for gamers it was NOT the PS that caused it. PS has been a light house of safety for Sony and that has been good for gamers. If anything I hope to see Sony lean on their PS brand even more--mainly because it is really profitable.

Likewise movies CAN be profitable... or they can really drag them down, and fast. But if they make GOOD movies and then cross license those IPs to gaming they could really make some noise and create new revenue streams.