NPD April 2008 (Post #16)

[acaeus]

Scott, I was referring to focus. If the Focus (in their limited budgets) is graphics, then graphics have a better chance of turning out great. It's a simplification of course, and things can be a lot more subtle.

I'd imagine that it is much more expensive to create the art (and content) for the HD consoles than it is for the Wii. I'm not even going into the Wii controller's issue, which, I agree is very debatable.

 

[dobwal]

That's the key, and it's why Dobwal's continued insistence on the failure of the Sony & MS business model isn't correct.

MS and Sony aren't selling hardware at a loss intending to recover the losses and profit based on software sales.

MS is adding digital distribution to the mix and Sony added physical distribution. The Wii doesn't have the hardware capability to do either of those things.

In fact, I'd go so far as to say that Nintendo is the one who either needs to reevaluate their business model for the next generation, or gamble on their current model being sustainable and repeatable why Sony and MS benefit from additional established revenue sources.

Additionally, at some point, Nintendo's current business plan (cheap, immediately profitable low-powered hardware), will start to eat it's own and compete more heavily with their own handheld market than with the console market.

Digital distribution is in its infancy, its not going to come anywhere near game software in terms of profits in the near future. Furthermore, regardless of many revenue sources you have they will never come close to the amount of revenue generated by gaming software.

And these additional revenue generators don't need consoles that sell for huge losses to be possible. HDD inclusions aren't the primary cost drivers for MS or Sony. A Wii 2 having a HDD or an HDD add on isn't going to force Nintendo to release a console anywhere near the real cost of the 360 and PS3 at launch.

The problem I have with MS and Sony comes not how they generate revenue but how and how much they use the profits from that revenue to subidize the retail price of their consoles.

Nintendo allows for a viable console whether it is first or third in the market. The typical userbase for a non market leading but serious contending console usually ranges from ~20-40 million console. A userbase at the lower end of that range isn't sustainable for the PS3 or 360 and maybe the 360 would get a little beyond the break even mark at the higher end. MS and Sony's business models lack the flexibility to deal to less than ideal market share.

Sony's is on the extreme end of subsidization on the PS3 hardware cost, which is a magnitude beyond what happen with the PS2. The Sony's game division return to profitability a lot faster, with less loss and with more userbase after the PS2 launch in comparsion of the PS3 launch.

PS2-------Profits (loss)
FY 99-----77 bln yen
FY 00-----(51) bln yen
FY 01-----82 bln yen

Total # PS2 shipped over that time period: ~29 mil

PS3-------Profits (loss)
FY 06-----(232.3) bln yen
FY 07-----(124.5) bln yen
FY 08-----? bln yen

Total # of PS3 estimated to be shipped over that time period: ~23 mil

Those additional revenue streams aren't going to make up the discrepany in the amount of losses the PS3 has created versus the PS2. We are talking 3.5 billion in losses versus 250 million in profits over the first two fiscal years of launch.

The PS2 was probably the least subidized console from MS or Sony over the last two generation.

 

[acaeus]

Digital distribution is in its infancy, its not going to come anywhere near game software in terms of profits in the near future. Furthermore, regardless of many revenue sources you have they will never come close to the amount of revenue generated by gaming software.

And these additional revenue generators don't need consoles that sell for huge losses to be possible. HDD inclusions aren't the primary cost drivers for MS or Sony. A Wii 2 having a HDD or an HDD add on isn't going to force Nintendo to release a console anywhere near the real cost of the 360 and PS3 at launch.

The problem I have with MS and Sony comes not how they generate revenue but how and how much they use the profits from that revenue to subidize the retail price of their consoles.

Nintendo allows for a viable console whether it is first or third in the market. The typical userbase for a non market leading but serious contending console usually ranges from ~20-40 million console. A userbase at the lower end of that range isn't sustainable for the PS3 or 360 and maybe the 360 would get a little beyond the break even mark at the higher end. MS and Sony's business models lack the flexibility to deal to less than ideal market share.

Sony's is on the extreme end of subsidization on the PS3 hardware cost, which is a magnitude beyond what happen with the PS2. The Sony's game division return to profitability a lot faster, with less loss and with more userbase after the PS2 launch in comparsion of the PS3 launch.

PS2-------Profits (loss)
FY 99-----77 bln yen
FY 00-----(51) bln yen
FY 01-----82 bln yen

Total # PS2 shipped over that time period: ~29 mil

PS3-------Profits (loss)
FY 06-----(232.3) bln yen
FY 07-----(124.5) bln yen
FY 08-----? bln yen

Total # of PS3 estimated to be shipped over that time period: ~23 mil

Those additional revenue streams aren't going to make up the discrepany in the amount of losses the PS3 has created versus the PS2. We are talking 3.5 billion in losses versus 250 million in profits over the first two fiscal years of launch.

The PS2 was probably the least subidized console from MS or Sony over the last two generation.

Right but, how can you attach the PS3 exclusively to Sony's game division ignoring its key role in the HDM format war? Even if we disregard the possible income from BR royalties (which is difficult to guess anyway), how to isolate Sony's game division when it wasn't isolated at all?

In fact, considering there was little Sony (or Microsoft) could've done to prevent Nintendo from being #1 this gen (short from copying Nintendo), I think Sony got extremely luck in their strategy. No matter what happened, Sony would not be #1, cause Nintendo's home run, so the "sacrificing of their game division" in the name of the blu-ray format turned out to be a great move.

 

[dobwal]

Yeah but their success is falsely compared and contrasted by many with MS and Sony's offerings as if it succeeded better on the same targeted markets.

They offer different experiences and target different segments. It is not like Nintendo provided a better overall experience and better overall quality gaming. It offered appropriate gaming to the ignored and more casual segments at extremely affordable prices. A fact that many do not want to accept and prefer to present Nintendo as a player who competed directly and outclassed Microsoft and Sony in the same areas.

Even the media compares Wii with its competitors as if they are the same kind of product and the console that took over the throne of the 1st place. Ist place in what when Wii offers different experience and targets different markets?

But this generation is much different than the old. It is not like the SNES vs MD, or Saturn vs PS vs N64 or PS2 vs XBOX vs GC.

This generation is wrong to talk about "1st 2nd 3rd place"

I think what Wii managed to do was to make clearer the different consumer segments in the gaming industry and target the ones that fitted better to its offerings.

If we want to talk about Wii's success we should define it accordingly and attribute it to the correct things.

What the Wii did is remove the influence of hardcore/early adopters has on a console success with the overall market.

The basic strategy by manufacturers of the previous generation was to grab this segment first by hitting them with the easiest marketable feature there is and thats graphics and tying these graphics to elite or new franchises.

Its a top down strategy of grabbing and having success with the highend/hardcore buyers and having that success trinkle down into the mainstream segment as a motivator to drive sales at lower price points (success in the highend creates mindshare in the lowend). If a manufacturer had no problem with grabbing the highend of the market, then they generally had no problem grabbing the lower markets. In previous generation the market was generally decided well before most of the market had come into play.

Nintendo was able to disrupt that strategy, used again by Sony and MS, using cheaper tech to release at a cheaper price point while introducing a highly marketable motion controller as a fundamental part of their console. Nintendo knew that competing using the traditional strategy wasn't financially viable as they can't rely on non gaming products to subidize their gaming division. MS's OS and Sony's Electronic profits can handle a non profitable console without causing serious damage to their bottom line. Nintendo's problems would be a lot bigger than Sony's or MS's problems right now if they had eat the level of investment and losses those two have faced over the last 3 years.

Nintendo figured they could get by with less than stellar graphics because the mainstream market is more diverse in its taste and are more susceptible to the marketing features or aspects other than graphics. This is the reason why Transformers, Spiderman and Pirates of the Carribean can sale millions of titles and yet are mostly rejected by the highend crowd. Graphics as well as elite franchises don't hold as much sway amongst the mainstream as they do the hardcore/highend. The marketability of the Wii's motion controller fills the gap left by their subpar graphics with the added incentive that the Wii's motion controller might be a stronger marketing tool the deeper you get into the mainstream segment.

The PS3 and 360 are doing pretty well in the higher echelons of the market with plenty of consoles and softwares in between the two. However, the Wii is draining million of sales out of the markets that the two don't really compete at yet due to high prices. This is bound to problematic for MS and Sony throughout the generation as for the Wii each price point will be like unspoiled wilderness while for the 360/PS3 it will:

At best "Welcome to Nintendoville"

At worst "Welcome to the City of the Wii" "population, somewhere in the millions"

 

[Zassk]

No matter what happened, Sony would not be #1, cause Nintendo's home run, so the "sacrificing of their game division" in the name of the blu-ray format turned out to be a great move.

I question this statement. Had Sony released in early 2006 at $300 without Blu-Ray, and with software actually ready at launch (at least to the extent that the XBox 360 had in late 2005), there's no question in my mind that it would have left Microsoft in the dust and would currently be sharing Wii's LTD numbers. There was (and still is) room in the market for both a runaway Wii and a runaway PS3-lite. Blame the PS3's price and software situation for it being lapped by the Wii.

 

[upnorthsox]

Digital distribution is in its infancy, its not going to come anywhere near game software in terms of profits in the near future. Furthermore, regardless of many revenue sources you have they will never come close to the amount of revenue generated by gaming software.

And these additional revenue generators don't need consoles that sell for huge losses to be possible. HDD inclusions aren't the primary cost drivers for MS or Sony. A Wii 2 having a HDD or an HDD add on isn't going to force Nintendo to release a console anywhere near the real cost of the 360 and PS3 at launch.

The problem I have with MS and Sony comes not how they generate revenue but how and how much they use the profits from that revenue to subidize the retail price of their consoles.

Nintendo allows for a viable console whether it is first or third in the market. The typical userbase for a non market leading but serious contending console usually ranges from ~20-40 million console. A userbase at the lower end of that range isn't sustainable for the PS3 or 360 and maybe the 360 would get a little beyond the break even mark at the higher end. MS and Sony's business models lack the flexibility to deal to less than ideal market share.

Sony's is on the extreme end of subsidization on the PS3 hardware cost, which is a magnitude beyond what happen with the PS2. The Sony's game division return to profitability a lot faster, with less loss and with more userbase after the PS2 launch in comparsion of the PS3 launch.

PS2-------Profits (loss)
FY 99-----77 bln yen
FY 00-----(51) bln yen
FY 01-----82 bln yen

Total # PS2 shipped over that time period: ~29 mil

PS3-------Profits (loss)
FY 06-----(232.3) bln yen
FY 07-----(124.5) bln yen
FY 08-----? bln yen

Total # of PS3 estimated to be shipped over that time period: ~23 mil

Those additional revenue streams aren't going to make up the discrepany in the amount of losses the PS3 has created versus the PS2. We are talking 3.5 billion in losses versus 250 million in profits over the first two fiscal years of launch.

The PS2 was probably the least subidized console from MS or Sony over the last two generation.

There's more to the Sony games division than just consoles and there's no comparison to the Sony games division of '99 to the Sony games division of '06 so your comparing apples to oranges.

 

[dobwal]

There's more to the Sony games division than just consoles and there's no comparison to the Sony games division of '99 to the Sony games division of '06 so your comparing apples to oranges.

Doesn't matter the advantages lie with Sony's game division in 06 not 99. The division is more diversified with PS2 and PSP.

Furthermore, the losses regardless of the time are attributed directly to hardware sales. Sony would of pulled in profits if there were no new hardware launch in either time period times. Sony themselves state that losses during these two times are because of the cost surrounding hardware.

 

[dobwal]

I question this statement. Had Sony released in early 2006 at $300 without Blu-Ray, and with software actually ready at launch (at least to the extent that the XBox 360 had in late 2005), there's no question in my mind that it would have left Microsoft in the dust and would currently be sharing Wii's LTD numbers. There was (and still is) room in the market for both a runaway Wii and a runaway PS3-lite. Blame the PS3's price and software situation for it being lapped by the Wii.

A BluRay less DVD based PS3 definitely would have been more competitive against both the Wii and 360 in terms of price. But the lack of PS3 software can't be blamed on BluRay as that has to do more devs getting their head wrapped around the Cell and RSX.

But a runaway success of any of three console would have come at the expense of one or both of the other two. I doubt the US market has room for two consoles selling 700K a month.

 

[Nesh]

What the Wii did is remove the influence of hardcore/early adopters has on a console success with the overall market.

The basic strategy by manufacturers of the previous generation was to grab this segment first by hitting them with the easiest marketable feature there is and thats graphics and tying these graphics to elite or new franchises.

Its a top down strategy of grabbing and having success with the highend/hardcore buyers and having that success trinkle down into the mainstream segment as a motivator to drive sales at lower price points (success in the highend creates mindshare in the lowend). If a manufacturer had no problem with grabbing the highend of the market, then they generally had no problem grabbing the lower markets. In previous generation the market was generally decided well before most of the market had come into play.

Nintendo was able to disrupt that strategy, used again by Sony and MS, using cheaper tech to release at a cheaper price point while introducing a highly marketable motion controller as a fundamental part of their console. Nintendo knew that competing using the traditional strategy wasn't financially viable as they can't rely on non gaming products to subidize their gaming division. MS's OS and Sony's Electronic profits can handle a non profitable console without causing serious damage to their bottom line. Nintendo's problems would be a lot bigger than Sony's or MS's problems right now if they had eat the level of investment and losses those two have faced over the last 3 years.

Nintendo figured they could get by with less than stellar graphics because the mainstream market is more diverse in its taste and are more susceptible to the marketing features or aspects other than graphics. This is the reason why Transformers, Spiderman and Pirates of the Carribean can sale millions of titles and yet are mostly rejected by the highend crowd. Graphics as well as elite franchises don't hold as much sway amongst the mainstream as they do the hardcore/highend. The marketability of the Wii's motion controller fills the gap left by their subpar graphics with the added incentive that the Wii's motion controller might be a stronger marketing tool the deeper you get into the mainstream segment.

The PS3 and 360 are doing pretty well in the higher echelons of the market with plenty of consoles and softwares in between the two. However, the Wii is draining million of sales out of the markets that the two don't really compete at yet due to high prices. This is bound to problematic for MS and Sony throughout the generation as for the Wii each price point will be like unspoiled wilderness while for the 360/PS3 it will:

At best "Welcome to Nintendoville"

At worst "Welcome to the City of the Wii" "population, somewhere in the millions"

*scratches head*

Is there an area where we seem to disagree or that I contradict what you just said? Or are you just adding on my post?

 

[dobwal]

*scratches head*

Is there an area where we seem to disagree or that I contradict what you just said? Or are you just adding on my post?

Adding to. You talk about competing in different markets. Im just adding how Nintendo was able to segment the market since in past generations this wasn't the case even with meaningful price differences.

 

[Nesh]

Adding to. You talk about competing in different markets. Im just adding how Nintendo was able to segment the market since in past generations this wasn't the case even with meaningful price differences.

oh ok

 

[thatdude90210]

There were some discussion on whether Wii buyers only buy it for WiiSports and nothing else. Well, Nintendo disputes that, and they have numbers, in this Kotaku article.

According to Nintendo, the Wii has the highest software sales number in recent memory. And before anyone say it, no they are not including the bundled Wiisports or VC games. Format stolen from gaf:

First 18 months Software:
Wii: 50.000.000
PS2: 42.000.000
360: 30.000.000
XBX: 28.000.000
PS3: 20.000.000

First 18 months Hardware:
Wii: 9.500.000
PS2: 8.500.000
360: 5.200.000
PS3: 4.200.000

Tie Ratio (18 months):
360: 5,77
Wii: 5,26
PS2: 4,94
PS3: 4,76

 

[assen]

And before anyone say it, no they are not including the bundled Wiisports or VC games.

But they are most probably including the Wii Play bundled with the Wiimote, as virtually all chart tracking institutions do; if you remove them, it certainly falls below the PS2 and probably below the 360 too.

 

[thatdude90210]

But they are most probably including the Wii Play bundled with the Wiimote, as virtually all chart tracking institutions do; if you remove them, it certainly falls below the PS2 and probably below the 360 too.

I think Wiiplay is at 6 million. That still leave them at 44 mil.

Edit: let's check some numbers on this. According to wikipedia, Wiiplay was at 9.23 mil at the end of 2007.

In Japan, sales has slowed, has not been in the top ten for months, about 12k per week. Let's say 18 weeks this year, to the end of April, that's about 200k.

USA, 4 months at the 360k of this month= 1440k. And if EU is close to USA, that adds about 3 million to the 9.23 mil mentioned in the Wiki. Then the Wii still has close to 38 million, which is still higher than anything this gen.

 

[Nesh]

There were some discussion on whether Wii buyers only buy it for WiiSports and nothing else. Well, Nintendo disputes that, and they have numbers, in this Kotaku article.

According to Nintendo, the Wii has the highest software sales number in recent memory. And before anyone say it, no they are not including the bundled Wiisports or VC games. Format stolen from gaf:

First 18 months Software:
Wii: 50.000.000
PS2: 42.000.000
360: 30.000.000
XBX: 28.000.000
PS3: 20.000.000

First 18 months Hardware:
Wii: 9.500.000
PS2: 8.500.000
360: 5.200.000
PS3: 4.200.000

Tie Ratio (18 months):
360: 5,77
Wii: 5,26
PS2: 4,94
PS3: 4,76

What are the Wii's highest selling games during these 18 months?

 

[Johnny Awesome]

There have been some interesting posts in this thread.

I would agree with the premise that the Wii had the right combination of features/appeal/price point to steal some of the mainstream PS2 market from Sony this generation (and to a certain extent MS), but only a portion of that market. It may be a large portion like 50% or more, but there are still a lot of people who bought a PS2 for $149 that haven't bought a Wii yet and still consider themselves traditional gamers.

I'm talking about the people who love Final Fantasy that WILL pick up a PS3 when FFXIII is out and the PS3 is at a reasonable price point. Many of these people love graphics and the amazing cut scenes only possible on an HD machine. I also think that things like Singstar, Rock Band, Guitar Hero etc... take some of the sting of the Wii out of the market going forward. These games are VERY mainstream and popular and as the networking expands people will want the version where you can add new songs, which isn't the Wii version.

There's no question that Nintendo got most of their old fans to get a Wii and added a lot of new kids/parents/girls to the equation as well. I'm not sure what the ratio is. The only friends of mine that have a Wii are those with little kids. Just anecdotal, but possibly signalling a larger trend.

The idea that the Wii will fundamentally change MS/Sony business strategy is incorrect IMO. MS cares mainly about Live. Sony cares mainly about HD delivery both with BR and digital delivery. Both of them want to make money and control the living room.

There has been SOME change mind you. If the Wii didn't exist the X360 and PS3 would already be cheaper because MS and Sony would be going after the mainstream more aggressively. Because that potential market is now smaller (because a lot of these people own Wiis), they have to be careful about chasing something at huge losses that they won't see enough of a return on.

 

[AlphaWolf]

What are the Wii's highest selling games during these 18 months?

Wii Play
SMG
Mario Party 8
SSBB
Zelda

Those 5 titles easily account for over 1/3rd of that 50 million number, maybe as much as half.

That Kotaku article was talking US numbers so 6million is about right for wiiplay in the US. 12 million worldwide.

 

[Nesh]

Wii Play
SMG
Mario Party 8
SSBB
Zelda

Those 5 titles easily account for over 1/3rd of that 50 million number, maybe as much as half.

That Kotaku article was talking US numbers so 6million is about right for wiiplay in the US. 12 million worldwide.

Heh. 1st party Nintendo titles as suspected.

 

[thatdude90210]

Another way to look at it is despite not getting some of the multi-console best sellers like COD4, Assassins Creed, or GTA4, the Wii still manage to sell more software than the other two. Who's fault is it that the best selling Wii games are first party Nintendo?

I see some parallel of the Wii selling more software and the PS3 selling bluray. The Wii will simply overwhelm the other guys with a large growing install base. Even if that install base buy less software per unit, the size will more than make up for it.

So are third parties leaving money on the table? RE4 on the Wii, the 3rd or 4th release of this few-year-old game, selling over a million copies showed that there is a market for good hardcore games. Yet third parties continue to neglect it.

 

[one]

So are third parties leaving money on the table? RE4 on the Wii, the 3rd or 4th release of this few-year-old game, selling over a million copies showed that there is a market for good hardcore games. Yet third parties continue to neglect it.

If established third parties can port old games for the Wii controller and make decent money, they won't create a new hardcore game to make less money at higher risk. It's not that they have an unlimited number of developers, they have to assign them carefully if the same person can work on HD console projects. I think they still have doubt about Wii, who knows how many days are left for its novelty? OTOH, small developers that has no choice may be able to produce a new non-casual game for Wii. But it's not free from competition with larger corporations, including Nintendo, anyway.