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Nintendo's digital biz growth slows dramatically
by Matt Matthews on 01/29/14 10:39:00 pm   Expert Blogs   Featured Blogs

The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.

 

When Nintendo finally got into the full game download business, it was bound to be a hit. In fact, it's a little surprising that they held off as long as they did, especially when their digital business on the Wii and the Nintendo DSi had apparently done well back in 2009 and 2010. But when the Nintendo 3DS and Nintendo Wii U started offering games as downloads on the same day they released at retail, the money started pouring in.

One has merely to look at the figure below to see just how Nintendo started raking in lots of digital revenue between September 2011 and September 2012. Remember that this is a trailing-twelve month figure, so each point on the graph represents the revenue in the previous 12 month period. You can think of it as annualized revenue, in a moving 12-month window.

That expansion is a big deal for Nintendo, which now needs as much margin as it can get to buoy its stalled Nintendo Wii U system.

I was first concerned that their revenue might be slowing down when both the first and second fiscal quarter digital revenue figures were identical. Previously, Nintendo had shown growth almost every quarter, and even with the expanding Wii U and 3DS hardware bases, I expected that to happen again -- but it didn't.

Then the third fiscal quarter, the one they just reported, showed even slower growth. From October through December 2012, their digital business rang up at ¥6.0 billion. In the comparable quarter in 2013, they earned only ¥6.6 billion, a 10 percent increase.

Any other time, that kind of increase would be great but it's still far slower than their digital business growth in the past 18 months. And, I would hasten to add that the hardware base is still expanding faster than that. Just in the past three months total shipments of Nintendo 3DS (and 2DS) hardware increased the potential hardware base by 20 percent while shipments for the Wii U expanded the potential base by over 30 percent.

If we look at Nintendo's digital revenue as a fraction of its total software business, we can see that there was some contraction there too. Here's that data, again using annualized figures to smooth out seasonality.

When I tallied these figures back in October, Nintendo's digital share was 10.3 percent of its software business. Now that's dropped back down below the 10 percent line, to 9.5 percent.

Several factors may be at play right now, and it will be interesting to see how things develop in the next few months. We may be able to determine, as more data comes in, which factors were driving the curves shown above.

It may well be, for example, that most of Nintendo's growth in the hardware base this past holiday was on the Nintendo 2DS. Many of those systems may be for children who are not permitted by their parents to be heavy digital consumers. Instead, those new owners may be getting used titles at GameStop. Or they may simply buy two or three retail titles and be satisfied for a long time. (My own kids, for example, fall into this latter group. Thanks, Pokémon X and Y!)

Regardless, it does not appear that digital revenue is scaling up as quickly as the hardware base. If that trend continues, then it means that Nintendo will have to evangelize more to new consumers if it intends to benefit more and more from the higher margin on digital sales.


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Comments


Josh Charles
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I personally have all but stopped buying games from the 3DS eShop for awhile for two reasons.

First, I don't want to keep paying twice for games that I want to play that I've already paid for on either the Wii or the Wii-U. Nintendo needs to sort out its unified account system before I spend more money there.

And second, there's not enough genre diversity at the moment. I've had my fill of platformers and action games to last me the rest of 2014. I'm in the mood for visual novels, RPG's, or quirky titles like Attack of the Friday Monsters from Level 5's Guild series. I could go for Yokai Watch and Fantasy Life too for that matter if it ever gets localized in the States.

Ken Patterson
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Josh,

I agree with you.

Problem is good quirky games sometimes get lost to the dearth of similar games on the eShop. People tend to purchase what they comfortable with.

There are good quirky games on the eShop struggling to be heard / found.

Send me your email - ken at bigjohngames.com and I will send you a download code for a quirky game we created for the eShop.

Ken Patterson

Josh Charles
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Hey Ken, I sent you an e-mail. Thank you for the offer.

Ken Patterson
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Got your email and I sent you some codes. I hope you enjoy the games.

Let me know if you have any problems.

Bob Johnson
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Eh short term trend. I mean you are looking at a few months and declaring growth slowed dramatically.

I don't see anything here that means anything. I mean who knows if continues or if it was just a blip.

Probably has something to do with Pokemon.

I don't see any reason why digital revenues won't increase long term.

Matt Matthews
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It is factually true that the growth slowed dramatically. The numbers are there for all to see, I pointed out that this has been going on for six months, said that future reports may shed light on the reasons, and that this growth is important to Nintendo. The only one making judgments about prospects for future growth is you?

What exactly are you disputing?

Bob Johnson
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@Matt

That this is of any importance. That's what I'm disputing. :)

Pretty obvious digital revenue only goes up long term.

reporting short term numbers means little in that context.

Now if you reported why it happened it might be of some importance. But numbers don't always go up or down in nice straight lines.

And probably the clickbait dire headline didn't help my mood. :)

Brian Peterson
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Pokemon is probably to blame for the dip. It takes up a huge portion of their October software revenue, but it's mostly played by children. It's more likely that this audience buys games physically rather than digitally - kids don't have credit cards, and parents buying the game as a holiday gift want to give a physical product.
I expect the drop in digital revenue share to continue through the holidays until January.

Luke Daly
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I personally feel that Nintendo could be such a bigger player in the digital market industry with just a few changes. Firstly, the entire layout of the eShop on both 3DS and Wii-U need to be overhauled. On Wii-U for example; why is there a 'NEWS' section where nothing can be selected you are simply given a list to view. Why does the user have to go and manually find the new released products within the shop.

Secondly, prices. Full price games have to be priced in a more competitive manner. Why would someone pay, say $70 for a digital version when they can go pay the same price for a hard copy and then be able to later sell that copy at some stage.

I love everything Nintendo, but it frustrates me how uninviting it is to use the eSHOP on a regular basis. I was pleased to see some specials over the past few months, but it's not enough to keep me going back. And I feel this could be some cause to this recent demise as well.

Francisco Javier Espejo Gargallo
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I stoped buying games from the eShop since I got another 3DS XL. Now, we got two consoles at home (one for me, the other for my wife) and therefore, we want to buy retail games that we can play on both consoles.

Individual USER ID it's a great problem for families... and we are suffering that with our Nintendo IDs from the website, as the games we are buying aren't getting sumarized in our both accounts, and neither the playtime we dedicate together (this on WiiU). This is annoying as well with the family playstyle...

Edit: Another thing that discourages me to buy games are high starting prices, and the later temporal discounts. I would preffer an adjusted price since day 1 and not having these promotions. Never liked to feel like a fool because I buy something that one week later will be on discount.

Josh Charles
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Great points. I've had experience with both the family situation (2 3DS') and the discounts issue.


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