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The Wii price cut won't improve sales, system dead in 2013 Exclusive
The Wii price cut won't improve sales, system dead in 2013
October 18, 2012 | By Matt Matthews

October 18, 2012 | By Matt Matthews
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    12 comments
More: Console/PC, Business/Marketing, Exclusive



The Wii's price cut to $130 will push a few more units, but looking back through history, Gamasutra analyst Matt Mathews predicts that U.S. sales won't improve. Rest in peace, Nintendo Wii.

When Nintendo announced that its Wii console would drop to $130 with a new bundle in about two weeks, I believe it was setting the stage for one last round of rich profit taking before ending the system's run sometime in 2013.

To be perfectly clear, the transition from the Wii to the upcoming Wii U will be far different than some of the major generational transitions we've seen in this last generation. When Sony launched the PlayStation 3 in November 2006, for example, the PlayStation 2 business was still humming along nicely. The older console, in fact, outsold its successor by nearly 2.5 million units in that first year alone. It was only in March 2008 that the PlayStation 3 became Sony's top-selling console in the U.S.

Or take the situation of Nintendo's own 3DS handheld, which launched while the Nintendo DS was declining but still a very strong seller. Both systems sold equally well during the first nine months that the 3DS was on the market, and only then because Nintendo was pressured into dropping the price of the new system only five months after it launched.

In both cases, killing the older system immediately would have been counterproductive, since its continued sales provided a transition period for the newer one to find its footing.

The Nintendo Wii, however, is in no position to prop up the sales of much of anything. Its monthly U.S. hardware sales rates are currently hovering below 80,000 units and its software sales have plummeted. According to official software tie ratio data provided to me by the NPD Group, it appears that software unit sales for the Wii are down by over 25 percent so far this year compared to the first nine months of 2011, as shown in the figure below.



For context, both the PS3 and Xbox 360 are individually several million units of software ahead of the Wii at this point in the year, a reversal from previous years. And when even Nintendo can't be bothered to provide new software, third parties certainly won't step into the breach on a moribund system.

The NPD Group has provided me with monthly average selling price (ASP) data in several months this year and in each instance the price has been in the $147-$149 range, just a few dollars below the suggested retail price of $150 for the Wii itself. With the price now dropping to $130, I expect that that will become the new average price for the system, since it isn't clear that stock of the $150 bundle will be replenished once it is exhausted.

So it's worth looking at how the cut to $150, which happened about 18 months ago, affected sales of the Wii. To try to minimize the tremendous difference in scale between non-holiday and holiday months, I've put the Wii hardware sales data together here as trailing-twelve-month (TTM) results. That means that for each month on the graph below, the height of the curve represents total Wii hardware sales from that month and the previous eleven months.



If there had been a dramatic shift in hardware sales after May 2011, that TTM sales curve would have bent upward to show that sales had increased over the same period a year before. If sales had simply remained flat year-over-year, then the curve would have been flat for a period.

Instead, what we see here is that sales continued to erode even immediately after the price dropped from $200 to $150. A 25 percent cut in price, to a level $50 below the nearest competitor (the Xbox 360 4GB at $200), was at best a slight brake on the descent of Wii hardware sales.

I believe we'll see even less of a positive effect from the current price cut. Instead of sales going up, as one might imagine happens after a price cut, we will instead see sales decline dramatically year-over-year. Given the focus on the Wii U this holiday, I don't see how the Wii could break a million units in this last quarter of the year.

Of course, the Nintendo Wii has had a tremendous run. It will likely finally hit 40 million units in November of this year in the U.S., having averaged well over 6.5 million units per year since it launched in 2006.

And given the technology inside, practically every one of those Wii units was sold at a profit. That has to be Nintendo's focus going forward with the new console, and I suspect we'll see Nintendo try to hold onto the Wii U's launch price as long as possible.

To put this in context, I've put together a history of price drops for the big three consoles in each of the last two generations. The graph below runs from the launch of the PlayStation 2 in October 2000 through the present day.



This figure gives you a good taste of how easy it was for Nintendo to rake in record profits during this generation. The Wii launched at a price that was lower than even the launch price of the original Xbox and the PlayStation 2 and then maintained that price for nearly three full years. During part of that period, even the Xbox 360's entry-level machine was priced below the Wii, but still could not match the sales of Nintendo's console. Those white hot sales and fat margins made for some of the best years Nintendo has ever seen as a business.

Meanwhile, Sony has battled to bring the staggering $500 price tag of the original PlayStation 3 down to the same level that Nintendo started with. Having reached that level and still aching to make as much profit as it can from its console, Sony is now faced with Nintendo launching a new machine.

As I've said before, the real insurgent in the next generation could be Microsoft. The company appears to be aligning itself with cable companies and content providers, and moving to a model in which it sells hardware bundled with a long-term service contract. If that model proves successful (and I'm not sure yet that it is, based on Xbox 360 ASP data), Nintendo and Sony could find themselves in a position where the traditional price cut simply can't go low enough, fast enough to compete.


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Comments


Adam Rebika
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I think even Nintendo will have given up with the Wii U by 2013 The price cut is just a way to rack up any last profits they can while investing a minimal amount o money in marketing to entierly focus on the Wii U.
You example with the DS/3DS and the PS2/PS3 works mostly because both the new systems were very poor sellers in their early days, which boosted the sales of the previous sytem: if someone wanted a sony home console or a nintendo handheld from the DS series, they would look back to the PS2 or the original DS, which were both extremely successful and renowned systems, instead of the new and lagging (and overpriced) PS3 or 3DS.
I think Nintendo's planning to give the Wii U a strong enough launch to avoid having to rely on the Wii to still make some protifs.

Thom Q
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Excellent analysis.

One thing I didn't read: the Wii-U is going to be fully backwards compatible with Wii games as well as peripherals. I think they are clearly trying to ditch the Wii as a console and try to get everyone to "upgrade" their console to a Wii-U.. Kinda what playstation and xbox tried, but never 100% implemented.

Benjamin Quintero
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completely agree. This is a simple clearance sale and nothing more. Reggie himself said that they will only support the Wii as long as people show interest in it. No one has shown interest in the Wii for over a year now so there's your answer. No pie charts needed.

Chris Hendricks
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So, if this is just an attempt to ditch the system, and there's no evidence that there will be a sales spike as a result of the price drop, why aren't they dropping it further? $99, perhaps? Or would that actually put more attention on the Wii, when they want all attention on the Wii U?

Actually, wouldn't it have been smartest NOT to drop the price at all? Make the Wii U feel like it has a bit more value in comparison?

Eric Pobirs
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If Nintendo were really intent on boosting the installed base and getting more software sales they would go for the magic $99 price point for the holiday season. The Wii is that cheap to make that it would not be a money loser. But there are other problems. The Wii seond-hand market is utterly bursting with inventory. A large portion of Wii owners got bored and sold off their hardware and aren't in the market for any more Wii software. (There is quite a lot of used older model Xbox 360 inventory out there too but indications are that most of those consumers upgraded to the newer models and continued to buy software.)

Another problem is the number of Wii's simply collecting dust and not gnerating any software sales. One of Nintendo's great strengths with the Wii was reaching into non-traditional markets to reach a new segment of consumers. This was great for moving hardware but those buyers didn't go back for more software.

It's interesting, mostly in a historical sense, that Nintendo never saw fit to do much engineering revision to the Wii. It still uses the same 90 nm chips it had at launch. This is very unusual for a successful platform. More often, only the failed platforms go through their entire career without a die shrink of the chips to reduce cost, power draw, and cooling requirements. Even if the Wii didn't need to get physically smaller, the potential reduction in the cost of the innards was considerable, so long as the platform could be expected to sell enough units to justify the cost of developing the new model.

This leads me to suspect that Nintendo expected the Wii to have a much shorter career than it has and was pleasantly surprised by its longevity. Otherwise, we would likely have seen a Wii HD released two or three years ago with a feature set more akin to the Wii and treated as an extension of that platform.

Bob Johnson
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SEems like a lot of work for an article where the major point says the old model is going to die out.

Chris Hendricks
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I don't know... that graph showing the "Price Cut to $150" was pretty interesting to me. I recall about a year where people said that Nintendo was overdue for a price cut... as it turns out, if Nintendo had done the price cut, they would actually have lost money, since the price of the console was apparently not what was keeping people from buying it.

Bob Johnson
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Yeah I guess if you haven't been following the numbers that would be news.

Wii sales were a case of the bigger they are the harder they fall.

Jonathan Jou
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"And when even Nintendo can't be bothered to provide new software, third parties certainly won't step into the breach on a moribund system."

Can I just say how depressing this sentiment is? As a Nintendo fan, I've seen this in every possible way, and it's always framed as Nintendo's fault.

1. "Nintendo's hogging all the sales, we can't compete!"
2. "Nintendo hasn't driven sales, we can't sell anything!"

And now, apparently:

3. "Nintendo is no longer interested in a console platform with a 53 million install base, this isn't an opportunity, it's a sinking ship!"

...um. I don't know how to say this. I would buy a great Wii game not made by Nintendo; I do, I have, and I will. I wish there were more people like me. But I also don't know how Nintendo will ever be able to court third parties if they're at fault for making games, not making games, and even for making new consoles.

John Flush
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All I know is I have to get one of these old models before they aren't on the shelf anymore seeming mine sounds really sick right now and I still play my GC games on my Wii. Did the rumors of putting GC games on the Wii U ever pan out? and if it even does they screwed up the hardware spec enough to make it pretty hard to download them and keep them on the device anyhow without extra memory purchases. All that convenience probably isn't worth pushing the power button on the Wii and switching the TV source.

Cassio Raposa
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Nintendo consoles only get going while 1st and 2nd parties develop to them. It has been that way since N64, when only Nintendo and Rare games sold the system.
Since Nintendo gave up their current console (I don't care if it's a marketing strategy to sell more Wii U units or whatever - the Wii installed base is huge and people only stopped buying games 'cause new DECENT games stopped being produced ) it's the unfortunate way to expect things to go: No Nintendo, no 3rd parties developing for the outdated system :(

A Anson
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How were PS2 sales at the same point in its lifespan? The only problem with sales of the system is the games, price cut or not. I daresay Nintendo carried the Wii nearly entirely on its own with its first party games. Even with some of the most powerful IPs in the history of gaming, it stands to reason that they would slow down as Nintendo's resources go elsewhere towards the other 3 consoles it is simultaneously developing for and third parties make poor effort at creativity on the system. Hopefully this will change with Wii U.


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