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Analyst: 3DS Launch Could Lead To Higher Software Prices
Analyst: 3DS Launch Could Lead To Higher Software Prices
July 26, 2010 | By Leigh Alexander

July 26, 2010 | By Leigh Alexander
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    18 comments
More: Console/PC



Nintendo's facing "weak" hardware and software sales, but it's the contraction in DS software that's been the most severe, says Wedbush analyst Michael Pachter -- who concludes that the company will likely leverage the launch of the 3DS to drive software prices on its portable platform higher.

Like many industry-watchers, Pachter was impressed by the 3DS' E3 showing, calling it a "revolutionary" device, and predicting "Nintendo will be able to sell millions of units even at a price of upwards of $250."

He continues: "From a software perspective, we believe Nintendo will be able to increase DS software prices, from a blended average of around $25 today to over $29 next year."

NPD results have indicated that the new Wii Sports Resort bundle with MotionPlus that launched in May helped raise Wii sales for the first quarter 4 percent -- but this growth was offset by a 45 percent decline in DS hardware units.

As a result, Pachter lowered his quarterly estimate for Nintendo to 215 billion yen ($2.47 billion) versus the 259 billion yen ($3 billion) previously projected. As the year continues, current sales weakness and the continued "drag" of exchange rates currently unfavorable to the Japanese yen will continue to be a problem for Nintendo, he says.

However, the analyst notes that the anticipated strong launch of the 3DS in the fourth quarter of 2011 should present a better outlook for fiscal 2012. Nintendo's fiscal year ends March 31, and its first quarter closes June 30.

"Despite Q1 weakness, we believe the company will track about in-line with its FY:11 guidance for DS hardware (30 million units) and software (150 million units) and Wii hardware (18 million units) and software (165 million units)," Pachter concludes.

"Wii unit sales should continue [to] accelerate due to the new bundle and a solid release slate (Super Mario Galaxy 2 in Q1, Metroid: Other M in Q2), while DS sales should pick up once the 3DS is introduced (by fiscal end March 2011). "


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Comments


Kale Menges
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It would not surprise me to see 3DS titles with a similar price point as big-name Wii titles ($40-50).

Owen McNamara
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With our economy the way it is, wouldn't a higher price point lead to increased piracy, as opposed to decreased? I realize $25 to $29 isn't much of a jump, but from what I hear of self-confessed pirates is that price is the biggest motive behind their illicit activities.

I know the US isn't the only place Nintendo is facing rampant piracy on the DS, but I'm curious how it'll affect the market here. I've always been a bargain-bin shopper, but the DS has always been attractive because of its affordability.

Keith Thomson
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The GPU for the 3ds isn't higher in polygon count than the PSP. The PSP and DS currently have price parity for games typically ranging from $20 to $40 for new titles. Both of them are lower than even the PS2 in polygon count, let alone the Wii. I'm not sure how much extra effort it would require to take advantage of the 3d features and improved effects and shaders. Maybe they could justify the extra cost there?

Jonathan Escobedo
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If the 3DS does even half of what it promised, I would still buy this. The 3DS sounds like a great handheld that will sell regardless of price. Question though: does anyone know if it supports backwards compatibility for GBA games? That was one of the things I didn't like about the DSi, and it's the sole reason I bought a DSLite after my original DS broke.

Josh Green
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I doubt there'll be backwards compatibility for anything beyond DS. How much you want to bet there'll be a Virtual Console instead which has GB, GBC, and GBA games?

DanielThomas MacInnes
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"I don't know about you folks but Pachter doesn't exactly have a good reputation as an analyst. Not among gamers. He always misses the mark with relevant issues. You probably get a better prediction asking some random guy on the street. "



Michael Pachter's history reveals not an independent, impartial financial "analyst," but an activist who aims to influence and manipulate the news cycle. There is no evidence that Nintendo, based on their words, their actions, or their history, that would suggest a price increase for 3DS games. The game industry, specifically third-party publishers, however, desire higher retail prices. This is evidenced by the retail prices for console games, as well as the aggressive push towards DLC.



In other words, this "analysis" feels like an attempt to influence and shape the news cycle, and push Nintendo towards higher retail prices. The industry is trying to maniuplate Nintendo for their benefit.



I've noticed that when the game industry was so heavily against Nintendo and the Wii, Pachter's predictions were of endless doom and gloom. He pushed the "Wii HD" farce for so long, Nintendo's executives had to call him out personally. Why was this done? For what reason would a financial analyst behave this way? Now, however, the 3DS is coming and Nintendo is aggressively courting third parties.



Remember that pricing has long been a crucial part of Nintendo's strategy. This should be obvious after the success of the DS and Wii. The 3DS is a disruptive move against Sony's foray into 3-D television. In order for this to succeed - that is, in order for Nintendo to gore Sony and smash their marketshare in 3DTV - pricing is crucial. Nintendo is moving very aggressively to secure developers so as to effectively lock out a potential PSP2, and to achieve that - pricing is crucial.



Is Wedbush doing business with any players in the video game industry? Do they have clients in the game industry? Are they seeking out clients? These questions need to be thoroughly examined before we proceed with any more predictions by Mr. Pachter. His track record is incompetent at best; manipulative and deceptive at worst.



Until these longstanding issues are resolved, Mr. Pachter should not be given any more attention by the press. More reputable and reliable analysts are needed. I suggest flipping coins.

Tim Tavernier
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I think I'm understanding why Pachter is making so many mistakes. His analysis is based on the principle of exploiting the existing last-gen market. All his "predictions" are always things that exploit the sheephead hardcore segment in a quite extreme way. Probably because he believes that companies that do this are the most successful in profit maximization trough revenue maximization



Nintendo needed to make a WiiHD because Pachter believes this allows Nintendo to earn more revenue from the market he knows the best: the sheephead hardcore. Everything "casual-market" related around his predictions are always off simply because he doesn't know it at all.



This man believes truly that the hardcore is just there to be exploited to the extreme and game-companies must do this or they will die. Talk about extremely old economic believes. This man really needs to read Christensen's books about Disruptive Innovation Theory or Schumpeter's Creative Self-Destruction.

Thomas Lo
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It's easy to make fun of predictions, but in fact most people are wrong most of the time. An expert will generally be wrong less of the time, especially in finance at a tactical level. So if Pacther were to predict console sales for the big 3 next month he would likely be closer to the real numbers than 95% of the people on this board.



However, analysts are also tactical and can miss big movements or trends (see subprime or more topically the Wii's dominance at launch). That being said, discounting his opinion entirely simply because he is wrong a few times or some arbritary "many times" is overgeneralizing the situation and is simply replacing his bias with your own.



So Pachter is making a guess, but it is an informed guess, and the true value is understanding the analysis and set of facts behind that guess rather than the supposition itself.



*****************************



Now back to the article at hand. I'm not sure if the 3DS will have as much legs. It is very cool but these types of technologies typically have bad viewing angles. Also, games will have to use 2 render 2 images at once no? I am unsure as to how the technology works but if its anything like other 3d tech, the GPU will have to render twice the frames per second it does on the DS in order to achieve the 3d effect. That might limit the overall render quality as a larger part of the system resources must be devoted to throughput.



I think the 3ds will have a bigger launch than the DS did simply because the audience for the DS is so much bigger than any GB audience and Nintendo simply has a much stronger brand than it did when the DS launched (and the gamecube was on weak ground). However, software drives sales. With greater competition from future iterations of the iphone, ipod touch, and whatever Sony comes up with; Nintendo needs to have some stellar content to maintain sales and differentiate itself from the competition, preserving its ability to have pricing power.

Jeremy Reaban
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I don't think that 3DS games will hit $50, but it wouldn't surprise me to see that $39.99 games are the norm, not the exception (mostly just a few Squenix and Nintendo titles currently go for that much on the DS)

Merc Hoffner
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@ Thomas



Not sure I agree. First off, I think a reasonable cutoff is when a prognosticator is wrong more than they're right. A while ago there was an article up analysing the analysts. Indeed Patcher actually was top of the pile, but his predictions were so far below parity that it was totally illogical to use his advice for anything. More logical would be to take the worst analysts hovering somewhere around the 0% accuracy rate and gauge the future by assuming the opposite. Most of the worst predicted (and sustained a view of) abject Nintendo failure on all fronts, utter win from Sony, and a close second place by Microsoft. In fact that tracks along rather nicely with my proposed strategy.



As for legs, well, I wouldn't care much for betting against Nintendo. They've roundly demonstrated that the 3DS is graphically capable, that success can be maintained against advanced competition even with outmoded hardware, that gains by Apple don't mean losses for Nintendo, that the right hardware innovation can send Sony into unrecoverable tailspins and that they can support their platforms without third parties. I'd turn your argument in reverse: With the competition presented by the 3DS and entire DS line, their advanced 3D technology and stellar lineup, not to mention an enormous and potentially fresh-all-over-again back catalogue, and a seemingly unlimited ability to create successful new gaming genres, Sony and Apple will have to do something incredible to stop Nintendo making inroads.

DanielThomas MacInnes
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Here are a number of links regarding Michael Pachter. Read, investigate, and enjoy. I think this should illuminate our subject and help answer some questions. Enjoy!



Google search for "Pachter predictions": http://tinyurl.com/22uyc3x



Google search for "Pachter wrong": http://tinyurl.com/24add35



Here is the webcast Bonus Round #311 from the end of 2009. Pachter is a guest. I'm offering this video as an illustrative example, most of all for Pachter's "Wii HD" fiasco. Document the atrocities: http://tinyurl.com/29y7frl



Finally, archives of posts about Michael Pachter from Sean Malstrom's blog: http://tinyurl.com/22t88p8

John Giordano
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Thomas,



Pachter is not a real analyst. He's a "sideshow analyst". He has advised Nintendo to make a Wii HD, Activision to charge for Call of Duty multiplayer, and now he's advising that 3DS games have higher prices. If I was an investor, I'd ignore this guy with a passion. If I was a game journalist, however, I'd be posting up everything he says. The crazier his predictions, the more hits my story gets!



Nearly everyone I've heard from that saw the 3DS at E3 has had positive reactions to the images. So I'm not sure where you are coming from in your criticisms. Have you seen it in person or are you just pulling your opinions out of thin air?



The real criticism that I have of the 3DS is whether or not it is expanding the market. We should all know by now that DS and Wii were successful because they brought in people that wouldn't normally play video games. For 3DS, Nintendo seems to be betting that the 3D images are going to bring in new customers which I'm not so sure about. The software, as well, doesn't seem to have anything that will attract new audiences. While I think it will sell well, I don't think it will maintain the dominance that the original DS has had.

DanielThomas MacInnes
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Two more Chronicles from the sideshow. The first demonstrates how far Pachter took his absurd "Wii HD" fantasies. He made this statement after Nintendo of America President Reggie Fils-Aime called him out personally:



http://gonintendo.com/viewstory.php?id=104452



Pachter: Reggie needs to get out more. I have no personal knowledge of a Wii HD, and I’m sure Reggie has no personal knowledge, either. With that said, I’m pretty sure that there is at least one other person who believes a Wii HD is coming. It makes too much sense for Nintendo to upgrade their hardware whenever they can (look at the DS, DSi, and DSi XL, for example), and I think that the next logical iteration is to add high definition. Let’s just say that I am confident that Nintendo will launch a new Wii SKU next year, and that they will call it a “Wii Plus.” My guess is that the new SKU will have HD functionality.



----------



In September 2009, Pachter declared that Nintendo MUST release a Wii HD. Not "they may" or "they possibly might," but "they must."



http://www.gonintendo.com/viewstory.php?id=96889



(On why Wii must go HD) Once the majority of households have HDTV (this should be year-end 2010 in the U.S. and year-end 2012 in Europe), the majority of households with consoles will begin to appreciate the inferior display offered by Wii games. The gameplay is great, but the experience would be more enjoyable in HD. Further, while Nintendo has its phenomenal first party lineup, third party games tend to be made "for" the Wii, and they're just not as good as the Xbox 360 or PS3 versions. Many games (GTA?) aren't made for the Wii at all. Ultimately, the Wii audience will grow more sophisticated, and will want games like BioShock and GTA, and they won't be offered on a Nintendo platform unless the platform can process content similar to what is offered on a 360 or PS3. That requires a hardware upgrade.



----------

Eric Kwan
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Not to rub anyone the wrong way, but the last prediction posted by Daniel is not wrong (yet). Pachter is saying that after the end of this calendar year, consumer interest in the Wii will decline, forcing Nintendo to do something about it. Since the year isn't over, and given that Wii software sales are seemingly declining, I'd say it's still too early to call Pachter wrong on this one.

Fábio Bernardon
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@Eric Kwan And perhaps the whole industry has not predicting that since the Wii itself launched? Well, sometime it will decline and consumers will loose interest. That will happen. But it didn't happen the past 4 years. Maybe this time then...

Eric Kwan
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@ Christian: "So unless something dramatically changes in the next 9 months..."



So, then, as I was saying, since the time frame for the prediction has not yet come to pass, it can be neither right nor wrong. For an abstract example, if I were to predict that you will have salad for dinner tomorrow night, you can't tell me right now that you didn't. You can tell me that you won't, but I still wouldn't be wrong about it until after tomorrow night.



As for your 9 month waiting period, a whole lot of things can happen in that time frame. I'm not trying to suggest that anything will happen, per se, but unpredictable things certainly can happen.



@ Fabio: I don't see where you're going with that comment. Perhaps you misinterpreted what I was saying earlier?

Fábio Bernardon
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@Eric

I am only saying that the whole "Wii decline" predictions have been going on since the Wii launched. If Patcher finally got the right year, it doesn't mean he can predict anything. I can also say all 3 consoles will decline and fate, and it will eventually be true.

Eric Kwan
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Oh, gotcha. I agree with you there, too, and I don't give Pachter anymore credit than anyone else does. I was just saying that we shouldn't be calling a prediction wrong (or right) before its deciding time has come to pass. Doing so prematurely would be hypocritical, as we would be criticizing a prediction with just another prediction.


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