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Nintendo's Difficult Path Forward

April 30, 2013 Article Start Previous Page 2 of 4 Next

Nintendo 3DS: Holding Steady

The Nintendo 3DS is, by far, the brightest part of Nintendo's business right now. After that awkward first few months, and the subsequent price drop, the company has done reasonably well with its current handheld system.

I argued last year that Nintendo's global handheld business was stable, shipping around 17 – 19 million systems every 12 months. Since that time, the annual rate of handheld system shipments has dropped to 16.3 million, the lowest rate for Nintendo in a decade. The last time the company's handheld business fell that low was September 2004, right before the introduction of the original Nintendo DS.

Out of the 16.3 million systems sold last year, 14 million were Nintendo 3DS systems. For the current fiscal year, ending in March 2014, Nintendo has set a goal of 18 million systems, an increase of 29 percent.

The U.S. market presents a significant challenge to reaching that 18 million unit goal. So far this year, Nintendo 3DS sales are actually down 20 percent in the U.S. In Japan, it appears that 3DS hardware sales are also down, but not nearly as far as in the U.S. (I'm not aware of a reliable source of hardware sales for Europe.)

While a strong slate of software can help turn hardware around, it's hard to say how far Nintendo can go. At the very least, Nintendo has some good news in the 3DS software department. In the U.S., my figures indicate that 2013 retail software revenue on the Nintendo 3DS is up about 6 percent, and that doesn't include all the digital revenue from Fire Emblem Awakening, which has seen extremely robust sales through Nintendo's eShop. On the other hand, my figures indicate that 3DS software sales in the UK so far in 2013 are down about 20 - 30 percent in terms of both units and revenue. It's possible that some of that loss is due to eShop sales, but I don't think that you can say that's all of it.

To reach its hardware goal for the year, I think that Nintendo will have to do more than just offer a great lineup of software titles. More than that, it will have to show some movement on hardware pricing.

At a comparable point in its lifetime, the Nintendo DS hardware line got its first revision, the immensely popular Nintendo DS Lite. Lifetime shipments of the Nintendo DS are about to well exceed the current 3DS shipments. As the graph below shows, the Nintendo 3DS is now even behind the Game Boy Advance at a comparable point in its lifetime, and will remain there even if Nintendo reaches its 3DS goal for this fiscal year.

I've made it clear previously that I favor adopting annual hardware revisions to push out older models and keep the system looking fresh against the nonstop rise in mobile hardware improvements. For example, a $130 price for the original Nintendo 3DS, then $170 for the Nintendo 3DS XL, and finally a newer model at $200.

That would provide a straightforward way to increase the user base without sacrificing too much of Nintendo's hardware margins, since any margin loss when dropping the price of the low-end models could be mitigated by a top model's inflated price.

There are other possibilities, like a great software bundle that attracts new consumers, but I think lowering the price of entry is the most direct way to stimulate consumer demand.

Article Start Previous Page 2 of 4 Next

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