<mosaic.cnfolio.com>
Electronics Manufacturing – M528

The Nintendo Wii


Nintendo Strikes Back


Ata-Ur-Razeque Talukdar


While Sony’s Playstation 3 and Microsoft’s Xbox 360 battle to become the king of the console castle, the Nintendo Wii seems to have snuck in the backdoor. The latest console war is now beginning, with three of the four companies from the last generation returning with new consoles. The Xbox 360 was the first to arrive; the console launched in November 2005, with the Playstation 3 and Wii both following in November 2006. Innovation is what the Nintendo Wii has used to distance itself from the other two consoles, which boast HD graphics, multi-processor power and an array of media capabilities. The Nintendo Wii has been designed to not only capture the so-called ‘hardcore’ gaming market, but also the mass market. This makes the Wii a tremendously valuable product in today’s industry.


The Market Is Changing

The video games market is changing. Gamers are becoming smarter about the games they buy; the way games are made is changing, with soaring budgets and extreme attention to detail, plus the ever-changing lifestyles of videogame consumers in a world increasingly interlinked thanks to the Internet. To this end, Nintendo has elected to go to a different path to its rivals, the path of innovation. The Nintendo Wii’s remote-like wireless controller has highly accurate motion-sensing technology to allow interaction between the user and the game like never before. Paired with the ‘nun-chuck’ attachment, the Wii is able to perform as well as, if not better than normal controllers for some traditional genres such as RPGs (Role-Playing Games) and Adventure games. However, it has the potential to completely change and outclass games in genres like FPS (First-Person Shooter), Racing and Sports such as tennis and bowling. It is this potential and ability to adapt, which will propel the Wii into the top spot for this generation. Where the other two consoles are evolutions of their predecessors, the Wii is a Revolution of the way people play games. This approach has already proved to be popular with the mass market and ‘hardcore’ gamers alike.


Racing Vs FPS


A Look Into The Past

Although the games industry is still relatively young, its history shows a number of interesting facts that could be used to paint a clearer picture of the future. Firstly, the first console to be launch in generation over the last decade failed to gain the number one spot in the end. In fact, the Sega Saturn and Dreamcast both came last by a long way. Secondly, the most powerful console in the past two generations also failed to win the console war, with the Nintendo 64 and Xbox both coming second. The Playstation and Playstation 2, which both came first in their respective generations, catered for the mass market with a broad range of games across all genres and support from many developers. The Nintendo 64 and Gamecube both failed because of a lack of developer support, but the Wii is looking extremely strong in this area.

The Playstation 3 is the most powerful console of this generation and the Xbox 360 was the first console to launch, so even on past form the Wii fits the right criteria to win.


Old Generation


Money In Mind

As with all commercial industries, the main objective for most companies in the games industry is money. The satisfaction of consumers, the image of the companies and the talent to create games, for companies these are all objectives to achieve the ultimate goal, which is to make money. The Nintendo Wii has this goal in mind not just for Nintendo, but also for consumers and publishers in the industry. With development costs continuing to rise on the Playstation 3 and Xbox 360: Playstation 3 development costs are said to be $15 - $20 million developers, including big-names such as EA (Electronic Arts), are increasingly defecting to the Nintendo Wii where $5 - $8 million is more typical (Ehrenberg, 2007, Para. 5). A huge following from publishers and developers will help the Wii to broaden its library just as the Playstations have done before it to dominate the market.


Graphics

(The difference between the graphics alone illustrates the fact that the Playstation 3 takes much more money and manpower to develope for it)

Throughout the history of the games industry, console hardware has always made a loss to start with on the basis that the software will produce the profit, but with the Wii Nintendo has achieved a low retail price for consumers at the same time as making profit on each hardware unit sold from day one (Surette, 2006, Para. 4-5). "We designed it from the get-go to be profitable”, were the words of Reggie Fils-Aime, President of Nintendo of America (Maestri, 2006, Para. 14). By comparison, the Playstation 3 is estimated to be losing nearly $250 on each unit sold (Goldstein, 2006, Para. 1-2), making it difficult to lower the price in the near future. Whereas, Nintendo is in a prime position to lower the price of Wii whenever it needs to raise demand again.


The New Generation

Nintendo’s strategy, which it describes as an Ocean Blue strategy, is not unique to the Wii and there is a precedent. The company did the same thing with the Nintendo DS when it launched in 2004, shunning the high end graphics and processing power seen in the PSP (Playstation Portable), in favour of two screens and touch sensitivity in one screen. At first it was met with caution and doubt by the consumers and developers alike, but the DS quickly became a runaway success by bringing in the mass market, leaving the technologically superior PSP far behind. The DS has sold 40 million units so far and Nintendo has forecast another 22 million to be sold in this fiscal year (Burman, 2007b). Nintendo hopes to emulate this success, rather than do something that puts the company at unnecessary risk of a third loss in a row in the home console market. The DS shows that the strategy behind the Wii is sound and could be an indication of the kind of success the Wii could enjoy.


DS Wii DS


Demand Dictates Success

The video games industry like many others is subject to demand and as such, demand for a console is key to its success. Demand for the Xbox 360 has been fairly consistent since its launch in 2005, which enabled it to sell 10.4 million units by the end of 2006 (Sinclair, 2007, Para. 6). The Playstation 3 has failed to make an impact beyond launch in each region, with units sitting on store shelves soon after launch. This fact was highlighted at the UK launch where the Playstation 3 sold 165,000 units in the first week, breaking the previous record, only to see sales fall by 82% in the second week (Martin, 2007). The lack of demand even lead to some retailers reducing the price less than two weeks after launch (Burman, 2007a). So far the Playstation 3 has sold around 3.25 million out of an estimated 5.5 million (PlayStation 3, 2007). In contrast, Nintendo has been out of stock in stores worldwide since it was launched 5 months ago, despite around one million consoles being shipped to retailers monthly. The Wii is miles ahead of the Playstation 3 in sales, with 5.84 million units sold and demand still extremely healthy (Burman, 2007b).


The First Four Months


The Nintendo Wii Will Win

The Nintendo Wii will win this next-generation console war. Its lack of High Definition graphics and multimedia capability can be used to keep the price of the console much lower than its competitors, without taking anything away from its core function: Gaming. While its competitors struggle to sell units, soaring demand for the Wii and the promise of increased production from Nintendo (Gibson, 2007), mean that the Wii has every chance of going ahead of Microsoft and leaving Sony behind in the next year alone. This in turn, will rally more developers and publishers to the Wii’s cause, which will broaden the Wii’s library of games and encourage more consumers to purchase Nintendo’s console. On top of this, Nintendo could launch more colours of the hardware and drop the price to increase demand even further if it needs to, as well as some of their biggest franchises coming within this financial year including Super Mario Galaxy and Metroid Prime 3.

Nintendo has forecast 14 million Wii consoles to be sold in the fiscal year 2007/2008 (Burman, 2007b), but their estimates are often conservative. Based on this fact, plus the support of consumers and companies, expect the Wii to sell around 16-17 million units in this fiscal year to bring the total number of units sold to around 22 million, with the Xbox 360 selling another 10 million due to the inevitable price drop and slow, but sure rise in HDTV adoption, plus the biggest release so far: Halo 3. The Playstation 3 will also have to have a price drop, although this will not be easy on Sony’s profits and it is unlikely to be big enough to propel sales sufficiently. For this reason, expect Sony to sell around 13 million units, as more games become available, plus it will see its first Christmas in Europe.

By 2011, when the next generation will likely begin, the Wii can be expected to have around 50% market share from the mass market expansion and third party support, while the Playstation 3 and Xbox 360 battle it out for the other 50%. The Wii has now gained momentum and Nintendo must ensure that supply begins to catch up with it. Nintendo is striking back and no one can stop them.


Super Mario Galaxy


Referances

Burman, R. (2007a). UK Stores Cut PS3 Price. Retrieved April 26, 2007, From
http://uk.ps3.ign.com/articles/778/778589p1.html

Burman, R. (2007b). Nintendo's Profits up 77%. Retrieved April 26, 2007, From
http://uk.wii.ign.com/articles/783/783712p1.html

Ehrenberg, R. (2007). EA Revisited: Playing Catch Up on the Wii, Waking up to the Failure that is PS3. Retrieved April 26, 2007, From
http://www.informationarbitrage.com/2007/02/ea_revisited_pl.html

Gibson, E. (2007). Nintendo to ramp up Wii production. Retrieved April 26, 2007, From
http://www.gamesindustry.biz/content_page.php?aid=24582

Goldstein, H. (2006). Sony Losing Almost $250 per Console. Retrieved April 26, 2007, From
http://uk.ps3.ign.com/articles/746/746482p1.html

Maestri, N. (2006). Nintendo bets on the Wii to expand video game market. Retrieved April 26, 2007, From
http://www.reuters.com/article/technologyNews/idUSN1746162520061117?pageNumber=1

Martin, M. (2007). PlayStation 3 hardware sales plummet 82 per cent. Retrieved April 26, 2007, From
http://www.gamesindustry.biz/content_page.php?aid=23977

PlayStation 3. (2007 ). In Wikipedia: the free encyclopedia. Retrieved April 26, 2007, From
http://en.wikipedia.org/wiki/Playstation3

Sinclair, B & Feldman, C. (2007). Microsoft game division sales spike. Retrieved April 26, 2007, From
http://uk.gamespot.com/news/6164755.html

Surette, T. (2006). Reggie: Wii makes $$$ immediately. Retrieved April 26, 2007, From
http://uk.gamespot.com/news/6157690.html