It's not a bad read, with some interesting data from one of the big playas in the industry.
Several points (or omissions) were of particular interest to me:
- Teh Global Ekonomies Sux
- What We's Done is not What We's Gonna
- DS Will Make PS2 Its Be-otch
- Reading This? They're After You
- Philosophy as Applied to World Domination
- Wii Hotness at E3
- Wait -- It Ain't All About Us?
- Japan -- Not the Center of the Universe
- Hey, Number Two!
Teh Global Ekonomies Sux
The global economic downturn is affecting everyone -- Nintendo included. They have been arguably significantly less hit to date, but they set expectations in the report that the boom could lower further, and they have some interesting year-to-year and quarter-to-quarter comparisons where they factor in recent and historical appreciation impacts to the euro and yen.
What We's Done is not What We's Gonna
Interestingly, due to their increased market install base, Mr. Iwata said Nintendo will be changing the rapid business model nature for their hardware cycles, for which they've previously been known.
This is at least true for the DS family, but the implication is that it is across the board (including the Wii).
"Since technology continues to evolve, I do not think any hardware can enjoy eternal life. Someday, we will need a new platform for sure, and of course, Nintendo is always preparing for that. However, now that our customer base has expanded this drastically, we do not think it appropriate to conclude that past platform lifecycle theory can and should be applied to the current generation."
I re-state this as, "Investors, don't plan on new products from us as often as you're used to."
DS Will Make PS2 Its Be-otch
Nintendo is continuing its positioning of the DS -- not the Wii -- against the PS2 for household penetration (and while not stated as such, this is their beachhead strategy).
Reading This? They're After You
Nintendo is growing their "installed base in accordance with the total population, [where] the ultimate business potential should be decided by how many people populate the market". This is tempered by the fact that "they are theoretical potentials and not the actual demands of today" (smart folks ;-) .
This factors into Nintendo's strategy change from a "one DS per household" to their "one DS per person". They have to do this in Japan (see below), and makes sense as a strategy across the board to grow addressable market worldwide.
Philosophy as Applied to World Domination
"... what matters most in our business is not necessarily the effects of the changing economic conditions, but whether or not we are able to provide customers with new proposals and services that are hard to resist one after another before they bore of the old ones. The former president of Nintendo, Mr. Hiroshi Yamauchi, often told us, 'In the entertainment business, there are only heaven and hell, and nothing in between,' and 'as soon as our customers bore of our products, we will crash.'"
Wii Hotness at E3
Innovation is going to be needed to continue growth of the Wii, and Iwata said E3 will see some innovative software for the Wii (bring back the glory days of E3!).
Wait -- It Ain't All About Us?
Nintendo is finally thawing on the importance of third-party development, citing the significant increase in those titles selling million units plus (for both Wii and DS), and forecasting the trend to increase. Good thing there's middleware for those folks. ;-)
Japan -- Not the Center of the Universe
Japan has nominally been the nucleus of the gaming industry for years. Has been.
Lately, that part of the world has had a tough time holding onto that particular gaming crown, with big-gun Japanese creative directors and producers saying there is more innovation in the West, Microsoft being the first major platform vendor to basically eschew the Japanese gaming market (even as a beachhead), and Sony focusing tremendously more effort on the U.S. and EU markets (and even third-country developer markets with their legacy PS2 tech).
Add to that Nintendo's "Nintendo Japan First" perception, and you have a global business situation the company needs to address quickly and, thankfully, looks like it is (or it at least it acknowledges it).
I don't have any particular insight, but my sense is Nintendo's various regional headquarters cooperate as well as at least pre-public payments company Visa (made up of its various Visa territories) did.
That is, they don't.
I would be surprised if NOA, Nintendo EU, etc. had as much pull as Japanese-headquartered NOJ. I would be shocked if Nintendo employees of a senior title in the EU had has much influence or information as a person of the same title working for the corporate headquarters. I would be overjoyed if worldwide companies like Nintendo (because this isn't endemic to just to the House that Mario Built) acted like one company, and empowered their peer regions to break open their respective markets with third-party developers, publishers, and retail channels?
Don't think it's a problem? Take the one retail example of slowdown in Wii sales for Japan due to significant overstock, with a stalling of Wii sales in the U.S. and EU due to massive understock (compounded by not being able to just swap localized stock)?
But, like I said, Nintendo at least seems aware of the problem, acknowledging quicker saturation of the addressable market there, and recognizing the downside of quicker brand / retail dissemination being quicker commodity fatigue. they also point out the business significance of things like the DS "showing a rather unique development in each territory". (The biz dev weenie in me likes these numbers and charts.)
Also as a biz dev guy, at the very least, I'd like to see Nintendo not repeat mistakes made in the last console iteration (mistakes arguably being repeated by Sony this generation). But at most, I'd like to see them (and all of the platform makers) knock it out of the park.
Hey, Number Two!
I laugh at "Positioning 101" stuff like this.
Making another comparison to Visa, keep in mind their "but they don't take American Express" campaign wasn't aimed at #2 competitor MasterCard, but #3 American Express. They didn't acknowledge #2, implicitly training their addressable market that you shouldn't either. (Sure, there are other factors for their targeted campaign, like Visa wanted more of that lucrative travel and corporate market, and MasterCard's "Priceless" campaign is tough to do a competitive response campaign.)
Who's not mentioned in Nintendo's fiscal report? They've got freaking graphs showing them compared to Sony's PS2 and PS3, but they don't acknowledge Microsoft -- intentionally, I'm sure.
Microsoft wasn't even supposed to be a contender in the last generation, when they launched their first console offering. And independent of their arguable Perot-affect on Nintendo during that round, they nonetheless established themselves as a contender in and of themselves. This round, they were first out of the gate, have a robust install base and first- and third-party catalogue, have weathered their self-induced hardware failure challenges, and have the premiere online service to beat -- especially when put up against the comparatively non-existent services offered by their competitors.
I don't think it's incidental that they're omitted from Nintendo's presentation.
Summary
I'm wicked impressed with Nintendo, both in terms of the creative legacy they've given me and the industry, and in their smart, non-standard business practices (rapid cycling of handheld hardware, Wii as a blue ocean offering not directly competing with Microsoft and Sony, etc.).
I also like how they seem to be adjusting to changes in the global economy, geographic industry power shifts, and challenges brought about their own install base and related scalability successes. I just hope their agile in their response.
And things are going to get more competitive, at the same time that they get more nebulous. Everybody's scrapping to hold onto their place, and/or be #1, at the same time that we enter this "bubble" in preparation for the next iteration of consoles, which many believe to be 2011 or 2012.
It's interesting now. But the ride's about to get a lot more fun ...
4 comments:
Nintendo is paying lip service to third party developers/publishers, IMO. It is even harder on Wii titles for independent developers (where IMO most innovation will happen over the next 1-2 years) to get enough publisher dollars to make it worthwhile to DO a Wii title. Most of the time, it seems to be thrown in as an afterthought port. "Oh, hey, if we give you $500k will you port it to Wii? Mmmkay, Thank you."
And rumor is that, just as Nintendo is saying in their financials that they have newfound love for third party developers, they've apparently just raised the COG for DS titles on the publishers. EA is rumored to have cancelled a few titles in retaliation. I do not know the accuracy of this rumor, but...
I am not that well versed in the gaming industry (in 2008 I finally upgraded my Commodore 64 to the Nintendo Wii) but it seems that Nintendo has a strategy for growth and a history of innovation. Clearly they are heading towards differentiation vs. cost leadership. You do not achieve this fact: "the U.S. video game industry in 2008 showed 19% growth in its sales over 2007. The statistics attest to the fact that 99% of this retail sales increase was contributed by Nintendo hardware and software." by reducing cost.
Nintendo is kicking ass - no question. Especially on the Wii.
But I have to wonder about something - the rate at which they are producing what I call, as a guy that enjoys hardcore gaming titles, "crappy" games.
For example, in the Wii catalog (and in some cases, the DS catalog) titles such as:
- All Star Cheer Squad
- Animal Crossing: City Folk
- Balloon Pop
- Barbie Horse Adventure: Summer Camp
- Body Coaching
...and on, and on.
Now, I know things like the Wii-fit are fun - but I don't actually know anyone who owns a Wii in addition to an XBox 360 and PS3. For example, I own both of those consoles, and would never dream of buying a Wii.
Now, these types of games are easy as hell to produce. Game shops like EA, Konami, Capcom, etc... have to see how cheap these things are to make, and how much they sell - compared to multi-years and millions of dollars invested into something like a Metal Gear Solid 4.
It seems as though Nintendo will continue on the path of commoditzing the video game space. Produce mass amounts of games on the cheap and saturate the market with things like "Dress Barbie for First Year Calculus Class."
But it makes me afraid for the future of the titles I enjoy (Fallout, MGS, Half-life, Ninja Gaiden, etc...).
Will the other big gaming companies start to focus more on creating smaller, less intensive titles that eek out profit (and just produce tons and tons of them) instead of investing years of man-power and millions of dollars in to the hardcore titles?
Sony is already have a helluva time (and making GROSS missteps in pricing - there is a great example of when you should be doing value-based and not cost-plus) trying to clear the shelves with the PS3.
I get scared to think it's only a matter of time before the gaming shelves at Best Buys and EB Games are covered with Hannah Montana instead of Ryu Hyabusa.
Juat to clarify, that's not me commenting on my own post above.
That Adam above is a Product Manager for a technology start-up in Canada, took a semi-similar path to mine into this whacky (and critical) vocation, and runs a targeted blog of his own.
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