Seeking a new high score: Nintendo vows to fight back

After dominating the games console sector for several years, Nintendo's Wii is running out of steam

In Playing to Wiin, author Daniel Sloan described Nintendo's rebirth as the leading player for video game console sales in the past five years as "the video game industry's greatest comeback". Yet as the technology for the best-selling Wii and DS consoles has aged, sales have slowed; against a background of increasing competition, the company is being forced to bet heavily that the Wii's successor can keep it on top.

In a presentation to games developers earlier this year, Nintendo president and chief executive Satoru Iwata warned there was much uncertainty in the industry, adding: "Our world is changing."

How right he was. Nintendo's sales peaked in the 12 months to the end of March 2009 at Y1,800bn with a profit of Y279bn. The company's latest full-year results, published on Monday, showed declines for a second year in a row with sales of Y1,000bn and profits down to Y77.6bn.

While the popularity of its consoles struggled to match its earlier popularity, and software has become cheaper, the company has also been hit by the appreciation of the yen. The earthquake did not affect production but it fears consumer spending could slow as a result.

The numbers were "fairly expected from the trends we have been seeing in the market", says Piers Harding-Rolls, senior analyst and head of games at Screen Digest. "The console business is very cyclical. There is an investment period as it designs the new platform. Nintendo is ramping up that investment at the moment."

Sales of the Wii were down almost a third to 15 million in 2010. "That's a hefty decline in anyone's book," Mr Harding-Rolls says, "but it is still outselling its rivals." Sony's PlayStation 3 sold 12.5 million during the year and Microsoft's Xbox 360 sold 11.8 million.

Nintendo admits the Wii is coming to the end of its natural life. The industry tends to work on five- to six-year cycles, a spokesman for Nintendo says. The Wii was first launched in 2006 and the company president has admitted that developers are beginning to struggle with the old platform. "It is difficult to surprise people with the current model," the spokesman adds.

Mr Harding-Rolls said: "It is the nature of the business: sales ramp up until they get to a peak phase of spending on hardware and software. The console sales tail off and while software normally holds up, the price often comes down."

He added: "You get these waves of adoption and then transition. Nintendo is in the latter stage now: investing heavily and not making the profits they did before."

The Nintendo console had stolen a march on its rivals, Sony PlayStation 3 and Microsoft's Xbox 360, with its motion gaming. Its real success lay in the ability to extend the appeal of video games to demographics beyond that of the traditional gamer. Not only have its rivals caught up with motion gaming themselves, they have now left Nintendo trailing.

Jia Wu, senior analyst for Strategy Analytics, says: "The Wii, PlayStation 3 and Xbox 360 are all of the same generation but in terms of specs [specifications], the Wii was lagging. That's why it has had to move to introduce new hardware earlier. The others have extended the life cycles with new motion products."

Last year, Sony released the Move motion controller for the PlayStation 3, and has shipped eight million devices so far. The Xbox Kinect, which requires no controller at all, has become the fastest-selling consumer electronics device on record, according to Guinness World Records. The hardware sold an average of 133,333 units per day for its first 60 days after its launch in November, outstripping both the iPhone and the iPad over the equivalent period.

Nintendo plans to launch its follow-up to the Wii in 2012, it said yesterday. It will show off a playable model of the new system at the industry's showpiece event, the Electronic Entertainment Expo, or E3, in Los Angeles in June. Analysts believe the specs will have to outstrip all of its current console rivals.

Mr Harding-Rolls says: "Motion control is an accepted standard now, so the successor to the Wii will have to bring something totally new to the table. Their planning will be fairly advanced."

However, it is not just competition from its console rivals that will be worrying Nintendo's senior management. "There is more competition in the market now, and there are more platforms to play games on," Mr Harding-Rolls warns.

The rise of smartphones has taken some of the casual-gaming market, while another games platform gaining traction is those played on social networks. This includes popular titles such as FarmVille. Phones especially could hit sales of Nintendo's 3DS. The follow-up to its extraordinarily successful DS brings glasses-free 3D to handhelds for the first time, yet the company revealed this week it had missed sales targets.

The 3DS went on sale in February in Japan and a month later in the US and has so far sold 3.6 million devices. Over the same period, it sold 17.5 million of the original DS, bringing total sales of the device to 146.4 million. Mr Iwata said: "Sales of the 3DS have been weaker than expected," adding: "There aren't yet so many people who are absolutely sure that now is the time to buy it. Some people may be waiting, thinking that there aren't yet enough software titles that they want to play."

Nintendo believes that sales of the 3DS will pick up throughout the year, saying its customers did not tend to be early adopters who queue to snap up the device on launch day.

Mr Harding-Rolls warns that despite increased competition, it would be foolish to write Nintendo off. "This is a very innovative company and it is hard to bet against them," he says. "But it will be harder to develop something completely disruptive."

Not everyone is so sure. Mr Wu of Strategy Analytics says that the original Wii had turned around the fortunes of a company whose sales were flagging badly in 2006. "If this new console doesn't perform, the company will be in trouble. It is betting a lot on this," he added.

In Playing to Wiin, Mr Sloan said Nintendo's recent history was of a "company in an existential crisis that has not only found its way but regained the mantle of an industry leader". It may be facing more challenges before too long.

Start your day with The Independent, sign up for daily news emails
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?