With the successful launches of the Xbox One and the PS4, it’s been easy to forget that the latest console generation started in November of 2012 with a dud. Nintendo’s Wii U launched with what seemed to be a respectable 400,000 sales in the U.S. By January, though, it was clear the Wii there was trouble. Sales fell to an anemic 57,000 units, setting off a chain of lower forecasts and reduced earnings for Nintendo that can now only be described as a full-on crisis. The company just said Wii U sales for the fiscal year ended in March will only be one third of what was expected.
But Nintendo’s problems don’t end there. The once unassailable 3DS handheld is also in free fall. Instead of selling the 18 million the company expected, it will deliver a third less. Those results are down from last year and worse still for Nintendo, game sales on the 3DS will be down 15%. For a long time, the belief has been that the effect of smartphones on Nintendo sales has been limited. It’s no longer possible to make that case.
To get a sense of how brutal these figures are, some comparisons are in order. The Wii U is now expected to sell 2.8 million units for the year ending in March instead of 9 million. Sony’s PS4 sold 4.2 million units since its launch in November, Microsoft’s Xbox One has managed more than 3 million. Both are far more expensive than the Wii U. And while all new consoles suffer from limited game lineups, the Wii U having been out for more than a year now has a wide selection of titles to choose from.
Nintendo spent the fall putting a brave face on the situation. With the release of The Legend of Zelda: The Wind Walker, sales rose strongly and the company continue to maintain the 9 million unit forecast long past the time it had to know it was going to fall far short. But perhaps no one could have expected a shortfall of this magnitude. The 2.8 million units in the 12 months ending in March will be down 20% from the brief period between last year’s launch and the end of the prior fiscal year — a total of less than 6 months. And it’s clear the $50 price cut from the fall was insufficient to drive sales through the holiday season.
Basically, at this point Nintendo would be lucky to even match that sales total in the upcoming fiscal year, suggesting the console could be headed for orphan status. Nintendo has been down this path before, having failed to gain traction behind the Game Cube in the early 2000s. The difference between then and now was that Nintendo’s handheld business wasn’t under assault from iPhones, iPads and the multitude of Android devices on the market. Things have changed.
The 10-year-old Nintendo DS has sold more than 150 million units and still manages to move a respectable 10 million annually. But the newer 3DS was expected to grow to nearly twice that in the current fiscal year and will instead shrink from last year’s total to 13.5 million. Together, that’s still almost 24 million portable Nintendo’s, which is why Nintendo won’t disappear overnight. But compared to smartphone sales, those represent statistical noise. More than 200 million tablets and a billion smartphones were delivered in 2013 and a significant number of them can be seen in the hands of children who used to grow up playing Nintendo.
Nintendo CEO Satoru Iwata believes part of the company’s struggles are that its customer base doesn’t yet have children. “Nintendo fans, for whatever reason, do not have as many children as Microsoft fans and therefore less Nintendo fans are being born each year,” he said in October. “This is why I am encouraging people who purchase Nintendo products to begin having children as soon as possible.”
It’s hard to tell if this was supposed to be taken seriously, but the situation for Nintendo is quite dire. A whole host of young people in the U.S. get an iPod Touch or iPad placed into their hands if their family has any disposable income to speak of. And that device can not only play the kind of casual games the Nintendo handhelds were famous for, but also deliver the same video 1000 times over as well. With 42% of U.S. smartphone owners now having iPhones, the center of gravity has shifted far from Nintendo’s world. It’s unlikely to shift back.
Thus far, the company has resisted many calls to make its popular games for other platforms, a strategy pursued by one-time rival Sega when it left the console business. Whether such a move could save Nintendo or not is certainly open to debate. Mario, Donkey Kong and Zelda games would doubtless be popular on Android and iOS, but the business model for $1.99 games is uncertain and adapting those games for the more lucrative in-app purchasing model mastered by hits like Candy Crush Saga is no easy feat.
What is clear, however, is that increasing sales of the Wii U and 3DS from here will be a near impossibility without further price cutting. And given that Nintendo is now forecasting 36% lower sales and 94% lower profits than they had hoped for, that kind of pricing action may well be beyond its financial wherewithal. It’s going to take something miraculous to save the once beloved game maker from a slide into oblivion. And it’s hard to see what that could be right now.