A day that SEGA fans thought would never come has arrived: SEGA has entered into a deal with Nintendo where Nintendo consoles will get the next three Sonic the Hedgehog titles as platform exclusives. The once bitter rivals are calling this a “worldwide partnership,” which despite being a bit short on details apparently leads us to believe that SEGA will be developing additional new software for the Wii U and 3DS consoles going forward.
The next three Sonic titles will include Sonic: Lost World, Mario & Sonic at the Sochi 2014 Winter Olympic Games, and a third unannounced title that the company is expected to officially announce at E3. The reason for the Sonic exclusive deal has to do with the past performance of Sonic titles on Nintendo consoles, and since they have proven to be good sellers, the deal does seem to make a lot of sense for both companies.
What is more interesting, however, is the other aspects of the partnership that will see additional titles developed for the Wii U. Nintendo needs all of the software support it can get for the Wii U, and just getting SEGA to continue to release new titles for the Wii U is a good thing. Sources tell us that SEGA has some new Wii U titles planned for announcement at E3, but it isn’t known exactly what SEGA might be cooking up.
While a big deal with Activision or Take-Two is really what Wii U owners might want, at least getting SEGA to continue producing Wii U titles is a positive news thing. It does remain to be seen, however, if SEGA can deliver the kinds of titles that will be successful sellers on the Wii U when so many owners are looking for the big titles from some of the other publishers.
Electronic Arts may be through with the Wii U. According to a Kotaku report, EA has confirmed that it is no longer working on Nintendo’s new console.
“We have no games in development for the Wii U currently,” EA’s Jeff Brown is quoted as saying. Brown did not indicate if EA would resume development on the system in the future
Earlier this month, EA confirmed it would not be bringing this year’s Madden NFL 25 to the Wii U. At the time, a representative said, “We have a strong partnership with Nintendo and will continue to evaluate opportunities for delivering additional Madden NFL products for Nintendo fans in the future.”
EA has released four games for the Wii U to date. The first three (Mass Effect 3, Madden NFL 13, and FIFA Soccer 13) were system-launch-day ports of titles that had shipped earlier on other platforms. The fourth game, Need for Speed Most Wanted, hit stores in March, months after that game debuted for Xbox 360, PlayStation 3, and PC.
The brief duration of support for the Wii U is surprising given EA’s vocal endorsement of the system at Nintendo’s 2011 Electronic Entertainment Expo media briefing. To cap off the event, then-EA CEO John Riccitiello promised the publisher’s support for the system. Brown told Kotaku that the quartet of titles already released represented EA making good on that promise.
Nintendo representatives did not immediately return requests for comment.
The person acknowledged that other parties were involved, adding that DirecTV was “one of many” suitors. Media reports have previously identified Time Warner Cable Inc as another company weighing a potential stake in the company.
Representatives of DirecTV and Time Warner Cable declined to comment on Friday.
Reuters reported in April that former News Corp president Peter Chernin had bid around $500 million for Hulu, the service he helped create in 2007. Reuters also reported that Guggenheim had been hired to advise Hulu and was also contemplating a bid.
DirecTV had circled Hulu once before, when the video company put itself on the block in 2011. Other suitors at the time included Google Inc,Amazon.com Inc and Dish Network Corp. Talks collapsed over the price of that deal.
Hulu has more than 3 million subscribers paying $7.99 a month for its premium service, and generated revenue of around $700 million last year. It sells advertising for its free service.
The Wall Street Journal was the first to report DirecTV’s interest late last Friday.
Revenue for the social networking company increased to $1.46 billion for the quarter ended March 31, up 38% from $1.06 billion from the same period last year.
The company’s advertising revenue was $1.25 billion, representing 85% of Facebook’s total sales and a 43% increase from 2012′s first quarter, the company said. Mobile advertising revenue constituted 30% of the company’s total ad revenue.
Facebook posted net income of $219 million for the quarter, up 7% from the year-ago quarter. The company’s net earnings per share were 9 cents, less than the consensus expectations of 13 cents in a poll of analysts by Thomson Financial.
“We’ve made a lot of progress in the first few months of the year,” Facebook CEO Mark Zuckerberg said in an earnings announcement, also citing “strong growth and engagement across our community.”
Facebook’s daily active users were 665 million for the quarter, 26% more than last year. Monthly active users increased by 23% to 1.11 billion, the company said.
On mobile, monthly active users increased by 54% to 751 million. Facebook did not disclose numbers for mobile daily active users.
The mobile ad revenue gains Facebook reported Wednesday were on par with the gains it reported in 2012′s fourth quarter, when its mobile ad revenue as a percentage of total ad revenue jumped from 14% in the third quarter to 23% in the fourth quarter.
Monetizing its services on mobile devices as more users migrate away from the desktop and onto their smartphone and tablets is one of Facebook’s biggest challenges today.
Nobody expected Zynga’s results for this quarter to be great, so nobody was exactly surprised when the company announced a decline in almost every number that matters. It turned a small profit, but that’s a bright spot in an otherwise deeply unimpressive set of results. The really important figures – the number of people playing and, crucially, the number of people paying – are all down. Zynga’s business may not be hemorrhaging money, but it’s losing audience, and in a business so heavily focused on scale, that’s a really bad thing.
The company likes to present itself as being on the cusp of a turnaround, or perhaps already embarked upon a slow but steady turn. If so, it’s the oddest turnaround imaginable. The firm’s MAUs – Monthly Active Users – dropped from 292 million to 253 million year on year, so nearly 40 million people have simply stopped logging in to a Zynga game even once a month. Worse still, though, is the disproportionate fall in the number of Monthly Unique Payers – those who make at least one transaction during a month-long period. This number fell from 3.5 million to 2.5 million, a precipitous year-on-year drop of almost 30%.
It bears emphasising just how bad that actually is. For a social gaming business, MUPs are the real customers. There is huge value to having a large audience (MAUs), of course, and companies need to be very careful about not trying to force players into becoming paying customers before they’re good and ready – but ultimately, non-paying users are like footfall in a store. They’re not customers, in a strict business sense. Zynga’s not-quite-so-bad loss of 13% of its players (MAUs) is a side-show compared to the fact that it’s lost 30% of its paying customers (MUPs). Imagine, by comparison, a shop loudly announcing that the number of people walking past its window had fallen 13%, distracting from the fact that the number who came in and bought something had fallen 30%.
Of course, the two figures are related, and the disproportionately large drop in MUPs figures into that relationship to some degree. The process of encouraging players of a social game to spend money is focused around a number of principles, but the key temptation lies in buying items or currency that will give you the ability to match or overtake your friends’ progress, or to create a fantastic character, farm, castle or whatever which will “impress” the many friends who are also playing the same game.
For that psychology to work, of course, you actually need to have lots of friends playing the game. Most social games, as the name suggests, don’t work terribly well if you don’t have friends active in the game. “Active” is a key aspect here too – if you see that your friends are losing interest, logging in less often or spending less time tending to their farm, castle, town or whatever, then you also tend to lose interest rapidly. Hence, a game that gives the impression of being “in decline” – with players losing interest in some visible manner – will likely experience a precipitous decline in revenue, because even though lots of people are still playing, the sense of decline removes the key psychological drive to spend money on the game. (It doesn’t help, of course, that social game operators have established a pattern of shutting down unsuccessful games rapidly, which creates a feedback loop in which players are unwilling to spend money on a game they think might be in commercial trouble.)
The psychology of what Zynga is experiencing is clear enough, then, but the figures on the bottom line are still pretty dreadful. Whatever the reasons or the mechanism, the company is losing paying customers, and that kind of damage is extremely hard to recover from.
A stark contrast to Zynga’s woes can be found on the other side of the Pacific, where mobile developer GungHo this week topped a $9 billion valuation on the Osaka Stock Exchange, making it into a larger mobile gaming company than even fellow Japanese giants GREE and DeNA. GungHo’s valuation is ridiculous, a bubble that will inevitably pop in relatively short order, but there’s a genuine success driving the excitement – a single game, Puzzle and Dragons, which is the most successful mobile game in Japan (and is launching in other territories as well). Puzzle and Dragons reportedly makes about $2 million a day; it certainly makes enough to justify prime-time adverts in evening slots on Japanese TV.
GungHo is an extreme example of a phenomenon which is completely unavoidable in the social and casual game sphere. Mobile utterly dominates this sphere. Facebook, it turns out, was a flash in the pan in gaming terms. Smartphones, and to some extent tablets (though they’re arguably more “midcore”), are the social gaming platforms of today. Zynga, for all its cash (the company still has plenty of liquid assets), its clout and its former dominance, still hasn’t made a successful transition to being a mobile-first company. Clinging to the wreckage of the Facebook social gaming model which it so successful exploited (in doing so, perhaps hastening the downfall), Zynga is being overtaken time and again by smaller companies who have mobile gaming in their DNA from the outset. With this week’s results came a fresh claim that the company will be focusing more heavily on mobile, but a good, nimble firm would have accomplished that focus shift 12 months ago, at least. Zynga right now feels like it’s plodding along in everyone else’s wake.
The other great white hope for the company, of course, is gambling. It has cautiously launched gambling services – what it calls “real money gaming” – in the UK, and wants to expand into other territories. Plenty of pundits like to tap their noses sagely and suggest that Zynga will become a gambling giant down the line – although in doing so, they’re just following in the well-worn footsteps of a large number of video games industry pundits, executives and even developers who have regarded the gambling industry with something like the avaricious wonder of wannabe prospectors hearing about a new gold rush.
I don’t see any gold rush for Zynga in “real money gaming”. Investors and executives consistently overstate the allure and possibilities of this kind of gaming, because by dint of being investors and executives, they tend to be exactly the sort of person who is very attracted to gambling risks (you wouldn’t have an investment, or a career, anywhere within spitting distance of tech stocks otherwise). Moreover, by moving into the online gambling arena, Zynga is entering a market that’s already incredibly crowded with companies who are deeply, deeply expert in this field – not just in the customer-facing psychology of the casino, but also in the legal and regulatory minefield of operating a gambling enterprise online. Many major markets simply aren’t open to this kind of business; most others require you to jump through all manner of hoops simply in order to set up shop. The notion of Zynga having an open goal in “real money gaming” is born either from complete naivety or utter desperation – it could make money in the gambling business, but it has its work cut out for it.
It’s worth highlighting, all the same, that Zynga did make a small profit this quarter – it may only be one bright spot, but it’s bright all the same. The company’s scale still also arguably works in its favour, allowing it to buy talent and IP that smaller firms could never afford. Yet after several grim quarters, it’s also worth highlighting that talk of a “turnaround” is optimistic at best. Something about Zynga – its culture, its leadership or a combination of both – is blocking this company from moving in the agile, intelligent way a firm in its position desperately needs. Inventing fairy stories about the magical potential of gambling games or constantly reassuring the world that a pivot to mobile is definitely happening any day now won’t cover up the cracks for much longer. If Zynga wants the world to buy the “turnaround” story, it needs to start showing evidence; if not, it needs to start making big changes, starting right at the top.
The NPD Group will report its US video game retail data this Thursday, and in a preview note Wedbush Securities analyst Michael Pachter commented that he’s expecting Nintendo to post yet another weak month of Wii U sales. For the Wii U’s fifth month on the market, he’s forecasting that Nintendo sold just 55,000 units, which would represent a 17 percent decline month-over-month. Moreover, Pachter’s expecting this slide to continue for Wii U, even if Nintendo chooses to implement a price cut.
“The only key hardware device to under-perform our expectations was the Wii U,” Pachter said of last month’s numbers, “and its fortunes appear unlikely to improve for several months, even if Nintendo decides to drop price, as there are an insufficient number of core titles that are generating interest in the console. We think that core gamers are far more likely to turn their attention to the PS4 (due in the holiday season) and the next Xbox, which we believe will be unveiled before E3 and have a launch alongside that of the PS4, and believe that the long-term appeal of the Wii U will be severely limited by the perception that the PS4 and next Xbox will be much more powerful with greater online integration and multimedia functionality.”
And if the pricing on the PS4 and next Xbox is reasonable, it could really put Wii U in a bind, Pachter added: “Should the new consoles from Sony and Microsoft be price competitive, we think that Wii U sales may continue to stagnate.” In fact, Pachter believes that next-gen consoles are likely to be subsidized and will therefore look even more affordable to consumers.
“We think that the next-generation consoles will perform a wide range of multimedia functions. We should learn more in the coming months, but we expect the next Xbox to have an IPTV tuner that will allow an MSO to deliver services over the Internet outside of the MSO’s regulated geographic boundaries. If we are right, any of Microsoft’s MSO partners will have an incentive to subsidize the purchase of the next Xbox in exchange for a long-term service commitment (similar to the cell phone model). If the subsidies are steep, it is likely that the next Xbox will appear more affordable to many consumers than currently anticipated, and it may capture market share faster than many expect. We don’t expect Sony to sit idly by watching, and believe that the PS4 will follow Microsoft’s lead in short order, suggesting to us that next-generation consoles could have lower starting prices than any in history,” he said.
As for March retail game sales overall, Pachter expects the numbers to be up slightly (just one percent) thanks to big AAA releases like Gears of War: Judgment, Tomb Raider and BioShock Infinite.
MetroPCS shareholders were due to vote for or against the deal last Friday, but on last Thursday, the regional U.S. carrier gave them more time to consider the matter after Deutsche Telekom sweetened its bid.
The merger, proposed last October, would give T-Mobile USA’s parent company 74 percent of a combined mobile operator that would have about 42 million subscribers and a stronger spectrum position than either MetroPCS or T-Mobile on their own. Shareholders of MetroPCS would get $1.5 billion and 26% of the new company. Regulators have already approved the plan.
However, some investment advisory services had recommended MetroPCS shareholders reject the deal. On Wednesday, Deutsche Telekom sweetened its bid, calling the new plan its “best and final offer.” DT reduced the amount of debt that the merged company would carry by $3.8 billion, to $11.2 billion, and lowered the interest rate on that debt.
Prospects for the merger appear to have improved since the offer was modified. Two large hedge funds that own MetroPCS shares and had opposed the deal now support it, according to published reports.
“These cuts are a continuation of the reductions we announced last summer,” said Motorola spokeswoman Katie Dove in an email. “It’s obviously very hard for the employees concerned, and we are committed to helping them through this difficult transition.”
Motorola’s mobile business has been pummeled in the smartphone market by larger players such as Samsung Electronics, Apple, Sony, Huawei Technologies and ZTE. Samsung, the largest smartphone maker in the fourth quarter, like Motorola makes phones using Google’s Android operating system.
The revenue of Motorola’s mobile business as a result of knocks in the market was $1.51 billion, or 11% of parent Google’s consolidated revenue in the fourth quarter of 2012. It also had an operating loss of $353 million in the quarter. Apple in contrast posted revenue of $54.5 billion and net profit of $13 billion in the quarter ended Dec. 29.
Motorola employees were informed by email that while the company is optimistic about new products in the pipeline, it still faces challenges, The Wall Street Journal reported last Friday. The company added that its costs are too high, and it is operating in markets where it is not competitive and is losing money. The layoffs will affect workers in the U.S., China and India, according to the newspaper.
Motorola was acquired by Google in May, and it was thought that the Internet giant was mainly acquiring the company for its patents, and may not be interested in its mobile hardware business in a cut-throat market.
Google said in December that it planned to sell Motorola’s TV set-top box business to Arris Group, a broadband device vendor, for $2.35 billion.
Motorola had 11,113 staff in its mobile business and 5,204 in its home business at the end of December. The new cuts will hence reduce the staff in its mobility business by over 10%.
Barnes & Noble Inc reported a net loss for the holiday quarter, hurt by a sharp decline in sales in its Nook device and e-books business, at a time that Chairman Leonard Riggio is trying to purchase the company’s profitable bookstore unit.
The company said earlier this week that Riggio plans to make an offer for the main bookstore business, but not its Nook and e-book business and its college bookstores.
Revenue at its Nook business, including e-books and devices, fell 25.9 percent to $316 million in the fiscal third quarter that ended January 26, as it sold fewer e-readers and tablets and had to cut prices, losing ground to big-pocketed tech rivals.
“It simply doesn’t have the assets to make its tablet a useful productivity tool the way Apple and Google do,” Forrester Research analyst James McQuivey said in a note.
Last year Barnes & Noble carved out Nook and its college bookstore business into a new unit called Nook Media. That has attracted investments from Microsoft Corp and Pearson LLC, but Barnes & Noble still owns 78 percent.
Barnes & Noble’s weak quarter raised the odds of a deal that would divide the company, and shares finished the day up 3.3 percent.
“Barnes & Noble stands at a fork in the road and rather than choose one path, it will likely need to split into two companies,” McQuivey said.
Groupon Inc lost almost a quarter of its market value on Wednesday after the firm began to take a smaller cut of revenue on daily deals, sacrificing revenue and profits to attract and maintain merchants.
“This raises questions about how these guys are going to be able to scale the business,” said Tom White, an analyst at Macquarie. “The forecast is underwhelming.”
Groupon shares fell 22 percent to $4.65 in after hours trading on Wednesday.
The Chicago-based company started sharing more money from its deals with merchants early in the fourth quarter to persuade them to run an offer for the first time or work on another offer.
That dented revenue and profit in the fourth quarter, Chief Financial Officer Jason Child said in an interview.
“We are focused on driving growth,” he said. “We will make the investments we feel we need to optimize for growth and merchant profitability.”
Fourth-quarter revenue rose to $638.3 million from $492.2 million in the year-ago period. The company also reported a net loss and an operating loss in the latest period.
Groupon was expected to make 3 cents a share on revenue of $638 million, according to Thomson Reuters I/B/E/S.
Groupon Goods, the company’s discounted product sales business, generated a lot of the fourth-quarter revenue growth. However, sales growth will slow in the first quarter, as is typical with other e-commerce businesses, Child said.
A larger-than-expected seasonal decline in the company’s Goods e-commerce business also drove the weaker first-quarter forecast.
The wireless service provider for budget-conscious customers who pay for calls in advance, said it lost 337,000 net customers in the fourth quarter. The average expectation on Wall Street was for losses of 55,000 customers, according to analysts.
Leap has been trying to boost its revenue by signing up higher-spending customers with the sale of smartphones such as the Apple Inc iPhone but many of them cannot afford to pay for those devices.
Chief Executive Doug Hutcheson told analysts on a conference call that he is not happy with the company’s results and complained about softness in the prepaid sector as well as customer departures related to its phone prices.
“By far and away the biggest thing is the device pricing and the ability for customers to pay for the device” Hutcheson said.
While the first quarter is typically strong for Leap because customers use tax refunds to buy phones, the company warned that customer additions would be lower in the current quarter than the first quarter a year ago.
New Street analyst Jonathan Chaplin said the fourth quarter customer losses, which compared with customer growth in the year-ago quarter, had “deteriorated drastically” in the quarter.
The company – which competes with rivals such as MetroPCS Communications Inc and Sprint Nextel Corp and a host of other prepaid services – promised a reduction in customer defections for 2013 from initiatives such as device financing for its customers.
Sources that we have spoken with from several studios have indicated that their publishing partners are pulling back a bit for the time being on the development of additional Wii U titles. The reason is simply the lack of sales on the Wii U console.
Despite coming out of the blocks fast, sales have not been that strong; and both the Xbox 360 and PlayStation 3 had sales numbers in January that topped the Wii U. This, of course, has not gone unnoticed by publishers and developers alike.
As one source told us, “While planning for the platforms that our next titles would be released on, it was obvious that our titles for this year and at least the first half of next year would be primarily focused on the Xbox 360 and PlayStation 3, with several titles for the next-generation systems. Talk of Wii U ports for any these projects was met with a negative reaction, saying there just was not enough sales to warrant the development cost associated with it.”
Another source said to us, “We are only planning the couple of Wii U releases that we are already committed to doing and we might do one or two ports, but right now there just does not seem to be a demand. Our thinking is that the safe bet is to focus on the 2013 releases for Xbox 360 and PlayStation 3, and a couple of those will be converted to the new next-gen systems. In 2014, however, we expect our titles that come out after mid-year to be focused on the next-gen consoles, with only a few those being released for the Xbox 360 and PlayStation 3, as well, unless sales of the next-gen consoles don’t go well. The Wii U would have to make very significant gains to figure into our 2014 and 2015 planning at this point.”
Nintendo needs something to happen to help get the Wii U flying off the shelf again; but many are now waiting to see what the Next-Generation Microsoft and Sony systems are going to offer and at what price before trying to choose which one to buy or if they will ride it out. If cost is the main factor, we could see a lot of gamers waiting, as long as they continue to get ample software flowing to their current systems, which is no real help to sales of the Wii U.
New Jersey Governor Chris Christie vetoed an internet gaming bill last Thursday but called on the legislature to make amendments which, if incorporated, would be signed into law.
That would allow casinos in Atlantic City to offer online gaming to the nine million residents of New Jersey and also create opportunities for European companies with expertise in running online gaming operations.
It also fuelled hopes that other American states could follow suit and liberalize their gambling laws, though Christie proposed that the New Jersey law, if passed, should be reviewed after 10 years to gauge its impact on problem gambling.
U.S. casino operator Caesars Entertainment Corp’s shares rose for the second straight day to trade up 27 percent at $12.75 on the Nasdaq while Boyd Gaming rose 8 percent to $7.64 on the New York Stock Exchange.
Caesars runs four casinos — Bally’s Atlantic City, Caesars Atlantic City, Harrah’s Resort Atlantic City and Showboat Atlantic City — while Boyd Gaming owns the Borgata Hotel and Casino resort in U.S.’s second biggest gaming destination.
“This would have the biggest impact on Boyd Gaming, who own the Borgata, and estimate it could be worth $3 to shares today. This bill would also be a positive for Bally Technologies Inc, International Game Technology, WMS Industries Inc and Shuffle Master Inc,” Janney Capital Markets analyst Brian McGill wrote in a note.
Is this another nail in the coffin of the dedicated games consoles? Nintendo’s Dreamcast had it’s moment. The vultures were out in force to greet Nintendo’s latest revision of its sales forecasts, circling the Kyoto-based company with a naked and unseemly hunger. Wii U has missed Nintendo’s own sales targets; the clouds are gathering, the doom-mongers are checking their funeral outfits.
The headline figure that drew absolutely everyone’s attention was this – by the end of March, Nintendo will have sold 4 million units of the Wii U, which is significantly down from the 5.5 million it had originally expected to sell. 3DS sales are also down somewhat on projections, at 15 million rather than 17.5 million for the full financial year, though less attention has been paid to that stat, largely because 3DS is already solidly established in the market, with a 30 million installed base.
So here’s the bleak scenario – the Wii U, with only 4 million installed at the end of what might reasonably be considered its “launch window”, has failed to capture consumer imagination and isn’t a viable platform for third parties. Software projects get cancelled, publishers draw back their support, sales slow down even further and the platform enters a death spiral. Within a few years, Nintendo is forced out of the hardware business and follows Sega into third-party publishing – on tablets and mobiles, most likely.
I have quite a lot of problems with that scenario (and with some of the more moderate versions of it which have also been floating around). For a start, it may not match Nintendo’s targets, but 4 million units sold after a few months on the market isn’t actually that bad for a new console. It’s very significantly better than either the PS3 or the Xbox 360 managed; in fact, the only home console that has outperformed the Wii U’s launch window, in terms of units sold, is the Wii itself.
“Nintendo’s new home console is always going to be stacked up against its old home console, and that’s a tough thing to measure up against.”
That’s what you might call a tough comparison, even if there’s a harsh fairness to it. Nintendo’s new home console is always going to be stacked up against its old home console, and that’s a tough thing to measure up against given that its old home console was the fastest selling and most profitable home console in history. Old hands at Sony might wince sympathetically; the PS3, despite matching the Xbox 360′s worldwide sales curve at almost every step on the way, has often been portrayed as a bit of a failure due to comparisons with the all-conquering PS2. The 360, by contrast, is enshrined in conventional wisdom as a triumph, because it built so strongly on the not-terribly-successful original Xbox business.
Comparisons like those are useful for building narratives – especially bull-and-bear market narratives, in which a company’s actual performance is vastly less important than its trajectory. They’re not, however, very useful for building an accurate picture of a product’s viability. Wii U has missed its targets (Nintendo’s own, so the company can’t even accuse analysts of over-egging the pudding in this case) and hasn’t performed as well as the Wii did; there’s a bearish narrative about decline in there. On a practical level, though, Wii U has sold more units than Xbox 360 or PS3 did at launch, it’s lost far less money (in fact, Nintendo will record a full-year profit, compared to multi-billion dollar losses for Microsoft and Sony’s games divisions in their launch periods) and, crucially, it can’t lose the support of its largest developer and publisher, because its largest developer and publisher is Nintendo itself.
Is this to say, then, that all is rosy in the Wii U garden? No, of course not. The console clearly hasn’t captured consumer imagination to the extent to which Nintendo expected, and a major push will now be needed both in terms of software and in terms of marketing and communication. The biggest risk Nintendo faces is that of failing to address the huge audience of casual consumers who bought in to the Wii, which would confine the firm to its core audience – but that core audience is itself quite significant, on the sale of 20 to 30 million consumers worldwide. Capturing additional casual consumers (or core consumers who fall more readily into the Sony and Microsoft camps, but may be swayed by certain software titles) would drive the console past those levels; even if it achieves only half the success of its predecessor at this task, it’s hard to see the Wii U ending up with an installed base much south of 50 million.
The stock market won’t like that, and that’s fair enough. Nintendo was ludicrously overvalued in the previous generation – at one point becoming Japan’s most valuable company, ahead of the world’s top car-maker, Toyota – and if the Wii U and 3DS don’t match up to the sales trajectory of their predecessors, the next generation will see an undervaluation that may be equally ludicrous. There will undoubtedly be grumbling at this from shareholders, but Nintendo is more insulated from shareholder discontent than many other firms, thanks to the large shareholdings of former president Hiroshi Yamauchi (who owns the single largest voting bloc in the firm) and of Japanese banks and institutions, who are generally less activist as shareholders than their western counterparts.
Share price decline, however, does not equate to product non-viability, nor does it precipitate a collapse in a company’s own market – or even its profits. The viability of a product needs to be considered in more solid and less sentiment-driven terms. Does it make a profit? Does it have a large enough installed base to justify continued development?
These are, of course, moving targets. Profitability rises as a console’s lifespan continues, with production costs generally dropping off faster than hardware price cuts reduce revenue (although there are exceptions, the 3DS being an obvious one). Rising software sales also increase profitability – note that the Wii U, despite being Nintendo’s first console to launch as a subsidised piece of hardware, is comfortably in the black after its launch, having sold 3.8 units of software for every console so far. That can be expected to rise significantly; the Wii, often decried as the console that sat unloved and gathered dust, actually has an attach rate of 8.7 software units for every console sold. Finally, foreign exchange movements also influence profitability, and after a few very tough years, the Yen is finally nudging in a positive direction for Nintendo (and Sony). After trading at under 80 Yen to the dollar for most of 2011 and 2012, it’s now over 90 Yen to the dollar, a level it hasn’t reached since mid-2012. It’s still a long way from the pre-financial crisis levels, which rarely dipped below 100 Yen to the dollar, but it’s enough to win Japanese manufacturers some breathing room in their profit figures.
Installed base viability is also a moving target. Bigger is better, but it’s not as simple as that; you can’t simply say “well, there are half a billion iOS devices out there and even more Android devices, so games consoles are irrelevant now”, even though some commentators try to do exactly that. For many types of software, a machine with a 30 million installed base made up entirely of active gamers who are willing to spend $40 on software every few months is more viable than a system with a 150 million installed base whose users aren’t hugely engaged with game software and only spend sporadically, in smaller amounts. Conversely, there are many types of software which absolutely thrive in the latter environment, and would fail utterly in the former. Development costs are also a big factor, because if your development budget soars, you must be able to address a bigger market (or somehow charge them more money) in order to counterbalance that.
In other words, when it comes to Nintendo, stop trying to bring everything back to bull and bear market perspectives. Those have their place, but they’re not terribly useful in attempting to predict the shape of the games industry as we proceed towards an uncertain future. They tend to give us extremes and ignore subtlety; where any individual with a shred of intelligence and insight can look at the news that “Wii U isn’t doing as well as Wii” and interpret that in context as a decline but not necessarily a catastrophe or a herald of collapse, a market-led approach allows for little if any of that subtlety.
Nintendo has a lot of work to do on Wii U, but we’ve been here before – it had a lot of work to do on the 3DS as well. While 3DS’ price cut helped a great deal, much of the real work was done through significantly improving and bulking out the console’s software line-up, and a similar process is underway with Wii U. One need only look to the rapt response which the recent Nintendo Direct broadcast received from media and Nintendo fans alike to see the truth of Nintendo’s situation. This is a software company at heart. Its consoles are enabling hardware for its software, and as such, they sell in parallel with major software launches. Of course, this is a valid argument in favour of Nintendo’s ultimate destiny outside the hardware market entirely, but for now, the company isn’t willing to give up that level of control – and for now, it doesn’t look like it needs to. I don’t expect Wii U to match the success of Wii, in the medium or long term – but equally, I don’t count myself among those who expect it to be Nintendo’s last console. Sentiment is negative right now, but fundamentals aren’t, and for a business like Nintendo, it’s the latter that counts.
Consumers in the United States can buy the cards for their Facebook friends and choose from four different businesses: Target, LVMH Moet Hennessy Louis Vuitton SA’s Jamba Juice and Darden Restaurants Inc’s Olive Garden.
A card can hold multiple gift balances, each dedicated to a specific retailer, Facebook said.
The world’s No. 1 social network, with more than one billion users, Facebook is gradually offering more retail services, though it relies on advertising for the bulk of its revenue.
Last year, it launched a feature that allows users to send retail goods, such as sunglasses and pastries, to their friends on the social network.
Facebook Finance Chief David Ebersman tempered expectations about the new gifts business in its quarterly earnings conference call with analysts on Wednesday.
While Facebook believes online commerce has “long-term potential,” the current revenue from such efforts is very small and will remain so throughout the year, said Ebersman.
Shares of Facebook fell 13 cents at $31.10 in mid-day trading.