January 2013 NPD Hardware Preliminary Discussion: Wii-Oops

So… you probably heard the news already: Wii U sales for the month of January were less than 60,000 units. That’s less than 12,000 units per week of the reporting period. That’s also despite the Wii U being the first new video game console (non-handheld) since late 2006. This number should be addressed by Nintendo as “unacceptable” for the US market, which saw the Wii dominate the early and middle parts of this past console generation. Investors should be nervous that the US may not adopt the Wii U strongly enough before Sony and Microsoft present their new hardware, likely later this year. I know that I would be.

Having said that, let’s keep some perspective here when discussing the Wii U in terms of mid-to-long term prospects.

First, and probably most importantly: It’s far too early for Nintendo to take the WiiU out back and put it down. We’re looking at three reporting periods. I know that the same attitude was taken with the Vita– which also strongly disappointed in January sales figures– but three months don’t make or break a console. It’s more than a stumble out of the gate; it’s a blown engine on the first lap for Nintendo and it’s up to Satoru Iwata and the rest of the pit crew within Nintendo to fix the problem and get back into the race. I think that things will get better down the line, but I can’t say with confidence that it’s going to be a huge improvement. Once we get into Q4 and we see new PlayStation and Xbox hardware, Nintendo could very well lose much of its retail advantages. On the flip side, perhaps consumers balk at pricing for these new consoles… or maybe the games library at launch for either or both isn’t particularly deep. If that happens, and if Nintendo can convert promised software to reality, there’s certainly a chance for Nintendo to move some decent numbers in Q4.

Second, there’s a problem with too few games in the channel. Nintendo is working on this, but development is taking some time. Regardless of the reason for the delay in having these games ready sooner in the Wii U lifespan, it’s reasonable to assume that we’ll see more games in retail channels before the holidays and sales should hopefully ramp up a bit from Q2 on. Nintendo still has a problem with weak third-party support which puts them in a difficult situation. If these other publishers don’t or can’t come through with software, more pressure falls on Nintendo to close that gap and increase its quantity and production. I suspect that more third-party games will be coming, but it’s possible that Wii U isn’t a priority for publishers. Many of the biggest publishers are likely placing their bets on Microsoft and Sony, given recent sales performance. As long as Nintendo can handle the load and provide appealing games with some consistency, the Wii U will remain an option for at least some consumers.

Finally, if push comes to shove, a price drop has to be an option to spark sales, especially as we get closer to the other platform launches. Leveraging a price advantage over the competition may coax some fence-sitters to buy in, especially if the games library increases significantly later in the year. Nintendo most likely won’t kill off the Wii U without at least trying the price cut option. I realize that Wii U is already selling at a loss, but combining a price drop with compelling games has worked for Nintendo before. That’s not a guarantee that it works again, but I believe that it’s at least possible that it will stimulate growth if it happens.

I see a lot of reaction to this story as a premature eulogy for the Wii U, and even for the console market at large. I believe that sales expectations must begin to be tempered for both. The Wii U most likely isn’t going to be another runaway success like the Wii was, and several factors can be identified as reasons for continued contraction of the console market, as well. People bristle and get defensive about the rise of the mobile market, but it’s getting harder and harder to explain mobile away as irrelevant and “not good enough”. The truth is that mobile isn’t “good enough” for a loud minority on the Internet. Many other consumers have embraced the mobile market as a cheaper way to play games and as a convergence point to do everything from talk on the phone to play games to watch movies. Mobile won’t kill consoles. It might take some business away, but there will remain a market for console hardware and software sales for the foreseeable future. It’s just going to be smaller.

I’ll be working on a more complete analysis of January’s NPD hardware sales data for Popzara Press for early next week. I’m waiting to see if any leaks or clues on 3DS and PS3 hardware sales come to light over the weekend before trying to put my column together.

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