Nintendo is always finding ways to scare Mario’s brother Luigi.

JAN. 17, 2014 • Despite strong indications otherwise during the months leading into Christmas, Nintendo Co. Ltd. has steadfastly held to its 9 million Wii U unit sales projections for the fiscal year ending March 31. After digesting holiday sales data the Nintendo downgraded forecast for Wii U sales to 2.8 million for the fiscal year. “As year-end sales constitute an extremely high proportion of the annual sales volume in the video game industry and the annual financial performance of a video game company rests heavily on its performance in the year-end sales season, we put in place various promotional activities in order to promote sales and expand our audience in the year-end sales season of the previous calendar year,” Nintendo president Satoru Iwata explained at a press conference in Osaka. “However, it is now expected that our sales will fail to meet our previous forecast by a large margin.” The 3DS platform fared much better, matching Nintendo’s expectations in the Japanese market. In Europe and the U.S., however, the 3DS did not reach unit sales goals by significant margins – leading to a downgrade in the platform’s fiscal year forecast from 18 million to 13.5 million units. Iwata did say that in Europe the French market was an exception in experiencing relatively strong sales. The forecast for 3DS software was thusly reduced from 80 million units to 66 million units. For Wii U software the new target is 19 million units, down from 38 million units. These revisions plus an appreciating yen led to the wiping out of a projected ¥100 billion ($958.6 million) operating profit that is now expected to become a ¥35 billion ($335.5 million) operating loss for the fiscal year.

Nintendo president Satoru Iwata announced a ¥35 billion operating loss.

Impact: During the second half of 2013 Nintendo continued to remain optimistic that a fall price reduction, strong first-party software/hardware bundles, and a sizable marketing spend would turn the Wii U’s fortunes around. The Wii U did see modest improvement but nowhere near what Nintendo needed. The marketing blitz behind both the PlayStation 4 and the Xbox One during the holiday period strongly communicated a message of fun to consumers that translated into record unit sales. Nintendo, despite an attempt to better explain Wii U features, still has not communicated to consumers how the system is a must-by. Two seasons in, the opportunity to make that connection may have past Nintendo by. As for the 3DS, we find few surprises. Our projections for the platform expected a strong ongoing performance with the understanding that it is unlikely the 3DS can top records achieved by the older DS system. That’s no dig against the 3DS, just acceptance that the competition from mobile platforms is a significant concern. In that light the 3DS is performing admirably. In his press conference Iwata did say the company was investigating ways to leverage smartphones that did not rely on porting its franchises to mobile. He also said Nintendo needed a new business structure moving forward. Reading between the lines we take part of that to mean that the time and resources required to produce high-definition titles for the Wii U came as something of a surprise. That realization was long ago accepted by studios that jumped into Xbox 360 and PS3 development during the last cycle, and really should not have come as a shock to Iwata and company. Perhaps if more first-party titles had been in release during the first half of 2013 the Wii U’s fortunes may not have been so depressing. Nintendo is not accustomed to posting operating losses, so we expect substantial internal and external pressure will lead to a major change in the company’s business after March 31.