Wii-U-Iwata-SMAY 8, 2014 • For the fiscal year ending March 31, Nintendo financial results reported a net loss of ¥23.2 million ($227.8 million). Most worrisome is that in a year when executive management had striven to reinvigorate Wii U console sales with a larger number of major first-party game releases, Wii U units sold dropped 26.8% to 2.72 million. The 3DS line, however, fared slightly better than the previous year. The number of 3DS handhelds sold fell 13.9% to 12.2 million, but a 1.16% increase for the 3DS XL to 7.8 million units, plus 2.2 million units of the recently introduced 2DS, led the platform to a total of 22.3 million systems sold, an increase of 2.6%. On the software side, more Nintendo games were sold across the board during the last fiscal year. Wii U software sales increased 40.5% to 18.8 million units, with 3DS software growing 36.8% to 67.9 million. Nintendo management has set a goal of “robust growth” to turn its fortune around by delivering new and entertaining products consistently. To that end the company is working on a new “Quality of Life” platform separate from its console devices. The first theme for the new platform will be health. Nintendo also intends to raise revenue by licensing its game IP to segments other than video games, such as licensed figures that interact with devices via near-field communications. In addition, Nintendo president Satoru Iwata told the Bloomberg news service that the company is creating a new line of consoles for emerging markets that is designed around different thinking than making cheaper versions of its existing consoles.

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Impact: The hard fact is that Wii U hardware sales continue to underwhelm, and the much healthier 3DS platform is generating tepid unit growth. In a different era, the gamemaker could have relied on a more sizable handheld growth rate to bail out an under-performing home console. Not today when smartphones are so ubiquitous worldwide. No wonder that Nintendo is looking for a whole new platform business to pull itself out of the financial doldrums. This Quality of Life initiative is not surprising given the firm’s prior success with mainstream consumers via Wii Fit and Wii Sports. Yet details are sketchy at best and it is difficult to weigh what the chances are for success. Neither do we know whether Nintendo is looking at a wearable device, or something more conventional. If it cannot reach new mainstream consumers in Western markets with its current video game line-up, Nintendo hopes it can rally support in new markets with special devices catered to them. It is telling, however, that Nintendo has been forced to look outside the traditional games business for resuscitation. Whether it is from this new healthy living direction, consoles for emerging markets or licensing its IP, the admission is short-term robust growth is not coming from Nintendo’s regular video game business. Longer term, DFC would like to think that the company could return in a future Western console cycle with a system that pushed the edges as when Nintendo drove the 3D era on consoles with the N64’s Super Mario 64. If Nintendo’s primary console business is forced to live off of core gamers, as seems apparent in the future, then this seems to be the best option despite the substantial R&D costs.

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