Nintendo Co. President Satoru Iwata said the maker of video-game machines is considering a new business model after forecasting a surprise 25 billion-yen ($240 million) annual loss because of tepid demand for its Wii U.
Nintendo previously projected a profit of 55 billion yen in the fiscal year ending March as it counted on Christmas shoppers to revive sales of the Wii U console featuring games with iconic characters Mario and Zelda. The company cut forecasts for Wii U console sales to 2.8 million units from 9 million and for Wii U game sales to 19 million units from 38 million.
The family-focused content of Nintendo is losing its appeal as titles were delayed, casual gamers migrate to mobile devices, and hardcore players opt for the faster Sony PlayStation 4 and Microsoft Xbox One. The owner of Pokemon and Donkey Kong also refuses to offer games with its characters on mobile devices, limiting its ability to profit online players’ surging demand.
“We are thinking about a new business structure,” Iwata said at a press conference today in Osaka, Japan. “Given the expansion of smart devices, we are naturally studying how smart devices can be used to grow the game-player business. It’s not as simple as enabling Mario to move on a smartphone.”
The new forecast for the Wii U is less than the 3.45 million units sold the previous fiscal year. The Kyoto, Japan-based company also cut its forecast for operating income to a 35 billion-yen loss from the prior 100 million-yen profit.
Projections for sales of its handheld 3DS player were cut to 13.5 million units from 18 million, and for sales of 3DS games to 66 million units from 80 million.
Nintendo posted a quarterly loss of 8 billion yen in October after cutting the price of the console in the face of new machines from Sony Corp. and Microsoft Corp. Iwata is trying to lure consumers who prefer playing games on mobile devices from Apple Inc. and Samsung Electronics Co.
“The video-game market has moved into smartphones and tablets,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co. in Tokyo. “Nintendo needs to expand from their current hardware business model. It’s a structural problem.”
The revisions increase the pressure on Iwata, who vowed in October to meet a forecast of 100 billion yen in full-year operating profit and 9 million units in Wii U sales. Nintendo has lost about 80 percent of its market value since the introduction of the original Wii drove shares to a record high of 72,100 yen in November 2007, according to data compiled by Bloomberg.
Its market capitalization is about $20 billion -- less than Samsung’s previously announced capital expenditures.
“The revision is much worse than expected,” Yusuke Tsunoda, an analyst at Tokai Tokyo Securities Co. in Tokyo, said by phone. “It’s going to be a third consecutive annual operating loss and that raises a serious management issue.”
Iwata said any announcement about a pay cut would come later this month when the company releases third-quarter earnings. There are no plans to reshuffle management in the near term, he said.
The company reduced its planned dividend for the fiscal year to 100 yen from 260 yen. Nintendo revised its foreign-exchange assumptions to 100 yen to the dollar from 90 yen, and to 140 yen per euro from 120 yen.
“We were unable to sufficiently take advantage of the weaker yen,” Iwata said.
Even with new titles including “Pikmin 3,” Nintendo failed to capitalize on U.S. video-game product sales that surged to their highest in three years in December.
Hardware sales increased 28 percent to $1.37 billion from a year earlier, Port Washington, New York-based NPD Group Inc. said yesterday in an e-mail. The tally, the highest since spending hit $1.84 billion in December 2010, drove total retail sales for the industry to their fifth straight monthly gain.
The Wii U features a tablet-like, 6.2-inch touchscreen controller that lets players connect wirelessly to the console and shift the display between the device and a television. The consoles compete in a market where smartphone sales are on track to exceed 1 billion units this year, researcher IDC said Oct. 29.
The Wii U’s price in the U.S. was cut by $50 to $299.99 on Sept. 20, while the Japanese price remained a suggested 30,000 yen.
Nintendo introduced the 2DS portable machine, resembling a tablet, in October for $129.99 to lure first-time and casual gamers.
The global video-game market may reach $111 billion by 2015, researcher Gartner Inc. said Oct. 29. Mobile games are the fastest-growing segment, with revenue set to reach $22 billion by 2015 from $13.2 billion this year, Gartner said.
“We cannot continue a business without winning,” Iwata said. “We must take a skeptical approach whether we can still simply make game players, offer them in the same way as in the past for 20,000 yen or 30,000 yen, and sell titles for a couple of thousand yen each.”(Bloomberg)