The president of Nintendo revealed the company will be taking a loss on sales when the Wii U is released. Although the cost of the hardware will negatively effect profits, Nintendo was determined to price the Wii U reasonably instead of shifting a higher merchandise cost off to the consumer.
In addition to the yen’s continuous appreciation, the Wii U hardware will have a negative impact on Nintendo’s profits early after the launch because rather than determining a price based on its manufacturing cost, we selected one that consumers would consider to be reasonable. In this first half of the term before the launch of the Wii U, we were not able to make a profit on software for the system while we had to book a loss on the hardware, which is currently in production and will be sold below cost. Our loss has therefore widened during the second quarter in spite of bringing the Nintendo 3DS hardware back to profitability. Although we expect our financial performance to be revitalized, under these circumstances, unfortunately we cannot say that we will achieve “Nintendo-like” profits within this fiscal year.This is obviously a different approach Nintendo has chosen to take than when they released the 3DS at $250 before meager sales forced them to implement a price cut to $169. The price cut produced quick results, prompting sales to skyrocket 260% compared to the same 19-day period the month before.
BBC News also notes that this strategy of hardware being released at a loss for a potential gain in the future is nothing new. Microsoft, Sony, and even Amazon with their Kindles have all blazed this trail before.
Researchers at IHS iSuppli estimated that Sony lost $300 (£186) on every 20GB model of its original PlayStation 3 console in 2007. Although the company never confirmed the figure, it did acknowledge that it was not until 2010 that the machine became profitable. Microsoft pursued a similar strategy with its Xbox 360. More recently Amazon’s chief executive Jeff Bezos revealed to the BBC that it sold its new Kindle tablets and e-readers at break-even prices. IHS iSuppli has also suggested that Google is selling the 8GB Asus-made Nexus 7 tablet for the same price it costs to manufacture, ship and advertise the machine.The Wii U will make its debut in North America on November 18 with a price tag of $300 for the basic model and $350 for a deluxe version.
Here’s a fun man-on-the street video with Associate Editor Ben Reeves from Game Informer quizzing people on video games and the upcoming Wii U. They probably aren’t Nintendo’s target audience, or Nintendo should hope they aren’t.
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