Nintendo, One Year Later

Last year, there was a short period of time when a lot of Apple bloggers started to call for Nintendo to just give up making hardware, and start making iOS games. I thought, and still think, that this would be bad for the quality of Nintendo's games, and bad for their bottom line. I also think that Nintendo knows this. Back then, I wrote:

Here’s what I think the most likely scenario is for this console generation: the 3DS will continue selling well, though not at DS levels. The Wii U won’t, but will get some good games (mostly from Nintendo), and eventually sell about as well as the Gamecube. Meanwhile, as hardware prices fall, the installed base of its consoles goes up, and more first-party games are released, Nintendo’s profits will increase gradually. Nintendo won’t go out of business, nothing spectacular will happen, the world won’t end.

If Nintendo releases any iOS apps, it’ll be more Pokémon stuff.

Now, one year later, Nintendo just announced that it made a quarterly profit of 24.2 billion yen (about 224 million US$). Ars Technica notes that this is mainly due to strong sales of its first-party titles, mostly on the 3DS. However, even the Wii U is starting to show sustainable game sales numbers. So far, Mario Kart 8 sold roughly 3 million copies on the Wii U, and it continues to sell well. At 60 US$ a piece, it's not clear to me that Nintendo could make the same amount of money selling games for iOS. Even a platform that's doing poorly, like the Wii U, might be a better option if you can sell games for 60 bucks a piece, and reach a 50% attach rate.

Clearly, Nintendo is not out of the woods yet. For Nintendo to maintain its profitability, they need to continue releasing strong first-party titles. At least in the short term, they seem to be on track, with new Pokémon games coming out for the 3DS, and a new Super Smash Bros for the Wii U. Longer-term, the picture is less clear. Fortunately, Nintendo has a strong back catalog of underused franchises it can rely on.¹

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Also a year ago, Asymco wrote:

The implications are that Nintendo, Sony and Microsoft are beyond the point of no return in this industry. Gaming, as a business, cannot be sustained as a platform independent of a general purpose computer. Like other "applications" that used to have systems built around them conforming to their needs the dedicated-purpose solutions came to be absorbed into the general-purpose platforms. And the modern general purpose computer is the smartphone.

I think the website confused the end of a console generation with the end of consoles,² which is something that happens at the end of every console generation. In the past, people used to think that PC gaming would finally absorb console gaming. Today, they think it's mobile phones. Of course, the fact that this kind of panic about the console market happens every time doesn't mean that it can't be true this time, but it does put things into perspective.

Back then, I wrote:

There’s really nothing unusual happening this time around. We’ve all seen this exact thing happening before. What Asymco’s charts show is very likely not Apple crushing the console market. It’s simply the end of a generation of consoles, and the beginning of another. Sales of the previous generation are petering off, and the new consoles haven’t yet taken over. No need to panic. At least not just yet.

If nobody buys the PS4, then you should start panicking.

I specifically called out the PS4 because, before the new consoles were released, the Xbox One's hardware and price made it look like a bit of a dud, while the PS4 looked like a winner. I think it's important not to confuse mistakes made by hardware makers with actual evidence for a declining console market. The Xbox One launched overpriced and underpowered, and with very unclear messaging from Microsoft. This alienated a lot of buyers — not because they didn't want a console, but because the Xbox One didn't appeal to them. In other words, if the Xbox One had sold poorly, this would have been evidence for Microsoft's incompetence, not evidence for a declining console market.

Fortunately, even the Xbox One didn't do too badly.

Both the PS4 and the Xbox One launched in November 2013. Both consoles have been on the market for roughly 11 months. So far, the PS4 sold 12.3 million units; the Xbox One sold 6.1 million units. These numbers, even the Xbox One's numbers, compare favorably to the previous generation. In its first 11 months, the PS3 sold just 5 million units, and the Xbox 360 sold just 4.8 million units.

(Update: Ars Technica has updated numbers that are even better — they're now saying that 13.5 million PS4s have been sold, and roughly 7 million Xbox Ones.)

Of course, this generation's higher sales numbers are partly due to the fact that the Wii U is not selling well, which leaves more room for the other two consoles. But I think it's also a pretty strong indicator that consoles as a whole aren't going anywhere.

You can discuss this topic on Hacker News.

Update: Worth reading if you still think Nintendo would be better off on iOS than on their own proprietary platforms.