|Decoding Nintendo's 2DS and Cheaper Wii U: Is the Video Game Giant Struggling?|
By Michael Comeau AUG 29, 2013 2:40 PM
The company's latest two product announcements appear to spell trouble.
I've been on a bit of a roller coaster with Nintendo (OTCMKTS:NTDOY) this summer.
I hated it before I loved it, I bought the stock, I sold the stock, and now we're walking into news that has me scratching my head.
To rewind a bit, in early summer, Nintendo aggressively talked up newfound momentum of its 3DS handheld, which was propelled by the release of blockbuster title Animal Crossing: New Leaf. Analysis of publicly available 3DS sales data supported that idea.
Subsequently, on July 31, Nintendo released a disappointing earnings report, marked not only by very underwhelming Wii U sales, but by 3DS sales that weren't quite as exciting as I would have expected given the supposed AC:NL-driven revival. Not long after, I dumped my position, as noted in real time on Minyanville's Buzz & Banter.
Now the company has made two announcements that could indicate trouble.
Enter the 2DS
Nintendo unveiled a new handheld gaming device called the 2DS, which is a stripped down, less expensive version of the 3DS.
The 2DS does not have 3D graphics capabilities, loses the 3DS's clamshell design, and sports a $129 price ($40 less than the 3DS).
You can watch an intro video here:
The timing of the 2DS announcement is a bit puzzling. If the 3DS was rebounding, why would a cheaper version need to exist?
It's possible that Nintendo was conservative in regards to the potential impact of AC:NL and was building this device as a hedge if sales didn't get off the ground. It's not like they threw 2DS together over the weekend, so it had to have been, at the very least, planned ahead of the AC:NL rebound.
The 2DS's lower price may help Nintendo better fight off the smartphone gaming boom we flagged as a threat back in 2010, but nonetheless, the mere need to so aggressively defend against that threat is a bit worrisome, especially since Nintendo has some big games on the way.
Likely hits Pokémon X and Pokémon Y are due out October 12 in conjunction with the 2DS, while The Legend of Zelda: A Link Between Worlds comes on November 22.
If quality games sell hardware, why is now the time to introduce cheaper hardware?
By the way, did you see the thumbs up/down ratio on that video?
A Cheaper Wii U
The Wii U has struggled mightily since its November 2012 release, and now, like the 3DS back in July 2011, is having an unnaturally early price cut.
Nintendo had introduced two versions of the Wii U: a $299 basic set and a $349 Deluxe/Premium bundle.
Now, the basic set is going away and the Deluxe/Premium one gets slotted in at $299. Nintendo will also release a limited-edition Wii bundle which includes The Legend of Zelda: The Wind Waker HD and some other swag for the same price of $299.
Interestingly enough, while the Wii U definitely needs some help in getting off the ground, like the 2DS announcement, this timing seems odd.
Circling back to that July 31 earnings report, Nintendo kept its previous gudiance for full-year Wii U sales, as it has held that upcoming titles like Pikmin 3 (released in early August), Super Mario 3D World, and Donkey Kong Country: Tropical Freezer would move Wii U hardware.
Additionally, note that in its earnings release, Nintendo noted in reference to the Wii U that it would "strive to improve hardware profitability by reducing its costs."
If Nintendo was striving to improve profitability, why would it cut price?
Adding It Up
This picture does not look pretty, especially since Apple (NASDAQ:AAPL) is due for refreshes of the biggest threats to handheld dedicated gaming devices -- the iPhone and iPad Mini.
Additionally, while I have doubts about the long-term prospects of the soon-to-be-released Microsoft (NASDAQ:MSFT) Xbox One and Sony (NYSE:SNE) PlayStation 4 consoles, in the near-term, they'll be taking back an awful lot of market share Nintendo won with the original groundbreaking Wii.