In this segment from Industry Focus: Consumer Goods, the cast discusses Nintendo (NASDAQOTH:NTDOY), which has plenty to celebrate this month as the release of its newest console -- the Switch -- has been greeted with sold out shelves and excellent reviews.
Will the company be able to recreate the success of its original Wii? Tune in to learn more.
A full transcript follows the video.
This video was recorded on March 23, 2017.
Vincent Shen: On the console side, there's been a lot of news -- now we're diving a little into things that might be driving the industry. I saw some rumors around new console generations. Since the last big release of the Xbox and PlayStation, around 2013, approaching that time when we usually get a refresh.
But I want to talk first about something that is out now, which is the Switch from Nintendo. This latest device so far, from what I've heard from some friends and also for the inability for people to find these in stores because they're selling out so quickly, it's doing quite well. Keep in mind that Nintendo, right now, is in a position where they really want the Switch to succeed, especially after the struggle they had with the Wii U. To give you some perspective, the Wii U only sold about 13.5 million units in its entire four years on the market. A strong year for a more popular console like the PlayStation, that might be one year or 1.5 years of sales for them. So, in terms of lifetime volume, that's quite low. And compared to the original Wii -- even my wife, who is not a video gamer at all, she has one -- it was the kind of console that really brought in a lot of new gamers, or people who hadn't played video games since they were much younger. The original Wii sold 17 million units in its first calendar year. Eventually, it topped 100 million units in its lifetime. PlayStation 4 right now has an installed base of around 50 million. The numbers that Nintendo is hoping to put up for the Switch, management expects it to move about 2 million units by the end of March, some estimates say that 1.5 million units were sold in just the first week of its release. Have you followed this at all? Seen any demonstrations of it? What do you think, in terms of how this can drive competition with the other major consoles?
Seth McNew: Yeah, at the beginning, you couldn't find a Switch in any stores, they were sold out right away. I wasn't quite sure, maybe that created some scarcity there, they were trying to drive up some of the interest. But so far, it seems like it has been selling really well, so maybe it's just beating their own expectations there.
Shen: A report recently -- I forgot to add this -- from The Wall Street Journal said that management planned to double its production. For the fiscal year ending March 2018, their production would jump from 8 million to 16 million, indicating potential first year sales of over 10 million units. This is outperforming a lot of analyst estimates. I think initially, for that first year of the release of this device, some analysts were putting total sales at just in the 4 to 5 million range. So, really blowing that out of the water. From what I've seen, the only thing that is holding this back from hitting that threshold and taking off and being a huge success for the company is titles. This is where, I think, the more well-known PlayStation and Xbox have that advantage. Right now, with the Switch, the only game that I know of that's really drawing in people, it's called Legend of Zelda: Breath of the Wild. The reviews for this are fantastic. I think the Switch console actually sells with this game to 90% of customers.
McNew: Yeah. This was the game that they really marketed as they were talking about the device, this is the one they were saying was going to be the big game.
Shen: So, right now, otherwise, from Nintendo, a lot of their other major releases, in terms of those most famous franchise characters they have, which, people have pushed them in the past to move away from producing consoles and just try to monetize their very rich library of IP. But, they're not expected to release more games for Mario, for example, until later in the year, hitting the holiday season a little bit better, and also just trying to give a little bit of runway so they can slowly build up steam. But, I'm interested to see if that holds them back at all, because even the best game, if you have only one title to really hold on to people at first, we'll have to see how their momentum builds over time.
McNew: Of course. And they do have a really rich library, like you were saying. But I think there's also the risk -- I mean, look at Super Mario Run that they released for mobile earlier this year or last year, it didn't perform nearly as well as they thought it would. So, I think there is that risk, you can't just say just because those are iconic names that the games themselves will perform well. But I hope they do, because I think this could be a really interesting change to the gaming industry.