Nintendo (NASDAQOTH:NTDOY) has made a big splash with its new Switch console, but production can't keep up with demand. You can get a Switch now if you buy it from a third-party seller, but expect to pay a hefty premium.
In this segment of the Industry Focus: Consumer Goods podcast, analyst Vincent Shen and contributor Seth McNew discuss new games for Switch and other news for the growing video game industry.
A full transcript follows the video.
This video was recorded on April 13, 2017.
Vincent Shen: This is the newest video game console from Nintendo that was originally unveiled last October, and made its official debut on March 3. In its six weeks on the market, the Switch continues to fly off store shelves. If you go to the official Nintendo Switch product page online, they have links to retail partners where you should technically be able to buy one of these consoles. I actually checked all six of them -- Best Buy, GameStop, Target, Wal-Mart, and Toys "R" Us. Can you guess, Seth, whether or not I was able to find a Switch available at those retail partners?
Seth McNew: I would say probably not. If you're looking places like eBay, you can definitely get one if you're willing to pay a little bit of a premium.
Shen: Yes, exactly. Amazon was also one of the partners. It's available only from third-party sellers, not from Amazon themselves. They're charging a premium, like you said, in the face of such high demand. So, buyers can expect to pay at least $360, when the Switch's official MSRP is $299. I got curious, I did go to eBay to see what people had been willing to pony up to get their hands on one of these consoles, and more recent listings are similarly going for around $400. In the initial weeks after the release, when the frenzy was really building up and people had to get their hands on one, there were some listing for the Switch console being sold for well over $1,000.
McNew: That's absurd.
Shen: Pretty incredible. All of this incredible hype bears out in sales for the console in numbers that we've seen. There's a report from DIGITIMES that said, based on estimates from Nintendo's supply chain partners, the company could end up shipping as many as 20 million units in its first year. Looking out further, the president of Nintendo sees a lifetime total for the console of potentially 110 million units, which would far eclipse the previous generation, Wii U.
McNew: 110 million units, but we don't know how long it's going to take for them to actually produce that many. At this rate, it could be a few years before they're able to get that out.
Shen: Yeah. It'll take several years for them to even get that number. Recently, they doubled their shipping estimates from 8 [million] to 16 million. I think that's going up again to potentially this 20 million number that we're seeing. But our biggest concern last episode, in addition to their inability to meet some of this demand, every store being sold out, there was also a concern about a relative lack of top-tier game titles. But with these kinds of forecasts, I have to imagine at this point the developers are getting pretty excited about tapping into this corner of the console market. What do you think? Is that something, with these kinds of numbers, that people, especially third-party developers, are perking up their ears and thinking to themselves, "It's time to get in on this."
McNew: Yeah, I think so. You're right that when the Switch came out it had such a lean amount of titles that came with it. They have already announced some pretty interesting new titles. Mario Kart is coming out this month, which is going to be a hit, I'm sure. Then, other games like Minecraft, Ubisoft has talked about Monopoly is coming out soon. So, you're having these very classic games like Pac-Man that you would expect for this kind of console, but you have some new franchises as well that are coming out as well, some different sports games. And then, I think it lends itself well to some competition. They talk about a Mario Kart competition. But, as we talked about last time I was here, with e-sports, this mobile gaming, it seems like such an easy way to get into that online competitive space. So, I would imagine a lot of third-party developers are pretty interested in that aspect.
Shen: I think Nintendo has also done its part with this specific console, a better job than they did with the Wii U, and that is making the platform more attractive to third-party developers. They're supporting common game engines that make it easier to create the games and the titles for the console. Something that might be more important, you mentioned e-sports, but there's also this online gaming element. The company has announced that there will be an online gaming platform for the Switch that will launch later this year. Initial testing has already started. Like its biggest competitors, Nintendo will actually start charging players for access to this service. That adds another income stream on one hand. On the other hand, I think game developers will be attracted, because you want a robust online player base for additional opportunities to monetize their titles. You look at Activision Blizzard, Electronic Arts, they're making 60% to 75% of their sales digitally, and it becomes very clear how important getting this online platform right will be for Nintendo.
Moving on, also making waves in the space recently was Microsoft. The tech giant released some additional details for its Project Scorpio. The official reveal will happen at the Electronic Entertainment Expo in June. But, the gist of it is, you get more powerful hardware, better graphics, 4K compatibility, and support for virtual reality headsets. As we discussed a little bit on the last show, titles will be compatible across Xbox One, the Xbox One S, and Scorpio, so game developers will be a very favorable position where they can work on one title and tap into bigger player basis than they have in the past.