In the latest generation of video game consoles, Microsoft (NASDAQ:MSFT) and Sony (NYSE:SONY) let Nintendo (OTC:NTDOY) get a year's head start. If the ghost of Nintendo's past is anything like the ghost of Xbox One's or PS4's future, this is shaping up to be a real horror show.
Nintendo bounced back to profitability in its latest quarter, but the real shocker here is that only 160,000 Wii U units were sold worldwide during the quarter.
Microsoft and Sony may not be breaking much of a sweat. The Wii U is a toy. Their pricier consoles are magnetic to die-hard gamers who require rich graphics and heavy-duty processing power. Just because the young families that flocked to the original Wii several years ago have abandoned the new system doesn't mean that the Xbox One and PS4 will suffer similar fates. Right?
Well, let's state the obvious: Wii U is dead.
Nintendo is too proud to nix it, so we all know what comes next: price cuts. It would be a shock if Nintendo doesn't push through a potentially dramatic price cut ahead of the Xbox One and PS4 November launches. Even if they seem to be addressing entirely different markets, the Xbox One at $499 and the PS4 at $399 will seem like highway robbery when pitted against whatever the Wii U -- which currently starts at $300 -- will be selling for this holiday season.
But wait! It gets worse. Just 1.03 million Nintendo Wii U games were sold during the quarter. That may seem like a big number, but it's terrible. The Japanese gaming pioneer has now sold just 3.6 million Wii U consoles since introducing the dual-screen system last November. This breaks down to the average user buying just 0.29 titles during the last three months.
Now, we are talking about first-party releases here. Nintendo's own release slate has been pretty dry, but this is the one gaming platform where its in-house games are the food of choice for players. What does it mean that less than a third -- and likely far less than a third -- of its recent buyers (and they're all recent buyers) have bought a new Nintendo Wii U game this past quarter? They spent $300 or $350 on a machine, and now they're not feeding it?
Well, it could be that they're using the system more as an entertainment device. They're using it to stream video and do some rudimentary Web surfing. This is fine. It adds to the value of the investment. However, what does it mean for Microsoft and Sony as companies that have typically subsidized the hardware in order to make it up on the software end if folks aren't buying games anymore?
Sure, there's some serious money to be made in the digital delivery of games. The Xbox One and PS4 come with meaty hard drives and cloud storage solutions. However, if folks are buying these new systems and then just streaming YouTube clips of skateboard-riding dogs, where will that leave these companies?
Folks aren't buying new systems, and they aren't using them the way they have in the past. Sure, Wii U's sorry fate is a sloppy sample of one. However, no one should be surprised if hardware sales are challenged by cheaper Wii Us later this year. When software sales aren't up to snuff next year as consoles become high-tech ways to consume content that folks have already paid for, don't be shocked when Microsoft and Sony are flabbergasted at the freeloaders that they've attracted to their platforms.