Nintendo (OTC:NTDOY) recently announced that Super Smash Bros. for the 3DS had sold 1 million copies within the first week of its Japanese debut.
To date, only three other 3DS games -- Monster Hunter 4, Pokemon X/Y, and Yokai Watch 2 -- have passed the million-unit milestone within a single week. The game was launched on Sept. 13 in Japan and will arrive in North America and Europe on Oct. 3.
The key question now is whether Super Smash Bros. can help sales of the 3DS, which has sold 44 million units worldwide since February 2011, get back on track. Last quarter, 3DS sales fell 41% year over year to 820,000 units, suggesting that sales of the device had peaked much earlier than its predecessor, the Nintendo DS, which sold 154 million units.
Although the 3DS has soundly crushed its main competitor, Sony's (NYSE:SNE) PS Vita, the future of the handheld market remains murky due to the rise of mobile games. Research firm Gartner forecast that revenue from handheld consoles and games will fall 18% to $12.4 billion in 2015, while revenue from mobile games will surge 28% to $22 billion.
Therefore, let's analyze the impact that Super Smash Bros. could have on 3DS sales, and if that success can carry over to the Wii U version, which is scheduled to arrive this holiday season.
The business of Super Smash Bros.
Super Smash Bros. has consistently been one of Nintendo's most popular franchises.
The first game, Super Smash Bros. (N64, 1999), sold 5.6 million copies. Its sequel, Super Smash Bros. Melee (GameCube, 2001), sold 7.1 million copies. The third title, Super Smash Bros. Brawl (Wii, 2008), topped both with sales of 12.3 million copies. With that impressive growth trajectory, it's easy to see why gamers and investors have high hopes for Super Smash Bros. for 3DS and Wii U.
Super Smash Bros. for the 3DS is the first handheld iteration of the casual fighting game, but Nintendo's top franchises have generally transitioned well between home and portable versions. Mario Kart DS (Nintendo DS, 2005), for example, was the second-best-selling title of the eight Mario Kart games, with sales of 23 million units.
But strong sales of Super Smash Bros. for 3DS do not guarantee higher sales of the device. If most Super Smash Bros. buyers are existing 3DS owners rather than new users, then hardware sales will remain in a rut. Last quarter, we saw the same problem with Mario Kart 8 -- Nintendo sold 2.82 million copies of the game, but only sold 510,000 Wii U devices -- disappointing investors who thought the game would win over new gamers.
How Amiibos could tie everything together
But even if Super Smash Bros. fails to sell enough new 3DS units, there's another factor that investors shouldn't overlook: Amiibos.
Super Smash Bros. for the 3DS and Wii U are designed for Amiibos, Nintendo's new near field communication, or NFC, figurines. These collectible toys, like figures for Activision Blizzard's (NASDAQ:ATVI) Skylanders and Disney's (NYSE:DIS) Infinity, "enter" the game when placed on a 3DS peripheral or Wii U GamePad. The "new" 3DS, which will arrive in Japan in October, allows gamers to place the Amiibo directly on the screen.
Activision has already proven that these NFC toys can be very profitable. In May, the company revealed that Skylanders had generated over $2 billion in revenue in less than three years. Activision's approach is simple -- sell a game with three figurines, which can unlock different parts of the game with their abilities. But to see everything in the game, a gamer must purchase additional figurines to unlock new areas. According to video game blog Kotaku, it costs at least $225 to experience everything in Spyro's Adventure, the first game of the Skylanders series.
Nintendo won't lock away Amiibo-exclusive Super Smash Bros. characters, although that would certainly be the most profitable path. Instead, the Amiibos will be CPU-controlled "helper" characters that can be trained and leveled up on the 3DS and Wii U. The customized character can then be ferried between both versions to enable gamers to compete with friends.
Amiibos could make a single copy of the game much more profitable with attached figurine sales. Amiibos will cost $13 each, which could stack up very quickly on top of a $60 game. The use of Amiibos in both the 3DS and Wii U versions could also encourage gamers to buy both versions.
A Foolish final word
Super Smash Bros. won't be the magic bullet that saves the 3DS. While the franchise has sold well, many who buy the game will likely already own a 3DS. However, Amiibos could significantly boost the revenue generated per game and increase interest in both of Nintendo's consoles.
If Nintendo can even be as half as successful with Amiibos as Activision was with Skylanders, these little figurines could become a new pillar of growth for the company, which means the 3DS could generate more revenue with a smaller user base than its rivals in mobile games.