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Nintendaze The mainstream press just doesn't get it, do they? In one of the worst video game articles ever, Forbes spewed forth paragraph after paragraph of inaccuracies regarding Nintendo's holiday position this year. And of course, I had to respond. Below you'll find my letter to the writer of that article. Oh well, at least it was fun to write. Oh yeah, and if you haven't read the article click here to see why I had to reply. --------------------
Hi,
I
just had to comment on your article. It has to be, without a
doubt, the most inaccurate piece on the video game industry I've
ever had the mispleasure of reading. The mainstream press
typically reports inaccurately on the industry, but that's just
terrible. Let's break down what's wrong with it:
The
first two paragraphs are fine. No problem there. After
that, it gets pretty bad:
"Nintendo's
scramble to get the hardware out the door raises the question of
why the company is in the business in the first place. Hardware is
a tough business to make a buck in. Wall Street analysts estimate
it costs Nintendo about $380 to manufacture each GameCube console,
which will sell retail for about $200. That means the company will
lose about $180 on each unit sold."
I
don't know where you got your figures from, but Nintendo is not
losing $180 on each console sold. Analysts have placed their
production costs at around $220 maximum (that will decrease as
economies of scale kick in), and that number is quickly
compensated by the sale of just one video game (retail at $50,
cost around $12 - $15 to produce). Microsoft, on the other
hand, is losing roughly that much despite their $300 retail price.
And as I'm sure you know, they'll sell more than one game per
console this holiday season. Research is a GOOD thing.
"Unfortunately,
Nintendo is counting on GameCube to revive its profits. In May
2001, the company reported a decline in fiscal-year operating
profit of more than 40%, and a 13% decline in revenue (although
the company reported an increase in net profits due to a weak
yen). The decline in operating profit was largely attributed to
slow sales of its game console, Nintendo 64."
What
you didn't mention is that a large portion of Nintendo's profits
still come from handheld sales, ie the Game Boy Color and Game Boy
Advance. They just launched their new handheld (the GBA)
this June. Additionally, these kinds of figures are always
reported at the end of a system's life cycle. People don't
want to buy games for an "old" system when a
"new" one is out (PS2) with the promise of more on the
horizon (Xbox & GameCube) they need to save up for.
Even if the GameCube totally tanked, the GBA would more than keep
Nintendo afloat.
"Hardware
losses may be softened by lucrative software sales, including
popular titles such as Donkey Kong 64, Pokemon Snap and Pokemon
Stadium. If all the profits are made in software anyway, is there
a reason Nintendo should continue pursuing console sales? It's not
entirely certain the GameCube will sell like hotcakes anyway. It
was one thing for consumers to throw about $200 on a videogame
console when the economy was booming, but given the current
climate, a $200 purchase is a serious investment--even if that's a
discount to competitors like Microsoft (nasdaq: MSFT
- news
- people),
which will sell its Xbox console for about $300."
Does
it make sense for Nintendo to just forget about the billions it
has invested in GameCube R&D, not to mention throw away all
the work done on GameCube games to this point? Even someone
outside of the industry should understand that would simply be a
stupid move. It's better at this point to release the system
and see what happens. People all over are excited about it,
so why not give it a shot? Then again, your opinion on that
might've changed had you known Nintendo's true manufacturing costs
in the first place.
"Sega
(otc: SEGNY
- news
- people)
successfully pulled out of hardware, leaving the heavy lifting to
those foolhardy enough to persist, and in May, the company said it
expects to pull an operating profit by March 2002, after several
years of losses. It was lauded as one of Sega's smartest
moves."
Sega
also had virtually no cash to market or promote the Dreamcast,
whereas Nintendo has roughly $7 billion in the bank. And
like I said before, Nintendo's not losing a ton of money on each
console sold as you stated.
Thanks
for your time,
Jared
Black
VGF.com Posted:
9-27-01 |
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