The GeeksverseLeaving Proof 55 | How to Lose $1 Billion in 6 Months

Leaving Proof 55 | How to Lose $1 Billion in 6 Months
Published on Thursday, October 27, 2011 by

I plan on posting a review of 2008’s Wolverine: Saudade (a curious mainstream superhero project in terms of its geographical/cultural roots and setting: it was created by a French creative team—the script was originally in French—and first published in Europe in 2006, and it features a Canadian superhero adventuring in Brazil) sometime next week, but for now, let’s talk about the biggest news impacting the video game community this morning: the announcement that Nintendo posted a whopping ¥70.2 billion ($926 million US) loss in its earnings report for the first half of the 2011 fiscal year.

Scan of a page from Nintendo's earnings report for the six-month period ending September 2011

Nintendo does qualify that loss by saying that ¥52.4 billion of it is directly due to the effect of a strong yen, resulting in a re-evaluation of the company’s foreign currency assets. Still, currency woes aside, there was every indication earlier this year that The Good Ship Iwata was in for some rough sailing ahead, as I’d already discussed in an earlier column. But while the amounts involved are staggering, history suggests that this is something that Nintendo can rebound from. At least one other current-generation console manufacturer has survived and even thrived after taking a $1 billion hit to the bottom line: Microsoft posted expenditures totaling in excess of $1 billion US from the cost of replacing, repairing, and refurbishing XBox360 units hit by the notorious “red ring of death” and that’s not even taking into account the resources they spent re-designing the systemic flaw that plagued early versions of their platform.

Of course, one key difference (among many) between the XBox360’s expensive teething problems and Nintendo’s current woes is that Microsoft’s XBox Division had, and continues to have, the financial might of its parent company to help it absorb losses. Nintendo doesn’t have that luxury, is at least a five months away from the release of its “next-generation” console (which, from a CPU and GPU specification perspective, seems to be a generation 7½ machine and not a full-fledged 8th-generation console), and the underperforming sales of the 3DS (even with the recent price drop) continue to eat away at Nintendo’s profit projections. Nintendo can come back from this, but in order to turn their fortunes around and quick, I think it will take a deviation from their normally conservative corporate approach and a revitalization of their relationships with third-party developers (Nintendo has—at least from my view as an industry outsider—always had a bit of a begrudging, passive-aggressive attitude towards third-party developers, whom they seem to treat more like competition in the software side of things than as partners in developing and growing markets for their hardware).

The common sentiment among industry observers is that the software just isn’t there to push sales of the much-ballyhooed 3DS handheld. But I think the paucity of quality games and the lack of a consensus “must-have” game for the device (the closest is probably The Legend of Zelda: Ocarina of Time 3D, which is, to no one’s surprise, a first-party title and a 3D retread of a game that came out over a dozen years ago) eight months after launch is at once a cause of Nintendo’s current struggles and a symptom of two larger, distinct-but-related problems: (1) 3D gaming hasn’t caught on with consumers (at least not in the same way motion controlled games caught on with the Wii); and (2) game developers seem to be hesitant to develop games that are uniquely suited to the 3DS’ idiosyncratic control and display schemes.

Nintendo seems to be addressing the latter issue by releasing the Circle Pad Pro (a.k.a. the “Frankenstick”). Sure, it’s an ad hoc, inelegant (it requires its own AAA battery), and—to be honest—downright ugly solution, but it’s an uncharacteristically timely solution from Nintendo nonetheless, and at the very least, it’ll make it easier for third-party developers to port over titles originally designed for Sony’s PSP and PS Vita, and older home consoles, such as the PS2, XBox, and Nintendo’s own Nintendo 64 and Game Cube. As to the former issue, at least one prominent Nintendo employee has voiced his concerns about the appeal of 3D gaming: Nintendo Entertainment Analysis and Development department head and 3Ds engineer Hideki Konno had this to say about 3D gaming in a Wired interview seven months ago

We want to get software out to as many people as possible, and there are some people who just can’t see 3-D…

… We’re moving away from any stance that says if you don’t use the 3-D functionality you can’t play this game.

While I think it’s great that Konno is enthusiastic about the idea of 2D gaming on the 3DS, the current public perception is that the 3DS is primarily a 3D gaming platform (thanks in part to an aggressive marketing strategy touting its glasses-free 3D functionality), and moving the 3DS away from 3D-centric gaming will likely be viewed, fairly or unfairly, as an indictment of Nintendo’s decision to jump into 3D gaming with both feet, chequebook in tow. Of course, all of this nay-saying will be rendered moot if Nintendo stumbles on a hardware sales-driving “killer app” for the 3DS in time for the holiday season (the most important time of the year sales-wise for gaming platform makers) and while media and gaming community response to previews of next year’s Wii U seem to be tepid, I think Nintendo is capable of pulling a Microsoft and Satoru Iwata and company can potentially capitalize on their early entry into the next hardware generation and parlay it into an unassailable position at the top of the console manufacturer pecking order. But from where we are right now, 27 October 2011, it’s not looking too good.

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