Nintendo to sell Wii U at a loss

Nintendo will be selling the Wii U at a loss according to Satoru Iwata, the company’s president said in his Q2 financial briefing.

 Nintendo to sell Wii U at a loss
(Nintendo counts down to the official Wii U launch date on its site.)

The shift in business strategy means that Nintendo is following the trend in which a company invests in the hardware and sell them at a loss, but profits later on from add-on sales or by other means.

“We had to book a loss on the hardware, which is currently in production and will be sold below cost,” says Iwata.

The ‘take a loss’ and ‘profit later’ strategy has been deployed by both Microsoft and Sony in the past, so it comes as no surprise that Nintendo is falling in line with the trend.  Analysts from IHS iSuppli estimated that Sony lost $300 on every original 2007 20GB PS3 model.  Sony did not confirm that it had incurred the hefty loss at the beginning, but confirmed later on that the PS3 did not become profitable until 2010.

The BBC reported that Microsoft also deployed a similar strategy with the Xbox 360, and that the gaming console market was not the only segment that shifted its strategy.  Amazon’s chief, Jeff Bezos, also confirmed that its line of Kindle tablets were being sold at their production costs.  The e-commerce giant profited from the sales of digital goods such as MP3s, videos, and e-books which were available through Amazon’s online marketplace. 

Technologies have also progressed to the point where casual gamers can entertain themselves with powerful smartphones and tablets.  Hence, maintaining gaming console attractiveness among casual consumers mean that Nintendo has to adapt to the change in the gaming ecosystem. 

“Nintendo’s move is an acknowledgement of a wider reality that smartphones, tablets, connected televisions and other non-dedicated devices now offer excellent game playing experiences,” says Ed Barton, director of digital media at Strategy Analytics.

Nintendo posted its first ever annual loss in April, and predicted that it would net only approximately $75 million in profit during the business year.