Wii U: Fantastic games make up for high price

As it prepared the Nintendo Direct videos which would announce the launch details of its new home console, Nintendo must have recognised the uphill struggle it was facing. Ever since E3, price speculation around the console - which boasts similar performance to the Xbox 360 and PS3, rather than "next-gen" hardware per se - has tended towards the low end. Yet a combination of a controller that's expensive to manufacture and a deeply unfavourable exchange rate means that the Wii U is actually going to be a pretty expensive piece of kit. How could the company turn around the negative sentiment that would create?

"The reality is that most buyers during the launch period will be people who already own an Xbox 360, a PS3 or both"

This is Nintendo we're talking about, so the answer is apparent - software. As simultaneous global streams announced details of the console to different territories later in the day, the launch date and pricing details were dealt with swiftly (although infuriatingly, Nintendo still refuses to set SRPs in Europe, presumably on the basis of some insanely over-cautious legal advice following its fine for price-fixing many years ago), leaving the firm's spokespeople free to move on rapidly to software, software and more software.

That's a very wise strategy for a company whose true strength, after all, is in the quality of its software and its IP. The company's first-party titles - NintendoLand (which is bundled with the more expensive Premium Pack Wii U) and New Super Mario Bros U, with Pikmin 3 and Game & Wario following early in 2013 - were joined by a surprisingly strong line-up of third party support, most notably in the form of exclusive titles from Ubisoft and Platinum Games. ZombiU, Rayman Legends, The Wonderful 101 and Bayonetta 2, along with Traveller's Tales' LEGO City Undercover and Capcom's Monster Hunter 3 Ultimate, are pillar titles upon which the Wii U's launch period will rest heavily.

The company was careful to ensure that there's plenty of cross-platform support there too - FIFA 13, Skylanders, Mass Effect 3, and of course Call of Duty Black Ops 2, to name but a few - but the real focus was on the fan-pleasing exclusive titles. That's about right. While it's important to build up a base of recognisable mass-market brands on the Wii U, the reality is that most buyers during the launch period will be people who already own an Xbox 360, a PS3 or both. They don't want a new console to play FIFA 13 on; they want a new console with new core games and new experiences. Wider mass-market appeal can come later.

It's a good strategy, and it's worked. The buzz around Wii U, in spite of the high price point, is largely positive. People are enthused by the range of games they've seen; and for a product like Wii U, that kind of core enthusiasm should be enough to carry it through the Christmas period and well into 2013. The pricing ($299 / $349 in the US) is unattractive, but it won't dissuade a core audience that's been chomping at the bit for new hardware for the past year or so anyway.

It's after that audience has been sated that Nintendo's going to have to work much harder to make Wii U stick - especially given that it's going to be competing with extremely competitively priced PS3 and 360 bundles aimed specifically at undercutting it in the market. A great catalogue of software will give the company a nice head-start, but there are two pieces of the puzzle which will need to fall in place in 2013 if this console is going to work out - firstly, a compelling mass-market price point, and secondly, at least one strong piece of "casual" software which can take up the crown of Wii Fit or Wii Sports.

"Without the Yen's appreciation, the Wii U could certainly afford to be at least $50 cheaper in the USA - a much more appealing launch price"

The latter is something that's almost impossible to speculate on, and may ultimately end up being a convincing line-up of moderately successful casual titles rather than a single blockbuster like Wii Fit. No doubt analysts and commentators everywhere (here included) will be scouring Nintendo's future product announcements for evidence of that kind of title coming through the pipeline. The former aspect, though, the price point, is something we can think about in a somewhat more educated way.

Although the expense of manufacturing the controller is a major part of the cost of Wii U, the real reason for the console's price point is the Yen exchange rate. We've talked about this in the past, but it bears reiterating - the exceptionally strong Yen, whose value has grown by around two-thirds since the start of the last console generation, is seriously limiting the pricing options of both Sony and Nintendo. Without the Yen's appreciation, the Wii U could certainly afford to be at least $50 cheaper in the USA - a much more appealing launch price.

However, the chances are that the console is going to sell out its initial shipments in all territories, at least for the first few months - the software line-up (and especially the Monster Hunter title in Japan) practically guarantees that. It will sell to a core audience who don't mind paying a premium for early access to the hardware and its titles - or who might complain and grouse endlessly about the price, but will still pay it, which amounts to the same thing in the end.

Further down the line, the audience will become more price-sensitive - probably quite rapidly, as Wii U ends up sitting next to steeply discounted 360 and PS3 bundles in stores. It's entirely possible that Nintendo's launch price allows for this, giving the company a certain degree of financial latitude - meaning that it will be able to push through a price cut for the Wii U in 2013 without taking too much of a haircut on its profits. The ideal world situation for the company is that the Yen starts to lose some of its artificially inflated value (its strength right now is largely a result of US and European economic weakness, with currency markets favouring the "safer" Yen during the present storm), meaning that Nintendo can cut international Wii U prices in 2013 with only a marginal hit to its Yen-denominated earnings. That doesn't look entirely likely right now, but with elections due in both the US and Japan later this year, the potential for currency volatility is fairly high.

"This is still ultimately a business that's about selling games. Nintendo still does that better than almost anyone else"

In other words, there's a chance that this could all play out very nicely for Nintendo - and who would have expected that we'd be talking about a $300 Wii U in such terms, only a few scant days ago? The company has delighted core fans and will sell strongly to them at a high price point, and may then have the flexibility it needs to drop the price and appeal to more price-sensitive consumers later in 2013, once the software library has grown and the value proposition is more clear. That's a good position for a console to be in, and one enabled solely by the strength of the launch line-up the company has prepared.

Perhaps this is a reminder to everyone in the industry, that for all the talking we do about hardware and specifications and platforms, this is still ultimately a business that's about selling games. Nintendo still does that better than almost anyone else. For the fourth time in a row (DS, Wii, 3DS and now Wii U), the industry finds itself having somewhat underestimated the extraordinary talent and market strength of the gaming legend from Kyoto. The real proof will start to pour in on November 18th (or 30th in Europe), but for now, my feeling is that Nintendo has done enough to ensure a solid launch - and demonstrated the kind of abilities it'll need to climb the steep slope ahead through 2013.