Hitting the Brakes

Are we finally seeing Nintendo's juggernaut performance of recent years slowing down? Figures have been trickling in over the past few weeks which tend to suggest that while Nintendo's rivals aren't going to catch up with the installed base of the Wii or the DS any time soon, the company's week to week sales are slowing. In some territories, the Wii is even being outsold by the Xbox 360 - just about the first time that this has happened since the console launched, if we disregard supply constraints.

Japan is seeing an overall malaise in the home console market, despite the continuing strength of the handheld sector. Nintendo will be happy to have seen Wii Sports Resort sell 350,000 units in its first week, but less pleased with the overall performance of the Wii hardware so far this year. In the United States, the Wii's sales graph is settling off - although admittedly, the slow-down in Wii sales means that the console is now "only" selling as fast as the market-dominating PS2 was at the same point in its lifespan.

Here in the UK, meanwhile, the latest figures to be released by retailers and market data bodies alike indicate that while the Wii's software continues to sell at a huge pace, the console's hardware sales have dropped back - with the Xbox 360 selling almost twice as many units in the months from January to June this year.

Microsoft is undoubtedly thrilled by the figures, even while recognising that the mountain it would have to climb to rival the Wii's installed base is extremely daunting - and that the Wii's significantly stronger software sales are undoubtedly influencing decisions in third-party publisher boardrooms around the world.

But what is causing the drop? Vocal gamers will mutter darkly about the Wii being a fad, about the consoles gathering dust in the corner - but the software sales for the platform prove them wrong. Some might speculate that the console has hit a sales peak because it has simply saturated its target market, but that seems unlikely given that the PS2 has shifted over twice as many units as the Wii has to date.

A number of factors, I believe, are conspiring against Nintendo's success at the moment - all of which are quite possibly short-term factors, making this into a temporary respite at best for the company's competitors.

First of all, there's something that's totally out of Nintendo's control - the global economy. The past six months have seen the credit crunch which dominated 2008's news headlines finally being translated into real effects on the economic well-being of almost every nation on earth. Rising unemployment and increasing pressure on the income and expenditure of families in the developed world means that budgets for entertainment and luxury items are feeling the squeeze.

This doesn't hurt Microsoft and Sony as badly as it hurts Nintendo. We often talk about the "recession-proof" games industry, and that's still a concept that's broadly true - this industry will grow through the recession. However, some sectors of the industry will suffer while others thrive, and the casual, family gaming market which Nintendo has so successfully exploited is less likely to see gaming as a core entertainment expenditure than the hardcore, dedicated gamers who buy Xbox 360s and PS3s.

The second factor, which is very closely related, is price. Howard Stringer can talk about price discussions being short-sighted until the cows come home, but it's still a very real, important factor in consumer buying decisions. The Nintendo Wii, quite astonishingly, has seen no adjustment to its RRP since the console launched - and its trade price in Europe has actually gone up, leaving retailers with significantly less ability to create attractive bundle deals for consumers.

The Xbox 360 and PS3 have both seen price cuts in the meanwhile, often accompanied with upgrades to the specifications of the system, with the 360 receiving two major cuts to the entire range of consoles - the most recent in September of last year. You can now buy the cheapest Xbox 360 for USD 100 less than it cost at launch, and it comes with a nice big memory card and some free Xbox Live Arcade games. The Wii, meanwhile, is exactly the same as it was at launch and hasn't dropped a single penny in price.

Consumers, especially family consumers, are exceptionally price sensitive, and they know that home electronics generally get cheaper over time. The Wii's price has been sustained to an almost artificially high level by the console's high sales - there was, after all, no convincing reason for Nintendo to drop the price while it was easily selling every unit it could make at the higher price point. Now, however, there is likely to be a significant body of pent-up demand for a price drop, since consumers will be aware that one is long overdue.

There is a final factor, however, which is arguably even more important than either of these - and that's games. Despite the strong sales of Wii software in recent months, the console hasn't had a really powerful headline game to drive interest in the platform since well before Christmas. Animal Crossing is loved by its fans, but failed to break into the mainstream market in a convincing way. Wii Music, meanwhile, was groomed as a successor to Wii Sports and Wii Play, but is arguably the most disappointing first-party title for the console so far - both creatively and commercially.

The Wii is not a magic box which will sell regardless of software - the same rules which have always applied to the console business still work here. Software sells hardware. The Wii's success has been built on Nintendo's fantastic range of software, and on a slightly smaller range of third-party hits - EA Sports Active looks like being the latest in that particular line, and it'll be interesting to see how Wii sales hold up this summer in the wake of its release.

It's unlikely that we'll see a Wii price cut in the coming months, although a drop ahead of Christmas cannot be ruled out. The recession looks likely to continue to bite, and possibly even to bite deeper. If Nintendo is to regain a firm grip on the crown that's presently slipping slightly from its head, it will have to do it with innovative, attractive software that re-ignites the Wii buzz. Wii Sports Resort is its next major opportunity to do exactly that - analysts and insiders around the world will be keenly watching its performance to gauge which way the wind is blowing for the industry's top dog.