Wii U: Analysts like it

Nintendo finally revealed key pricing and information about the Wii U, with two different packages available on November 18. The Wii U Basic Set (in white) includes a Wii U with 8 GB of storage, a GamePad controller, a sensor bar and an HDMI cable for $299; the Deluxe Set (in black) has 32 GB with Nintendo Land for $349. Nintendo also announced their Nintendo TVii service running on the Wii U, which brings together different sources for video (like Netflix and Amazon) in one interface; you can even control your Tivo with it.

Reggie Fils-Aime, President of Nintendo of America, claimed the launch software lineup is the strongest in Nintendo history (counting the period from launch through March), with over 50 titles. Nintendo Land will be available at launch, along with New Super Mario Bros. U. Activision announced Call of Duty Black Ops II for the Wii U, along with several other titles including Skylanders Giants, though the exact launch dates were not announced.

Analyst reactions to Nintendo's announcement were generally positive, and the pricing seemed to be in line with what was expected. Analysts were less sure about the long-term success of the platform, given the relative lack of information about when titles are launching exactly and the much more complicated market conditions in general.

Michael Pachter, analyst with Wedbush Securities, was surprisingly positive given some of his previous concerns about Nintendo. "I think that the price points make sense, particularly since I think that the console will be sold out through March. They may as well charge what they can as long as there are hardcore fans who will pay up," Pachter said. Nintendo has always preferred to make money on hardware, and this pricing is in line with early estimates of where Nintendo would have to price the console in order to make a profit.

Pachter doesn't think Nintendo can hang on to these price points for long, though. "Once we get past March, I think that the price point will appear high to many. I expect price cuts for the 360 and PS3 by then, likely below $200 with Kinect/Move/game bundles, so the Wii U at $299 will seem pretty pricey to the masses. Add to that the likely introduction of an iPad Mini ($299? just guessing) and the Kindle Fire, and there is a lot of competition for mass market wallet share. I think that the price will have to come down, likely mid-year next year."

"Once we get past March, I think that the price point will appear high to many"

Michael Pachter

Nintendo's entertainment features don't seem to Pachter to constitute a competitive advantage. "The TVii is nice to have, but not much different than current Xbox 360 with SmartGlass, so I think it has limited appeal unless marketed to someone who doesn't have a 360. I expect Sony to come up with a SmartGass initiative of its own shortly."

Pachter was more impressed with the software that was shown. "I thought the launch lineup was very strong, and third party support was pretty impressive," he noted.

Nintendo may have problems keeping the Wii U in stock initially, Pachter believes. "I expect Wii U to sell out through March, likely at a 1 million per month global production rate, so it should sell around 7 million units by then," Pachter said. But the good times won't last, according to Pachter. "After March, it becomes a mass market device with a lot of competition, so I expect that demand will start to decline, and the company will likely cut price before holiday 2013. No, I don't think TVii is leveraging, but it's nice to have. Yes, I think competitive tablets will take share from Wii U."

David Cole with DFC Intelligence thinks that Nintendo went higher with the price than he expected. "We were forecasting a $299 price with a question of what that bundle would include. Really we think without a game and the memory boost it is more of an effective $349 price." Cole agrees with Pachter that the Wii U price may have to fall in 2013. "I would have liked to see $300 with a bundle; however, I think there is room to capitalize on early adopter interest and drop the price next year," Cole said.

Overall, Cole believes that Nintendo will have a good start with the Wii U. "In terms of launch, Nintendo has a pretty strong fan base to snap up initial inventory and the real issue is not this holiday season but 2013 and beyond," Cole noted. As far as tablets go, Cole doesn't seem them as a problem for Nintendo, but he agrees with Pachter that consumers might need to stand in line to get their Wii U. "I really don't think there is a great deal of competition between the tablet market and the console market at this point. The real issue is whether Nintendo will be able to attract some of the more casual Wii purchasers who may have moved on to tablets and other devices. However, those consumers are not the ones being targeted this year. This year it is more about core gamers and there could easily be shortages."

"The real issue is whether Nintendo will be able to attract some of the more casual Wii purchasers who may have moved on to tablets and other devices"

David Cole

Arvind Bhatia, analyst with Sterne Agee, agreed that Nintendo didn't really surprise him with their launch details. "Nintendo's Wii U announcement with respect to the hardware (pricing, launch date) is mostly in line with expectations," Bhatia said. Like Pachter and Cole, Bhatia was impressed with the games being shown. "The title lineup does look stronger than we had expected. Overall, we believe investor expectations are fairly low and as such there could be upside. We expect Wii U to sell 1 million units in North America this holiday season, which is flat versus the Wii launch in 2006. However, back then, Nintendo Wii was severely supply constrained." Nintendo, of course, has said nothing about the amount of Wii U inventory it expects to have in the US, but certainly retailers would be hoping there is not a repeat of the repeated Wii shortages that persisted for months after launch.

Will the Wii U's launch force Microsoft or Sony to make changes to their fall plans? Bhatia is skeptical. "I don't think the Wii U launch will alter Sony/Microsoft's plans with respect to their own launches," he said. And the Nintendo TVii may be nice, but Bhatia doesn't think it's a system-seller. "TVii features are mostly standard now; i.e., customers expect them and as such you can't afford not to have these features in your console."

Jesse Divnich, VP of Insights & Analysis at EEDAR, was similarly unsurprised by Nintendo's pricing, though perhaps somewhat disappointed. "Nintendo's Wii U price point at $299 came in-line with market expectations; however, the market was expecting that a game would be included in the base offering. Only the upgraded hardware offering, at $349, includes a game," Divnich noted.

He's not as impressed with the software lineup as other analysts profess to be. "The software line-up does mirror the current line-up blockbuster releases that are already planned on the Xbox 360 and PlayStation 3," Divnich said.

As far as core gamers go, Divinch doesn't think the Wii U will offer a compelling reason to purchase. "I know developers are hard at work to ensure their multi-platform games have unique features exclusive to the Wii U, but I expect this is unlikely to persuade core gamers to purchase a Wii U just for a few minor exclusive features. Basically, if a consumer has purchased Call of Duty every year for their Xbox 360, there is little reason for a consumer to break that habit. We consumers are creatures of habit."

"The success of the Wii U comes down to third-party support"

Jesse Divnich

Still, Divnich is a strong believer in Nintendo's capabilities and their future. "Nintendo will push the boundaries of interactive entertainment on the Wii U," Divnich said. "Nintendo has always been a guiding light of creativity to the rest of the industry."

Divnich feels that the ultimate fate of the Wii U is not entirely in Nintendo's hands. "The success of the Wii U comes down to third-party support," Divnich explained. "We feel confident that Nintendo will develop its own compelling software that will drive initial sales; however, any long-term success will come from third-party developers creating unique and compelling content for the Wii U. Simply 'porting' over an existing Xbox 360 titles and slapping on some exclusive Wii U features will not cut it."

The problem for developers is a broad one that's not easy to solve. "Device fragmentation is a serious issue in the video game industry. Five years ago there were a handful of devices that supported interactive entertainment. Today there are dozens and this has put a lot of financial pressure on content creators to ensure their games work on all platforms," Divnich noted. "Without first-party support, it is financially irresponsible for developers to create exclusive content for just one device. This market fragmentation is marginalizing creativity."

Divnich is impressed by the expansion of entertainment features the Wii U provides. "The introduction of TVii was a refreshing surprise, and I am pleased to see that Nintendo is acknowledging that the consoles of the future need to be flexible to support all forms of entertainment consumption."

Ultimately, Divnich likes the Wii U but thinks the year ahead will not be easy for Nintendo. "Overall, I feel the Wii U is a step in the right direction for Nintendo, but the company is under far more pressure to succeed than ever before."

Colin Sebastian, analyst with RW Baird, thinks Nintendo has set it itself up for a good holiday. "The price points were not a surprise, and we believe there are enough loyal Nintendo fans, and a smaller number of video game fanatics that will buy any console, to generate solid Wii U sales this holiday," Sebastian said, adding "Wii TVii looks interesting, and should be relatively easy for users to set up."

He's not sure the console will be a hit yet, though. "One of my lingering concerns is that it is not obvious to me what the 'killer app' will be, which would help drive momentum into next year," Sebastian said.

"Every must-have game is another reason to line up and buy that console"

Scott Steinberg

Scott Steinberg with TechSavvy Global thinks Nintendo has put together a good value. "Pricing is on par with what you'd expect from a new console in this day and age. $299 is a reasonable ask; I would have preferred to see it a bit more aggressively priced and appeal to a more value-minded customer, but you're getting a lot of hardware and access to a lot of features for what they're offering," Steinberg said. "I do think it is a fair asking price. What they've announced seems very smart; we're certainly seeing Nintendo make more of a push towards home entertainment and making the videogame console a digital entertainment center than ever before."

Steinberg feels that Nintendo has broadened their appeal with the Wii U. "Certainly we're seeing a move to speak not only to casual gamers, but mid-range and hardcore gamers as well, and they are providing more software at launch," Steinberg said. Nintendo's software lineup looks good to him, and it's critically important to sales. "Every must-have game is another reason to line up and buy that console," Steinberg remarked. "I think there's a good amount of anticipation; it's the first of the next-gen holiday systems. At these prices, and based on the software lineup and the feature set, I think the Wii U is going to do well."

While the Wii U will do well, Steinberg doesn't think it's going to sell like the Wii. "I don't think it's going to be quite as much of a breakout success as the Wii, only because it's become a much tougher retail market. There's a lot more competition from smartphones, tablets and other devices," Steinberg noted. And that's not the only factor. "A lot of the novelty factor that existed for the Wii - it was new for its time, very innovative - not to say that the Wii U isn't new and innovative, but it's a lot more complex value proposition to communicate."

Nintendo's efforts to create an integrated entertainment environment are good, but not ground-breaking in Steinberg's view. "Microsoft and Sony have been building up their entertainment libraries for quite some time, so to some extent Nintendo's playing catch-up here." Still, it's a necessary feature that Nintendo has to add in order to compete.

Steinberg doesn't see Sony or Microsoft feeling pressured by this announcement, "because a great deal of attention is going to gather around the next next-gen consoles. What you are going to see are strong responses, like Microsoft playing up the SmartGlass concept, as they work to make a lot of noise around comparable features or features they can offer."

Overall, analysts seemed to think Nintendo put together a solid offering at about the price they expected. Now the challenge is up to Nintendo to generate excitement among consumers and communicate the value of the system. Ultimately, the consumers will be voting with their dollars this holiday season, and we won't know for quite some time just how well the Wii U will succeed in an ever-more-difficult marketplace.