Wii U: "Nintendo will do just fine"

After reports that the Wii U might be less powerful than the current generation of consoles, and that its retail price might be $300 or more, GamesIndustry International decided to check in with analysts to see if this information has affected their outlook on the Wii U. One analyst, David Gibson of Macquarie Capital Securities, downgraded Nintendo's stock based on those reports and others. What do other analysts think?

Ted Pollak of Jon Peddie Research shrugs off the naysayers. "This is a recurring theme," Pollak said. "Technology changes and Nintendo looks like they are falling behind. Nintendo always claims their focus is on game play. However they actually have a smart technology strategy that most people don't detect."

Pollak explained further. "To understand this, we need to go back in time a little. The original Wii was designed for standard definition televisions, and when released, there were ninety eight standard definition TV households for every high definition TV household. Now we are faced with fantastic and powerful consoles coming from Sony and Microsoft that will drive high frame rates for 1080p resolution and much higher for 3D. However, if we look at the installed base of HD televisions globally, we may find a very large portion of them are 720p, as those displays were the first adopted and the first discounted."

"They actually have a smart technology strategy that most people don't detect."

Ted Pollak

"So for many people, the new Sony and Microsoft offerings may be an overkill for their current television capability," Pollak noted. "Combine this with Nintendo's proven game play quality, the unique tablet controller, and NFC technology that goes hand in hand with their IP, and I think Nintendo will do just fine with Wii U." Pollak doesn't think it's an automatic success for Nintendo, though. "That said, they must have a solid launch slate of titles and all online features enabled from the get-go, or they will face the same stumbling start that the 3DS experienced."

Colin Sebastian of RW Baird thinks that Nintendo's pricing and power could succeed, but until we know more he's not going to call it either way. "I think $299 would be a good price point for a new console launch," said Sebastian. "There are a lot of Nintendo fans out there who will buy the platform, and so sales will likely be healthy through the first few months, at least."

Of course, the pricing has to be considered in view of the capabilities of the console. "In terms of the processing power (and graphics capabilities presumably), I think they need to match the current generation from Sony and Microsoft, and then the real differentiation will come from the game play," he said. Sebastian hasn't seen enough yet to be sure of Nintendo's success. "Based on what I've seen of the platform, the games look fun, but I am not convinced the tablet controller is a 'killer app'. And Nintendo is really still lagging in terms of online services, which are important to consumers, so hopefully we will hear and see more about that at E3."

"I am not convinced the tablet controller is a 'killer app'."

Colin Sebastian

Given previous comments lambasting Nintendo for their slowness in getting a replacement for the Wii on the market, you might think Wedbush Securities analyst Michael Pachter would be bashing Nintendo. You'd be wrong. "I think 'same' power level is probably right, as it doesn't make sense to ask third parties to do something significantly differently for the Wii U than for the 360 or PS3," Pachter said. "The price sounds right to me as well."

Still, Pachter thinks the rumored consoles from Microsoft and Sony will be significantly more powerful, and that may spell long-term trouble. "If that is right, the Wii U will have limited appeal, and 'Xbots' and Sony fanboys will just wait for the upgrades to their favorite systems," Pachter said. "I really think the key is third party support, and from what I'm hearing, it is very light so far. Nintendo will be all right, they have a ton of cash, but I don't think they will get to the sales levels they are accustomed to with this device. I'm most interested in third-party support, and we should get an idea of that at E3."

Analyst Pietro Macchiarella with Parks Associates sees difficulties ahead for Nintendo. "If those rumors are true, Nintendo's new strategy of appealing to a larger gaming audience, and particularly to core gamers, will become even more difficult to pursue," Macchiarella said. "With likely competition from new Xbox and PlayStation consoles by the end of 2013/beginning of 2014, it seems unlikely that core gamers will be attracted to the Wii U."

"I really think the key is third-party support, and from what I'm hearing, it is very light so far."

Michael Pachter

Macchiarella does see some positives for Nintendo. "Nintendo has never been successful because of graphics or CPU power. Game play (and the popularity of characters like Mario) made its consoles successful," noted Macchiarelli. "A console on par with current generation consoles will be enough to make it appealing to the same people who bought the Wii, as long as the price is right. The main problem I see is that the market has changed compared to six years ago (when the Wii launched). Casual players now have multiple alternatives, particularly on smartphones and tablets. They might think twice about spending $300 on a console, unless they find something really unique about it."

The pricing of the Wii U is more problematic, in Macchiarella's view. "In our surveys, we see that purchase intentions of game consoles for the next few months are a little higher than last year (12% of broadband households expressed intention to buy a console in the first half of 2012 vs. 9% at this time last year). I think this positive trend will continue in the second half of the year (unless there are significant changes in the economic environment). For the Wii U, a $300 pricing point would be very hard to defend in the market, especially with Xbox + Kinect already being sold at that price point and likely to go lower once the Wii U comes on the market. I think the Wii U sales will struggle if priced at $300 and at that point even Mario would not be able to help."

"I think the Wii U sales will struggle if priced at $300 and at that point even Mario would not be able to help."

Pietro Macchiarella

Can Nintendo afford to take their time getting the price point and the software lineup correct for the Wii U, as they did with the 3DS? In other words, is Nintendo OK if they launch with a higher price, finds out the console doesn't meet sales expectations, then drops the price a few months later? Macchiarella doesn't think so. "The 3DS launched in Q1, allowing Nintendo to adjust price in time for the holiday season. If the Wii U launches right before the holiday season, that will be the price at least until the end of the year. If the price is too high, it means that Nintendo would fail sales expectations for the holiday season, their most important time of the year. I don't think they can afford that."

What factors will be crucial in Nintendo's ability to make the Wii U a solid seller, and the Wii U ecosystem as a whole profitable for Nintendo? Macchiarella sees two key things for Nintendo. "Proving that the new controller means truly innovative gameplay, and a good game lineup at launch."

We should have much more information at E3, and at that time analysts will be revising their impressions of the Wii U and its chances for reviving Nintendo's console sales.