Nintendo has woken up to the reality of its own sales and slashed profits forecasts. Now it needs to change the leader at the top, says Matt Martin.
Today Nintendo finally came to its senses. It admitted that its own expectations for full-year Wii U sales were completely unrealistic and has dropped sales predictions from 9 million units to 2.8 million. It's clearly a huge drop and it comes with a profits warning to match - Nintendo now expects to make a loss of $336 million.
"Iwata isn’t to blame for the market conditions, but he’s to blame for stubbornly sticking to his own forecasts."
Finally, someone at Nintendo has done the maths.
As a result, Nintendo will suffer its third consecutive annual loss. Last year CEO Saturo Iwata promised to return the company to profitability. It was a big challenge then, but the company backed him to the point that even three months ago it stood by the prediction of selling 9 million Wii U consoles.
To wake up three months later and slash sales forecasts so dramatically it's clear that where its own products are concerned, in Kyoto it has been a case of the blind leading the blind.
The first step of dealing with a problem is admitting you have one and Iwata and co. have been honest about where theirs lie, and it's not just with the Wii U. Despite being the best-selling console in the US (and the UK) last year, the 3DS is not meeting expectations either. These are expectations set by the company itself, which makes the issues even more frustrating for onlookers. "We were ultimately unable to achieve our goal of providing a massive sales boost to Nintendo 3DS in the year-end sales season," said Iwata in today's company report. It's the same issue with the Wii U, which "fell short of our targeted recovery by a large margin."
Sales have crashed even after a price cut earlier in the year. This is Nintendo not being able to see the reality of its own sales. This is a problem that the CEO has been struggling with since launch. Iwata isn't to blame for the market conditions, but he's to blame for stubbornly sticking to his own forecasts.
It's not like Nintendo has been blind to the shift in the games business outside of its own doors, either. It's well aware of the encroachment of smartphones on handheld gaming. It can see the gradual growth of digital sales, the importance of online stores, the sampling of content and the free-to-play phenomenon. But it lost a lot of the original Wii audience to other casual forms of games playing (who knew a casual audience was just that; fickle, uncommitted, irregular) and has been unable to pull them back. Hats off, it's tried to experiment - a second screen as the unique selling point of the Wii U console was an incredible gamble - but it's clear now it hasn't paid off and its time to admit that this experiment was a failure.
This is not a console market in decline anymore - just ask Microsoft and Sony about their stella sales numbers straight out of the gate. The audience for games consoles is there and its salivating for more hardware, more games, more DLC. But where the Wii U is concerned there's just not enough interest outside of the faithful. In this financial year there's been interest from 2.8 million people worldwide. Where on earth did Nintendo pull that magical 9 million figure from?
Basing any business on historical market data is understandable but flawed. It's like game design by analytics. This is how people used to play, how customers used to buy our games, how it was in the old days. Nintendo has acknowledged and embraced elements of the evolution of gaming but it's been too slow in adapting and it has focused on the wrong market.
It's easy to say "Nintendo won't do this, it won't do that" but when money is leaking down the drain and your product is being gradually nudged aside for more exciting technology you have to take drastic measures. No one is denying that Nintendo has a lot of money, but that's not to say extreme measures aren't needed if it hopes to continue to be a significant player in the video game business.
Gamers can't wait any longer for must-have software to arrive. The Wii U already has some incredible games but it's not enough. You know the names - Mario, Zelda, Pikmin - the Nintendo faithful are well-catered for but they're no longer a big enough fanbase to sustain a home console. It's not a new idea to suggest there are multiple pieces of hardware and technology where Nintendo's biggest franchises would be able to shine and reach an audience far beyond that of a home console.
Nintendo needs change. And it needs to start at the top for that to filter down. It needs a new CEO who honours and respects the traditions of the business, the unmatched strengths of its franchises and products, but who is also willing to embrace the reality of games consumption. To a point, the hardware is irrelevant. It's about the games, the experience and the services, not the box you play on.
Nintendo is at the top of its game in that respect, but Iwata's closed-platform approach has doomed the Wii U and it's time he and the rest of Nintendo admitted that. It's been a good run, but the company needs fresh thinking from a new leader. Someone who can act quickly, learn from mistakes, and who won't act surprised when numbers on a spreadsheet don't match up to the reality of sales.