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Nintendo Lost $461.2 Million Last Year

The company cites the lowered costs of the 3DS and Wii as contributing factors.

Nintendo has generally been the sole console maker to post significant profits in the gaming space, a fact that no doubt had much to do with Nintendo's insistence on actually making money on its hardware, as opposed to taking a loss in service of making up the money later in game sales. Unfortunately, 2011 marked a shift for Nintendo in regards to profitability. Specifically, it marks a shift away from profitability.

"How in the hell does this thing cost more than $170 to produce..."

Nintendo posted a $461.2 million (¥37.3 billion) loss for its fiscal year in 2011, which officially ended on March 31. That came from an overall net sales number of $8 billion (¥647 billion) on the year.

One of the key contributing factors to the loss was the 3DS price drop. The $170 price point for the system put Nintendo in the red on each unit sold. The company believes that by the end of its next fiscal year, it should be seeing a profit on all 3DS units sold, presumably through decreased manufacturing and component costs.

The company's effort to increase 3DS software sales was deemed "successful" according to the report, but not quite successful enough to offset the loss on each 3DS sold, as well as the reduced price of the Wii, which now retails for $149.99.

This isn't a position we're typically accustomed to seeing Nintendo in, but it's not all doom and gloom, either. Nintendo has a number of significant games coming up for the 3DS, and there is, of course, the impending Wii U launch. We don't yet know how Nintendo will price its new console, but it wouldn't be crazy to assume that the company will look to make some money out of the gate from hardware sales there. Question is, can they make money on that system while still keeping the price reasonable for consumers? If any of the current rumors circulating around are true, then that doesn't sound too far fetched. Guess we'll find out at E3.

Alex Navarro on Google+
96 Comments
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Posted by frankfartmouth

Microsoft bled money on the original Xbox for years, and so did Sony on the PS3. This isn't unusual at all, it's just unusual for Nintendo. I don't think the Nintendo apocalypse is going to arrive anytime soon.

Posted by Bourbon_Warrior

Given the Wii-U is destined to tank as they will reveal next Xbox\PS3 before it launches, I am looking forward to playing Zeldas on my Xbox in the future.

Posted by Lemons64

I have a frightening feeling that the Wii U won't gather enough profit. They either have to find a way to deal with this humongous issue, or they're done for.

Posted by fox01313

I think that the fact that now the 3ds version can't play some of the earlier games from the earlier handhelds as well as throwing out a launch window the size of the solar system & trying to rerelease games like zelda instead of coming up with something new kind of sank any ideas of them doing good anytime soon financially.

Posted by Blubba

Try releasing games. Those are pretty good at making money.

Posted by Vegetable_Side_Dish
@freewilly5: Yeh, Scott Rhode in a gametrailers interview said they will NOT be losing money day one on Vita, i.e. the Vita 'divison' so to speak will have an operating profit from day one, although obviously it will take a few years for the total R&D etc to be recouped. Gist of it is (if it all goes according to plan) they do not lose money on Vita products from launch onwards, much like Nintendo's old strategy.  
 
@BrockNRolla : A very reasonable assumption and of course you're right about the userbase. The 3DS cut certainly hurt Sony in more ways than one; now people sort of expect them to do the same as early as Nintendo, but I don't see them cutting the price as fast or as hard as Nintendo did.  
 
The problem for the big N though is that they now cannot go for another price drop for a very long period unless they want to operate deep in the red, which is why we've seen them throw all their big games at the 3DS early to drive HW sales. They've already done Zelda, Starfox, 3D Mario, Sonic, Mario+Sonic, Nintendogs, Kingdom Hearts, Fire Emblem, Kid Icarus and Mario Kart, with Luigi's Mansion, Animal Crossing, and 2D Mario all coming fairly soon. I'm guessing they're trying to sustain themselves until they can get back to selling HW at a profit. 
Posted by Mirado

Oh no, the pile of money Nintendo is sitting on is now a slightly smaller pile of money!

Seriously. Not to downplay this as a half a billion is still a lot of cash, but Nintendo has banked $14 Billion and can take this loss ten years in a row and still have a fat bankroll. This was just the inevitable result of them saturating the Wii market and what seems to be an always rocky system launch (in the case of the 3DS), at least recently.

Posted by BoG

This is more money than I will earn in my entire lifetime.

Posted by Scodiac

Holy poop that's alotta money.

Posted by crusader8463

Hope they scrap the WiiU and come up with a completely different thing. If not, I predict Nintendo is going to hit bad times in the near future.

Posted by Viking_Funeral

I'm skeptical of the Wii U reaching the levels of Nintendo's current console, but I'll be curious to see if it gains traction. Really wonder how this will all play out.

Posted by Realitymoves

At least they will have alot of there classic titles on the Wii they should be able to port to HD for free, if they dont theres not much reason to buy it

Posted by Lucidlife

They made $400 million LESS than projected.

Posted by nesagwa

@Lucidlife: Meaning they still made giant profits. But business isn't about making money, it's about making more money than last year, which is why we see stories like this about them 'losing' money when they really haven't lost anything.

Comparing Nintendo to Sony and Microsoft as a business is a bit weird too, Sony and Microsoft can afford to loss lead their game systems for years (and have in the past) because they are multinational conglomerates - music, electronics, televisions, software, etc. Nintendo is a game company, that's it, that's all they do.

Posted by AiurFlux

Yeah they have the WiiU launch, but they're playing catch up with that one. Even if the hardware is stronger than both the 360 or PS3 developers will ALWAYS make for the weakest link in the chain so as to avoid snapping it. Then there is the fact that it's a brand new system coming out at a time where there are two other perfectly fine competitors that have well established libraries.

I smell failure. And I do not want Nintendo to fail and go the way of Sega, making games alone.

Posted by devilzrule27

Better ramp up the production on Mario and Zelda games. I fully expect 10 of each next year dammit!

Posted by afrokola

Best subtext under a picture ever!

Posted by Rexicon

"Question is, can they make money on that system while still keeping the price reasonable for consumers? If any of the current rumors circulating around are true, then that doesn't sound too far fetched"

The question really is "Can they make money on a system that no one really wants to buy."

They really gotta convince us that this thing is worth owning beyond "HEY NEW MARIO" because I'm pretty much burnt out on Zelda's Mario's etc (or maybe I'm just getting old).

Posted by Saga

The problem is that Nintendo executives are stuck in the late 80s/early 90s.

Posted by CowsWithGuns

I really hope the wii u is amazing...

Edited by SeriouslyNow

@Alex: The way the financial report reads is that Nintendo consolidated its losses in Japan while NOA stayed profitable (doing 77% of the company turnover). This sounds a lot like Nintendo capitalised on Japanese games industry downturn for tax reasons rather than Nintendo actually being in trouble.

Posted by krabboss

This really isn't a big amount of money for Nintendo. I imagine they're happy to exchange half a billion for the number of 3DSs they were able to sell after the price drop.

Posted by AngeTheDude

I feel like they should have made a more powerful console to usher in the next-gen instead of trying to play catchup with the other guys. I am worried for Nintendo.

Posted by BestUsernameEver

@crusader8463 said:

Hope they scrap the WiiU and come up with a completely different thing. If not, I predict Nintendo is going to hit bad times in the near future.

If they do that, they're in even more trouble, seeming for the time lost.

Posted by Claude

I heard today that Nintendo is sitting on about 14 billion dollars in cash. But yeah, I hope they bring the heat with the Wii U at E3. They need it.

Posted by BiG_Weasel

If Nintendo had software to support their hardware, they wouldn't be in this situation. No one bought the 3DS because of lack of games, and forced them to drop the price. For the Wii, its essentially the same. Without third party support, they've created a perfect storm.

Posted by Aaron_G

Nintendo needs to wake up... the world has changed.

Posted by digitaldemigod

Maybe if the 3DS had 3 screens it would've sold better.

Posted by superscott597

@freewilly5 said:

@Vegetable_Side_Dish said:

@BrockNRolla said:

@Brendan said:

@superscott597 said:

Wow. Really? I didn't think it cost THAT much to manufacture 3DS, either...

I think the laymen's perspective on how cheaply things can be produced, especially electronics, is a little exaggerated. People seem to have this idea of the business and manufacturing world where everything costs $2 to make and companies get 1,000,000% profit margins on everything because they're evil and greedy. In the realm of expensive hardware this just isn't the case.

Actually, it's even worse in other areas. Do you want to guess what the profit margins are for grocery stores on the average item? It's less than 1%.

Your point is certainly valid, but when you consider that both Sony and Microsoft sell their hardware at a profit deficit, Nintendo doesn't necessarily have an excuse to charge more than it costs to make their hardware. I'm not aware of the margin on the 3DS, but if it were any other company, they would be losing money on every system sold and that would be considered a completely valid business practice as they would make up the profits on software sales. Other companies still manage to turn a profit with such an arrangement.

It is worth noting that Sony has stated that they do not lose money on every Vita sold, unlike the 3DS. While the hardware sales have been poor in Japan and only mediocre at best elsewhere, people fail to realize it is a profit vehicle for them, both in hardware and software terms (especially due to the larger focus on downloadable software, as there is no longer the retailer's cut to be worried about, nor the money being paid for manufacturing and distribution).

Did Sony actually say this? I know some website tore open the Vita and judged that the parts cost about $159, but that didn't take into account software development, R&D costs and marketing. If Sony actually said it though, then I believe it.

Wow. Didn't realize my comment would spark such an awesome convo on how profitability of console products are affected by manufacturing costs. Bravo, guys.

That said, I think it's also important to consider that "operating at a loss" can also take into account not only manufacturing and parts, but labor and R&D to produce. I imagine the screen for 3DS was a huge part of the cost of parts being higher than usual, and the fact that they probably were ordering less amounts (I have no proof of this, but it would make sense with an upgraded system rather than a full refresh), so altogether I'm actually not that surprised they stepped on their own toes by reducing the cost of the system in an effort to beg players for relevance and affordability in a crowded market.

I also think it's largely Nintendo's fault for the lack of sales of the 3DS. I mean, they have how many different versions of the DS that have come out in only 8 years? (The answer is 5, and although the 3DS is considered a different system entirely, the branding heavily borrows from the original DS forms and also has the same form factor as the previous DS models) I realize the PSP had the same amount of console revisions as the DS (+1 if you count Vita, but they marketed that very differently from PSP and had some significant differences in hardware and design, making it feel more like a new generation of handhelds for Sony - which it certainly is).

Could you imagine if one of the major console makers (including Nintendo) had come out with 5 new home consoles in the same amount of time? And these handhelds often retail at costs close to home consoles (after a few price drops, but comparable, nonetheless). New product fatigue, anyone?

Posted by lockwoodx

Because: Smart phones

Posted by SpudBug

Bravo for making Nintendo financial news about Nintendo and not about apple. It's that time in the generation where things are slowing down, consoles and games aren't as new and fresh, aren't drawing as many new buyers. Microsoft and Sony are all down year on year as well. Nintendo is just entirely dependent on game sales unlike those companies. Plus, things just suck right now for the economy. I think when we see the next generation start ramping up there will be more interest generated in the traditional games space, Nintendo included. The 3ds is kicking butt right now too. Wii is basically dead, though.

Posted by Halos_god

Why don't we help them by buying a WiiU at launch! :) I will, I love Nintendo!

Posted by Halos_god

@Excast: Great point, but a lot of parents I know love to buy Nintendo stuff for their kids because it is usually non-violent. I think they will keep going.

Posted by Claude
@Halos_god said:

@Excast: Great point, but a lot of parents I know love to buy Nintendo stuff for their kids because it is usually non-violent. I think they will keep going.

Plus, the Wii U is coming with baby's first tablet.
Posted by divakchopra

yikes, miyamoto must be on welfare after all this loss.

Posted by probablytuna

@Sweep said:

Perhaps as a result of market saturation? Nobody is buying Wii's anymore because everyone already owns a wii.

They've yet to convince me to buy one!

Posted by Skald
Posted by Majkiboy

This loss isn't anything. People shitting bricks over news like this are crazy. Whatever the reasons, there are smart enugoh people at Nintendo and they are still a very healthy company. Although I wouldn't mind a total failure for the Wii U. I just don't see it happen.

Posted by falling_fast

I'm sure they'll be fine.

Posted by ptys

The Wii U is about three years too late unless they've changed the hardware specs since last year. I think had they released it earlier they would have bought themselves some time to get the 3DS more ready, even with something more powerful, as people make fun of the Vita but at least Sony has a platform which they can reiterate on as in gaming you can't split your user base on hardware, something Apple is yet to be punished for. Nintendo also being so late to the party has allowed Microsoft to pick up some of their casual user base so not sure if their Wii brand carries the same weight it did a few years ago.

Posted by scerviche

i'll buy a 3DS when there is a new Pokemon game for it. As for the Wii U, well the less said about that pile of trash, the better.

Posted by dropabombonit

I'm going to link this article to one of my marketing lectures who only gave us a 50 for our report on how to change Nintendo marketing strategy because they are making big loses. It actually said in the notes in the mark scheme that we were marked down by 10 marks because Nintendo are a profitable company that don't make losses

Posted by Corvak

@ptys: Wii U will catch up, and become a third console, assuming it has a way of doing standard 360/PS3 controls. However, as soon as MS and Sony release a new platform, we're right back where we are now.

Posted by ptys

@Corvak said:

@ptys: Wii U will catch up, and become a third console, assuming it has a way of doing standard 360/PS3 controls. However, as soon as MS and Sony release a new platform, we're right back where we are now.

What about these rumors of an Apple/Valve TV coming out later this year. I worry there's not enough room for four console so one will suffer the same fate as SEGA. It's funny how people see Nintendo as a success now, as I remember back in the GameCube days people thought it was odd I chose Nintendo "it's for kids" over the PS2.

Posted by Killaman996

Hahahaha just wait as soon as the Wii U is released their sales numbers will jump because everyone will go out and buy it. When i see losses anyways does not matter they raked in so much cash at the beginning of the Wii cycle that it will cover losses

Posted by Nintendude

@SpudBug said:

Bravo for making Nintendo financial news about Nintendo and not about apple. It's that time in the generation where things are slowing down, consoles and games aren't as new and fresh, aren't drawing as many new buyers. Microsoft and Sony are all down year on year as well. Nintendo is just entirely dependent on game sales unlike those companies. Plus, things just suck right now for the economy. I think when we see the next generation start ramping up there will be more interest generated in the traditional games space, Nintendo included. The 3ds is kicking butt right now too. Wii is basically dead, though.

Why not talk about Nintendo when it comes to losses? This situation is pretty new for them since they've always sold hardware with profit before now.