Nintendo released their earnings for Fiscal year 2015 which is for the 12 month period ending March 31st 2016. The main financial highlights are as follows:
- Net Revenue declined 8.2% YoY to ¥504.4 billion.
- America accounted for 45% of total revenue, Europe & Other at 28%, Japan at 27%.
- Operating Income increased 32.7% YoY to ¥32.8 billion.
- Due to revaluation of assets in foreign currencies, exchange losses totaled ¥18.3 billion.
- As a result, net profit declined 60% YoY to ¥16.5 billion.
This article will provide an in depth look into the current state of Nintendo, the performance of each major segment and what the future holds for the company.
HOME CONSOLE HARDWARE – Nintendo sold in a total of 3.26 million Wii U’s and 0.11 million Wii’s during fiscal 2015 for a combined total of 3.37 million hardware shipments. This was a 12% decline compared to the prior year when 3.84 million home console hardware units were sold in. What is of note this year is how Nintendo did not ship any Wii units to America and Japan, with the 110,000 unit sales coming from Europe and Other regions in the first half of the year. What this means is that it’s very likely, whilst not officially announced, that Nintendo have now discontinued the Wii and will no longer be selling Wii hardware worldwide. To date the Wii has sold 101.63 million units of hardware and this is likely to be the final sell in number for the console. The Wii is Nintendo’s first console to sell in over 100 million consoles and in turn is Nintendo’s most successful console to date.
Hardware revenues hit ¥102.4 billion for the Home Console segment. This was pretty much flat compared to the ¥105.5 billion generated in the prior year, despite overall unit shipments declining by 0.58 million. Much of the decline was thanks to the Wii whilst Wii U console sales remained pretty much flat YoY, only declining 3.5% compared to FY14. In turn this increased overall ASP’s for Nintendo from ¥27,486 in FY 2014 to ¥30,386 in FY2015. The Wii U has remained at pretty much the same price since launch and whilst sales of the console are somewhat dead, average selling prices have steadily increased each year. Wii U hardware unit sales are hardly anything to shout about but the success of Nintendo’s new IP Splatoon as well as Super Mario Maker helped stop the inevitable decline we would had seen had these two titles not released. Splatoon especially helped increase sales of the console in Japan where there are now more than 1.49 million copies of the game sold, making it the most successful Wii U game in Japan.
Nintendo are forecasting a sharp decline in Wii U unit sales for FY2016, a full 75% decrease in fact, down to just 800,000 units. This sharp decline will primarily be due to the lack of appeal the console has this year. Last year the console had many hit games whereas this year there are only 5 new first party games confirmed for the system and not many more third party games. Zelda has also been delayed to 2017 and confirmed to be an NX title which gives gamers even less of a reason to buy a Wii U. This forecast also matches the final year of GameCube production, which despite not selling well either, ended up selling much better than the Wii U with 21.74 million units sold LTD. That being said I do believe the forecast is a tad too low and that Nintendo may actually be able to ship more units this year, not that an extra few hundred thousand will make any difference as the Home Console Hardware segment is likely to see revenues drop from ¥104 billion last year to less than ¥30 billion this year. Nintendo have pegged the NX for a global launch in March 2017 and assuming that Nintendo meet this launch date then I would expect 1st month sell in to be in the region of 3 to 4 million units depending on demand. This would actually provide a much needed increase in hardware revenue and would therefore allow Nintendo to see growth in this segment compared to FY2015. Do note that Nintendo have not confirmed if the NX is a Home Console or Handheld console just yet but Nintendo seem to insinuate home so I’ll keep it in this section for now.
PORTABLE CONSOLE HARDWARE – Nintendo sold in a total of 6.79 million 3DS hardware units in FY2015. This was down 22% YoY as the effect of the NEW 3DS launch wore off during FY2015 and 3DS reached saturation point in Japan and America. This means that there is less opportunity for Nintendo to sell new 3DS hardware units and the majority of buyers for the NEW 3DS are old 3DS owners. During the fiscal year ending March 31st 2016, Nintendo shipped 240,000 original 3DS models, 510,000 3DS XL models, 1,170,000 2DS models, 1,030,000 NEW 3DS models and 3,840,000 NEW 3DS XL models. What is of note is that Nintendo have only sold 8.15 million NEW 3DS & 3DS XL devices as of March 31st 2016 compared to a total of 50.7 million other 3DS family devices. This means that NEW 3DS only accounts for 14% of all 3DS family devices sold and goes someway towards explaining how much portable hardware sales have decreased over the past few years. The primary reason behind decreasing portable hardware sales is that the Mobile market has now replaced pretty much all usage cases for handheld gamers. Many core and casual gamers now have a smartphone which can play games and these devices have enough casual and core content that the market for a dedicated handheld console has rapidly declined over the past few years. We’ve gone from a 240 million DS & PSP global install base this gen to 3DS and PS Vita only just reaching 70 million units combined this past quarter.
Along with a decrease in hardware unit sales, total revenue generated by the segment declined 24% YoY from ¥149.6 billion in FY2014 to ¥113.2 billion in the fiscal year just ended. The drop in revenue was of course due to the decline in hardware unit sales but also due to lower average selling prices for the 3DS. In FY2014 the average selling price of a 3DS for Nintendo was ¥17,138 which dropped to ¥16,600 in 2015. Nintendo are forecasting a further decline in 3DS hardware shipments this year, down from 6.79 million unit sales to 5.00 million unit sales. The decline will again be due to 3DS reaching saturation point in Japan/America, the continued growth of mobile gaming replacing handheld gaming, and due to the 3DS not having mainstream third party support this year. Nintendo’s forecast seems fair as it would be a surprise to see 3DS hardware sales grow this late into the console cycle and especially with the new NX on the horizon. Nintendo do plan to revitalise 3DS this year through big first party titles such as Pokemon Sun/Moon, but I would expect this to increase software sales on already installed 3DS’s rather than drive new hardware sales.
Should Nintendo hit their forecast of 5 million shipments in FY2016 then this will represent another decline for dedicated portable hardware as revenues would drop from ¥113.2 billion in FY15 to around ¥80 billion this fiscal year. It’s likely that 2016 will be the last major year of support for 3DS and whilst Nintendo are saying that NX won’t replace the 3DS, it’s fairly clear that 3DS is going to continue declining sharply through 2017 and users will either migrate to NX or other systems as both third and first party software support dries up. Ultimately it’s becoming increasingly clear that the dedicated handheld market is not as big as it once was and Nintendo’s 3DS will struggle to even ship half of what the DS sold last generation. Should NX be another handheld device then the device may sell in good numbers within Japan, due to the nature of the market there, however the appeal outside Japan would be somewhat limited. In Japan, around 60% of all software sales come from the PSV and 3DS which shows just how popular handhelds are there. Therefore it would be likely that Nintendo could launch another handheld console in Japan and young children and core gamers could lap it up in the same way that 3DS sold well in the country, however Nintendo would need to work hard to ensure that hardware sales and software sales do not slip too much in their upcoming generation as competition from smartphones starts to cannibalise handheld sales even more in Japan. As stated, a new handheld would only sell well in Japan so it remains to be seen what Nintendo’s handheld strategy would be moving forward.
AMIIBO AND ACCESSORIES – Nintendo’s amiibo and accessories division saw strong year over year growth in FY2015 with total revenues jumping up 36% from ¥38.2 billion to ¥52.0 billion this year. The large increase was primarily driven by amiibo figure unit sales which increased 135% YoY from 10.5 million in FY2014 to 24.7 million in FY2015. FY2015 also saw the introduction of amiibo cards for Animal Crossing and total individual card sales topped 28.9 million during the year as well. The combination of increased figure sales and the introduction of amiibo cards meant that the amiibo and accessories division is now generating around half as much as Nintendo’s home console hardware segment. amiibo is a new revenue stream for Nintendo and one that the company need to manage carefully to ensure that the segment continues to see growth each year. What has been worrying in 2016 is that Toys to Life unit sales and game sales growth have started to flatline in the US according to data from The NPD Group which could suggest that amiibo may not see as huge growth this year as it did in the last year. There is also concern around whether the Toys to Life market is another fad market like Rock Band and Guitar Hero accessories were about a decade ago.
There is no doubt that amiibo sales will grow this year as more models are introduced to the market but Nintendo need to find new ways for amiibo to continue growing such as expanding the demographic and target market as well as introducing new ways of interacting with amiibo. Nintendo did note during their earnings that they will further expand sales by offering new gaming experiences with the use of amiibo and that they plan to continue increasing the product line up. Nintendo have established certain evergreen amiibo figures in the US and Japan which is good to see and means that Nintendo are in a solid position overall within this segment. Hopefully Nintendo can deliver on their word to offer new gaming experiences with amiibo, perhaps by interacting with their mobile titles or Nintendo Account system?
HOME CONSOLE SOFTWARE – Despite declining hardware sales, the Wii U has seen a slight uptick in software sales during FY2015 with total software shipments up 12% from 24.4 million unit shipments in FY2014 to 27.36 million unit shipments this year. The increase in software sales was primarily driven by the successful launch of Splatoon, a new IP that combines unique gameplay with an expansive online community. Other titles such as Super Mario Maker provided a boost to software sales, as did the launch of Nintendo Selects titles for Wii U. Back catalog sales continued to be strong with Mario Kart 8 and Super Smash Bros for Wii U selling in an additional 3.54 million units combined in FY2015. Splatoon was the highlight of the year though with a total of 4.27 million units sold in worldwide, making the game a very successful new IP for the company. In addition, Super Mario Maker sold in 3.52 million units along with Yoshi’s Wooly World which sold in 1.37 million copies. It is worth noting that software attach rates for Wii U have been very high, as expected from a console with a low install base, with nearly 60% of Wii U users now owning a copy of Mario Kart 8 and 1/3rd of Wii U users now owning a copy of Splatoon.
Software unit sales for Nintendo’s Wii declined 37.5% YoY from 11.73 million unit sales in FY2014 to 7.33 million units in FY2015. The decline in Wii software sales is natural as the Wii is no longer actively receiving many new games with only 7 new titles released during the last year in the US alone, not to mention that the console is now 10 years old and is no longer shipping to customers in Japan and North America. The decline in Wii software shipments would probably have been sharper had there not been a re-release of Nintendo Selects titles for the console. Also the launch of Just Dance from Ubisoft keeps Wii software sales up each year as there is still a small but dedicated niche audience that still buys the game each year on Wii. In fact NPD reported that the Wii version of Just Dance sold more units than any other console SKU in 2015.
In total the Home Console software segment generated a total of ¥92.3 billion in revenue for Nintendo, up 9% from ¥84.7 billion in FY2014. The average selling price of home console software increased slightly this year as lower priced Wii software sales declined and higher priced Wii U software sales increased. Nintendo are forecasting a huge 45% drop in Wii U software sales, down to just 15 million units in FY2016. The reason for this is fairly obvious, the Wii U is on its last legs and is no longer receiving premium first party support from Nintendo, or third party support from anyone. Only 5 first party titles are being released this year on Wii U and none of them are big hitters. Even The Legend of Zelda U is now confirmed to be launching on NX as well which will hurt sales of the game on Wii U, like Twilight Princess did on Gamecube/Wii, as core Nintendo users opt to buy the game on new hardware over old hardware. With nothing to drive Wii U software sales this year it’s only natural that this segment will decline by around 50% to ¥45 billion. The NX launching in March will of course increase this number and increase the segment overall but at this point it is to early to put a number to it.
PORTABLE CONSOLE SOFTWARE – Software sales for the Nintendo 3DS continued to decline in FY2015, down 23% from 62.74 million unit sales in FY2014 to 48.52 million unit sales in FY2015. The decrease in software sales was primarily due to a lack of major titles like Pokémon Omega Ruby/Pokémon Alpha Sapphire and Super Smash Bros. for Nintendo 3DS, which energized the entire 3DS business during the prior fiscal year. It is also worth mentioning that the active number of 3DS’s in use has declined somewhat as many have migrated away to other consoles or smart devices where they can get a better gaming experience and/or a better selection of games. Back catalog sales for the 3DS continued to remain strong as titles like Mario Kart 7, New Super Mario Bros. 2 and Animal Crossing New Leaf each sold over 1 million units this fiscal year. Please see below for a full list of Nintendo 3DS software sales for million selling first party titles released during FY2015-
- 3.04m – Animal Crossing: Happy Home Designer
- 1.84m – Fire Emblem Fates: Birthright/Conquest
- 1.22m – Pokemon Mystery Dungeon
- 1.14m – The Legend of Zelda Tri Force Heroes
In total the Portable Console Software segment generated ¥109.2 billion in FY2015, down 27% from ¥150 billion in the prior year. What is fairly surprising is that Nintendo actually expect software sales to grow in FY2016 to 55 million unit sales, up nearly 14% YoY. Nintendo state that the release of Pokémon Sun/Pokémon Moon globally in Holiday 2016, along with Kirby: Planet Robobot and Metroid Prime: Federation Force will re-energize the platform and increase overall software sales. Strongly anticipated titles from third-party publishers are also scheduled for release and along with first party software aim to expand Nintendo’s reach globally to a broad audience, including female and younger consumer demographics. It is fairly clear that a new Pokemon will indeed boost sales of Pokemon software, however the pipeline suggests that the 3DS will not get many other hit titles this year that will sell well outside of Japan. Internal data from Nintendo, NPD and Media Create already shows that 3DS software sales are down in 2016 already compared to the same period in 2015 and whilst Pokemon is huge, I don’t expect it to be big enough to increase total software sales over last years total. I fully expect Nintendo to revise their forecast in the future and bring down the number to somewhere that is either in line or lower than the number of software units they sold in FY2015.
Nintendo’s portable software market is declining each year and we’re now at a point where Nintendo only generated $1 billion from 3DS software over the last 12 months. It is worth pointing out that Clash of Clans, a popular mobile game from SuperCell, is generating more than $1.4 billion in gross revenue each year through the iOS Store and Google Play Store which really puts into perspective how small the portable console software market is for Nintendo compared to the Mobile market which generated over $30 billion in 2015 and is set to grow to $35 billion in 2016. Declining handheld hardware sales aren’t helping the 3DS at all and it’s very likely that 2016 will be the last year that the 3DS gets full software support as well.
OTHER SOFTWARE & DOWNLOAD CONTENTS – Nintendo’s Download Contents business continues to grow as the industry shifts over to digital and as the company tries to focus on creating appealing DLC for their service orientated games. In FY2015 we saw Other & DLC revenue grow 36% YoY to ¥28 billion, when accounting for all digital sales (DLC, Full Game Downloads, Microtransactions and Subscriptions) the total hits ¥43.9 billion yen. Digital Sales now represent around 19% of Nintendo’s overall software business which is a huge increase over the 9% it accounted for just two years ago. Nintendo do not charge for an online service but it is clear that they see the potential of digital as it provides higher margin for them and also allows them to extend the lifecycle of their games and retain users on their service. Games like Super Smash Bros., Mario Kart 8 and Splatoon now receive regular downloadable updates that players can get for free or at a small cost. It’s all part of Nintendo’s plan to transition their games into services similar to Grand Theft Auto V where players will buy the game, play it, and then stick around for the additional content. It’s fairly clear why the three games I’ve mentioned are rumoured to be launching on NX as they are the best examples of service based games that Nintendo have to date and can help transition core Nintendo users over to the new hardware.
SMART DEVICES & ROYALTY/CONTENT INCOME – Nintendo’s new Smart Devices division has got off to a steady start in fiscal 2015. Only ¥5.7 billion was generated in this segment which covers Nintendo’s new mobile title, Miitomo and royalty fees that Nintendo are paid for licensing their IP. Miitomo as an application was an odd choice for Nintendo’s first application on mobile as it is not a traditional game as such. It does utilise Nintendo’s “Mii” IP that was made popular by the Wii last generation but the “game” was anything but a game, instead being a social network application where users could ask others questions and buy clothes for their Mii using in game currency or real money. It’s clear that Nintendo did not feel they wanted to start out with a big gaming IP on mobile first in case the launch went wrong and instead chose to launch Miitomo first in order start their presence on Mobile as well as test the waters both in terms of how smooth the launch went as well as what the user response was on the app. The app was also used as a base for Nintendo to increase the number of Nintendo Account users and it looks like this app now has at least 10 million Nintendo account holders who have used the app. What was also good to see from Nintendo is that they weren’t afraid to stick in microtransactions that went up to $80 and make them easily accessible with no warning panel like some game companies do.
In this way, Nintendo are trying to show that the reason they launched Miitomo was to use this app as a base/test and also to show investors that they are serious about Mobile by including a store and microtransactions. Their upcoming games, Fire Emblem and Animal Crossing are due to launch this Fall and hope to bring something unique to Mobile gaming for Nintendo. These two IP’s work very well as handheld games and could very easily translate over to mobile very easily. It remains to be seen how well these games will do but it seems in the short term at least that Nintendo have the right idea on which IP’s to launch, how to monetise their games and how to grow their Nintendo account userbase.
Shift from Traditional to New
Those of you who follow me on Twitter know that when it comes to Nintendo I always talk about two different revenue streams. There is Traditional revenue and New revenue.
In my model, Traditional revenue streams include Dedicated Home Console/Portable Hardware and Software as well as their Playing Cards segment. The New revenue streams I want to talk about today include:
- Smart Devices
- amiibo & Other Accessories
- Download Contents
- Content/Merchandise Licensing
So why do I now split Nintendo into two? It’s fairly simple. Nintendo, as of a few years ago generated more than 90% of its revenue from traditional revenue streams which are rooted in the traditional games console market. Now that’s great for Nintendo when they’re doing well in the console market, like they did with Wii and DS, but it’s a huge issue when they’re not doing well in the console market. Nintendo’s total revenue has declined each year for the past 8 years and Operating Income/Profit hasn’t fared well either with three years of losses for the company just recently. The reason is simple, Nintendo are not doing well in the traditional console market with both their home console and handheld device and this means that they have no new revenue stream to fall back on should traditional revenue dry up. Many use the argument that Nintendo have declined down to where they were during the Gamecube days but it’s important to remember that back then the Video Games Market was only worth $20 billion and Consoles were the biggest part. In 2016 the Games market will be worth $100 billion yet Nintendo are now generating lower revenue and income than they were during the Gamecube era. They are also in third place in the console market and nowhere to be seen on the larger than console, PC & Mobile markets.
Now I do want to make it clear that Nintendo aren’t on the verge of bankruptcy or anything, they have plenty of money and assets available and they’ve generated a small profit these last two years. They are now just much smaller than they were during the Wii era and are declining every year. The NX is Nintendo’s next attempt at being successful in the console video games market and it could succeed, but at the same time we’ve seen what has happened with the Wii U and so we have to assume this may happen again. Assuming the NX does fail then this leaves Nintendo with no other revenue streams and ultimately means they won’t be bringing in any money at all and that’s not something that Nintendo want to see happen. This is why Nintendo have recently changed their minds about Mobile, why they’ve introduced amiibo’s, why they are now focusing more on games as a service through download contents and why they are creating licensing deals and opening up theme parks with partners. It’s all about Nintendo being able to use their well known IP to generate revenue outside the traditional console space so that they have something to fall back on should the NX end up being another Wii U.
The issue is that they’ve left it a tad too late when it comes to generating revenue from these new revenue streams and right now these are very small, but growing, segments of Nintendo. What that means is that this really is Nintendo’s last chance to pitch a successful console. If the NX fails like the Wii U did then it’s very likely that we may not see anymore Nintendo consoles in the future and I’m hoping that this never happens because we need Nintendo in this industry. So let’s talk about these new revenue streams and what they represent.
Nintendo announced last year that they would be partnering with DeNA to jointly develop games and applications for smartphones and tablets with an aim to bring at least 5 games to market by the end of March 31st 2017. This marked a significant change in Nintendo’s strategy as they had said they previously said that they would not develop games for smartphones as it did not fit with their business model of not developing for third party systems. It’s good to see that Nintendo did change their mind about this and they are finally ready to reach more than 2.6 billion smartphone users on mobile, much bigger than the current 70 million install base they have on Wii U and 3DS this generation. Nintendo have been very clear that they want to develop games specifically for mobile in order have more consumers experience Nintendo IP, create a synergy with the dedicated business and to create a profitable smart devices segment on its own.
Their first game, Miitomo, is a social application that allows users to interact with friends through questions and answers. The application also shows how Nintendo plan to monetise through having the game or app as free to play and including micro transactions in order for users to purchase items. It marks a significant change in Nintendo’s traditional approach and shows that they are serious about creating game models that work on Mobile and resonate with mobile gamers. The pay to play market is somewhat dead at this point on Mobile and they stand to earn much more by sticking to paid games on console and free to play games on Mobile. A stat I posted above is that Clash of Clans generates more revenue than all 3DS software revenues for Nintendo combined, what this shows is that 1 hit game on Mobile for Nintendo could end up generating more than any individual 3DS game and if the game is implemented as a service could go on to be a long term revenue generator for the company. Nintendo have the opportunity to generate more revenue from their smart devices segment than their 3DS software segment which currently stands at $1 billion should they have multiple top 10 games.
Nintendo certainly need to focus on Mobile and they seem to be doing just that after carefully selecting two very suitable IP’s for their next mobile games. Both Fire Emblem and Animal Crossing started as home console games but have done exceptionally well to transition over to dedicated handhelds. It makes complete sense for these IP’s to come to mobile and most Nintendo users seem happy with the decision which in turn should lead to other gamers trying the games out. Fire Emblem will still have RPG gameplay elements but the specially developed mobile version will aim to make the game more accessible to newcomers and should also include aggressive monetisation. Nintendo will need to be careful not to alienate console users here and so will want to consider certain other game models such as Video advertisements to unlock certain items, a shareware model where new expansion packs come out each month with new chapters/levels and perhaps even a model that rewards console gamers with free content through Nintendo Account rewards.
Animal Crossing is a great IP to bring to Mobile as the game is already popular among many handheld gamers, the most recent gaming selling through over 10 million on 3DS. One of the things I said Nintendo should do is make sure that some of their mobile games interact with console games through Nintendo Account and this seems to be what Nintendo are doing here. The application can therefore work as both a game and also a companion application for the full console game and can allow for different monetisation models to succeed on both Mobile and Console. It’s going to be really interesting to watch Nintendo’s Smart Devices division as the opportunity for a hit game is there due to the popularity of Nintendo IP’s. I have no doubt that we’ll also see bigger IP’s such as Mario in the future. This can also work wonders in bringing users over to their traditional console business where gamers will have access to higher quality TV games through the same Nintendo Account and earn all the same rewards. However I should note that I don’t see there being a huge crossover like that, but it could work with some.
amiibo & Other accessories:
The Toys to Life market has seen huge growth over the past couple of years and not only has this market driven a high volume of amiibo figures, it’s also driven high volume of software that work with amiibo. amiibo acts as a gateway to Nintendo IP, similar to how mobile can, and so gamers will feel the need to purchase more Nintendo software in order to get the best value out of their amiibo purchase. Nintendo can grow this segment by continually introducing new toys as demanded by gamers, the new Splatoon amiibo’s announced today are a good example of that. Nintendo can also focus on releasing different variants of their evergreen amiibo’s in order to keep sales steadily increasing. On top of this, Nintendo need to ensure that all games moving forward take advantage of all amiibo in some way and there is also a huge opportunity for Nintendo to develop more software that specifically revolves around amiibo characters. Nintendo do also have an opportunity to bring amiibo to their mobile games as a new way to interact with them. It could work as a way around in game purchases for loyal Nintendo users, as an example.
Activision Blizzard announced a couple of years back that more than 250 million Skylanders toys had been sold and so far Nintendo have only sold 35.2 million figure amiibo’s which means that there is certainly some opportunity to expand to a wider audience and demographic. amiibo figures, cards and other accessories bought in nearly $500 million in revenue during fiscal 2015 and it’s clear that there is an opportunity for this to become a $1 billion a year segment if they can drive additional demand for figures and cards using the methods above.
That all being said, Nintendo need to use these ideas quickly in order to keep amiibo sales growing. The Toys to Life market has enjoyed success so far with Nintendo, Disney, Activision and Lego all seeing success in 2015. That being said it looks like toy sales are already starting to flatline in the US and are almost displaying a Rock Band/Guitar Hero fad trend. Nintendo also recently admitted that amiibo’s main appeal by a large margin was for collecting by hardcore Nintendo fans and not it’s toys-to-life purpose. Collecting may only last so long until it becomes too oversaturated. Therefore the above initiatives need to be put into place to ensure that Nintendo reach an audience that will use these Toys for their main purpose of driving engagement and spend in games.
Digital sales account for 19% of all Nintendo software revenue and nearly 9% of Nintendo’s total revenue. In contrast the PlayStation Network accounts for around 35% of Sony’s total gaming revenue and Xbox Live no doubt accounts for a large chunk of Microsoft’s gaming revenue as well. It’s no secret that margins on digital software and goods are much better than physical and additional online services can help generate additional revenue for Nintendo outside of full game downloads and DLC. I’m not necessarily talking subscriptions here but that is certainly something that Nintendo could look at as well in order to increase download sales. Ultimately though what Nintendo need to do and are doing in this segment is to create a unified account system that offers the same or better functionality than PSN or Xbox Live and can act as a live dimension ecosystem for Nintendo gamers. What this means is that Nintendo are able to build up an ecosystem for gamers where their games, preferences, friends and settings are saved to Nintendo Account in the cloud and can be accessed on any device.
The issue right now is that Nintendo don’t have this huge ecosystem and so requiring users to create a Nintendo account before playing a mobile game is an excellent way to start growing the numbers. Miitomo already has 10 million unique downloads and so that can easily equal 10 million Nintendo accounts now in service assuming everyone logged in. It means that gamers could start building their own ecosystem of friends on mobile, digital games and content on console and preferences across all devices so that when they come to choosing a new dedicated console device they choose a Nintendo console because all their friends and online account preferences will be on that new console too. It’s similar to how Sony are trying to tie users into their ecosystem by making it accessible from all devices, introducing an instant games collection that stays with you and allowing you to game with your friends. Nintendo rewards is a good way for Nintendo to keep people in this ecosystem and grow engagement.
Nintendo have started to look into licensing their IP a bit more recently but they’ve always been very cautious when entrusting their IP to others. Nintendo have started to license their IP to game developers such as Koei Tecmo, Bandai Namco and many others and so far most of the investments have been worth it and have delivered for Nintendo. Nintendo need to take this same approach outside of traditional gaming and to be fair they have shown that they are now more open to invest in other opportunities such as the partnership with universal to open theme park rides at Universal’s Parks & Resort. Their investment into Niantic, a company that develops augmented reality software, who are developing a Pokemon game for mobile devices and of course their partnership with DeNA which shows Nintendo is finally getting serious about branching out which is something investors have been wanting to happen for a very long time.
There are many opportunities for licensing Nintendo IP to Film companies, TV companies, merchandise companies and more. Nintendo can do all this without damaging their IP and earn royalty fees whilst they’re at it. Nintendo have the opportunity to go transmedia with their IP and they should take that opportunity.
To sum up the above, Nintendo have the opportunity to generate billion dollar businesses outside of their traditional console gaming business in Smart devices, amiibo’s download content and licensing. From the chart below it’s clear that Nintendo’s new revenue streams have started to grow over the past couple of years and could potentially end up 1/3rd or more of total revenues over the next few years (assuming NX performs at an average level). Ultimately the current console market may not be able to support a 3rd HD console with third party support due to the declining number of console gamers, and we’ve already seen what happens when Nintendo uses their own IP as the only selling point. NX has a tough challenge ahead and it’s up to Nintendo now to make sure they make the console a success.
Speaking of NX, Nintendo are missing the holiday 2016 launch which shows that they’re not ready to launch the console just yet. As noted above, the traditional revenue streams still represent the biggest part of Nintendo and so the NX is crucial to the long term success of Nintendo. So right now they need to take the time to get this launch right and also ensure that they are watching their competitors in the console space closely as they can only launch the NX once (assuming it’s one ecosystem).
In the short term, 2016 is looking like an absolute disaster for Nintendo as they are missing an entire holiday season with no big Wii U games and only Pokemon Sun and Moon on 3DS. It’s an incredible amount of wasted potential and just goes to show why I now consider new revenue stream growth for Nintendo to be of the utmost importance in the short term in order to both grow total revenues and act as failsafe revenue stream in case NX fails. At least these new revenue streams don’t all 100% rely on there being a successful dedicated console business and so could help keep Nintendo profitable as they plan their next move.
All I’m hoping for now is that the NX is a success for Nintendo and that they can also grow new revenue streams for the company so that they can become an IP empire, rather than just a company that makes console games.
Please note: I will shortly be publishing a slide deck for Nintendo’s Fiscal Year 2015 which will include a number of charts, graphs and summaries of Nintendo’s financial performance in FY 2015. If you wish to get access to this please subscribe using the form on the right or bottom of the page to be notified when this is available.
Disclaimer: Please note that the numbers and estimates provided above are based on Nintendo company data and forecasts made by ZhugeEX.com. While every effort has been made to ensure the accuracy of the data presented, we cannot guarantee that all the numbers above are correct and accept no liability for financial decisions made based on the information contained in this article. Readers should be advised that the article does not represent a recommendation to buy or sell securities of any kind regarding the company involved.