Nintendo’s President Iwata Explains 3DS Price Drop

Well a lot happened to Nintendo over the past week. It all stared as Nintendo recognized that the 3DS hadn’t done as well as planned. This plunged their share price down to a 9 Year low wiping at one point 20% off the company’s value.

Iwata Unveiling the 3DS at E3

Iwata has come out in the storm to settle the air in explaining the strategy behind the new drive to shore up Nintendo’s portable market. Here’s the raw announcements by Iwata at the recent first quarter financial results briefing:

First of all, we have made the decision to markdown the Nintendo 3DS because we recognize that the current situation surrounding the system is different from that before the launch and immediately after the launch.Since we will carry out this markdown in a period when Nintendo 3DS does not have such anticipated titles as in the year-end sales season, some seem to have interpreted it as a hasty move.

Iwata goes on to to recognize the under performance of the 3DS but outlines the recovery strategy:

First, since the launch of Nintendo 3DS, one of the things we have learned is that it has taken longer than we had originally expected in order for the appeal of this product to widely spread. We feel that those who have experienced the system appreciate its attraction, but this appreciation has not necessarily been expanding at the speed which we had expected. For us to maximize the effect of the anticipated titles of this year end, it is necessary to greatly expand the installed base (before the launches of the anticipated titles) so that the appeal of the new software will be able to spread to consumers in a short period of time. Without creating such a circumstance, we would not be able to realize explosive sales in the year-end sales season. This is one reason for the markdown.

He goes on to explain the reasoning behind the new strategy:

Another reason is, we thought that eliminating the concerns of future hardware expansion early on would make a great difference to how retailers and software publishers will allocate their energies. The retailers worldwide decide the allocations of store shelves and which products to focus on for the year-end sales season by looking at the results of the summer sales. Software publishers are currently reviewing which development teams will work on which projects, and the results of which shall be launched next year and beyond. Removing their concerns on the sales of Nintendo 3DS hardware will be very critical for us to be able to enrich the applicable software in the years to come. In fact, immediately after our announcement yesterday, Nintendo employees started to receive feedback from retailers and software publishers around the world, and this feedback is, in general, rather positive.

Amazingly Nintendo concedes to having to take a loss on units sold:

On the other hand, a drastic markdown like this, before the mass-production effect can take place for the hardware, will naturally generate red ink on the hardware sales. As a result, a significant minus effect is expected on the profitability of the current fiscal year. Even though we understand this, for us to elevate Nintendo 3DS to be the platform that can sustain our business, we have concluded that we need to take the best possible measure we can take now, even at the cost of short-term profitability.

Iwata bows his head and takes on responsibility for the decision to reduce the 3DS’s price:

It is quite unusual for us to change the price in less than half a year from a product’s launch. I am aware that realizing both the short-term and the mid-to-long term profits is one of my responsibilities as part of the management. I feel greatly accountable for having to make the markdown shortly after the launch, for having damaged our consumers’ trust, for having made a significant impact upon the financial forecasts, for the annual dividend now being expected to be significantly less than originally expected and for now forecasting that there will be no interim dividend.

Iwata puts up the ambition to get things back on track:

We would like to fulfill our responsibilities by getting Nintendo 3DS back on its originally-expected sales track, to make it the successor to Nintendo DS and to recover the sales and profits in the next fiscal year and beyond.

He goes on to say that the amount of pay the directors will receive will be cut:

Needless to say, the deduction of the fixed compensation is what we volunteered to do in order to show our sincere attitude and to fulfill our responsibility. We really must recover our financial performance and take Nintendo back into the position in the marketplace where it is well appreciated.

He ends the briefing with these words:

This is all that I wanted to tell you. Thank you.

Make no mistake the situation is grave. The portable gaming market is under threat for Nintendo from so many angles. Nintendo has a short grace of time before the competition bytes. But we’re sure with the new price and the great selection of games that are bound Nintendo game stitch things up nice and tight. What do you all think?

Comments
5 Responses to “Nintendo’s President Iwata Explains 3DS Price Drop”
  1. Paul Shinn says:

    I pre-ordered a 3DS at launch and have been very happy with the system and it’s capabilities. The problem would seem to be the lack of major software titles available so far. I never really figured that the price point for the system was a factor. People won’t buy it if there’s not the games to support it. I’m sure the release of Mario Kart, Super Mario 3D Land and Resident Evil will boost sales dramatically. I do appreciate the efforts Nintendo is going to in order to compensate the early adopters, and while it’s good to know that Iwata isn’t taking this decision lightly, I do think he needs to not shoulder all the blame.

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    • Good points, I agree totally. I got the system on luanch too, price didn’t affect my purchase. Although I can see why people have put off the purchase awaiting bigger games. But that is having an effect of developers waiting with their own games till the system has a larger user base. I definitely agree that Iwata should take any negative slant on this as he is an excellent leader of the company. Investors need to have faith.

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  2. Jassen Payen says:

    While I think 100% of people like something for nothing, in this case early ‘ambassadors’ receiving nes and gba games, I do not think such a significant price cut was a wise move and gives the wrong message. People are in the mindset of quickly seeing this as a failure, and makes Nintendo look like they are scrambling to set things right.

    Paul above has the right idea, which demonstrates the real reason that the 3DS is not selling as well as it should :- Lack of content!

    The faster things can come out, the quicker the 3DS will get snapped up, as recently demonstrated with the surges in sales within the Japanese market in the weeks that both Zelda and Starfox came out.

    The eShop should also be re-evaluated, and titles here need to come out at a quicker pace and cheaper pricing. £3.60 for first party Gameboy games is not realistic in the long run.

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    • Yep this is it. I am worried too about how this looks in the eyes of gamers,.. we don’t want any negative aspects becoming attached to the console. It’s put Nintendo in a dangerous position. It could go to all out fail. But deep down I think it won’t come to that.

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