Once left for dead, Nintendo expects best holiday season in years

November 21, 2014, 4:02 PM UTC
Nintendo's Super Smash Bros.
A screenshot from Nintendo's Super Smash Bros. video game.
Courtesy of Nintendo

Many third-party video game publishers, including Electronic Arts (EA) and Take-Two Interactive (TTWO), abandoned Nintendo’s Wii U gaming console after its slow launch. The move may have been premature.

Nintendo and the Wii U are in the midst of a resurgence. The Japanese video game company’s strength has always been its home-grown franchises and characters (such as Mario, Link, and Pikachu). Now the company is doubling down on the tactic to take more share of the $74 billion global video game market.

On Friday, Nintendo unleashed the first new Super Smash Bros. console game in six years. The game is key because it features all of Nintendo’s most famous characters in a multiplayer fighting environment. On a chilly night in midtown Manhattan on Thursday, a line of enthusiastic gamers wearing Pikachu hats and other Nintendo-branded outerwear stretched down Sixth Avenue and around the block in anticipation of the game’s release at midnight at the Nintendo World Store in Rockefeller Center.

Michael Pachter, a video game analyst for Wedbush Securities, believes the Wii U game will sell 4 million copies worldwide.

“There hasn’t been much good news to report regarding Nintendo’s financial situation since the company’s historic annual loss way back in the 2011 to 2012 period,” Pachter said. “That may be changing. Strong sales of new Wii U and 3DS software helped raise the company to a surprising quarterly profit of 24.2 billion yen (about $224 million) in net income for the three months ending September 2014. That’s quite a turnaround after a loss of over eight billion yen (about $74.2 million) in the same period last year.”

Scott Moffitt, executive vice president of sales and marketing at Nintendo, expects this holiday to be the biggest for the Japanese game company in years.

“The name of the game for Nintendo is games,” Moffitt said. “When you have a great launch like Mario Kart 8, a single launch can change your momentum fairly quickly. Our Wii U hardware business is up 47 percent this year versus last year and our Wii U software is up 84 percent. Those are testaments to a strong launch like Mario Kart 8 that has universal appeal. And Super Smash Bros. Wii U will be the next catalyst for hardware sales.”

Nintendo already has a hit with the franchise in the portable gaming category. Super Smash Bros. for Nintendo 3DS has sold over 3.2 million copies worldwide, including over 1.2 million in the U.S., since it was released in Japan Sept. 13.

Nintendo is banking on the success of Mario Kart 8, Hyrule Warriors, and Super Smash Bros. to launch its new toy-video game hybrid, Amiibo. The first 12 toys—which cost $12.99 each—landed on store shelves on Friday and include characters such as Mario, Samus, Link, Peach, Kirby, Pikachu, Donkey Kong, Fox, and Yoshi. The toys will interact with Wii U games such as Captain Toad: Treasure Tracker, Mario Party 10, and Yoshi’s Woolly World. Nintendo plans to release an additional figures through the winter and add support for more games.

Nintendo Amiibo figurines.
Courtesy of Nintendo

The Wii U GamePad controller, which acts like a stand-alone tablet, was built with near-field communication, or NFC, technology that allows players to place an Amiibo figure on the tablet to open up new in-game functionality, from new race suits and items in Mario Kart 8 to additional character powers in Super Smash Bros. The GamePad is intended to replace similar hardware, called “portals,” that Activision and Disney Interactive use for their bestselling Skylanders and Disney Infinity hybrid franchises.

“Nintendo gaming platforms have been the platform of choice for toys-to-life gamers when you look at Skylanders and Infinity, where much of their sales were on our platforms even though they are multi-platform games,” Moffitt said. “That makes us a natural fit for a new idea in the category like Amiibo.”

Pachter believes sales of Amiibo toys could add $200 to $300 million in annual revenue to Nintendo’s coffers.

“Amiibo is a positive for Wii U hardware, but they are more of a collectible initially than a console-driver,” Pachter said. “As they get better incorporated into games, the Wii U will have greater appeal and will skew younger. Amiibo will have very limited impact on Skylanders and Infinity. Obviously, Amiibo gives people another choice, but it is arriving late to the party.”

Even though Nintendo got a full one-year head start on Sony’s PS4 and Microsoft’s Xbox One, Wii U hardware sales are at 7.29 million worldwide. That puts the system about even with Microsoft’s console, but far behind Sony. Sony has shipped 13.5 million PS4 consoles worldwide, while Microsoft has shipped 10 million Xbox One consoles. Pachter forecasts global sales of 17 million PS4 consoles and 12 million Xbox One consoles by the end of this year, thanks in part to a flurry of Black Friday sales and hardware bundles.

Nintendo owned the last generation of gaming by selling 101 million Wii consoles, compared to 80 million PS3 consoles and 80 million Xbox 360 consoles. Nintendo also sold 901 million Wii games. The company has had continued success in the portable space by selling more than 45 million Nintendo 3DS systems and 186 million games. To date, Wii U game sales have reached almost 42 million.

“Nintendo will always have great software, but it is going to struggle to catch up on consoles, and is unlikely to ever do so,” Pachter said.

Moffitt said the company does have more than just huge exclusive game franchises in its corner. It also has stellar reviews.

“There are 18 games that meet the high quality standard of an 85 Metacritic.com aggregate review score and an 8.5 user score, and 16 of those games are on Nintendo platforms,” Moffitt said. “The balance is evenly split between Wii U games like Super Mario 3D World, Rayman Legends, Bayonetta 2, Mario Kart 8, and Pikmin 3 and 3DS games like Zelda: A Link Between Worlds, Animal Crossing, Fire Emblem, and Pokémon X and Y. That’s a really broad selection of quality games, and that’s what sets Nintendo apart.”

While Nintendo won’t be bringing any of its game franchises to iOS or Android devices—something Sony (SNE) recently did with CounterSpy—the company has launched a new marketing tool designed for the growing number of mobile gamers.

“When we have an engaging message like the recent Nintendo Direct on Super Smash Bros. that we ran the other day, if gamers are watching that video through their PC, tablet or smartphone they are able to pre-purchase or purchase the game directly from that device,” Moffitt said. We’re broadening our ecosystem to allow gamers to discover our content, but increasingly we’re extending the ability to make it easier to purchase our content.”

On Monday, Nintendo will bring its full lineup of fall releases to 16 malls across the country. Through today, gamers will be able to get hands-on time with first and third party Wii U and 3DS games, as well as compete in tournaments and receive prizes. Two big 3DS games featured on this tour are Pokémon Omega Ruby and Pokémon Alpha Sapphire, which are expected to help Nintendo’s bottom line. Pokémon X and Y sold 13.29 million copies worldwide to date.

Notably, Nintendo has been able to orchestrate its resurgence without resorting to any Wii U hardware price drops. Instead, the company has offered a variety of bundles to entice gamers to buy its console. Rival Microsoft has already resorted to price drops this year; unsurprisingly, Microsoft and Sony have introduced competing bundles for the holiday shopping season.

With additional reporting by Andrew Nusca