Nintendo Woes: 3DS Actually Selling At a Loss

This confirms previous reports last year that Nintendo has taken a drastically different approach with their mobile hardware.

The financial reports are out and the situation with Nintendo isn’t good. Posting a $534.7 Million net loss, this is the first time ever the House of Mario has posted a loss since it began reporting their financials to the public in 1981. In unison with this historic tidbit, Nintendo has also confirmed that their prized mobile hardware platform, the 3DS, has been selling below cost since the price drop to $170, something that was rumored last year.

This is counter to the speculated hardware costs of around $100, indicating the loss is a possible result of marketing and distribution expenses. Nintendo does not expect to hit even with the device until March of next year.

For those in the dark, the point of a loss leader strategy for video game consoles is to increase the install base that allows a company to sell their software and peripherals. In other words, they are creating a sub-market of sorts specifically for their products. Using this strategy, the company intends to make up for the early losses by profit from software and peripheral sales as well as the eventual profit margin of the console itself. As you may guess, the name of the game is quantity, and a slashed price supports with the economic law of demand.

Nintendo isn’t out of hot water yet though, despite managing an impressive 17 million units sold for the 3DS its first year, the attach rate for the device isn’t quite there yet and won’t be until more excellent titles, especially third-party titles, make their way onto the 3DS.

Another factor to blame, and was mentioned by Nintendo, is the state of the Japanese economy, in particular its exceptionally strong yen. As some may remember from their basic economic classes, a strong home currency, though great when buying stuff, also makes exports less competitive and in Nintendo’s case, a $342.8 Million loss from exchange alone. Nintendo’s fellow Japanese competitor Sony, knows this issue all too well as they have had to deal with their entire electronics division facing the currency problem.

Plans for recovery include the next line-up of first party titles including New Super Mario Bros. 2 and Animal Crossing as well as the recent penetration into the Korean market. Third-party software integration, though not a historically strong aspect for Nintendo’s home consoles, has done alright for their mobile platform in the past. We’ll just have to see how long those remakes can hold us over.

As for the Wii-U… no one is expecting too much from that.

Nintendo (.PDF)