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Nintendo Plays Hardball With Aggressive New Price Cut

Written By: E. Thomas

July 28th, 2011

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Today Nintendo officially announced a drastic price cut on the Nintendo 3DS. As of August 12th the 3DS will now sell for $169. This news comes just 6 months after the launch of the system. The internet spin machine is in full effect. Some people believe the system is in trouble. While others smartly recall a similar price cut on the original Nintendo DS system. So what is the real story? Is this a case of retail panic or is Nintendo playing an aggressive strategy against their strongest competitor?

Nintendo Deliberately Starts High: Nintendo 3DS Launch Price $250

There was a lot of drama surrounding the initial launch price of the Nintendo 3DS. The original Nintendo DS launched at $150. The 3DS launch price was $100 more. This pricing caused a great deal of outrage among Nintendo fans and gamers alike. It appeared to many that Nintendo was following in the footsteps of Sony and their $250 launch price for the PSP. The PSP has sold 70 million units sold world wide. Sony has proven a handheld can succeed at a price point above $200. This leads us to believe that Nintendo saw an opportunity for profit, and decided to deliberately inflate the price of the Nintendo 3DS. But why?

Cashing In On Early Adopters:

With a $250 price point, Nintendo could easily capitalize on its large and devoted fan base. According to Nintendo's own statistics over 4.32 million people have paid $250 for the Nintendo 3DS. (or the local market equivalent price). Early adopters definitely helped fill Nintendo's pockets. We know this is true because reports have indicated that it costs Nintendo roughly $100 to produce a Nintendo 3DS. [source] Of course this estimate does not include marketing, packaging, shipping, retailer cuts, etc. However its obvious Nintendo was making a healthy profit by selling the 3DS at $250.

Nintendo Leads Competitor Into a Financial Trap:

Nintendo President Satoru Iwata recently stated that: "It is quite unusual for us to change the price in less than half a year from a product's launch." But that's exactly what they did with the original Nintendo DS.

Nintendo pulled a similar price drop with the original DS. And strangely enough, the Nintendo DS price drop arrived in August, just like this one, and it happened a few short months after the system launch. From a retail standpoint August is an important month. August is filled with Back to School shopping and its also the doorway to the all important Holiday quarter. The DS Price drop was $20 and it arrived 8 months after launch. The 3DS price drop is $80 and it comes 6 months after launch. Obviously the 3DS price drop is a bit more drastic but its still the exact same strategy.

History appears to be repeating itself, and Nintendo seems to be using a retail strategy from their old play book. But why would they do something like this in the first place? Well a lot of this has to do with Sony, Nintendo's main competitor. I believe Nintendo deliberately inflated the price of the Nintendo 3DS to lure Sony into selling their PlayStation Vita at a loss. A greater than intended loss. This is a strategy that Sony used on their PlayStation 3 console and it has cost them dearly. Reports have stated that as of 2 years ago, the company has lost almost 5 billion dollars on the PlayStation 3. [*source]  And now there are reports that Sony will be selling their new PlayStation Vita portable gaming system at a loss.

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In a recent interview with the Reuters news service, Sony Consumer Products leader Kaz Hirai stated the company is selling the PS Vita at a loss and he expects it to be "profitable in 3 years." [*source] Now historically this type of "sell it at a loss" strategy has worked out well for Sony in the past, especially during the PS2 era. However this same strategy has totally failed the company during the PS3 era. And its now become clear that selling hardware at a loss is a risky gamble. Nintendo almost never sells hardware at a loss. And rival company Microsoft learned this lesson the hard way when they lost 4 billion dollars on the original Xbox console. [*source]

As we stated earlier, Sony is no stranger to financial woes. By 2009 Sony had already posted a 4.7 billion dollar loss on the PS3. And last year the entire company posted a 3.2 billion dollar yearly loss, [*source] followed by an additional 200 million dollar quarterly loss, which was just revealed to the public this week. [*source] Although the PlayStation 3 is now selling for a profit, it is still far from being profitable. Financially, Sony is in tough shape. Their public image was also tarnished by a recent hacker attack, which has been called the 2nd biggest security breach in history. [*source] And now there are even rumors that Sony Pictures might be sold. [*source]

In the portable gaming market, the PSP is dominant in Japan, frequently outselling the 3DS. (There is a big price difference.) However in America the PSP hasn't been seen on monthly NPD sales charts for the past 4 months. (At least not on the charts released to the public.) [*source 1][2][3][4] Sony's ambitious PSP Go, a highly underrated portable, was unfortunately a sales disaster. It was recently discontinued. [*source] And the new Xperia Play phone (aka the PlayStation Phone) has been met with mixed reviews and sluggish sales. [*source] Sony needs a win just as much as Nintendo.

Nintendo's strategy is simple. They simply want to help Sony dig themselves into a hole. 3DS started high to bolster Sony's confidence, pushing them to sell the PS Vita for a lower than expected price. Nintendo wanted them believe they had a pricing advantage. Then just as Nintendo is heading into the upcoming Holiday Quarter, they drastically slash their price and undercut the entire portable market. Ironically Nintendo is selling the 3DS at the same price as the Nintendo DSi XL. Nintendo actually gets to preserve their current market, while creating an easy transition for consumers. It is a very shrewd, high stakes gambit. If it fails, Nintendo will be in serious trouble. But if it succeeds, the pay off will be tremendous.

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An actual screen cap from NeoGAF

Nintendo 3DS In Trouble?:

There has been a lot of doom and gloom on the internet surrounding the Nintendo 3DS. People have tried to blame the recent cancellation of Mega Man Legends 3 on the Nintendo 3DS. Others have claimed the machine is floundering on the retail front. Gamers continued to complain about the high retail price. And if you listen to the users on NeoGAF the 3DS is a certified "bomba." NeoGAF is even claiming that Nintendo President Satoru Iwata has said the 3DS has four months to "resurrect." In typical GAF style, the statements by Iwata deliberately are taken out of context and that's not what he said at all. Fanboys have taken these statements to mean the 3DS has 4 months to live, which we're sure was the intent of those distorting Iwata's statements. [*source] But what is the real truth here? Well first, we heard a lot of the same "doom and gloom" when Nintendo launched the original DS. In fact it was much worse. Popular gaming forums were filled with topics saying "SELL YOUR DS, ITS ALL OVER." After five years and over 150 million units sold, all these complaints now seem like a joke.

It is wise to note that Nintendo has fallen short of their original sales goals with the Nintendo 3DS. The company had expected to sell 4 million units by March 2011. Unfortunately by the end of April 2011 they had only sold 3.61 million units. The company was still very close to the mark. However with aggressive competition from Sony, and lower than expected 3DS hardware sales, Nintendo has to play hardball to keep its place in the market. There is no doubt that Nintendo is responding to competition and to the soft retail environment.

However, as of July 29th 2011, Nintendo has sold 4.32 million 3DS units sold world wide. The system also has two games that have sold over a million units. The Legend of Zelda: Ocarina of Time 3D has sold over 1 million units. [*source] And Nintendogs + Cats has already sold almost 2 million units. [*source]

Where does the system stand against the original DS? At the end of its first six months the Nintendo DS had sold roughly 5 million units world wide. This was at a price of $150. [*source] At the end of its first six months the 3DS had sold 4.32 million units. This was at a price of $250. The 3DS is rougly 700k units behind the DS, but its also selling for $100 more than the original system.

Recent game cancellations have definitely been overblown by the media. For example Mega Man Legends 3 was cancelled because Cacpom didn't see a market for the title.  Another "cancelled" game, Saints Row 3DS, never existed in the first place. The disappearance of these games has been used by some to smear the public image of the Nintendo 3DS. It reminds me of the "sell your DS, its all over" hysteria found on the internet after the launch of the original Nintendo DS. As usual the spin machine is in full effect. And let me just say this, its not that media outlets "hate" Nintendo or have some ridiculous conspiracy, but rather fanboy hysteria generates more web site traffic than standard factual news. Forum users and gamers everywhere were simply responding to the media spin.

Major Media Outlets Claim The 3DS Is "Doomed":

IGN.com recently claimed "history has proven the Nintendo 3DS is doomed." And that any Nintendo system that had an early price cut is destined for failure. [*source] We would like to ask them something, does this include the Nintendo DS? Which also had an early price cut. We should also note that IGN once predicted the Nintendo DS would be discontinued early and "replaced by a portable GameCube." They also claimed the Nintendo Wii would be "a niche console for Nintendo fans." [*source]

The company also recently posted a story claiming the 6 year old Sony PSP outsold the 3DS by a 2 to 1 ratio. [*source] This article, which was posted anonymously on the IGN web site, forgets to mention that the 3DS costs $120 more than the PSP. Maybe this is why the author of this article did not include his name on the piece. Nor did he or she include the source for these numbers. The author also states that Nintendo is taking a loss on hardware, without mentioning the fact that rival companies are doing the exact same thing. And at a much greater cost.

The truth of the matter is, the numbers aren't our main point of concern. There is no denying Nintendo is in a tight spot. Its how this material is being presented that is the problem. Its deliberately antagonistic. Its intent is to rile people up. And its almost like they want the 3DS to fail, just for the fanboy drama. And the fun doesn't stop with Nintendo fans. They also hit Sony fans. One month they gave PSP game of the month to "air." With second place awarded to "nothing." [*source] (For the record the best PSP game for April 2008 was SNK Arcade Classics.)

IGN isn't alone in their tactics. The English tabloid known as "The Sun" recently claimed the 3DS was in trouble because the system "makes gamers sick and dizzy." [*source] The Sun claims "hundreds of gamers of furious gamers" have slammed the 3ds." Of course there was no legitimate source cited in the article, and it was later dismissed by the main stream media.

Is Nintendo In Trouble?:

And what about Nintendo President Satoru Iwata taking a pay cut because of the current 3DS situation? Its still all part of the game. Its all a high stakes gamble, and if it works, it will pay off big time. Sometimes you have to spend money to make money. Just ask anyone who sells their hardware at a loss.

Unfortunately this gamble has come at a high cost. And that cost is an unintended consequence of this game. Nintendo has seen a 20% drop in their stock price since the announcement of the 3DS price cut. [*source] The company blames sluggish 3DS sales and declining Wii sales. Nintendo has actually lowered its earnings forecast for 2011 and 2012 a whopping 82%. [*source] What does this mean for Nintendo? Well first you have to put the news in perspective. Nintendo just came out of a several year period filled with record breaking Nintendo DS and Wii console sales. Month after month they ruled the charts. It was almost unreal. Eventually things were going to take a dip. However the steep decline on long term prospects shows the company has its back to the wall. This is a real "do or die" moment for Nintendo. This high stakes gamble on the 3DS has to pay off. Otherwise Nintendo's competitors will capitalize on the company's misfortunes and steal their portable market share.

Early Adopters Cry?

So have early adopters been cheated by this sudden and drastic price drop? Well, not really. Nintendo is giving away 20 free downloadable games for everyone who purchased the 3DS at its current $250 price point. Users will get 10 free NES Virtual console games and 10 free Gameboy Advance VC Games. The titles will have new features including multiplayer. [*source] And some of these games are exclusive to early adopters, or "Ambassadors" as Nintendo now refers to them. The company also gave early adopters a free copy of Excitebike 3D Classics earlier in the year. That's a lot of free software. The estimated value of the free games is well over $100. This also adds to our suspicions that Nintendo has always intended on selling the 3DS for the new $169 price point, and instead deliberately inflated the retail price temporarily for many of the reasons we named above.

This Holiday Season: The Portable Gaming Battle of the Ages!!

One thing is for certain, no matter how you feel about this situation, this entire affair is leading to a Holiday Season battle that will go down in the history books! Nintendo will have the 3DS selling for $169. The company will have its biggest games on the shelves. Sony will have their amazing PlayStation Vita. And the system will be selling for an astoundingly low $250. It will be up to consumers to decide who wins this epic battle. But in the end, no matter what side you pick, its the consumer who is the ultimate winner in this fight for retail supremacy. Buckle up friends! Its going to be one hell of a ride!