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Tuesday, July 25, 2006

Nintendo's Revenge

Nintendo just boosted their profit estimates for the coming year by $150 million from over half a billion dollars, indicating that the company might be one of the unlikely winners in the console wars.
-- Revenge Of Nintendo

Not so long ago, I remember witnessing forum wars about how Nintendo was dead. The GameCube was a coffin and the PSP would be the nails. The DS was a schtick device with little appeal (a belief I partially adhered to myself) and with the 360 launch - Nintendo would likely pull a Sega and ditch the console hardware completely.

Now they're on the verge of launching a console with massive appeal and low cost point ... poising them to possibly even take the "lead" in terms of sales. I use the word lightly because I really think the Console Wars are more like a Console Street Fight where there's never going to be a clear "winner". But we're Americans and we like contests ... and so someone has to come out in the front.

I think it's important to remember this hubris when it comes to Sony, though. Lots of people are poking any potential hole into the electronics giant ... while forgetting they're an electronics giant. Sony is neither a fly by night garage company nor are they the sum of the eccentric executives who seem to be prone to bizarre PR events. Nobody predicted the 360's stumbles or the potential of the Wii's popularity. Predicting Sony's sudden downfall is equally hazardous.

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Unknown said...

As an habitual hater, I think we're not piling enough scorn on Sony. Look, the "they're still a big electronics company" is the same argument people bought into before the latest Iraq invasion.

It's the CIA -- they have to know about the WMD. It's the U.S. military -- they have to know how to stage an invasion and bring stability. It's the Bush Administration -- they have more than half the country behind them and so the will to press on and win.

Every bit has turned out to be wrong (to varying degrees).

I see Sony in a similar light. They've showered the community with development kits and promised millions and millions of consoles in consumer hands within a few months. They think Blu-ray is going to take off. They assure us that this year will surely be the HD revolution. Whatever.

Keep a level head and ask: Have they explained in any real detail how this is really going to work out well? Take a step back from that: How it *could* possibly work out well?

No. They're big on hype, light on details, and hoping that just being a big electronics company carries them. It might have worked before, but as history shows us, it doesn't always work.

[Posted without editing. Sorry for gross grammar and spelling mistakes.]

Josh said...

Sorry if I can't buy into the CIA analogy. If the CIA had a hundred other products to pad their intelligence failures, we might not be in this mess ... but obviously it doesn't work that way. Sony's gigantic status in the industry is in itself a factor of survival. We can't ignore that they have multiple product lines and entire movie studios at their disposal.

Sure, Sony has stumbled in the introduction to their next gen ... but assuming they won't sell well based on a few web polls and the general punditry isn't heavy on the facts. Sony, like Nintendo, has a major foothold in Japan that Microsoft can't even touch. The most solid complaint raised - the price - isn't even a factor until post launch since the 360 proved people are willing to lay down hundreds for the newest toy.

It will work well just like any other big product launch - they'll sell out of their initial run. Why? Because it's the latest toy. Why did people buy the 360 with it's manufacturing problems and lackluster launch library? Better yet - why were people paying two to three times the MSRP for one?

Better question - how will it not work out well? Do we really expect boxes of PS3's to just linger on the shelf? More likely we'll have the same supply issues we saw with the PSP and the 360.

In fact, the PSP is a great analogy here. Everyone suspected doom. Even before the first day of sales I was reading what a failure the PSP was. Even this week I'm reading comics about what a failure the PSP is. And yet, it's just about the only handheld in history to be able to sell consistently against Nintendo. It's no blockbuster success ... but it's far from a failure.

The general discourse on Sony is starting to strongly resemble the doom and gloom attributed to Nintendo towards the end of the GameCube's run. The GameCube, mind you, which earned Nintendo plenty of profit.

Unknown said...

Just to clarify, when we say "Sony's downfall" (your original post), we might be talking different things. I'm talking about Sony falling on its face with the PlayStation 3. As I reread your original post, it occurs to me that you're referring to a death of Sony (as in the earlier "death of Nintendo" predictions).

Arguing that Sony's got other resources doesn't address the key faults in Sony's PlayStation 3. Those other areas can assist when the PS3 stumbles, but cannot cure the disease. The rest of Sony may well go record profitability...but they cannot help the PlayStation 3 be more than it is.

And the initial run doesn't matter much, as the Dreamcast proved. When February '07 sales numbers are in, that will be more clear. And when February '08 rolls around, we'll know for sure.

Oddly enough, I remember a ton of optimism from Sony (and I thought from the press) about the PSP at its launch. Other than price (a good parallel, for sure), the system was expected to sell very well. Saying it's not as bad as the Lynx vs. GameBoy is faint praise indeed.

Finally, the GameCube made a big profit for Nintendo for some big reasons that just don't apply to Sony and the PlayStation 3: most (if not all) hit GameCube games were Nintendo first-party (ergo highest margin), the GameCube hardware was cheap to produce from the beginning and developed inexpensively (as opposed to the Cell and Blu-ray money pits).

Sorry, but the anti-anti-Sony argument comes across as "they'll win because they're big ol' Sony". From a business point of view, Japan sales won't matter and there are only so many idiots to buy overpriced hardware. That won't be enough.

Josh said...

But most of the "faults" of the PlayStation 3 are conjecutre and theory. That it's priced out of it's market is completely unprovable until launch and even then has largely blog polls to back it's facts. Everyone thought the 360 was too expensive, but price was the least of it's concern. People are willing to spend a couple grand on either a new computer or an HD player ... they may well be welling to spend less than a grand for both.

As for other complaints - like being too difficult to code for or not nearly as powerful as reported ... half of these are Microsoft FUD and the other half are mumblevine crop.

After that we descend into silliness like "OMG ... GTA's not exclusive" or complete nonsense like "you won't be able to rent games for the PlayStation 3". Fact is - many of the complaints lodged agaisnt Sony right now aren't terribly substantial.

For the PlayStation 3 to fail, it seems an unlikely series of events would need to occur:

1. A complete revolt against the price.
2. Blu-Ray fails miserably.
3. The library remains poor through 2007.

All three are unlikely precisely because of the industry clout Sony enjoys. But, it's easy to attack a non-existent product and the gamesphere loves a loser out of the console war ... and Nintendo no longer seems the likely candidate.

Even if the worst case scenario is the PS3 ranks third in a cumulative timeline, Sony is unlikely to fall flat on it's face with the product line. It's just not as straightforward as that.

How are we measuring success? Microsoft is still losing a bundle off the Xbox. Sony will, no matter what, take a big red bath off the PlayStation 3 launch. Just like before, the only seeing an immediate profit will be Nintendo.

It's because the console "war" is being fought between three companies with completely different goals and strategies. Microsoft doesn't need to make a bundle off the Xbox - they have Windows. Sony is more concerned with making a viable consumer level Blu-Ray market than dominating the games industry and Nintendo just loves profit because games is their bread and butter.

But to say that Sony's size isn't a factor in their releases is like saying that Windows Vista will sell well because of merit.