In just three years, Nintendo has managed to sell 50 million Nintendo DS', including both the original and the lite version of the portable console system. Even with the release of the DS Lite last year in the U.S., there was never a widescale shortage of Nintendo DS Lites (except at Christmastime) as there was in Japan, where a DS Lite was nearly impossible to find 6 months after release (we found some, but we could not have done it without the help of our Japanese friend).
Nintendo has said on the record that they will not be able to meet demand for the Wii in the United States in time for Christmas. Lately, stores have been making available more Wiis, and every now and then, Amazon will have the Nintendo Wii in stock.
Some people say that system shortages are created by the manufacturer; surely if the manufacturer wanted to do so, they could ramp up their production to meet demand, and as the Wii shortage quickly approaches a year, it seems that this shortage is more a product of corporate greed than anything else. I disagree with this conspiracy theory, and here's why: Nintendo has managed to sell over 10.7 million Wiis worldwide in the last 10 months, with approximately half of all Wiis going to North America. A quarter of the Wiis end up in Japan, and the other Wiis end up all over the rest of the world. Compare that with their sales and manufacturing for the Nintendo GameCube: 21.63 million over a timespan of 6 years. The complexity in building a Wii is not all that different from building a GameCube, and assuming the same facilities, the GameCube factories were pumping them out at a rate of approximately 300,000 per month. Manufacturing rates for a Wii are more than triple that, so it seems to me that they're making them as fast as they can. Even if we look at Nintendo's Golden Age with the Famicom and the NES, they sold 60 million gaming systems over a span of 12 years, an average production rate of 5 million console units a year -- the Wii has surpassed that number by two-fold.
Yes, the Wii is a great system. Everyone that has one loves it, and it gets everyone involved with gaming. That being said, the components behind a Wii console system a year ago cost about $160 dollars, meaning that a good $40 or $50 dollar profit was being made on each one sold. A year later, production costs must be cheaper, which means the profit margin for Nintendo must be much higher, possibly what they were getting a year ago. Keep in mind that Nintendo is still getting full retail price on this video game console system. Compare that with the pricing on Nintendo's GameCube, which was never a market leader despite it's low cost:
- November 18, 2001: GameCube Releases at $199.99.
- May 13, 2002: GameCube Price Drops to $149.99
- September 24, 2003: GameCube drops to $99.99
The first price cut came at nearly 7 months after the release, while the second price cut occurred 22 months after release. We are now at 10 months post release, and because demand for the Wii is good, there's very little chance of a price cut. Nintendo's main competitors, Sony and Microsoft have not gotten into a pricing war due to the difference in costs of the various systems, and the lack of profitability in the original relase of these systems. It was estimated that Sony was losing about $200-300 per unit sold, while Microsoft was losing 125 - 225.
Microsoft XBox 360:
- November 22, 2005: 360 Core $299 (rumored to be discontinued soon), 360 Premium $399
- Aprill 29, 2007: 360 Elite $479
Sony's Playstation 3:
- November 17, 2006: Sony Playstation 3 (20GB) $499, Sony Playstation 3 (60GB) $599.
- July 8, 2007: Sony Playstation 3 (60GB) $499,
- August 6, 2007: Sony Playstation 3 (80GB) $599. (20 GB & 60 GB Discontinued)
This seventh generation of game systems has the Wii, in a state of shortage, which has been profitable from day one, the Xbox360 which was released first, and maybe finally starting to hit the break even point, and we have the Sony Playstation 3, which continues to lose money.
I thought by now that the Nintendo Wii would have been widely available a few months ago. I even revised my original optimistic "by May/June" to "August/September" . Now, as far as estimates go, I was a little off, but not nearly as off as market analysts who predicted "March 2007" for the Wii, an not nearly as pessimistic as the analyst predicting No Wiis until 2009.
Is there profitability involved? Quite certainly. To enter into manufacturing agreements with other factories costs money, and a new facility would be a huge capital expenditure, and demand for the system is still good, and at the moment, there is no substitute for the Wii and their games. People buy game systems for the games, and while a price increase in a game system has never happened before (due to declining manufacturing costs and the need to stay competitive), Nintendo has a unique product with a lock on licensed characters and I'm going to make a bold, somewhat crazy prediction now: Nintendo will raise the price on the Wii in the U.S.. Here's my reasoning: the U.S. Dollar has reached parity with the Canadian Dollar, and the Canadian Wii retails for $279. As far as I know, the Canucks have had as hard a time as Americans in acquiring their Wiis, and my guess is that with dollar parity, there's probably a good number of them hopping across the border to try and save a little money. A price increase of $30 dollars in the U.S. will quell demand a little, (and probably stop the exportation of American Wiis to Canada) but I think there's also more than enough demand over left to support a $30 price increase.
Hypothetical Scenario: Let's say that Nintendo chooses to raise price to retailers starting next week. They have a new SKU and a new MSRP ($279), and they send out a notice saying that any remaining orders in the system will be moved to the new SKU, and the new price unless they inform Nintendo they wish to cancel any unfulfilled orders. Delivery of the new product will commence on November 12, 2007 (to coincide with the release of Super Mario Galaxy) . What happens?
First of all, we have no idea what's going to happen. In the past, every single video game price drop has been met with "yeah, I expected it, I'm going to go buy one now" along with the "I bought it at a higher price, but I've gotten my money's worth for the time that I've had it" reactions. Here Nintendo has a unique situation where they have a product already in demand, already hard to find, and they turn up the cost. Demand should drop, and they should become easier to find -- and this would be true, were it not for the existence of retailer bundles. Retailer bundles have raised the cost of purchasing a Wii to a higher price point to begin with. What would ordinarily be a $250 system now is typically sold for $379 or more, depending on the things that the retailer forces you to purchase, and these things always sell out -- it's not as instant as selling the console straight up, but the bundles, even the hideously expensive ones that total over $500 sell out. The retailer has already raised the expectation of the consumer such that the MSRP of $249 is strictly a marketing gimmick, as finding a $249 Wii has reached mythical proportions. A $30 bump up will not affect demand, because people are already paying much more than that for the bundles.
For the casual purchaser -- the mother buying the Wii for her children, a $30 increase in price and a $30 discount won't register either way. It still must be bought, because the holidays are around the corner. A price increase, however, would be reported in the mainstream press, and despite the increase in price, might actually pitch demand up even further. In November, if rumors are true, Nintendo's closest competitor, the Xbox360 becomes available only as a $400+ game console, making the price gap between the Wii and any other current generation game systems $150. If grandma goes into the store looking for a $250 Wii, and finds one for $280, isn't that better than grandma going into the store looking for a $250 Wii, seeing sold out and seeing that the other game systems available are the $400 Xbox 360 and the $600 Playstation 3? I think it is, and that's why I think a price increase is on the way. They might want to disguise the price jump a bit, maybe by including the Wii Zapper or another game, but if Nintendo was trying to milk out the profitability of the game system, that's what they'd do.
I think that's why the shortage isn't engineered -- there's a lot more ways for Nintendo to profit than limiting supply, and as we've already seen, cranking out a million Wiis a month is not an easy task, even if you're Nintendo.
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