Wii U launch: Sell-Out not a true indicator of long-term success

Pent-up demand from Nintendo evangelists, many of which were introduced to the console market through the success of the Wii, is predicted to drive this explosive start. By the end of December 2012, consumers worldwide are expected to have snapped up 3.5 million Wii U consoles, compared to the 3.1 million Wii consoles that were bought over a similar sales period at the end of 2006, according to IHS Screen Digest insights from information and analytics provider IHS (NYSE: IHS). Based on expectations of shipped Wii U units and overall consumer activity, IHS believes this will lead to supply shortages over the holiday shopping season, leaving some shoppers empty-handed and having to wait until the new year to satisfy their need for the next-generation Nintendo product. "As a result of the tight inventory control Nintendo employs to manage its supply chain and strong consumer demand in these opening weeks of launch, we believe it's highly likely that retailers will experience some Wii U shortages in the run-up to Christmas. Stock will be replenished in ongoing fashion, but some unlucky shoppers may well miss out," said Piers Harding-Rolls, senior principal analyst, head of games at IHS. Translating Wii U launch performance into longer-term success will be a major challenge With the landscape of games distribution and consumption altered significantly since the launch of the original Wii, IHS believes that translating this launch sales momentum into Wii-type success will be significantly harder to achieve. As shown in the attached figure, IHS forecasts that Wii U sales over the first four years of its life are expected to reach around 70 percent of the Wii's sales volume in the corresponding time frame. Nintendo Wii and Wii U Sales Nintendo should be laser-focused on consumer engagement in order to remain relevant. In 2006, the Wii brought to market gesture-based controls that no console had used before. Its device innovation, coupled with new and interesting social and lifestyle software, ensured the platform became a word-of-mouth and mainstream success. Nintendo's strength of innovation and first-party content have driven consumers to buy a formidable 92 million Wii consoles worldwide since its launch. There is no doubt the Wii U underlines Nintendo's credentials as an innovator, introducing the first dedicated and fully integrated second-screen game experience to the market. Yet the fragmented landscape for games consumption and the proliferation of always-on, connected devices, means that product innovation alone is not enough to stay relevant to today's mainstream consumer. “This time around, Wii U's pure innovation, coupled with a limited volume of high-quality Nintendo software, will not be enough to drive the ongoing sales momentum we witnessed with the Wii console, especially at a higher price point,” said Harding-Rolls. “Long-term success depends on ongoing consumer engagement delivered through the constant release of high-quality content from both first and third parties, a competitive non-games entertainment proposition and a sound digital and online strategy to go along with such innovation. Nintendo is still some way short of delivering a comprehensive engagement-led value proposition at the launch of the Wii U." Nintendo addresses its weaknesses Nintendo's recent strategic announcements show a company that has identified its weaknesses and is willing to adapt in order to remain competitive. The Wii U games lineup for the launch window features more third-party developers than Nintendo has had for its consoles in the past. The company has also partnered with 3-D game engine provider Unity to encourage new games developers to come on board, and it has additional titles in the pipeline to keep content fresh as the new year progresses. Nintendo is also focusing needed attention on its digital and online strategy with its own upgraded store and community platform. "How the company executes on these new initiatives will have a substantial impact on the Wii U's ability to maintain its market relevance past the launch phase when competing with the burgeoning choice of connected devices that serve games content to consumers," added Harding-Rolls.