Nintendo: The Wii Bubble Has Burst

Includes: MSFT, NTDOY, SNE
by: Bruce Everiss

Inevitably, and for reasons explained many times here, the Wii bubble has finally burst. In the half year to the end of September sales were down by 40% compared with the year before. Nintendo (OTCPK:NTDOY) president Satoru Iwata has no option but to admit: “Wii has stalled.” He even admitted that the price drop has failed to arrest the decline: “With the price drop, sales returned to a certain level, but they just did not reach the level of last year around this time”. Which was all as inevitable as night follows day.

A lot of the success of the Wii was just a fad. People became lemmings under the onslaught of peer pressure, just like with the Hula Hoop and Rubik’s Cube for previous generations. And fads have very sudden endings as the zeitgeist moves on to something new.

The Wii is a very strange and paradoxical device. Its hardware capability is mainly last generation, yet it boasts an innovative and compelling gesture interface. Most Wiis are bought as family toys and are little used, yet it has some amazing games including possibly the stand-out title of this generation, Super Mario Galaxy.

The Wii has had its popularity and life massively extended by the Balance Board and Wii Fit, but there are only so many overweight middle aged women willing to pay so much in a feeble attempt to assuage their vanity. So it looks like this market is exhausted, much to the dismay of the many publishers who thought that this was a bandwagon they could jump on. The reality is that the Balance Board is panning out as being the Reebok Step Mark 2.

It doesn’t help that you can buy a vastly better machine, the Xbox 360, for less money. Even Sony (NYSE:SNE) has tried to be more price competitive and has improved its act in many other ways. Both machines are introducing gesture interfaces that will finally remove the Wii’s main trump card.

We have known for a long time that the Super Wii is on the way with HD graphics and a rumoured Blu-Ray disk drive. But this is thought to be coming some time after the middle of next year and the market needs it now. Nintendo has gotten its timing very wrong this time.

It has to be said that the Wii has done video gaming a massive amount of good. It has taken the medium to new markets and new demographics, vastly expanding it for everyone’s benefit. Nintendo has introduced new genres of games and extended old genres in a prodigious burst of creativity. And it has continued in its fine tradition of production values that put most of the rest of game publishing to shame.

So what is going to happen? Well it is a golden opportunity for Microsoft (NASDAQ:MSFT) (and to a lesser extent Sony) to make hay whilst the sun shines. They can fill the vacuum that Nintendo has created. They need to give tens of millions of Wii owners a compelling reason to upgrade and I am sure that their marketing teams are working at doing exactly that. And my prediction still holds that the Xbox 360 will ultimately sell more units than the current non HD version of the Wii.