Are Nintendo Sales Good For Video Game Stocks?

Wheee (Or should I say, Wii)! Nintendo (NTDOY.PK) yesterday reported much better than expected results for its fiscal fourth quarter ended March. Nintendo sold 23.56 million DS handhelds in the 2007 fiscal year, and 5.84 million Wii console games.

The company also sold 123.55 million units of DS software, and 28.84 million games for the Wii.

Nintendo is forecasting fiscal 2008 sales of 22 million DS handhelds and 14 million Wiis.

In a research note yesterday morning, Kaufman Bros. analyst Todd Mitchell notes that Nintendo is looking for ways to boost production of both products; the company says the Wii remains sold out in many markets and management expects shortages to continue well into FY 2008.

Mitchell notes that Nintendo is dominating software sales on both platforms; he thinks the company is selling more than 50% of the titles on both the DS and the Wii. And here’s where this gets interesting for investors: he thinks all of this is not good for video game publishers:

The DS and the Wii are taking the video game industry by storm. Both appear to be bringing new gamers into the market. However, this may not be a positive dynamic for the major video game publishers. Nintendo has not only increased the size of the market, but it also has re-segmented it in its own favor, in our view. Nintendo is dominating software sales on its popular hardware platforms, leaving the publishers with a smaller slice of an only somewhat incrementally larger pie. Moreover, we feel that the likely shorter product cycles of Nintendo’s platforms puts the publishers in permanent catch-up mode. We think the upcoming releases of Super Mario Galaxy [for the Wii] and Metroid Prime 3: Corruption [also for the Wii] will highlight this phenomena this holiday season.

Among the video game software stocks, Electronic Arts (ERTS) yesterday was down 39 cents at $52.08, THQ (THQI) was down 17 cents at $34.62, and Take Two (TTWO) was off 25 cents at $19.57. Activision (ATVI) was up 6 cents at $20.83.

Comments

[roderick:]

Aside from Ubisoft which readied several games for launch, there wasn't much 3rd party support for the Wii right from the get-go, and the majority of them have been playing catch up as they switch focus towards realizing that the Wii is a true presence (6mm consoles sold in less than 6 months)

And why shouldn't Nintendo's software be selling better than 3rd party? Part of the appeal of Nintendo software is that it is exclusive to that console. If the 3rd party publishers keep on bringing multi-platform ports to the Wii, any gamers with either a 360 or PS3 will likely pick up the title on the prettier console (3rd party publishers haven't been the best at maximizing Nintendo's consoles for graphics etc until later in their life cycle)

The key for 3rd party publishers is to create unique IP titles for Wii, or at least some exclusives, that utilize the console in the best way possible - focusing on the new possibilities for control rather than simply trying to fit a traditionally controlled console game into the Wii. The expanded audience for Wii isn't necessarily awaiting the next Call of Duty game (having never played them as new gamers), they are looking for a fun experience. We are already starting to see some publishers understand this, and more unique titles will be unveiled this year I am sure.

2007 Apr 27 12:04 PM