TOKYO — In 2006, Nintendo took video games out of the children’s rooms and into the living room, as its Wii game console created a new niche as a gadget that the whole family could share.But with that Wii boom waning, the successor being prepared by the creator of Super Mario looks like a losing proposition, as makers of smartphones and computer tablets take digital games to the bathroom, the commuter bus and back to the bedroom.
Nintendo reported Thursday its first ever operating loss, with a deficit of ¥37.3 billion, or $460 million, for the financial year that ended March 31, slightly better than a consensus forecast of a ¥41.4 billion loss.
“They have been beaten by smartphones and tablets, in particular, for consumers’ spending and, more importantly, time,” David Gibson, an analyst for the Australian bank Macquarie in Tokyo said before the announcement.The company, which began in 1889 making playing cards in the back streets of Kyoto has been hammered by a precipitous drop in sales of its Wii, its DS handheld console and its newer 3DS version.
A year ago Nintendo expected to sell 13 million Wii consoles and ended up selling 9.8 million. It had a target of 16 million for the 3DS but sold 13.5 million in the past financial year. It managed to ship only half of the 11 million DS machines that it wanted to sell.Weak demand led Nintendo to cut the price of the 3DS by about a third last August, six months after it had been introduced. For this business year, Nintendo is aiming to sell 18.5 million of the devices.Later this year, the company is expected to release its successor to the Wii, the Wii U, which features a tablet controller.
Forecasting a return to profit this financial year, helped in part by a weakening yen that is bolstering revenue repatriated from overseas, Nintendo’s chief, Satoru Iwata, acknowledged his company’s lackluster performance.
“Our target this year is not one I am satisfied with,” he said at a briefing in Osaka, Japan. “Sales of the 3DS in Europe have not been as buoyant as those in Japan.”
Mr. Iwata did not, however, offer any suggestions of a shift in strategy and did not discuss any possible change to plans for the Wii U.
Yet what Nintendo faces is a fundamental shift in game-playing habits that analysts argue may require it to shrink its hardware business and instead look for profits for Super Mario and other game titles on devices built by other companies.
Its emerging rival is Apple, already the nemesis of Sony, the struggling Japanese titan. Apple’s seamless go-anywhere devices — like the iPhone, iPad and a games controller that is rumored to be planned — are positioning it to grab chunks of the game market where Nintendo once held sway.
In a report this month, Mr. Gibson of Macquarie pointed to a recent survey by MocoSpace, a Web site about mobile games. It asked 15,000 game players where they played; 53 percent said they played in bed, 41 percent in the living room, 72 percent commuting and 5 percent on the toilet.
Yet a game started on a Wii cannot be continued on a DS on the way to work or school. The Wii U, slated to go on sale during the year-end shopping season, does not address that convergence hurdle.
Nintendo will have to sell the new console for as much as $350 to break even, said Nanako Imazu, an analyst for the brokerage firm CLSA in Tokyo. That is $100 more than it charged for the Wii in 2006 and would outstrip the Sony PlayStation 3 and the Microsoft Xbox 360, which can be picked up for less than $300.
Mr. Imazu said Nintendo, which earns about four-fifths of its revenue outside Japan, should benefit this business year from the introduction of popular game titles including Mario Party 8 and the latest instalment of Dragon Quest from Square Enix, due in August.Nintendo is likely to have a year to attract core game-players to the Wii U, analysts said, before Sony’s anticipated introduction of its PlayStation 4 and Microsoft’s updated Xbox at the end of 2013. Nintendo, nonetheless, will still have to contend with the rising flood of smartphones.
“Nintendo has to deal with the change and let Mario games be played on non-Nintendo devices,” Mr. Imazu said. “I think it will take at least couple of years to see that.”Any drastic strategy shift that would dispatch the Mario brothers into the realm of Android and the Apple iOS operating system for smartphones is likely to require a change at the top of Nintendo, Mr. Gibson said. And that is unlikely to happen for a couple of years, until the Wii U is shown to be a clear failure, he said.Unlike unprofitable Sony, where time is running out to counter the pounding from Apple and Samsung Electronics, Nintendo, sitting on of a cash reserve that it built up selling the Wii — about $14 billion — at least has time to consider its choices.
