The Lossleading Approach - Is it damaging the industry?

[Serebii]

Right, start off by saying that I'm a huge Nintendo fan. I try to find the good in whatever they do, even it it's outright retarded (though I still call them out on it) however, with Asda dropping the Wii U the discussions around the net have gone a certain way again.

 

The Wii U is a nice bit of kit. Many of its issues have been solved now with a solid line-up coming between the end of the year and things such as OS speed are now up to snuff (I went from Pikmin to the main home screen in less than 2 seconds just now). The only issue left is cost and marketing, the latter of which is said to be being dealt with.

 

This brings me to the next point. So many believe that third parties are dismissing the Wii U due to power. If so, it brings up a massive problem.

 

Microsoft and Sony over the last two generations have gone for a full on power-fest. In doing so, they have had to sell their consoles at significant loss. The Playstation 3 was being sold at a massive loss, several hundred dollars per unit, from 2006 all the way until 2010. It drained the income they made from the PS2 and has caused massive damage. The Vita is also being sold at a loss. The 360 was also sold at a loss until around 2009, with things such as Xbox Live to try and offset it while paying for the servers. The PS4 and Xbox One, while this time using more standardised components, are still likely to be sold at a significant loss.

 

Now, Microsoft and Sony have the ability to offset this with their other departments making money, so they can build an install base and get money later through licensing and other avenues.

 

Nintendo, however, is a pure gaming company. If Nintendo were to match technology to the PS4, then the Wii U would be sold at a few hundred dollars loss and drain their financials. Their warchest would be gone and they'd actually be struggling. Many people seem to miss this fact.

 

Having technology jump so much also damaged third parties severely. This generation has seen the highest number of companies fold, even previously huge ones such as THQ. Many say it's due to bad organising, but when games like Tomb Raider sell 3 million units and are considered a failure due to not meeting costs, something is seriously up.

 

In any other business, if you came up with an idea where you were losing so much money for so many years, you'd be fired. Yet people are calling for Iwata's head because he didn't follow this path.

 

So, do you lot think that the approach MS and Sony have brought is actually good for the industry, or do you share my fear that it is actually destroying the industry?

 

I worry my argument is a bit all over the place :p

[Happenstance]

Supposedly the PS4 wont be sold at a loss at all this time though

[Serebii]

Supposedly the PS4 wont be sold at a loss at all this time though

I highly doubt that. GDDR RAM isn't cheap. It won't be a loss equivalent to the PS3, but it will be a loss

[Happenstance]

I highly doubt that. GDDR RAM isn't cheap. It won't be a loss equivalent to the PS3, but it will be a loss

 

Im just going from what Pachter said they had worked out during an interview

[Serebii]

Im just going from what Pachter said they had worked out during an interview

Oh well, if Pachter says it :p

[Happenstance]

Oh well, if Pachter says it :p

 

That would be why I said "supposedly"

 

I know exactly how much bullshit Pachter spouts, but then so do you

Edited July 29, 2013 by Happenstance

[liger05]

We dont know how much Sony are losing on the PS4. I dont think its anywhere close to what people seem to think though. Off the shelf parts are lot cheaper than custom parts.

 

Its not just about power as to why third parties are bailing on the wii u but lets be honest if you have comparable systems where ports are an easy process then its far more appealing. The Wii was too underpowered compared to the 360/PS3 and the Wii U will be the same with the PS4/Xbox One. I would say Nintendo need to change that going forward and start releasing up to date consoles.

Edited July 29, 2013 by liger05

[Retro_Link]

The Wii U being more powerful and sold at a loss is not going to drain Nintendo's 'war chest'!... their handheld sales and Pokémon alone will more than see to that!

[Agent Gibbs]

I don't believe for a second that what price consoles launch at in the UK is a loss for any one of the companys.

[Rowan]

In a climate where new revisions of phones and tablets are being released yearly the console makers don't really have a choice in whether to make a machine initially at loss if they want their hardware to last a good 5-6 years. This gen looks set to be longer if games still come out for them next year.

 

It's odd to think that a machine released in 2006 is still capable of playing software released today which pushes the limitations of the hardware. The alternative is a new console every 2-3 years which for consumers we can't really afford and cause them to turn away from gaming.

[liger05]

I still think people want to be wowed and want to believe they are buying something new. I still believe this generation went on for too long and Nintendo had a great opportunity to launch a year early but simply blew it with the wrong console. If they would of given people a vastly more powerful console than the 360/PS3 I think they would of got better third party support and a reason for people to upgrade.

 

Whether this would of meant Nintendo lost money on each console sold I dont know but are they not losing money on each console sold now and thats with an underpowered machine so whats the difference?

 

In a climate where new revisions of phones and tablets are being released yearly the console makers don't really have a choice in whether to make a machine initially at loss if they want their hardware to last a good 5-6 years.

 

True. You need the hardware to be futureproof and production costs come down anyway.

[Daft]

Year after year technology gets cheaper and cheaper, faster and faster. While the PS4 might be sold at a loss, it will now take much less time for that cost to come down. Sony (and Microsoft) would have factored this into their console. I would be surprised if the Vita was still being sold at a loss.

 

Honestly, I don't really understand where this damage is.

[Happenstance]

I still think people want to be wowed and want to believe they are buying something new. I still believe this generation went on for too long and Nintendo had a great opportunity to launch a year early but simply blew it with the wrong console. If they would of given people a vastly more powerful console than the 360/PS3 I think they would of got better third party support and a reason for people to upgrade.

 

Whether this would of meant Nintendo lost money on each console sold I dont know but are they not losing money on each console sold now and thats with an underpowered machine so whats the difference?

 

I think even launching the Wii U with something that actually used that bit of extra power it had over the current console could have helped its perception with the public but nothing I played looked particularly impressive and even the ports were mostly lazy with ones like Batman suffering from pretty bad fps issues at launch.

[Sheikah]

Year after year technology gets cheaper and cheaper, faster and faster. While the PS4 might be sold at a loss, it will now take much less time for that cost to come down. Sony (and Microsoft) would have factored this into their console. I would be surprised if the Vita was still being sold at a loss.

 

Honestly, I don't really understand where this damage is.

 

Also common sense dictates that initially selling at a loss to gain consumer attention with a brilliant product will lead to greater returns and install base down the line. It's a concept the Nintendo fail to grasp - they're making consoles that are already outdated technically, and they're expected to last for the next 7-8 years, probably.

 

Not that we even know if the PS4 is even making a loss.

[liger05]

I think even launching the Wii U with something that actually used that bit of extra power it had over the current console could have helped its perception with the public but nothing I played looked particularly impressive and even the ports were mostly lazy with ones like Batman suffering from pretty bad fps issues at launch.

 

Maybe the Wii gave Nintendo a real false sense of security where they believed people dont care about graphics and just having a HD nintendo console would be enough even though its not that different from older PS3/360 consoles.

 

Or they have really just given up on attracting the core audience but I really believe the Wii U will be a huge wake up call to the company and when all said and done come next time around Nintendo will be launching a console which wont be too different from the competition.

[Cube]

With Nintendo, I think their problem is completely different. I think they're too set in their own ways and I get a big impression that they're out of touch with the western gaming market. On top of this (admittedly, based on what little I know), the Japanese market seems to be in a big change, with some Japanese developers "westernising" their games. Which can lead to terrible results (Resident Evil 6), but others look like they may turn out great (MGSV).

 

I think Nintendo needs to allow for more influence from outside Japan. It could be forming more non-Japanese studios like Retro (who should be working on their own franchise, not another Donkey Kong), creating third party deals or even giving some studios and indie developers a chance to use the characters and franchises that Nintendo currently have no plans for (Nintendo have said they have quality concerns for these games, but it's not relevant if they're doing nothing with it anyway - and Nintendo aren't immune to the odd duff game, either).

 

Nintendo have the potential of thriving, even if the others have better consoles. They just need to find a way to combine their varied with some more western games. If some of these games make a slight loss for them, even with big sales, they could still help in the long run.

[nekunando]

I really believe the Wii U will be a huge wake up call to the company and when all said and done come next time around Nintendo will be launching a console which wont be too different from the competition.

 

I don't expect the Wii U to last very long at this stage.. I just hope there's enough in the next couple of years to make it all worthwhile, which I'm almost certain there will be

[Grazza]

My take on it is this: Nintendo keeps including technology that people don't necessarily want. Sometimes they do, sometimes they don't, but it always has to be paid for.

 

Wii - accelerometers

3DS - stereoscopic technology

Wii U - controller with a 6" screen

 

My point is that Nintendo machines haven't been a paragon of "what you can get for the price" since the GameCube. Some may think Sony and Microsoft push technology too far, but the tiny jump from GC to Wii is enough proof on its own that Nintendo are actually the ones who decided to hold back a generation rather than MS/Sony getting too far ahead.

[Jamba]

This brings me to the next point. So many believe that third parties are dismissing the Wii U due to power. If so, it brings up a massive problem.

 

I categorically disagree with this statement. The Wii U is not selling because it presents a poor value proposition to the consumer based on several factors:

 

1) It does a poor job at presenting itself as a platform for new gaming experiences

2) It does nothing to cater for the PS3/Xbox crowd.

3) It is directly competing against established current gen platforms that have equal if not better services and an established catalogue of hundreds of games.

4) In the current climate, it's value does not approach it's cost.

 

 

Power is simply the KSP that the new platforms have, which is easy to communicate to the consumer. The fact that they seem to have great services on top of that helps.

 

Personally I think that Sony have nailed that value judgement and both Nintendo and Microsoft have heavily screwed the pooch.

[liger05]

Power is simply the KSP that the new platforms have, which is easy to communicate to the consumer.

 

This.

 

Its always been the case the first thing people look at or notice on any new console is the graphics. You walk into store and see a new console running games with graphic fidelity you have not seen before and that straight away makes an impression. As you say there are services which come with that but the very first thing people want to see is how better games look on new hardware.

[Jonnas]

The Wii U being more powerful and sold at a loss is not going to drain Nintendo's 'war chest'!... their handheld sales and Pokémon alone will more than see to that!

 

Sony has entire divisions dedicated to things other than gaming (that's their bulk, really), and yet they still got in major financial trouble. I'd be surprised if Nintendo's "war chest" was bigger than Sony's.

 

And why would Nintendo risk it all like that? If they had played in the same field as their competitors, we would see a repeat of the Gamecube. Except worse, because losses would be that much bigger.

 

Honestly, I don't really understand where this damage is.

 

The industry as a whole (read: 3rd Parties). Serebii makes a good point with Tomb Raider. If a big game isn't a multi-million seller, it's a failure.

 

Capcom are a shadow of their former selves. Sega isn't taking risks anymore. Nintendo is playing it safer than ever. Way too many companies went bankrupt due to unsustainable business practices.

 

The ones that have a chance at prospering are developing games on the lower end of the power scale. I wouldn't place this blame on Sony or Microsoft, but I do fear the industry won't be able to support itself for long.

 

Since we're on the verge of a new generation, I can still hope for the best, but there's no denying that the last generation caused major damage overall, and successful companies (the remaining ones) tend to be short-sighted.

[Happenstance]

Serebii makes a good point with Tomb Raider. If a big game isn't a multi-million seller, it's a failure.

 

Tomb Raider wasnt considered a failure because it didnt meet its own costs, it was considered a failure because they expected it to do well on its own (which it did) but also make the money back on another game that did flop (I forget which one)

[Jonnas]

Tomb Raider wasnt considered a failure because it didnt meet its own costs, it was considered a failure because they expected it to do well on its own (which it did) but also make the money back on another game that did flop (I forget which one)

 

I stand corrected, then.

 

But still, that's a humongous loss if 3 million wasn't enough.

[Rummy]

Loss leader's aren't new in business at all. They exist because they work.

 

It really is as simple as that. You risk the loss because you have faith in the product pulling in more.

 

___________________________________

 

Nintendo DO have money. The Wii sold almost what...100 million worldwide? Profit on every single one of those consoles(increasing over time due to rapidly falling costs of technology). The 3DS is printing money too, no? An attach rate of ONE GAME will turn Nintendo a profit on the Wii U - they CAN still afford to knock a bit more off of it and sell it as a loss leader. It isn't just the financials of this either, it's higher market penetration that may then lead to better support from developers knowing that it's got a better install base.

Edited July 30, 2013 by Rummy

[Happenstance]

I stand corrected, then.

 

But still, that's a humongous loss if 3 million wasn't enough.

 

I think it might have been Hitman Absolution but im not sure.