The Lossleading Approach - Is it damaging the industry?

[Rummy]

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.

 

'Many of its issues have been solved'? Speculative(line-up coming...not here yet), opinion(unqualified 'issues'), and stated like a fact. As you well know, plenty of people still have issues with it.

 

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.

 

The Xbox was, afaik, solidly intended as the loss leader it was. Tbf, it's worked...8 years on it's still a solid console with a big market.

The PS3, was a loss leader but not neccessarily through management's intentions. Was it not the case that many costs regarding it were hidden from management? That WAS still a loss leader, but I don't think it was quite as intentional.

 

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.

 

Unless I'm mistaken, was it not the PS2/gaming sector that essentially propped up Sony quite heavily? Not to mention how bad their credit rating is now, either.

 

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.

Addressed this above. The counter-argument could be made as a gaming company with a more solid focus they don't have to worry about other sectors draining the pot.

 

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.

Speculative, again. Qualify it.

[Cube]

I stand corrected, then.

 

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

 

5 million.

[Jonnas]

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.

 

Regarding this point, I would just like to say that 3rd Parties do have a big history of ignoring Nintendo whenever possible. The Wii had a huge install base, but that didn't help much in gathering developers.

 

What works for the competitors does not always work for Nintendo, even when it logically should. That's why they had to create their own playing field in the first place.

 

Speculative, again. Qualify it.

 

Also, I'd like to say something here: if someone says "This would never happen/This does not exist", it's up to someone else to prove them wrong. It's impossible to qualify the non-existence of something.

 

So, if Serebii says "A non-gaming company would never do this", all you have to do is give him an example to prove him wrong.

 

5 million.

 

Corrected again

[Agent Gibbs]

I think the three square enix games were Tomb Raider, Hitman Absolution and True Crime Hong KongSleeping Dogs

 

the expected multi million sales in the first month, aka COD sales on each title, and now the franchises are probably dead because of it!

 

Its not quite loss leading its a separate issue, over inflation of the industry and false expectations! its why indie is doing well they are are more realistic!

Edited July 30, 2013 by Agent Gibbs

[Cube]

I would have got Sleeping Dogs at launch if I had known how good it was at the time.

[Rummy]

Also, I'd like to say something here: if someone says "This would never happen/This does not exist", it's up to someone else to prove them wrong. It's impossible to qualify the non-existence of something.

 

So, if Serebii says "A non-gaming company would never do this", all you have to do is give him an example to prove him wrong.

 

God arguments eh? Well those obviously hold a lot of credibility. My point is to qualify it or don't make the argument. I take issue with that sort of vague argument.

 

Anyway, he already gave the examples. The PS3 and the 360. For my own opinion; I think it's very naiive to assume something like that would never happen. I don't have the intricate business knowledge of every company out there, so it's hard to give an example - however by law of large numbers I'd say it's quite likely it would have occurred.

 

Anyway, the PS3 and the 360. Point disproved.

 

Regarding this point, I would just like to say that 3rd Parties do have a big history of ignoring Nintendo whenever possible. The Wii had a huge install base, but that didn't help much in gathering developers.

 

What works for the competitors does not always work for Nintendo, even when it logically should. That's why they had to create their own playing field in the first place.

 

Do I just give you an example of 3rd party support on this one to disprove your argument? Sure they might not have ALL OF TEH THIRD PARTIES but they had some 3rd party support, no? WHY were all these other 3rd parties apparently ignoring them, though?

 

I think with the Wii U they could have done well in this year if they'd really got the system into homes. They could have done that with a minor loss-leader approach. They would have definitely attracted further 3rd parties in the future if they had.

 

Feel free to prove that last statement wrong.

[Hero-of-Time]

Regarding this point, I would just like to say that 3rd Parties do have a big history of ignoring Nintendo whenever possible. The Wii had a huge install base, but that didn't help much in gathering developers.

 

They've never been great with 3rd parties. Back in the NES/SNES era they had 3rd parties by the short and curlies and treat them pretty badly. Then after that every console they have made they have done so for their own benefit and there seemed to be little discussion ( if any ) gone on with 3rd parties as to the needs they have when building a console.

 

The N64, Gamecube and Wii all went against what the norm was. Cartridges instead of CDs, mini CDs instead if DVDs and lower end technology for the Wii. All the decisions made it a nightmare for 3rd parties to port/develop games for the machines.

[liger05]

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.

 

Nintendo do have cash reserves but in the last 2 years they have not been banking money at all. The 3DS is profitable now but you have to remember they had take a huge hit to turn it around and even still it’s not hitting the sales forecasts. If anything any money they make on the 3DS now is to help balance the books on the losses they are incurring on the Wii U.

 

In theory yes an attach rate of one game means the Wii U is profitable but if the console isn’t selling, software sales are low, shipment numbers are low and then I don’t see how they are making money on the wii u and able to reduce the price.

 

Components and parts should come down when needing to re-order but Nintendo have so many wii u’s unsold that I doubt there is mass re-ordering.

 

I really don’t think the Wii U’s problem is price. Retailers have tried to cut the price and its done nothing. The console is simply not an an appealing product.

 

I think with the Wii U they could have done well in this year if they'd really got the system into homes. They could have done that with a minor loss-leader approach. They would have definitely attracted further 3rd parties in the future if they had.

 

A console which was a significant upgrade on the 360/PS3 would of fared better and we don’t even know if producing such a console would of resulted in selling at a loss.

 

People are assuming Sony are losing major money on PS4 but that’s not been confirmed. Nintendo have just designed the wrong console gambling on an expensive produced tablet controller.

Edited July 30, 2013 by liger05

[Serebii]

Regarding this point, I would just like to say that 3rd Parties do have a big history of ignoring Nintendo whenever possible. The Wii had a huge install base, but that didn't help much in gathering developers.

 

What works for the competitors does not always work for Nintendo, even when it logically should. That's why they had to create their own playing field in the first place.

 

Look at the 3DS. It has a decent installbase. Where are the western third party developers? Most of the ones who are bothering with handhelds are just doing the Vita, despite it having an installbase just a slightly bit better than the Wii U.

 

If the Wii U was doing very well, I have little doubt that there would be similar, if not identical, third party issues

[liger05]

Look at the 3DS. It has a decent installbase. Where are the western third party developers? Most of the ones who are bothering with handhelds are just doing the Vita, despite it having an installbase just a slightly bit better than the Wii U.

 

If the Wii U was doing very well, I have little doubt that there would be similar, if not identical, third party issues

 

What western 3rd party support is the Vita getting? Indie games and ports yes but really anything else?

 

Handhelds in the west will get scraps regardless of sales simply cos its cheaper and likely more cost effective to make games for smartphones/tablets instead.

[Rummy]

Nintendo do have cash reserves but in the last 2 years they have not been banking money at all. The 3DS is profitable now but you have to remember they had take a huge hit to turn it around and even still it’s not hitting the sales forecasts. If anything any money they make on the 3DS now is to help balance the books on the losses they are incurring on the Wii U.

 

How do we know they weren't banking the money? What's the average attach rate for the Wii? Am I correct in saying it sold roughly 100million worldwide with profit in every territory? Say average of even £10 per console(likely much more given the decline in cost of manufacturing as time went on) that is at least £1 Billion in profit alone just on selling the machine. Profit, not revenue. Not even including software profits. Given a number of best selling Wii titles were 1st party, there's a whole lot extra profit right there too.

 

 

In theory yes an attach rate of one game means the Wii U is profitable but if the console isn’t selling, software sales are low, shipment numbers are low and then I don’t see how they are making money on the wii u and able to reduce the price.

 

Then it's not a loss leader, unless you're saying they actually can't because they have no money. I highly doubt Nintendo have no money.

 

Components and parts should come down when needing to re-order but Nintendo have so many wii u’s unsold that I doubt there is mass re-ordering.

 

I really don’t think the Wii U’s problem is price. Retailers have tried to cut the price and its done nothing. The console is simply not an an appealing product.

 

True. But this is again the follow on of the loss leader, cut the price shift those units, make a loss now turn a profit later.

As for price cut done nothing? Well, it's not the representative nor large sample it could be, but unless I'm much mistaken we've had @Aneres11 buy a Wii Basic on a price cut, and both @Fierce_LiNk and @DuD buy Wii U premiums in the recent ASDA £200 slash. Myself I bought the £200 Wii U premium with free ZombiU at HMV. Everything is appealing at the right price. 4 Wii Us right there.

 

 

A console which was a significant upgrade on the 360/PS3 would of fared better and we don’t even know if producing such a console would of resulted in selling at a loss.

 

People are assuming Sony are losing major money on PS4 but that’s not been confirmed. Nintendo have just designed the wrong console gambling on an expensive produced tablet controller.

 

Second this for sure. I don't know about the margins on the Xbone or PS4, nor whether Nintendo would have made a loss with something more in their vein.

[Fierce_LiNk]

True. But this is again the follow on of the loss leader, cut the price shift those units, make a loss now turn a profit later.

As for price cut done nothing? Well, it's not the representative nor large sample it could be, but unless I'm much mistaken we've had @Aneres11 buy a Wii Basic on a price cut, and both @Fierce_LiNk and @DuD buy Wii U premiums in the recent ASDA £200 slash. Myself I bought the £200 Wii U premium with free ZombiU at HMV. Everything is appealing at the right price. 4 Wii Us right there.

 

You're damn right.

The prices that were being touted beforehand were far too high. This should be a sub-£200 machine. No question about it. In fact, sell it for £199 with Nintendoland AND with something like New Super Mario Bros. U or Pikmin 3 or something, and you'll sell more.

[liger05]

How do we know they weren't banking the money? What's the average attach rate for the Wii? Am I correct in saying it sold roughly 100million worldwide with profit in every territory? Say average of even £10 per console(likely much more given the decline in cost of manufacturing as time went on) that is at least £1 Billion in profit alone just on selling the machine. Profit, not revenue. Not even including software profits. Given a number of best selling Wii titles were 1st party, there's a whole lot extra profit right there too.

 

With the Wii they made plenty of money, no doubt. However the Wii U sales feel of cliff in the last two years, the 3DS then stuttered out of the gate and they made an operating loss for the first time ever. I think @ the peak of the Wii & DS they had $14 bil in cash reserves. Not sure what is now but it wouldnt be that.

[Jonnas]

However the Wii U sales feel of cliff in the last two years,

 

This is a typo, I hope...? You meant the Wii, right?

 

God arguments eh? Well those obviously hold a lot of credibility. My point is to qualify it or don't make the argument. I take issue with that sort of vague argument.

 

Anyway, he already gave the examples. The PS3 and the 360. For my own opinion; I think it's very naiive to assume something like that would never happen. I don't have the intricate business knowledge of every company out there, so it's hard to give an example - however by law of large numbers I'd say it's quite likely it would have occurred.

 

Anyway, the PS3 and the 360. Point disproved.

 

I like to call them "Dragon" or "Unicorn" arguments, myself Asking someone to qualify an argument of "Dragons don't exist" is basically a prompt for them to say "Firebreathing isn't possible", "Yeah, but the world is a big place" etc.... It's a cycle of silliness.

 

And also, even though Sony and Microsoft have endeavours outside of gaming, the examples you gave are within gaming, so they don't work with Serebii's original point. I'm sure Sony has that same philosophy in their other branches, though, so point taken.

 

But enough silly off-topic regarding debating semantics.

 

Do I just give you an example of 3rd party support on this one to disprove your argument? Sure they might not have ALL OF TEH THIRD PARTIES but they had some 3rd party support, no? WHY were all these other 3rd parties apparently ignoring them, though?

 

I think with the Wii U they could have done well in this year if they'd really got the system into homes. They could have done that with a minor loss-leader approach. They would have definitely attracted further 3rd parties in the future if they had.

 

Feel free to prove that last statement wrong.

 

There are definitely other reasons for 3rd Party apathy, like H-o-T already stated. Not sure if a bigger install base would help or not, but the better question is:

 

Is it worth it, selling at a loss in a precarious market on the off-chance that you might attract 3rd parties? I believe the main issue here is that we're evaluating the risks in very different manners. I believe it wouldn't be worth it, too much risk for little reward, but you think the risk wouldn't be that big in the first place.

[Sheikah]

Regarding this point, I would just like to say that 3rd Parties do have a big history of ignoring Nintendo whenever possible. The Wii had a huge install base, but that didn't help much in gathering developers.

 

Remember also that the Wii was underpowered - it couldn't run a lot of popular titles like, say, GTA IV, while the PC, 360 and PS3 could. Not without a significant investment of time and money making a different and scaled back version, anyway.

 

It also seems silly to make a worse game than you possibly can if you're a multi-million dollar company. Granted, the same could be said regarding PC and console, but there's a lot of money to be made from console gamers and for the time the PS3 and 360 were putting out relatively decent graphics. If it's a toss up between the updated graphics and good online infrastructure of 360 and PS3 versus the Wii, it's logical to shun the Wii.

[Daft]

Look at the 3DS. It has a decent installbase. Where are the western third party developers? Most of the ones who are bothering with handhelds are just doing the Vita, despite it having an installbase just a slightly bit better than the Wii U.

 

If the Wii U was doing very well, I have little doubt that there would be similar, if not identical, third party issues

 

The Vita has indie support which Sony have worked hard to cultivate across all their platforms. Big third party support is almost non-existant on the Vita.

[Sheikah]

This is a typo, I hope...? You meant the Wii, right?

 

 

 

I like to call them "Dragon" or "Unicorn" arguments, myself Asking someone to qualify an argument of "Dragons don't exist" is basically a prompt for them to say "Firebreathing isn't possible", "Yeah, but the world is a big place" etc.... It's a cycle of silliness.

 

I don't think this is the same sort of argument as where people can disprove the mythical.

 

Saying "X would never do Y" and assuming this is a sound comment until Y should ever occur, I don't think is logical. It's a judgement on somebody's mindset (or that of a company) that is unsubstantiated. If he substantiated as to why he thinks that, then there is some meat to it. But otherwise no.

 

With god not existing until proven otherwise (or a unicorn), we're entering Schrodinger's territory.

[Rummy]

I like to call them "Dragon" or "Unicorn" arguments, myself Asking someone to qualify an argument of "Dragons don't exist" is basically a prompt for them to say "Firebreathing isn't possible", "Yeah, but the world is a big place" etc.... It's a cycle of silliness.

 

And also, even though Sony and Microsoft have endeavours outside of gaming, the examples you gave are within gaming, so they don't work with Serebii's original point. I'm sure Sony has that same philosophy in their other branches, though, so point taken.

 

But enough silly off-topic regarding debating semantics.

 

All fair points, my apologies for being facetious.

 

There are definitely other reasons for 3rd Party apathy, like H-o-T already stated. Not sure if a bigger install base would help or not, but the better question is:

 

Is it worth it, selling at a loss in a precarious market on the off-chance that you might attract 3rd parties? I believe the main issue here is that we're evaluating the risks in very different manners. I believe it wouldn't be worth it, too much risk for little reward, but you think the risk wouldn't be that big in the first place.

 

I think it's important to look at those reasons, but you're also absolutely correct - an install base won't alone solve them though I think it could contribute. More so I'm thinking the £200 mark might loss lead itself into profit just out of attachment rates. I've had the Wii U since March, and iirc I've got 7 blue boxes. Discount Nintendoland from that, and ZombiU as that was free(but HMV took that hit I'd imagine) - I've still got 5 games already! It'll be 6 when W101 comes out. Then there's also the profit to be made on downloadables too. I think the important starting point is getting this machine into the homes of gamers, off the shelves and into their hands. Then doing the Nintendo magic and bringing some brilliant titles to it. Admittedly I haven't touched my Wii in ages, but I'll be dusting it off tonight to start Pikmin.

[liger05]

The thing is loss leading means the capital being lost needs to be made up in royalties and software sales. Software sales are low and third party support in non existent so royalty fees would be low.

 

I just dont see how Nintendo with this product could do what they did with the 3DS and take such a huge hit. The Wii U doesnt sell enough software for it to be a viable plan.

 

Remember Iwata has promised investors a ¥100 billion operating profit by year end. They cant afford to sell the wii u at a big loss!!

Edited July 30, 2013 by liger05

[Jamba]

The Vita has indie support which Sony have worked hard to cultivate across all their platforms. Big third party support is almost non-existant on the Vita.

 

Thanks for bringing this up. I think it's important to point out that although not entirely their fault, Nintendo is massively responsible for their 3rd part situation.

 

Anyway, back to the subject in hand. I have no qualms about hardware being loss leading in fact I think we should be moving more into a monthly payment model like mobile phones. It's how the hardware is going to have to win the perception war against other leisure electronics out there. Maybe tie it into the subscription of the services like PS+ and Live.

 

In terms of the software development, fuck knows. The whole model is going Atari and it's entirely S-E and Ubi's faults for not reaping the rewards of their talent. There needs to be smarter business models and just smarter executives in terms of making long term decisions for visionary ongoing success.

 

There is big issue though concerning teams and development in general. How can a developer grow, without having to eventually go AAA? And I mean grow in the business sense. There is a point, where the studio balance has to change. This is where the movie industry is working well, as teams of contract workers are formed for a particular project with a central team. There's none of this keeping on 200 man teams and the fluidity keep things dynamic.