Last month Nintendo revealed that the Wii U‘s initial price point would cause the console to sell for a loss, marking the first non-profitable video game system launch in the company’s long history. Nintendo of America president Reggie Fils-Aime shed some light on the situation this week, revealing that the entire business model turns around after consumers purchase their first game.
Speaking to Mercury News, Reggie stated:
“The business model doesn’t change dramatically, in that as soon as we get the consumer to buy one piece of software, then that entire transaction becomes profit positive.”
“In the end, the business model is still to drive the install base of hardware, and then to drive a strong tie ratio with all of the other software and experiences for the consumer. And if we’re able to do that, then we will create significant profit for the company.”
Considering that Nintendo wisely launched New Super Mario Bros. U along side the Wii U, it seems reasonable to assume that The Big N won’t bleed anywhere near the amount of red ink that we were anticipating when the original news broke. It also highlights the extremely thin line that Nintendo is walking with the Wii U’s price point if the profit from one game sale is enough to compensate for the hardware loss.
Nintendo is sailing into uncharted waters with this Wii U profit tightrope act, as evidenced their prior console launch which brought in $49 of profit per Wii sold in North America. Hopefully they can work quickly to bring down manufacturing costs, because there is absolutely no margin for error right now and this situation will deteriorate quickly should the US dollar lose ground to the Japanese yen.