Analysis: How Nintendo Should Time the 3DS Launch - and Why - News
by VGChartz Staff , posted on 30 March 2010 / 6,526 Views
Introduction
Earlier in March 2010, Nintendo quietly announced that it would release a new system, codenamed Nintendo 3DS, worldwide in the year ending March 2011. The system will feature backwards compatibility with DS games and allow users to experience real “3D” without the dorky glasses movies like Avatar require. The system is considered the hardware successor to the DS family (DS, DS Lite, DSi, DSi XL) and is thus designed to reinvigroate software in Nintendo's portable game business.
We will get more information about 3DS at two coming events in the near future – Nintendo’s fiscal year results on May 6, 2010, and during E3 2010 in June. For now though, it is possible to speculate coherently on when the 3DS will release in each region based on how Nintendo’s software is performing in the three major video game markets. To put it bluntly, 3DS should launch in Japan and Others by the end of 2010 because those are the regions that are seeing Nintendo’s software share decline more quickly. In contrast, the American market doesn’t really need the device until 2011. To my knowledge, there has never been a video game system launched in Japan & Others before the Americas – most systems launch worldwide, or in Japan first. Sometimes Europe is last. With DS, the software situation in the Americas and Europe is now quite different though – and so Nintendo may have to break the traditional launch pattern of the industry.
3DS Timing and The DS Legacy
Part of the challenge of the 3DS launch is that the DS software market peaked at different times in each market worldwide. Japan was first, then Europe, then the Americas as we can see below.
The chart above measures software shipments by calendar years (that is to say, January-December shipment figures by year). DS software shipments peaked at almost 47m in 2006 and have since fallen to almost 30m in 2009. In 2007, the dramatic increase in Wii software and the remnant GBA software market pushed Nintendo to a 57m software peak in Japan. In 2008, Wii software grew, but DS software fell faster than Wii software grew. Last year, both Wii and DS software fell slightly. Software on Nintendo systems in 2009 remained 60% above 2004 levels – before the DS became a monster in Japan, but it had been more than double 2004 levels in 2007. For software on Nintendo systems in Japan, 2009 was 23% off the 2007 peak. 3DS, denoted as yellow will be the device that comes sometime in March 2011 fiscal year to slow and reverse the erosion of software purchases in Japan.
In Others, Nintendo’s software growth was even more massive. Games shipped for Nintendo systems totaled 28m in 2004, but topped 165m by 2008 which amounts to nearly six fold growth in the span of four years.
The 2008 DS software market alone was over three times larger than all Nintendo software shipped in ‘Others’ in 2004. Wii software actually increased in 2008 to 2009 in ‘Others’, but DS software was 40m lower in 2009 than in 2008. Whereas 2008 software on Nintendo systems was nearly six times larger than 2004 software for Nintendo systems in ‘Others’, that ratio dropped to 9:2 times larger in 2009. Unlike Japan, where the DS software market saw tremendous growth and is only seeing slow declines, the DS software market in Europe has seen tremendous growth followed by at least one tremendous decline. Thus while software for Nintendo systems in Japan needed two years to drop 23% from the peak, software for Nintendo systems in ‘Others’ dropped 23% from the 2008 peak last year.
In the Americas, where Wii has yet to fade for a prolonged period, and where the DS was last to catch on, software shipped for Nintendo systems remains more than double 2004 levels even though 2009 saw a slight decline over 2008.
The DS software market did shrink in the Americas in 2009, but the region finally became the biggest consumer of DS games in 2009. In 2005-2006, Japan had been the biggest DS software market. During 2007-2008, ‘Others’ was the largest DS software market. In 2009, there was a correction of sorts – as the size of the DS software market in the Americas became 2.5 times larger than the Japanese market – which is exactly in line with population. DS software and Wii software should both shrink in 2010 by a small amount in the Americas, but the markets will remain huge. What is interesting about DS in the Americas is that it never really caught on with the same fervor as elsewhere. The DS software peak of ~47m in Japan never translated to a 100m-120m software peak in the Americas as you would expect based on population. Nonetheless, the less volitale software pattern in the Americas - a detriment at the start of the DS lifespan - now looks like a blessing.
An Early Look at Nintendo's Goals for its New Devices
Nintendo has stated that its medium-term goal is to keep fiscal year software shipments over 300m. Without 3DS launching in the year ending March 2011, Nintendo would probably just meet that goal with DS software falling to 125m, and Wii software falling to 180m. However, a 3DS launch during the March 2011 fiscal year should allow Nintendo to remain comfortably ahead of 300m games shipped per year for at least a few more years. If the 3DS launches successfully in ‘Others’ and Japan in late 2010 and then grows for a few more years Nintendo can begin positioning itself for another extended software run over the 300m games shipped mark without disturbing what will be a very lucrative 2010 in the Americas for the company. Handling the DS to 3DS transition well also would allow the company to stay over 300m games shipped per year if the Zii were to perform worse than Wii because the DS and Wii tails will remain for years.
Zii, or whatever you want to call the Wii successor, will likely launch in 2012 – as Nintendo will need two big growing platforms, 3DS and Zii, to offset its two big shrinking platforms, Wii and DS. With proper timing and price points though, Nintendo could have as many as four sizable retail revenue streams in 2012-2013, as Wii and DS should combine to total 100m – 200m games shipped per year through at least 2012, even as the newer Nintendo systems enter their peak software phases.
If handled correctly, the upside for Nintendo could be something like this:
SW DS Wii 3DS Zii** Total***
2009 155m 198m 353m
2010 125m 180m 8m* 313m
2011 88m 163m 62m* 313m
2012 38m 115m 170m 25m 348m
* Nov 2010 launch estimate in Europe + Japan, April 2011 launch estimate in the Americas
** Estimated November 2012 launch worldwide
*** Figures assume that digitally distributed games are going to be counted in software shipment totals in the near future.
After 2012, it would depend on how the Wii and Zii markets impact each other – but the potential for a huge software peak exists if Nintendo can position Wii and DS as great budget machines in the coming years while 3DS and Zii capture more mainstream consumers.
Regionally, the ideal transition for Nintendo is something like this:
Nintendo should keep selling less software in Japan for a little while yet even with a 3DS launch in 2010 – as it will take time for the new system to offset the declines in Wii and DS software. Nonetheless, Japan seems like the region most likely to support two sets of Nintendo systems given that DS is not collapsing as rapidly as in Europe, while Wii retains 65%+ market share in the console space because of the weakness in the Xbox brand.
With 3DS introduced in Europe in late 2010, the DS software market will likely shrink by a bit again, but the decline seen last year probably won’t be repeated. Still, with the Wii and DS declines larger than the 3DS increases in the short term, it will probably take until 2012 before software shipments grow again in ‘Others’ for Nintendo.
As the DS and Wii markets are just beginning to slowly decline in the Americas, there is little reason for Nintendo to launch 3DS in the Americas in 2010.
The DS and Wii markets will shrink more in 2011 though, and so a 3DS launch early in the year is likely. Since 3DS will come later in the Americas, it will take a little longer for growth to return here – but by 2013, 3DS and Zii and the remnants of the Wii market could push Nintendo above its 2008 figures in the Americas.
Conclusion
There is of course a major caveat to everything above – all of this is speculation. For one thing, systems get delayed. Gaming in ‘3D’ is also an unproven technology. We don't know 3DS pricing, or launch games. Even if the 3DS tech was to work beautifully, there is a chance PSP2 has similar features. Furthermore, the coming 3DS vs. PSP2 battle is in many ways the first real portable battle. With PSP, Nintendo had a competitor, but Sony had nothing to lose in entering the new market segment. In the coming portable battle, a slaughter by either company has much higher stakes, as either PSP2 or 3DS could end performing much worse than the previous system. Given that portables sell less software than consoles, such an outcome would effectively reduce Sony or Nintendo to being a one platform company – as meaningful DS, PSP and PS2 royalty contributions will be gone within two to three years. In Sony’s case, non PS3 software (PS2 + PSP at the moment) could be down to 30m in 2011, which itself is down from 90m in 2009, and 217m in 2007. Without a PSP2 soon, software shipments for Sony platforms will continue to drop from the mid-2000s high of ~270m per year. Software shipments for Sony systems may reach only 170m as early as 2010 simply because even with a 20% increase in PS3 software over 2009, PSP and PS2 software will continue to drop off. So both Nintendo and Sony will need to nail the coming competitive portable transition to maintain their current positioning. Failure to handle the transition well would also speed up the arrival of PS4 and Zii as the companies try to make up for the lost software potential in the portable space by leap-frogging their competitors in the console space.
Contact Vgchartz at jmazel@vgchartz.com
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uhhh....this was an april fools joke....the game used to show the 3d is a dsiware game releasing in japan this month.....
I'm somehow worried by this analysis, it looks like there's too much room for disaster for both Nintendo and Sony, an outsider (NOT MS, as its will to keep its strong hardcore market in USA will force it to largely predictable and conservative behaviour) could disrupt both if something goes wrong in the transition.
Excellent analysis!
Exciting days await....can't wait!
with a new pokemon generation coming soon for the DS, I don't think 3DS should launch this early...
Ugh.. When has an "analyst" ever been right about Nintendo? Really what makes any of them think they are qualified to suggest how Nintendo should do things. They've constantly been wrong about Nintendo for the last several years. They really would do well to just stop at at this point.
That was a really good article.
I thought it was strange that they announced the 3DS so early. You'd think they would save it for E3. I guess it gives Sony time to put 3D in the PSP2!
makes sense, good reading.
So even after the DS SLAUGHTERED the PSP...you guys are still discrediting it
as not being a "real portable battle"? you guys just cant get enough can you?...get over it, DS won psp failed! sony would be dumb to repeat its mistakes
So... With the introduction of the 3DS the DS will never catch up to the PS2.
PS2 continues to be the most successful console.
Why not call it the "Woo"? =P
Zii holiday 2012 launch CONFIRMED!!!
Screw you Reggie... VGChartz is all over this like flies on shit!!!
as for the "zii" I believe it will launch xmas 2011 - they have a 5yr cycle on their home consoles...
eg Wii 2006, GC 2001, N64 1996, SNES 1991....
I like the Xii =P but Zii is good as well
I actually prefer the Shii XD
Really interesting. It seems pretty reasonable. A 2012 Zii launch seems perfect to me. As well as 3DS not launching in America until 2011.
Yeah. Just deleted my post after I read the post from The Source. I just skimmed through and didn't notice it was software sales.
@Kupomogli. Software sales, as in games. Not hardware, as in machines. As you can see in the graphs, DS had over 200m in software sales worldwide in 2008. 170m is not a joke, if 3DS is successful.
Zii is meant as the Wii successor - not the Wii HD. Sony's PS1-PS2 audience was similar to the Wii audience its clearly not impossible to migrate these people.
By the way - Wii went from 0 to 200m games shipped in three fiscal years - so it is possible if 3DS offers revolutionary play - we just don't know if it will. Wii went: 29m Year 1 (March 2007 year), ~120m Year 2 (March 2008 year), ~205m Year 3 (March 2009 Year)
"Zii" LOL...
Lots to read but I gather some interesting numbers and scenario, best if Nintendo releases 3DS when DS sales are pretty low.
