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  •    Merrill Lynch is Stupid  
     
    Wednesday, May 17 2006 @ 04:38 AM UTC
    Contributed by: David

    I've long wondered when solid business reporting would become a mainstay of the game business. Sure, Dean Takahashi's new Xbox book is a classic boardroom narraitve and a must read for anyone interested in the mechanics of the big dollar game business. And I've always found Chris Morris as well informed scribe as any. There are others, of course.

    But in general, we get business people who jump in, make stupid speculations and then get ink as if they have been paying attention.

    Case in point, check out Forbes reporting on a Merrill Lynch analyst pulling a $200 price point for the Wii out of, well, thin air. I've been tentative about this topic in the past, but now I'll confidently predict that it wont happen. And here's why the Wii will cost at least $249, and might even cost $299 or more.

    Almost a year ago ago I looked at the Nintendo financial situation and determined that all they had to do to stay competitive in the next generation was hang onto 10% of the market and not blow a lot of money on R&D and lost-leader hardware.

    So, now, post-E3, that appears to be what they are doing. Everyone is in love with Nintendo again because they are differentiating themselves with a potentially low cost product.

    And you shouldn't be surprised. They've said forever that they don't like to subsidize hardware sales--like say Sony or MS early in the console cycle. By not loading up the Wii with a lot of new tech, they have built a system that they could probably get to market for under $200. So why not do it?

    Think about it this way. Suppose Nintendo could sell the Wii for $99. Should they do it? In a year, they would lock up 50% or more of all new console sales. They might even replace Sony, once again, as the market leader.

    But while they were rolling around in their Scrooge McDuck riches, the rest of the industry would be standing in soup lines. It would take many quarters of sub-par earnings for a company, say EA, to retool to compete with Nintendo first party. Developers and publishers would go out of business at at record rate. Nintendo would make bank, at the expense of everyone else.

    This would create a monumental instability in the game business, an indsutry already known for looking over its shoulder and fretting that the good times will end for them as quickly as they did for Atari 20 years ago.

    If we've learned anything from watching Nintendo in the past few years, it's that they are not stupid. Sure, they'd love to take back the #1 spot. But they are smart enough to know that this takes time. And the house that Mario built is amazingly patient.

    I saw Miyamoto at a press meeting declare that his competitors were not the console makers, but other media. Nintendo wants to keep Sony and MS as healthy as possible feeding the hardware market while they take their silly mushroom land games to the masses. Screw beating Rockstar for mindshare, Nintendo wants to make you miss Lost to finish the latest Zelda level. A healthy game market depends on a diverse ecology of publishers. And Nintendo knows that the Wii canít do that on its own.

    This leads me to the conclusion that Nintendo wont launch at $199, under any circumstances, for any reason. It leaves them too little room to go down in price over time and it leaves cash on the table There are plenty of people who will pay $249 for a Wii over $299 for a stripped down Xbox. Thanks to Sony's announcement of a $499 low-end PS3, Nintendo owns the value price position. Now they have to maximize it.

    To do this, they bundle two controllers and maybe even the Wii sports game (tenniss, golf, baseball etc). Price this at $249, and you maintain the value leadership, but you make a little extra on the second controller and the toss away game.

    I ran this scenario past a friend at E3 and he said, "It will be like Pong."

    Exactly. Back to the days when you bought a game system and it came, out of the box, ready to let you plays games with your friends and family.

    When the Wii launches, it will be within a whisker of the low-end price for the next biggest console. But it will be ready to play, out of the box.

    My predication: There's no way in hell the Wii will launch for less than $249. That's my pick. It's the old time classic price point for a new system. And it wouldn't surprise me if the Wii was $299.

    The only thing I ask from you if I'm right: Make sure you call Merrill Lynch and ask them to assign an analyst who knows anything about games to that research market.






     
             


    Merrill Lynch is Stupid | 4 comments | Create New Account
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    Merrill Lynch is Stupid
    Authored by: CapCom on Wednesday, May 17 2006 @ 03:42 PM UTC
    Well, that's some good speculation, particularly since most Nintendo consoles launched at $250 (the Gamecube being the only real exception). Launch the Wii at $250 with two controllers and Wii Sports and they got the win. Make Mario/Duckhunt playable on the Virtual Console out of the box, something that lets you test the waters, and you've got a killer lineup.

    But I do have some disaggreements.

    First off, I don't think Wii Sports is really a throwaway game. Sure, it might be to the hardcore gamer, but at the core of it, Wii Sports hits home that the Nintendo console is a system for everybody. I know when I get it, I'm going to have my folks play it - my sister, mom and dad, even grandma, who doesn't even use a computer (and has a hell of a time with the remote, hehe). The game reminds me a bit of Track and Field and while it doesn't have the splashiness of Mario Tennis, I dont' think it's a total writeoff.

    And even if you're a hardcore gamer and don't care for Wii sports, having two Wiimotes out of the box is a better deal than having to pay extra for that second controller like we've been doing for the past ten years. And we all know controllers have been starting at about $30, so that's one less thing to worry about, even if you are paying a bit extra (heck, at least you're getting a $20 game out of it to make use of the second controller).

    I think most gamers are looking forward to a $199.99 launch point. I don't know where Merill Lynch got their numbers, but I know mine is just speculation, with some support from the launch price point of the Cube. Though the $250 price tag might be a bit disappointing, I think we're pretty much used to it at this point and adding extra goodies with the box is a sweeter deal than everybody else.

    I also totally aggree with Peter Moore that the 2007 holiday is going to be the real decider here as that's when the more refined titles release. If Microsoft can release some more RPGs that the Japanese want to play, then they stand a chance at getting more support, which means more games. That message of 'we expect gamers to buy two consoles: a 360 and a Wii as their second console' also sounds kinda nice, but I will wait until next year (or until they make a new Contra for it, whatever happens first, hehe).

    Anyway I know I'm gonna reserve mine (and Zelda, and Metroid, and Metal Slug) as soon as they get the skus in...

    I also predict a November 18, 2006 launch, the day Nintendo traditionally launches Zelda (and now Metroid Prime). Though I'll accept an earlier date to compete with Sony :P

    ---
    "Until next time..."
    Captain Commando
    [ Reply to This ]
  • Merrill Lynch is Stupid - Authored by: eugaet on Thursday, May 18 2006 @ 02:02 PM UTC
  • Merrill Lynch is Stupid - Authored by: bmfrosty on Wednesday, May 24 2006 @ 01:47 AM UTC
  • Merrill Lynch is Stupid - Authored by: David on Wednesday, May 24 2006 @ 04:49 AM UTC
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