Why Selling at a Loss Gives Nintendo a Win

In Nintendo’s Second Quarter Financial Results briefing, the company revealed that it will be selling the Nintendo Wii U at a loss immediately on release. They expect their finances to take a small dip upon release because of this—despite the fact they are releasing a brand new console and several games to go with it. Combined with the immediate losses they suffered from the 3DS price drop, Nintendo’s motives may not be clear—however, in all likelihood, they are taking this small hit in order to ensure a prosperous reign in the next generation. Here’s how.

Selling the Nintendo Wii U at a loss will give Nintendo a huge advantage over other next-gen consoles. While other consoles might have flashy graphics and insane specs, they will likely be priced to match. If history is anything to go by, it wouldn’t be surprising for high-quality next-gen consoles to sell as high as $500 to $600—well over the price of the Nintendo Wii U. This huge gap in price will be more than enough to push consumers to buy the Wii U—after all, combined with its unique gimmicks, it will be comparatively affordable for the casual and hardcore gamer alike. The price advantage is part of what made the Wii so successful, and it will doubtless prove true this generation as well.

However, if each console is selling at a loss, how exactly will Nintendo benefit from selling a large amount of consoles? The answer is: their benefit is not immediate, and has more to do with developers and consumers than anything else. The more consoles are shipped and the more consumers show interest in the console, the more likely developers will be excited to publish for the system. With the purchase of every console, there’s bound to be a game purchased as well—and it just might be possible that the games purchased might balance out the loss of the initial console. Nintendo is relying on developers to make multiple games for their system, and in turn, interest more and more consumers into buying those multiple games.

What’s more, over time the cost of manufacturing a Wii U will lower, while its worth will not. Looking at the latest PS3 super slim model, we can see that companies can certainly get away with selling inferior products at the same price as the original, as long as it comes with a new design. As time goes on, the Wii U’s components will become cheaper and cheaper to manufacture, and combined with the potential for redesigns, the console will get cheaper and cheaper to manufacture—and eventually, it will actually score a profit. There’s no telling how long that amount of progress will take, but the concept does show that Nintendo is willing to gamble in order to deliver a fairly priced console to its consumers.

There’s also the small possibility of alternative revenue—in example, streaming services, applications, and downloadable games can all generate revenue without causing a loss or requiring a new system. The risk of selling a console that would incur a loss for the company is huge—perhaps unheard of—but it shows that Nintendo is thinking of what’s right not just for itself, but also for developers and consumers.