Nintendo Wii: A 'Revolution' in Gaming?

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Case Details:

Case Code : BSTR247
Case Length : 21 Pages
Period : 2004-2006
Pub Date : 2007
Teaching Note : Available
Organization : Nintendo
Themes: Differentiation | New Product Development
Industry : Media, Entertainment, and Gaming
Countries : Worldwide

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Our competitors are both going down the same path. Both believe that more and more performance with a higher and higher price tag are their keys to success. So what do I see? I think our two competitors will trade share between them, while we go off and grab share in a completely different way."¹

- Reginald Fils-Aime, President and Chief Operating Officer, Nintendo of America, in 2006.

"By letting Sony and Microsoft split the hardcore teenage/twenty-something video game marketplace, the Wii could end up number one in market share for the next generation."²

- David Cole, Game analyst at San Diego-based DFC Intelligence,³ in 2006.

"If it's just the same pointing and shooting all the time, it won't be particularly attractive."⁴

- Hiroshi Kamide, analyst, KBC Securities,⁵ commenting on the Wii, in 2006.

Introduction

On November 19, 2006, Nintendo Co. Ltd (Nintendo), a Japan-based game console manufacturer, launched the Wii, a video game console which came with a unique wireless controller called Wii Remote, in the US. The Wii made its debut in a highly charged gaming market. Sony had launched the Playstation 3 (PS3), a game console with a Blu-ray⁶ player, on November 17, 2006 in the US; Microsoft's game console, the Xbox 360, had been launched in November 2005 and had sold around five million units by June 2006. Nintendo, which started out as a manufacturer of playing cards in Japan, had gradually shifted to making toys and video games. It was in the 1980s that it launched its first game console, the Nintendo Entertainment System (NES), which went on to become a huge success.

The NES was followed by the Super Nintendo Entertainment System (SNES) in 1991, the Nintendo 64 in 1996, and the GameCube in 2001. However, in the early 2000s, Nintendo's fortunes in the game console market saw a gradual decline. The sales of Sony Playstation 2 and Microsoft Xbox far outpaced that of the Nintendo GameCube.

With Nintendo's market share falling, industry observers expected it to exit the game console industry. Nintendo, however, had other plans. In 2004, it announced that it had begun work on developing a new console. A few months into the development, Nintendo realized that the continuous technological upgradation in each succeeding generation of consoles was increasing hardware costs but discouraging innovation⁷ in the games industry. Therefore, it chose to tread a different path. It decided to develop a console that would offer gamers unique gameplay,⁸ even though it would not have the latest processor or graphics. For this purpose, it designed a completely new console called the Wii with a unique controller. Apart from the usual gamers, Nintendo wanted to attract casual gamers and people who had never played video games before.

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1] "Nintendo hopes Wii spells wiinner," www.usatoday.com, August 15, 2006.

2] "Can Nintendo's Wii end up number one in market share?" www.macdailynews.com, July 18, 2006.

3] DFC Intelligence is a strategic market research and consulting firm. It publishes in-depth strategic market reports and offers subscription-based research services for companies in the video game, online game, interactive entertainment and interactive television (ITV) market.

4] "Analysts: Success of Nintendo's Wii hinges on games, not hardware," www.foxnews.com, October 12, 2006.

5] KBC Securities, created in 1989 is the integrated European Equity House of KBC Group. It had industry expertise in the field of Equity Capital Markets, Mergers & Acquisitions and advisory services.

6] Blu-ray is the name of next generation optical disc format. It enables playback, recording and rewriting of high definition video. (Source: www.blu-ray.com)

7] Innovation here refers to development of new games with new interfaces instead of the practice of releasing sequels or presenting the same games with improved graphics.

8] Gameplay, in the context of video games, indicates the fun quotient. It excludes factors like graphics, sound, and storyline.