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Nintendo’s bet on Switch hybrid console hits all the right buttons

Even before the first details of Nintendo’s Switch games console were unveiled to the world in early January, the industry knew it would be a cross between a home console and a handheld gaming machine and could sense an all-in bet coming.

On Friday, behind the hoopla of the company’s latest game launch, analysts spotted the same tell: a giveaway sign of a company that desperately wants to be loved again by all. 

Lurking in the software of Mario Kart 8 Deluxe — a multi-player game pitched at gathering friends and family around the machine — is the first ever “smart steering” setting for the racing franchise, which prevents incompetent players from crashing off the road. It is a landmark change, say analysts, that allows children as young as four to play competitively, and reveals how obsessively Nintendo has plotted its latest round of consumer courtship. 

The launch of the Switch on March 3 had three main aims: to recover from the failure of the Wii U console, to reignite a customer base that has become much harder to define than in the past and to lure millions of recent departees from the enticements of the PlayStation and mobile gaming. The machine it came up with was visibly aimed at achieving all this at a stroke. 

So much so, says Serkan Toto, a Tokyo-based games industry consultant, that accurate projections for the Switch require a fundamental rethink by investors. The relevant customer base, he says, is not the paltry 14m owners of the Wii U home console, but the 66m worldwide owners of the 3DS handheld machine. If the Switch gets even half of those, that will exceed the current global user base of Microsoft’s Xbox One. 

“This is what Nintendo is going after — the gamers who want to play on the go but want something more than they get on a mobile phone. Nintendo’s mission is to get them to carry their love over from the DS series to the Switch,” said Mr Toto. 

© AFP

In order to achieve that, and to create a big enough international user base to draw third-party developers on to the platform, Nintendo is leaving nothing to chance, with a formidable early pipeline of Zelda and Mario titles stretching towards Christmas. 

Early sales of the Switch — which Nintendo said last week were 2.74m units worldwide in the month of March — beat analysts’ forecasts and certainly look encouraging. Even without the following wind of Christmas or any other seasonal sales spikes, they are far stronger than sales of the Switch’s immediate, disastrous predecessor, the Wii U, and brisker even than those of the Wii, which went on to become Nintendo’s best-selling console of all time. 

A glut of anecdotal evidence, from Japan, Europe and the US, has added to the sense of success: both online and offline retailers report nearly immediate sell-outs of all new shipments of Switches that arrive. The critically acclaimed Legend of Zelda, Breath of the Wild has actually outsold the consoles and attests to a fan base so dedicated that it will buy more than one copy. 

David Gibson, an analyst at Macquarie, conducted a global survey of Switch owners that appeared to confirm the suspicion that the machine has so far been bought by people who were already dedicated Nintendo fans. Eighty-two per cent of Switch owners surveyed said they already owned a Wii U, while 89 per cent said they already had a 3DS. Perhaps even more encouragingly for Nintendo, around 54 per cent of that first wave of Switch owners also have a PlayStation 4. Mr Gibson says this suggests “Switch users perceive its value proposition as different and hence it is beginning to expand beyond the traditional Nintendo-only fans”.

In keeping with a tradition that increasingly infuriates investors, however, Nintendo led the effort to staunch any premature rejoicing over the Switch. The company’s own forecasts for Switch sales for the financial year ending March 2018 are 10m, while software projections suggest each owner will buy an average of 3.5 games over the same period. Most analysts suspect the actual sales figure will be at least 12.5m. 

“Nintendo has a track record of consistently underestimating the upside from its strong products and the downside from its weak products,” said Jefferies analyst Atul Goyal. 

Its annual operating profit target of ¥65bn was even more discouraging, missing analyst forecasts by 37 per cent. “We note that Nintendo’s guidance has only been close to actual results once in the past 10 years, while the remaining nine have deviated significantly on both revenue and profits,” said Deutsche analyst Kim Han Joon.

Via FT