Nintendo released its annual financial report this week, and president Tatsumi Kimishima defended the Switch’s sparse launch lineup, along with giving additional details on Nintendo’s mobile and console business performance. The Switch’s software lineup has been widely criticized for its unusually small size. Kimishima attempted to push back against this argument, saying:
Our thinking in arranging the 2017 software lineup is that it is important to continue to provide new titles regularly without long gaps. This encourages consumers to continue actively playing the system, maintains buzz, and spurs continued sales momentum for Nintendo Switch. April 28 Spring, 2017 Summer, 2017 For that reason, we will be releasing Mario Kart 8 Deluxe, ARMS, which is making its debut on the Nintendo Switch during the first half of 2017, and Splatoon 2, which attracted consumers’ attention most during the hands-on events in Japan, in summer 2017.
The problem with this argument is that the Switch’s lineup is painfully thin, no matter how Nintendo tries to paper over the issue. The North American Switch will launch with 10 titles:
- 1-2 Switch
- The Binding of Isaac: Afterbirth+
- Human Resource Machine
- Just Dance 2017
- The Legend of Zelda: Breath of the Wild
- Little Inferno
- I am Setsuna
- Skylanders: Imaginators
- Super Bomberman R
- World of Goo
The Wii U launched with 32 titles, while the PS4 had 25 and the Xbox One had 22. Clearly launch titles alone don’t make or break a console, or the Wii U would’ve beaten both its rivals. But consumers do tend to treat launch support as indicative of overall developer buy-in.
What’s perhaps more worrying is the way this problem doesn’t resolve through the end of 2017. There are more games coming through the rest of the year (17 in total), but comparatively few top-franchise games. Mario Kart 8 Deluxe is a warmed-over refresh of a two-year-old game, and Splatoon doesn’t have the mass market appeal of a Mario or Pokemon game. Super Mario Odyssey is the biggest post-launch game for Switch with a 2017 launch date, and it won’t drop until the holiday season. When you combine the weak game lineup with the high price ($ 300), accessory costs, and lack of a bundled game, it’s hard to make a strong argument for the handheld — especially since Nintendo remains resolute that the Switch isn’t a handheld at all.
This graph helps explain why. Nintendo sold roughly 2.1 million 3DS devices in 2016 in the US alone (Wikipedia estimates CY 2016 sales at 7.36 million devices worldwide). That’s vastly better than the Wii U, which saw a complete sales collapse this year, even in comparison with its previous anemic performance. As we’ve previously speculated, Nintendo literally can’t afford to quit on the 3DS, particularly with the Switch’s long-term sales strength so uncertain. The company continues to insist that the Switch and 3DS will exist concurrently, with separate libraries of games and different price points.
We suspect that this is little more than convenient fiction. Nintendo has proven perfectly happy to mislead the public about its plans in the past, arguing that the Nintendo DS wasn’t a replacement for the original Game Boy line, and more recently claiming that the Wii U would remain in production for the rest of the year when it ended hardware manufacturing well before that point. In both cases, the company was hedging its bets, giving itself room to pivot if a product didn’t take off. The monstrous success of Pokemon Sun and Moon explains the difference between FY 2016 and FY 2017 software sales for the 3DS — and also why Nintendo won’t step away from its established handheld until it knows it has a suitable replacement available. This could prove to be a mistake; the Switch’s capabilities position it much more effectively as a high-end handheld than as a living room console.
If the Switch sells well, Nintendo can introduce a cost-reduced version that would compete more directly against the 3DS at a later point, if needed. Both platforms will remain in market through 2017, with more games arriving for 3DS throughout the year.
Nintendo also acknowledged it has had some trouble converting Super Mario Run’s success into sales. While 78 million people have downloaded the game, the conversion rate is reportedly ~5%. That’s still an entirely respectable four million paying customers, but Nintendo seems to have had higher hopes for its first mobile title. Given that Super Mario Run actually has an up-front price tag rather than a micropayment system, 5% conversion rates sound fairly solid to us.
Finally, Nintendo confirmed that it continues to have trouble stocking the NES Classic Edition, but still managed to sell 1.5 million of the consoles through the holiday season. Considering that store fronts still can’t keep the system in stock for more than a few minutes at a time, the company severely underestimated demand here.