The idea with most first-party gaming companies is to get a foothold in the market no matter the cost, even if that means selling hardware for less than what it costs to make. Microsoft has admitted to losing a significant amount of money for each Xbox sold--Microsoft's Robbie Bach believes the company's gaming division won't turn a profit until the 2008 fiscal year. He's not alone, as many industry insiders believe the PlayStation 3's guts and production costs are more than its $600 price tag.
The reasoning behind taking a hit in the wallet is that profit margin on software sales theoretically outpaces that of hardware. In addition, as manufacturing processes streamline and costs of goods are reduced, the price of making machines decreases drastically--however, companies need the financial security to survive the initial beating.
Nintendo, on the other hand, took a completely different approach, and didn't want to stay in the game only to take a financial loss from day one. Instead of focusing on high-definition graphics and some of the extras that make technophiles drool, the company opted to try to expand its reach through simplicity--that is, innovate and capture the attention of the mass-market crowd rather than the hardcore gamer who is willing to spend money on a console, HD setup, and other accessories.
The result of that choice, says Nintendo of America president Reggie Fils-Aime, is instant profit.
"We will make a profit on the entire Wii proposition out of the box--hardware and software," Fils-Aime told Reuters. "That really is a very different philosophy versus our competitors. We are a company that competes only in the interactive entertainment space, so we have to make a profit on everything we do."
Nintendo expects to sell 6 million Wiis through March of next year, but analysts expect even better numbers. Michael Pachter of Wedbush Morgan Securities told GameSpot, "I keep hearing that they will crush the 6 million unit number (by something like 2 to 3 million). That would be good for everyone."
It's not just the price of the hardware that gives Nintendo an edge in the money game. Development costs for the Wii are expected to be a fraction of development costs for the Xbox 360 and PS3.
THQ CEO Brian Farrell, whose company is supporting the Wii with four games by the end of March 2007, explained the financial advantage of making games for the Wii. "[The Wii] wasn't a whole new programming environment," Farrell said. "So we had a lot of tools and tech that work in that environment. So those costs--and again, I hate these broad generalizations--but they could be as little as a third of the high-end next-gen titles... Maybe the range is a quarter to a half."
The Nintendo Wii goes on sale in the United States on November 19 for the price of $249.99. Sony's PlayStation 3, which goes on sale November 17, will be offered in two specs--a lower-end $499 model and a high-end $599 model. Microsoft's Xbox 360, which has been on sale since November 2005, is currently available in $299 and $399 versions.
