The Greatly Exaggerated Demise of the Nintendo 3DS

death of the Nintendo DSWhat do Zach Braff, Bob Barker, Fidel Castro, Sean Connery, Miley Cyrus, Will Ferrel and the Queen of England have in common with the Nintendo 3DS?  Each have been erroneously reported as dead in the press at one point or another, and each is still very much alive and kicking.

Take a mental trip back to the Spring of 2011, so very many eons ago.  The Nintendo 3DS was released in Japan in late February and throughout much of the rest of the world by the end of March. Nintendo’s new handheld faced tepid reviews at launch, with complaints of poor battery life and headaches triggered by the system’s 3D effect dominating the gaming news cycle.  A handful of ho-hum launch titles did little to tip the scales in Nintendo’s favor.

The faithful nonetheless answered the call and took their spots in line across the globe and purchased more than two million units within its first three months of availability. While impressive on the surface, the original DS had sold nearly a million more units in its first three months.

By May, the floor seemingly dropped out from below the 3DS. With the early adopter market largely tapped, 3DS sales in May worldwide were less than what was sold in Japan alone during the 3DS’s first three days of availability.  Even the worldwide June release of Ocarina of Time did little to goose sales, leading to an even more disastrous July.

As temperature gauges continued to rise in the northern hemisphere, so did calls for drastic action out of Kyoto’s most famous company. Some even called for the resignation of Nintendo President Satoru Iwata, or for Nintendo of America chieftain Reggie Fils-Aime to be dismissed.  The company’s stock cratered as analysts and opinion-makers declared the 3DS to be a failure in the vein of the Virtual Boy, Nintendo’s last platform centered on 3D gameplay.

On July 28th, Nintendo took action by announcing a significant price cut for the 3DS, knocking its MSRP from $249 to $169 in the US, with similar cuts elsewhere.  Though the price cut oddly did not take effect until mid-August, sales of the handheld nearly tripled month-to-month and have remained higher ever since.

It’s obvious that the price cut had a significant effect, but perhaps less obvious is why Nintendo dropped the price of the 3DS all the way to $169 from $249.  Why not drop it to a penny under $200 and feel comfortable with sliding in below that psychological barrier?  The issue is comparative value.  At the time of the price drop, the entry level iPod Touch was available for $229.  Its Fall 2010 update brought it up to par with the iPhone 4, complete with the zippy A4 processor, cameras on its front and back, FaceTime videochat capabilities, access to iTunes and the App Store, and a display offering a 960×640 resolution, compared to the 3DS’s 400×240 and 320×240 displays.

Coming in at a higher price than the iPod Touch proved disastrous for the 3DS, and Nintendo recognized this. More importantly, Nintendo accurately predicted Apple’s strategy in the months following their price cut announcement. In prior years, the iPod Touch had always been updated in the Autumn and had echoed the features pioneered by the latest iPhone earlier in the Summer.

This year, there was no iPhone update in the summer, with much speculation correctly predicting that an updated version would arrive at the Fall event usually reserved for the iPod Touch.  With a minor revision to the iPhone taking center stage, it appears Nintendo correctly predicted that Apple’s major iPod news for the holiday season wouldn’t be a feature upgrade but a price drop to $199 for the entry-level 8GB version.

Pricing at $170 not only undercut Apple’s pricing at the time, but ensured that it would be undercut through the holiday season and beyond.  Dropping the price once to $199 and then again after Apple’s announcement would have been derided as reactionary and cause potential customers to take pause and speculate whether yet another price cut might wait around the corner.

The $169 price made sense on another level, as well: the original Nintendo DS launched at a $149 price point in 2004; adjusted for inflation, that would be a hair over $170 today.  It wasn’t the price cut that was out of order at Nintendo; it was the launch price.  The company set their new system up for early struggles with a price point above Apple’s iPod Touch and significantly above what its own customers were used to paying for portable gaming.

Competition from the iPod Touch has led many analysts to prognosticate about the death of dedicated portable gaming as they obsess over historical comparisons of the 3DS to its predecessor. A number of factors make such a comparison unfair.  First off, the 3DS launched in late February in Japan, followed by late March for North America, Europe and Australia.

The original DS, on the other hand, took off right at Thanksgiving in North America, followed in early December by Japan and the next Spring in Australia and Europe.  While Europe and Australia are valuable markets, American and Japanese dominance of gaming was even stronger in 2004 than it is today.  The DS enjoyed a tremendous advantage thanks to being launched in the middle of the holiday shopping season, even without the Euro and Aussie markets.

Worldwide Sales DS 3DS

The DS also boasted a true flagship launch title: Super Mario 64 DS. Although a remake, the game offered Nintendo’s first portable 3D experience and a bevy of new touch-savvy mini-games. Perhaps most importantly, it had a title that began with “Super” and “Mario” that couldn’t be placed in the sports genre.  Lest we forget, each Nintendo DS also came bundled with Metroid Prime Hunters: First Hunt, offering players an exciting first look at a portable iteration of a title that was all the rage in its time.  By comparison, the 3DS launched with a Wii Sports Resort expansion title incorrectly labeled as a Pilotwings game, Nintendogs + Cats, and Steel Diver.

Some may point to Ocarina of Time‘s release on the 3DS as proof that software somehow holds less sway now than it did in the previous generation, but doing so belies a critical misunderstanding of Nintendo’s market. Those players most likely to be excited about the re-release of a Zelda game were the same ones most likely to stand in lines for the 3DS back in March. Less accessible than the average Mario game, the Zelda franchise has always appealed more to the true Nintendo connoisseur than to the mainstream consumer. The game handily outsold the system itself in its launch month before quickly falling off, a trend indicative of early adopters rushing back out for the game they’d been waiting for so patiently.

The 3DS also suffered early on from a bizarre scheduling decision by Nintendo that saw the system released in the same window as the first major Pokémon update in years.  This would have been a great help to the 3DS had the game been released on the new system, rather than on its predecessor. Just when Nintendo wanted customers to pay for a new portable device, the company released an attention-sapping game that happened to run rather nicely on the old one.

On the whole, Nintendo actually did remarkably well early on with the 3DS given its significant headwinds and the fact that it was priced significantly up-market from the DS.  Now fully into the system’s first holiday season, its success is becoming more difficult to deny with each passing week.  Nintendo sold more than 3.2 million units in November worldwide, besting the 2.8 million units that Nintendo managed in the US and Japan during the DS’s first November and December combined.  Every new sale from now until Christmas will continue to pull the 3DS farther ahead of the historical comparison with the DS.

The only concern for Nintendo may be the 3DS’s attach rate, or ratio of games to systems sold, which stands at roughly 1.63 ten months into the system’s life, compared to 1.85 for the DS over the same amount of time. Given that much of the holiday season buying has already been accounted for, this is a fair area for analysis.

Worldwide Attach Rate DS 3DS

The DS's early attach rate was helped along by a steady stream of high-selling titles, the likes of which are just now beginning to appear on the 3DS.

Even here, though, an explanation exists just below the surface. The original three versions of Nintendogs launched in May 2005 and quickly became a phenomenon, especially in Japan. Over its first ten weeks, Nintendogs sold nearly 2.3 million copies, well above the 1.8 million copies managed by Super Mario 64 DS over the same amount of time. Indeed, lifetime sales of Nintendogs neared 21 million copies worldwide, while Super Mario 64 DS managed less than 9 million.

The 3DS has enjoyed no such phenomenon as yet, but it seems likely that Nintendo will be able to concoct such a title by this time next year. The company has a knack for releasing small quasi-games like Nintendogs, Brain Age, Big Brain Academy, Rhythm Heaven, Wario Ware and a long list of other titles that challenge the traditional definition of a video game while finding an exceptional audience.

Given the turnaround that Nintendo has managed since the 3DS’s far from stellar launch, the idea of the portable besting its predecessor in lifetime sales is becoming increasingly plausible.  It’s easy for any knowledgeable observer to see the hardware revision on the horizon, and the further sales acceleration it will bring cannot be overestimated.

It’s difficult to remember now, since only perhaps a dozen people worldwide stuck with an original DS long after the DS Lite came to market, but there was a time when the DS had no backlight, was heavy and unwieldy, suffered from questionable design tastes and required quite a bit of effort to fit in a pocket.

Imagine a revised 3DS – slightly larger, in line with the DS Lite – with a second Circle Pad integrated, double the battery life and an improved top screen at a $149 price point. It’s easy to see such an update coming down the pike as early as this Spring, in time to meet the PlayStation Vita head on.  Comparatively, it seems Sony’s system may be the one in for a sales disaster, with a baseline price of $249 that doesn’t include critical and expensive components like a proprietary memory card and games no cheaper than those offered on the 3DS.

It’s easy to declare that the age of the dedicated portable gaming device is over, but the 3DS is in the process of proving that isn’t true. The segment is undoubtedly under pressure from Apple, but is far from dead.

The reality is that no gaming system is going to emerge victorious in the war for the Primary Pocket, that holster in which most people carry their smartphone or where many children now carry an iPod Touch. The key is to offer a compelling enough combination of quality, novelty and affordability to merit placement in the Other Pocket, whether that be in the tech warrior’s cargo pants, a backpack, a purse or simply the backseat of the minivan for long trips.

Nintendo brought only one of these three elements to market in the Spring when it tried to make a splash with the glasses-less 3D effects. They achieved affordability with their price cut over the Summer.  They finally shored up their software lineup with some quality names and a badly needed Mario title in the Fall.

Just in time for Santa to begin filling up his sleigh for Christmas.

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