Nintendo Expects to Lose Money on New Wii U GamePad

As the holiday season quickly approaches, so does the fervor to track down the latest and greatest in gifts.

Countless fans waited in a line three blocks long at the Nintendo World Store in Manhattan on Saturday night, for example, in an effort to be the first to experience the newest in gaming products: the Wii U.

Handheld GamePad Increases Gaming Options

This innovative console, the most up-to-date in gaming from the makers of the Mario Brothers, is unique to the market and does not require the use of a television screen. The Wii U handheld GamePad features a 6.2-inch touch screen, bordered by thumb sticks on either side, a camera at the top, an accelerometer, gyroscope and several buttons typical of most video game controllers. It is easy for gamers of all ages to hold, weighing in at 1.1 pounds.

One of the more appealing features of the Wii U is that it can be used by up to five people at once; the original Wii is limited to four.

Newest Product Will Sell at a Loss

Excitement over a new product during a challenged economy, however, doesn’t always mean a high return on investment.

While gaming enthusiasts eagerly awaited the Nov. 18 launch, Nintendo announced its latest product will actually sell at a loss because of a number of mitigating factors.

Nintendo’s senior managing director, Yoshihiro Mori, said during a press conference in October: “Manufacturing costs are expensive, and we priced the machine at a level customers would accept… It’s important for us to develop a healthy business next fiscal year by combining sales of hardware and software.”

The basic “White” version of the Wii U is available for $299.99 with the GamePad, 8GB of storage and no additional accessories. The “Deluxe” version, at $349.99, includes the GamePad, 32GB of storage, a copy of Nintendo Land and accessories for the console and controller. It is not certain, according to reports, whether both versions will be sold at a loss, but analysts estimate the Deluxe will be the more popular model.

Dropping the Cost

Many analysts find Nintendo’s sales strategy unusual, as corporations normally launch a product with profit in mind.

Dropping costs to match acceptable sales prices during a tough economy, however, is not a new concept to the Japanese multinational consumer electronic company.

Back in 2011, Nintendo dropped the cost of the Nintendo 3DS to $179.99 just a few months after it was released at $249.99. The company said the handheld game was sold at a loss until early 2012, when it was profitable once again.

Nintendo’s Wii U loss may be the result not only of high manufacturing costs, but also of the reduced value of the American dollar combined with the increased value of the Yen. Nintendo’s disappointing half-year sales rates released in October had already resulted in the corporation cutting its yearly revenue forecast by 70 percent based on weak sales of current products.

Forecasts Call for Challenging Future

According to the research firm IHS Screen Digest, Nintendo is expected to sell 3.5 million units in the United States this year. Most analysts agree Nintendo will sell all it can during the first six months, with a reduction of sales after that time as interest wanes.

In contrast, the original Wii launched in 2006, sold 5.84 million units in its first four months and then 18.6 million the 12 months ending March 2008. Over the past six years, Nintendo has sold 97 million of the original Wii consoles.

In April, Nintendo announced that its annual sales for the period had plunged 36 percent year-over-year to $8.2 billion. Last year’s net profit of $978 million plummeted to a $541 million loss in 2012.

Nintendo is currently forecasting 5.5 million Wii U consoles will be sold through March 31, 2013.