One thing that I think a lot of people gloss over in regards to Nintendo is how reliant they are on self published titles to drive hardware sales. Nintendo's core business is still very much dedicated console hardware and software, with its mobile games/amiibo/other business only accounting for 8% of revenue during the last quarter.
Whilst Microsoft and Sony rely more on the 80/20 model on its platforms (20% of sales are first party, 80% are third party), Nintendo has seen very much the opposite happen. Granted this has been the case for a while but it's considerably more notable with Wii U and Switch as opposed to say Wii and DS.
For the first 9 months of this fiscal year (ending Dec 31st 2018), first party software accounted for 84.6% of total software revenue for Nintendo. The percentage during the same period last year was 85.3%. Note that this percentage is based on total software revenue and initial margin on 1P will always be high. That being said, it's an extremely high percentage and shows that Nintendo very much relies on first party and Nintendo published titles to generate the majority of its software revenue, with third party playing a smaller role.
Page 4- https://www.nintendo.co.jp/ir/pdf/2019/190131_2e.pdf
It shows to me that it is extremely crucial that Nintendo have a strong pipeline of first party games to push Switch hardware sales. That's not to say third party games aren't important for Nintendo, as we've seen a few success stories and in general a lot of publishers are profitable on the system. But what it does say is that the main driving factor behind Switch hardware sales is first party content and that it also explains why we saw Nintendo reduce their hardware forecast from 20 million units to 17 million units this year.
To further explain, Nintendo Switch sales in the first half of the fiscal year were extremely weak, relatively speaking. To add some perspective, the Nintendo Switch is currently outpacing the PS4 in global hardware sell in when launch aligned, yet the PS4 has never had a H1 as weak as Switch did last year (even 5/6 years on PS4 sales are consistent due to strong/constant 3rd party support. It doesn't matter if Sony doesn't have a game to launch.). It's why you may have seen news stories where some analysts were throwing out extremely low numbers for the full fiscal year, basing the total on what they were seeing in the first half. It's my opinion that one of the reasons behind the weak performance in the first half of the year was due to the first party software output from Nintendo. Whilst it wasn't necessarily bad, the flagship titles were mostly Wii U ports. Labo also launched but underperformed.
The holiday quarter saw a massive boost in sales, with shipments accounting for 55% of Nintendo's current full year forecast of 17 million. The main reasons for the boost in sales was the release of key first party titles including Super Smash Bros. Ultimate, Pokemon Let's Go and Super Mario Party which have sold 27.4 million units combined in the last 3 months (Switch total HW is 32.3m). It's clear to me that high quality first party title releases are a key driver of hardware sales. Although, the strong holiday quarter was unable to offset the weak first half of the year, which is why the hardware forecast has now been reduced from 20m to 17m.
To give another quick stat (and someone correct me if i've got the numbers wrong, but they should be close enough) - Nintendo has 18 published titles that have sold over 1 million units. Third parties have 9 titles that have sold over 1 million units. There are approx 28 Nintendo published titles on Switch, but over 1,500+ third party titles published on Switch. So that's why a strong pipeline of games from Nintendo is very much crucial to the success of Switch imo. As is increasing spend and engagement in these titles through DLC and other Add On content as well as the Switch Online sub.
I'm aware that I'm kind of stating the obvious in this thread. But I just wanted to lay it all out and see what people think.
Whilst Microsoft and Sony rely more on the 80/20 model on its platforms (20% of sales are first party, 80% are third party), Nintendo has seen very much the opposite happen. Granted this has been the case for a while but it's considerably more notable with Wii U and Switch as opposed to say Wii and DS.
For the first 9 months of this fiscal year (ending Dec 31st 2018), first party software accounted for 84.6% of total software revenue for Nintendo. The percentage during the same period last year was 85.3%. Note that this percentage is based on total software revenue and initial margin on 1P will always be high. That being said, it's an extremely high percentage and shows that Nintendo very much relies on first party and Nintendo published titles to generate the majority of its software revenue, with third party playing a smaller role.
Page 4- https://www.nintendo.co.jp/ir/pdf/2019/190131_2e.pdf
It shows to me that it is extremely crucial that Nintendo have a strong pipeline of first party games to push Switch hardware sales. That's not to say third party games aren't important for Nintendo, as we've seen a few success stories and in general a lot of publishers are profitable on the system. But what it does say is that the main driving factor behind Switch hardware sales is first party content and that it also explains why we saw Nintendo reduce their hardware forecast from 20 million units to 17 million units this year.
To further explain, Nintendo Switch sales in the first half of the fiscal year were extremely weak, relatively speaking. To add some perspective, the Nintendo Switch is currently outpacing the PS4 in global hardware sell in when launch aligned, yet the PS4 has never had a H1 as weak as Switch did last year (even 5/6 years on PS4 sales are consistent due to strong/constant 3rd party support. It doesn't matter if Sony doesn't have a game to launch.). It's why you may have seen news stories where some analysts were throwing out extremely low numbers for the full fiscal year, basing the total on what they were seeing in the first half. It's my opinion that one of the reasons behind the weak performance in the first half of the year was due to the first party software output from Nintendo. Whilst it wasn't necessarily bad, the flagship titles were mostly Wii U ports. Labo also launched but underperformed.
The holiday quarter saw a massive boost in sales, with shipments accounting for 55% of Nintendo's current full year forecast of 17 million. The main reasons for the boost in sales was the release of key first party titles including Super Smash Bros. Ultimate, Pokemon Let's Go and Super Mario Party which have sold 27.4 million units combined in the last 3 months (Switch total HW is 32.3m). It's clear to me that high quality first party title releases are a key driver of hardware sales. Although, the strong holiday quarter was unable to offset the weak first half of the year, which is why the hardware forecast has now been reduced from 20m to 17m.
To give another quick stat (and someone correct me if i've got the numbers wrong, but they should be close enough) - Nintendo has 18 published titles that have sold over 1 million units. Third parties have 9 titles that have sold over 1 million units. There are approx 28 Nintendo published titles on Switch, but over 1,500+ third party titles published on Switch. So that's why a strong pipeline of games from Nintendo is very much crucial to the success of Switch imo. As is increasing spend and engagement in these titles through DLC and other Add On content as well as the Switch Online sub.
I'm aware that I'm kind of stating the obvious in this thread. But I just wanted to lay it all out and see what people think.
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