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The Nintendo Switch and the Future of Console Gaming

Posted by on February 2, 2017.

Gaming’s first big event of 2017 will be the launch of the Nintendo Switch at the beginning of March. The first major home console release since the Xbox One in 2013, the market performance of the Switch will be important to follow for gauging the future of the gaming industry. Nintendo is taking several risks with its newest product, once again adopting an innovation-centric policy at the cost of raw processing power. The hybrid nature of the Switch will show whether handheld gaming is still sustainable in a marketplace where PC and mobile gaming are squeezing out other sectors, and how third-party developers take to the machine will show whether there is still a place for non-standard hardware in today’s gaming world.

The Switch has recently been projected to sell forty million units by 2020, and it is already seeing promising signs with pre-orders from Amazon and Gamestop already sold out as of January. However, The Wii U showed similar promise at launch, and now that its life-cycle is coming to an end with Legend of Zelda: Breath of the Wild, the Wii U is widely regarded as a failed console. The enthusiasm for the Switch is contrasted with fairly widespread concern over the lack of processing power in its hardware, its battery life and its future game library.

A console’s fate is not set in stone on its release. Promising early sales have been known to tail off abruptly and leave a product floundering, and to then be quickly withdrawn from the market. But what makes a console ‘fail’? Hardware can fail on many terms; financially, critically, technologically;, and failure in one can often lead to financial failure in the end. A technologically weak device is more likely to be critically panned, and poor reviews can hurt sales significantly. At the same time, critically well-received and technologically high-spec devices have been known to fail financially in spite of their technical success. It is very hard to predict what will fail and what won’t, but we can gain some insights from consoles which have failed in the past. Gaming history is littered with failed consoles, but few have been so high-profile, with such impact to their developers, as the Sega Dreamcast and the Wii U.

A large part of the Dreamcast’s failure can be attributed to Sega’s preceding consoles and their peripherals. While Sega enjoyed significant success with the Genesis (Mega Drive in Europe), its two add-ons for the system (the Sega CD and 32X) undermined consumer trust in the company with poor utilisation of technology and extremely limited game libraries. Between this and a failure to properly adapt to the advent of three-dimensional graphics, their next fully-fledged console, the Sega Saturn, saw mixed success at best. With Sega having struggled to compete technologically with other available hardware at the time, many prospective buyers were cautious of the Dreamcast. In terms of hardware and critical reception, the Dreamcast was a huge success with most tech and gaming magazines giving it scores of 8/10 and above.

Despite this, the Dreamcast only sold a little over 9 million units in an extremely short life-cycle, from its release in 1998 to its worldwide discontinuation in 2001. It may seem like Sega didn’t give their console a proper chance to flourish – perhaps, with such good critical reception, maintaining support for a little while longer could have seen a slow but steady increase in sales for the Dreamcast. This would have been a risk that Sega couldn’t afford to take. The Dreamcast had already been discounted to compete with the more feature-rich Sony PS2, and with most of Sega’s hardware being bought from outside companies, the Dreamcast soon began to be sold at a loss for each console. With the only chance being to recoup costs through software sales, the low uptake led Sega to pull the plug on not only the Dreamcast, but on home console development altogether.

The life-cycle of Nintendo’s Wii U has in some ways been eerily similar to the Dreamcast. Nintendo has confirmed that first-party development for the console will cease with the release of Breath of the Wild, officially drawing its life-cycle to a close. Much like the Dreamcast, the Wii U’s hardware costs proved to be a significant detriment to its success. With a standard retail price of $300, a 2013 analysis by CNN estimated that the console cost about $228 per unit to manufacture – not including additional expenses like OS installation or shipping. This left Nintendo with a very narrow profit margin – in fact selling each unit at a loss initially – which was only compounded by the console’s poor adoption rate. As of September 2016, the Wii U had sold 13.36 million units – more than the Dreamcast, but still a failure when considered alongside its predecessor, the Wii, which sold more than 100 million units in its five-year lifetime.
While Sega may have suffered from a damaged reputation when they brought out the Dreamcast, the runaway success of the Wii must have left Nintendo in a much more favourable position for the Wii U’s release – yet the console still followed a very similar pattern to the Dreamcast. In this case, it is most likely down to the Wii U’s disastrous marketing campaign. Unclear advertising failed to communicate the Wii U’s USP, and many consumers were either uninterested or confused as to the nature of the console, with many believing it was just an update for the Wii.

Each console entered the market under different circumstances, but both shared a common pattern: failure to keep control of hardware costs, poor early adoption, and inability to compete with the power and features of other consoles of the day led to poor profitability and a shortened lifespan.
Although most failed game consoles are seen as part of the ‘retro’ era – the Philips CDI, the Neo Geo home console, the 3DO – today’s consoles may be at a greater risk of failure. The market for console gaming has been steadily shrinking relative to PC and mobile gaming, and 2014 finally saw the point at which the PC gaming market became bigger than the console gaming market. In 2016, it was projected that console gaming would slowly but surely lose its share of the gaming market by about 1% per year, mainly to mobile and smartphone games. The rise of Steam and other digital distribution platforms encouraged many gamers to adopt PC over console gaming and went a long way to encouraging more games to be developed for the PC by acting as a form of non-intrusive DRM.

The Switch itself occupies a unique niche among gaming hardware, however, as a hybrid between a home console and a handheld system. This will perhaps help it to perform well against its competition, but might not be such an advantage in the long run. While the console market has been shrinking in comparison to PC gaming, it has been seeing growth overall as the general gaming industry grows more powerful. Handhelds, however, have not only been a shrinking market in relative terms, but the market has been steadily dwindling in value altogether – and is projected to continue to do so.

The Switch is among gaming’s biggest wild-cards to date. It is entering the market with some troubling warning signs that would normally point to an eventual failure, but many experts are still predicting success – and early sales at least seem to reinforce that. Predictions and early indicators are often proved false, though, as the Wii U itself was once expected to sell 100 million units. The Switch is an unusually risky move for Nintendo, but has also shown that the company is flexible and responsive enough to learn from their mistakes. The Wii U’s marketing may have failed in many respects, but the Switch is receiving praise – even from those sceptical of the hardware – for its excellent marketing campaign. If Nintendo’s latest venture succeeds in the way that some are expecting, it will go a long way towards restoring their position in the gaming world after losing so much ground with the Wii U.


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Submitted in: Expert Views, Josh Townsend |