The Wii U is an unusual game console from Nintendo for a number of reasons, but the biggest difference of all has to do with the machine’s profitability. In the past, Nintendo always sold its consoles at a profit from launch day on, but at the end of October Nintendo president Satoru Iwata confirmed that the company would take a loss on every Wii U sold. Thankfully that loss won’t be too great according to Nintendo of America’s Reggie Fils-Aime.
Speaking with Mercury News about the release of Wii U, Fils-Aime claimed that each Wii U console actually becomes profitable the moment customers buy just one game to go with it.
“As soon as we get the consumer to buy one piece of software, then that entire transaction becomes profit positive,” said Fils-Aime, “In the end, the business model is still to drive the install base of hardware, and then to drive a strong tie ratio with all of the other software and experiences for the consumer. And if we’re able to do that, then we will create significant profit for the company.”
Fils-Aime is really describing the basics of the console business model as its been for everyone in the game, from Sega in the past to Microsoft to today: Sell the machine at a loss and make up for that on the licensing fees that come with games. Third-party publishers typically pay a roughly 25 percent licensing fee on console games.
Nintendo has been particularly profitable over the years because it also turned a profit on its consoles. When the Wii released in 2006, Nintendo purportedly made $100 on every $250 console sold. Even further back in the NES, SNES, and N64 era, Nintendo made even more profits by controlling game cartridge manufacturing.
Those days are long gone, though, and Fils-Aime didn’t specify if this rule applied to the $350 Wii U Premium Set or just the $300 Wii U Basic Set Nintendo is selling.
In the end, Nintendo can afford to take losses for a bit. It’s said to have around $10 billion in cash stored up. The profitability of the Wii U console is anathema to its future. What matters now is if development on Wii U is profitable for game developers. Will originals like ZombiU make cash for Ubisoft? If it does, that means we’ll get more games on the platform. Better games means a growing audience in the ideal. Nintendo can wait it out as long as that happens.