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A Theory of Wiivolution

Posted: 05.28.09

The Wii SD; Factors for Success.

There's no question that the Nintendo Wii SD (the current standard definition Wii) has been a huge success. With sales of over 50 million units, it has almost single-handedly changed the video game industry by drawing people to gaming that probably would not have made the shift with the other offerings on the market.

The more obvious factors that Nintendo had going for it were a very large and devoted fan base and the revolutionary controller. Nintendo's ultra-fan base, consisting of some 20 million gamers, are people with such rabid brand enthusiasm that they are comparable to the Apple Computer and Harley Davidson nutsos, and would just as soon get a Mario or Zelda tattoo than pick up the controller of a competing console company. The controller while representing a paradigm shift in game play, was viewed with a wii bit of skepticism by many including myself, and was a huge risk for Nintendo.

Having seen the machine in action, named Revolution at the time, it obviously a quality product. However, the deciding factor for my prediction for Wii's success had less to do with the actual console than it did with the technology of television sets of the time. The competition; Xbox 360 and Playstation 3, for all intents and purposes, were designed for HDTV, and so I refer to them as the HD consoles.

There are about 1.1 billion television households worldwide. At the time of the Wii's release around 18 million (1.64%) of those households were equipped with HDTV's. So for over one billion TV households, the Xbox 360 and the Playstation 3 were simply not an option worth investing in. Ok perhaps a small chunk of the HD console sales did go to SDTV households who either bought in anticipation of a television upgrade or were willing to wing it, but certainly not the vast majority.

I believed that at least 75 million households were ready for a new console gaming experience in 2006 but that people were not going to adopt HDTV's as fast as the television manufacturers, cable companies, trade organizations, and their respective "analysts" would have us believe. So, combined with the obvious qualities of the Wii, this television phenomenon has been, and will continue to be, a major component in Nintendo's strategy and success.

The Wii HD; Factors for Release

There has been much speculation lately for when the next generation of consoles will hit the market. Major video game company CEOs, pundits, and even the console manufacturers have made statements that would lead people to believe this generation has very long legs. Combined with influence from the economic downturn, I would have to agree and would not expect Microsoft to release a new console until at least 4Q 2012. Depending on the state of technology and pricing, Sony may wait years longer.

But what about good old Nintendo? I believe Nintendo executives will analyze the potential market for Wii HD with a slightly different metric than the competition. The difference is that, based on HDTV owners having a higher probability of being a video game console purchaser. And also that in the coming years, HDTV will represent the default technology for TV replacement, unlike currently and in the past where HDTV represented an "upgrade" from the standard and a major technological shift.

I am currently forcasting that the HDTV penetration level that Nintendo will base their decision on is 100 million households worldwide. That estimate could be conservative so let's peg the release window from 4Q 2010 to 4Q 2011. This is based on an assumption that unemployment will stabilize and recede from it's current level. If not, the forecast may have to be adjusted.

So there you have it. Ted Pollak's Theory of Wiivolution. Nintendo counted how many TVs were not HD for the Wii SD and will count how many TVs are HD for it's successor. The push button launch date, however, is more up to us than Nintendo executives. So go out and buy an HDTV if you want Nintendo to release the Wii HD sooner rather than later. And for goodness sake, when you shell out the cash for this expenseive piece of hardware, use the wrist strap for the Wiimote lest you create an expensive pane of modern art.

Epilogue: This HDTV factor, while working in favor of the Wii, is also a thorn in the side of Xbox 360 and PS3. We suspect this will change as penetration deepens, but some recent news helps highlight the current situation. According to NPD, in the month of April the PS2 outsold the PS3 by 35%. Granted the PS2 is down to $100 bucks and has a huge library of software, we think the HDTV factor influences this just as much. Simply amazing, the PS2 is almost a decade old and is outselling (albetit temporaily) the PS3. If someone over at Sony were to develop a motion controller for the PS2 and price the machines at $200, Nintendo may have to shift their strategy.