Nintendo’s Fils-Aime on Wii shortage

December 18, 2007

Nintendo of America President Reggie Fils-Aime has his hands full. Not only is the Japanese company struggling to make enough Wii video game consoles to satisfy holiday demand, it may soon face similar issues with its DS handheld, while trying to plan for a trio of huge software launches early next year.

Fils-Aime spoke with me at Nintendo’s U.S. headquarters in Redmond, Washington to discuss how the Wii shortages are affecting the company’s business, why he’s none too happy with retailers that pad out their Wii offerings with extra games and accessories, and why you can have a Wii in any color as long as it’s white.

nintendo-reggie.jpgYou had a conference call last Friday in which you discussed the ongoing shortages. Has anything changed in the three days since? What can you update us on?

Nothing has changed from Friday. If anything, for us, the season continues to simply get stronger and stronger and stronger. This morning I had reports from many of our top retailers reporting sold-out status with Wii, even with large quantities available for sale on Sunday. DS continues to perform exceptionally well, with some retailers voicing concerns about DS inventory going into the holiday. So for us, the momentum continues unabated.

Some retailers are selling Wii in bundles, in some cases for $500 or more. So you’re still seeing them fly off shelves even at those prices?

The vast majorities of Wiis are being sold at a $250 price and the consumer choosing what else they buy. On a handful of retailer Web sites, there are these pre-set bundles. Retailers have already been given feedback that we are not big fans of that. We think it masks some of the price advantage we have versus the competition and, frankly, the consumer should decide what they want. Predominantly you only see that activity online. We have been assured by retailers that if the consumer pushes back, that they will offer standalone Wiis to those customers.

Is there any pressure you are bringing to bear on those retailers who are bundling? Are you telling them that if they do that, then maybe they won’t get as big an allotment of Wii and their competitor will?

Given our status as the number one home console, the number one portable, that gives us a lot of weight. We don’t have to remind retailers of the strength we have right now. We are simply making an observation and that reinforces the point quite nicely with retailers.

What determines when you guys roll out new colors, and when can people expect new colors for Wii and DS?

In terms of specific choices themselves, we want color choices to appeal to additional consumers as opposed to being so close that they cannibalize each other. That’s why you see now the white, pink, black , and crimson, all appealing to different consumers. We look at new colors as additional complexity to the business, so we want to be very careful how we add colors. When we can supply the current color we will consider others.

There’s grumbling that third-party publishers are not doing that well on the Wii, partly because your own offerings are so strong. Is that a bit of a bum rap?

It really is. In November, the Wii had 6 million pieces of software sold, 60 percent of that was from third-parties. I can guarantee you that if you talk to any third-party publisher putting product out on either Wii or DS, they are extremely satisfied. They do have to target the proper demographic and have some mechanism for driving awareness.

“Super Mario Galaxy” is an incredible game. Everything from the level design to the colors to the music is close to perfect. I play it every night with my son.

The critics obviously raved about it. Yet look at the sales numbers and I was surprised that it only did 1.1 million copies in November. How did that compare to your expectations when other blockbuster games like “Halo 3″ did 3 million copies in the first month, or “Call of Duty 4″ did 1.5 million just on the Xbox? “Mario Galaxy” has absolutely lived up to our expectations. It did 1.1 million in November, and has continued strong sales in the month of December. You cannot compare a game like “Galaxy” to the ones you mentioned because “Galaxy” will have an extremely long life and will have extremely large sales numbers throughout that entire life. Other titles may have a large first day or first week sell-through, then they will die off as consumers move on to something else.

“Galaxy” is also what we call a bridge title. It’s going to be enjoyed by all those audience expansion consumers as they see how easy it is to get into this platform and how enjoyable it is. Mark my words, look in 6 months and no one will have any remembrance that it ‘only’ did 1 million in its first month.

Back to the Wii, when do you expect that the supply issue will be resolved?

I don’t know. We at Nintendo America are focused on getting to the point when any consumer can walk into any of our retailers and find a Wii. Then we can plan, on an ongoing basis, the rest of the business. The level of demand we are facing complicates all of our future business planning, in terms of estimating how much software to have prepared for any individual launch title, to estimating annual software needs, to estimating quantities of the balance board for Wii Fit. All of that becomes much tougher exercises until we have supply and demand curves that intersect.

How are you poised to respond when Sony or Microsoft cut prices this year?

We’ve said all along that Sony and Microsoft are approaching this business very differently. They are competing amongst themselves based on hardware specs and price cuts. We are approaching the business very differently. We chose to provide an innovative, high-value offering right at the start. Being the fastest console to reach a 6 million sell-through in the United States is testament to our strategy. In terms of how our competitors battle amongst themselves, that’s for them to decide. What we want do is deliver great software and innovative concepts.

As proof that our competitors are on a different path, the Xbox Arcade bundle that Microsoft purported to be a product designed to go after the Wii, last month only 11 percent of its total sales were in that configuration.

But what do you do if Microsoft cuts the price of the Xbox to $250, or even $200?

If we get to a point where we are satisfying all demand and finally have inventory flexibility, it creates all kinds of options for us … without ever having to resort to a change in price. Once we have inventory on the shelves, we can have conversation about an alternative pricing strategy.

(Photo: Reuters)

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