Earlier this week Nintendo revealed its third quarter earnings and things aren't looking good for the company that's name is synonymous with video games. The company, which posted its first ever annual loss earlier this year, posted more losses and blamed sluggish 3DS sales for the failure. Nintendo also revised its net profit forecast, cutting it by 70%.
To put it simply, Nintendo needs the upcoming Wii U to be a hit. Especially after revealing that the console will be sold at a loss. From Nintendo's second quarter financial report:
...the Wii U hardware will have a negative impact on Nintendo’s profits early after the launch because rather than determining a price based on its manufacturing cost, we selected one that consumers would consider to be reasonable. In this first half of the term before the launch of the Wii U, we were not able to make a profit on software for the system while we had to book a loss on the hardware, which is currently in production and will be sold below cost.
It's not unheard of for video game consoles to be sold at a loss. For example, both the Xbox 360 and the PlayStation 3 were sold below cost. However, it is something Nintendo isn't known for. Nintendo's Wii console was sold for a (slim) profit, and the popularity of that console made Nintendo plenty of money.
This could be a sign of where current game hardware companies are hoping to take gaming. Consoles are, by their nature, closed systems, and as more broadband connectivity spreads, manufacturers can afford to make larger bets in the hope that revenues from licensing, services, and products exclusive to their console pay off.