Nintendo Classic Mini announced

Discussion in 'Gaming' started by LeoA, Jul 16, 2016.

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  1. DavidJ

    DavidJ Producer

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    As I was discussing with my sister today, neither of us have any interest in the Switch, but we both would've bought the NES Classic. My young kids like playing the games on it as much of more than they do the games on a modern console. Third-party sellers are already asking $350+ For them since the announcement. That's too steep for me, so that's out.
     
  2. Clinton McClure

    Clinton McClure Casual Enthusiast
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    If anyone is familiar with Pat Contri (aka Pat the NES Punk) and listens to his Completely Unnecessary Podcast, he uploaded a roughly half-hour podcast yesterday to YouTube discussing the discontinuation of the NES Classic which pretty much sums up my exact thoughts about it.
     
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    CraigF

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    ^ So the real purpose of the Nintendo Classic Mini was to keep Nintendo's name in peoples' minds during a period of nothing new from them, leading up to the Switch. Especially during the BF/Christmas period.

    Still, like just about everybody else, and regardless of corporate "strategy" explanations, it's hard for a layman such as myself to comprehend how taking easy money from the public is detrimental to a company's bottom line. Isn't people lining up to give you $$ a marketer's wet dream? How does getting "lots" of money and moving a fair amount of branded product "hurt" a company, and deflect attention away from them? I understand what e.g. Leo said, and it makes sense if you don't drill down or "get real", but it doesn't make sense.

    It seems with the Switch that Nintendo is following the PS3/Sony model, where you sell the products at "cost" (or less, in original PS3's case), and make profit on the games and other services. But I'm quite familiar with the guts of the NES Classic Mini, and I doubt the electronics cost anywhere near $10 (it barely costs that for much more technologically advanced products using similar chips and with far more capability), probably the most expensive part is the case. So this is not the Switch/PS3 costing model, they should certainly be making profit what with the very little marketing they did.

    Way back, I assumed these were made in China, and thus there would be the standard Chinese manufacturing model of some production "for the Asian market". Often you can acquire these items, quite cheaply too, but the point is you can get stuff that you can't find in Canada (for my case). Anyway, I never found anything, but there were plenty of places in Malaysia who would sell you (official) Classics in lots of 50 or 100. I think there still are. Is Asia where most of these were sold? I have to admit I would have put a little more effort into trying to get one if I knew they were going to be so hard to get. I'm the type who likes to avoid the release day B&M demand for new anything, usually if it's something I really want I will pre-order it if possible.
     
  4. Morgan Jolley

    Morgan Jolley Lead Actor

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    R&D costs don't count against the profit generated for each Switch unit sold. It's money Nintendo spent last year and the year before and the year before, so it wouldn't show up on their quarterly earnings statements right now. Thus, when considering money made with each Switch unit sold, it needs to be taken purely as profit made after manufacturing of the hardware and shipping it to a store, nothing else.

    The Switch is turning a profit with each unit sold. Sony and MS, it should be noted, are also turning a profit with each PS4, PS4 Pro, Xbox One, and Xbox One S that they sell. The previous gen (PS3/360) was sold at a loss and most consoles used to be sold that way, but modern console manufacturers have avoided that recently.

    Yes, the NES Classic Mini was turning a profit with each unit sold. But the intention was that it was a limited collector's item that would appeal to a certain demo and not much more. Honestly, I know everyone thinks its cool, but outside of the people who already own them how many people do you really believe are actually trying to buy one? Hundreds of thousands? Millions? I doubt that many. And like I said, it's a limited revenue stream for Nintendo because it's a single sale with zero additional revenue, except for maybe extra controllers or extension cables (which third parties have jumped in and taken over quite well). There's probably a lot less of a business case for this thing still being out there than everyone is imagining.

    My guess of the NES Classic Mini's cost was from a comparison of similar sized/powered devices (like Raspberry Pi) which retail around $20-30 plus manufacturing costs, the custom case, and licensing fees for all of the games on it. I would guess that the net profit on each Mini is less than the Switch, once all of those costs are considered. (I don't take R&D into account because it's old sunk cost and doesn't get accounted for on a per-unit sale.)
     
  5. Bryan^H

    Bryan^H Producer

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    Your logic is downright baffling Morgan. I don't even know what you are getting at.
    Yes, the Nintendo Classic was white hot in sales, and millions of people(MILLIONS) that grew up with the NES would have paid for one instantly to reconnect and share the games of their youth with their children, or just an easy plug, and play way to revisit the games individually. Too bad so many never got the chance.

    No additional revenue? So what!! a profit for each system sold in the long run would be still be staggering profit overall.
     
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  6. TonyD

    TonyD Who do we think I am?
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    I would have bought the Mini is a second if I saw one out in the wild.
     
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    LeoA

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    Tokyo is not gifting Nintendo millions of dollars each year to conduct research & development activities, market their products, pay the CEO, paying the electric company to keep the lights on, the cost the steamship line charges to ship containers of Nintendo product westward, etc.

    This cost of doing business, which as of April 2017 primarily means selling Nintendo Switch systems/games/accessories, is funded through the act of actually conducting their business. And that means their products when they're sold have to contribute towards paying these expenses. It's business 101.

    Barring a statement of fact from Nintendo themselves that I possibly missed, we do not know this.

    We have 3rd party estimates, possibly accurate and quite possibly not, on the cost Nintendo pays for each additional component that goes into each Nintendo Switch. Yet we don't know a myriad of other expenses directly related to the production of a Nintendo Switch system, nor the millions of indirect expenses that go towards producing this platform.

    Despite one of the best hardware launches yet seen, I bet Nintendo's quarter 4 results are pretty flat. There is so much more to this business from a financial point of view than what the MSRP of the system itself is set at and the cost Nintendo directly pays for the components to produce each additional system.

    Heck, we don't even know basics like the slice the retailer takes in on each hardware sale, yet you read $260 in component expenses on a $299 game system, and declare that Nintendo is making millions just by selling Switch hardware alone. That alleged $40 simply isn't pure profit.

    No, you had it right earlier on with previous comments. It was present to promote Nintendo's brand. That simply isn't an act that has to be done with the relatively small and rabid collector's market, since those that love Nintendo still love Nintendo and will be supporting them by default through thick and thin.

    So I highly doubt they created this $60 plug and play system that was sold in mainstream retailers just to excite the limited collector's marketplace. Rather, it was to try to return people with fond memories of Nintendo to the Nintendo fold. And with the supply constraints that occurred, frankly I think it's a wash. A lot of press and excitement was created, yet an awful lot of people weren't actually able to translate that to purchasing a physical product even months after launch.

    For each person they stirred some excitement in, I bet they alienated another on Nintendo that will be cautious approaching the company's products in the future.
     
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  8. Morgan Jolley

    Morgan Jolley Lead Actor

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    IIRC, Nintendo previously said that the Switch would be sold at a profit (just checked, they did). I read that to mean "cost of parts, assembly, and delivery to store shelves" is less than $300 per unit. Teardowns have shown the parts to be around $260 (I think $257 was the number) and I can't imagine the assembly/delivery costs being more than like $10 per unit when done at scale.

    When looking at "the Switch" as a product, you can check back in a few years and see if lifetime sales revenues ended up being higher than R&D costs. But Nintendo doesn't wait until they ship a product to start accounting for its R&D. When I give Nintendo $300, the R&D is a sunk cost from at least last year, with the only cost of concern at the moment being whatever it took to get that unit in my hands. You can't say "they don't profit from each unit sold" simply because they spent a lot of money 2 years back.

    A little bit of research suggests that consoles return about 5% or less of their cost to a retailer. This means that a Switch is probably being sold for $300, $15 (or less) goes to the store, $257 pays for components, and something around $10 per unit to get the item made and delivered (since doing so much at large scales makes this cheap). So Nintendo is probably walking away with around $15-20 per Switch sold. Add in the roughly $45 that they're earning on each copy of Zelda and whatever else they've gotten from licensing revenues...they're making a lot of money on the Switch right now.

    The NES Classic Mini, while not exactly an expensive powerhouse, was not as cheap as everyone thinks. Cost of parts, licensing agreements...they're probably making roughly the same or less from a one-time purchase of an NES Classic Mini compared to the Switch, which keeps generating revenue going forward.

    All of that said, I wouldn't be surprised if Nintendo announces and SNES Classic Mini at E3 or some new way to get Virtual Console games through the internet on a new device, like an NES Classic Mini with wifi and you buy games through it. Either they saw a greater potential that the current item could not deliver, or it wasn't making enough money to be worth keeping around.
     
  9. Clinton McClure

    Clinton McClure Casual Enthusiast
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    I would guess if Nintendo produced 10 million NES Classics last winter, they would have sold them all.
     
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    LeoA

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    Even if Nintendo said it's being sold for a profit, it's quite possibly a smallish one, and it certainly only exists on a direct cost basis (i.e., ignoring the substantial program cost on a whole, the msrp itself covers the added cost for one more additional Nvidia chipset, one plastic shell, the buttons, the screen, the assembly cost, the expense to distribute that particular system to the retailer, the retailer's cut of that $299, etc.).

    There's still a huge sunk cost for the program as a whole and added overall cost that will be ongoing like marketing programs that are very substantial. Remember, we're talking an industry where even a major new accessory can have a half billion dollar marketing budget alone. But every additional Switch system sold, the per system share of this huge investment becomes a bit smaller.

    So it's great it's supposedly not being sold at a loss, but I very much doubt Switch hardware sales are raking in hundreds of millions in profit at such an early stage.
     
  11. Morgan Jolley

    Morgan Jolley Lead Actor

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    They've sold 2.5M Switch units, so at around $20 profit per unit that would be about $50M. Combine the profit from sales of Zelda (looking just at Switch, that's around 2M units and I believe they get like $40-45 per unit), accessories (which tend to have higher profit margins, especially the $30 official cases), licensing fees for 3rd party games, etc. and I could see their profits being over $100M for the quarter. With the Wii U, Nintendo sold each unit of hardware at a small loss (that they made into a profit after 1 game sale, so it was probably like $10-15 per unit loss). The Switch is turning a profit with each sale.

    As of right now, the entire Switch venture (initial R&D of the hardware, all game development for Switch, manufacturing Switch hardware, shipping it to stores, advertising it) is at a net loss and probably will be for a good year or two, at least. But some of those costs are from previous quarters or years and are not recurring, while others (manufacturing, advertising, shipping) will continue indefinitely. They're probably getting to the point where they're breaking even or turning a profit after the marketing money is concerned.

    And don't forget, in a broader sense, that the 3DS is still doing well and Zelda sold quite nicely on the Wii U.

    In regards to the NES Classic Mini, I had a thought this morning. Remember when Amiibo started coming out and they became hard to find? They were resold on ebay and had huge markups? They turned into collector's items and Nintendo was hesitant to do second runs? Many of the rare amiibo ended up coming back into stores but they don't really make them anymore and they're hard to find, even though most people who want them probably have them. This seems to be Nintendo's MO for their accessories and add-ons, and it seems to be their approach with the NES Classic. Make a bunch, satisfy demand enough, leave people wanting more, move on to the next thing that people will go crazy over. I almost wonder if they're purposefully trying to sell every last unit, even if that means not everyone who wants one can get one, just so that they maintain their "value" long-term.
     
  12. LeoA

    LeoA Cinematographer

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    I don't think you'll ever grasp the complexities of the economics of this industry, Morgan.

    It is so much more to it than just subtracting the cost to produce a single system (i.e., what Nintendo pays to produce 1001 systems instead of just 1000) from the MSRP, with the difference if it's positive being all profit.

    I figured I'd try one more crack at it, but clearly, I failed.
     
  13. CraigF

    CraigF Cinematographer

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    So Morgan is sort of saying, at the end there, that Nintendo is trying to place their products as almost an "investment". Or to at least place that possibility/connection in the consumer's mind. I certainly would never think that, but who knows how others think. I have zero marketing acumen, that's why I like to find out the "reasons" behind marketing decisions, it's like sci-fi to me...
     
  14. 94 Apr 19, 2017
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    LeoA

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  15. Morgan Jolley

    Morgan Jolley Lead Actor

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    Nintendo is positioning their "mini" systems as collector's items. If you really, REALLY, want to play a huge back catalog of Nintendo games then you'll buy their latest console and pay into the virtual console ecosystem.

    I read one opinion piece that pretty much summed up my feelings about the NES Classic. Sure, it's cool looking and its fun to have those games available so easily, but do I really want to sink dozens of hours into Final Fantasy I or would I rather play Final Fantasy XV? Is playing Zelda on the Classic more enjoyable and interesting than playing Breath of the Wild on my Switch (and bringing it with me anywhere, no less)?

    Anyone who is hardcore-serious about classic games can make their own emulation machine and (legally) download a bunch of ROMs for less than $100 using a Raspberry Pi.

    In regards to the Switch and profitability, I understand what you're saying, Leo, about how the sum total of costs for the Switch will not be entirely recouped so that the "Switch venture" can be considered profitable for a couple years. That's standard for large tech companies (unless you're Apple and you overprice your hardware). However, I'm not arguing against that, and I don't think I ever was. What I'm saying is that, minus the costs of R&D and the marketing budget (which were already spent in a previous quarter or year), the sale price of the Switch is higher than the cost to produce one and deliver it to a store, so Nintendo is turning a profit on each unit compared to the cost of producing each unit.

    Nintendo actually had a pretty good last couple quarters because of Pokemon Go (which was very good advertising for...), the fall Pokemon games, holiday hardware/software sales, and their mobile games (which did quite well despite Mario Run not hitting the numbers they hoped for). They won't have a sudden drop in revenue/profits this quarter because of the release of the Switch.

    EDIT: Regarding the rumors of the SNES Mini, I read before that the NES Classic Mini had a microcomputer that was actually much more powerful than it really needed to be (which suggests that it's manufacturing price was probably higher than the $10 some people think it was) and could likely be used to run an SNES emulator. I wouldn't be surprised if the SNES Mini is the same guts but with a different shell and new emulator software.
     
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    LeoA

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    Forgetting the financial side since we'll never be on the same page there (Although I did look and check out their quarter 3 results, which were pretty impressive like you said), I feel that it's a giant leap to claim that they're targeting the collector's market just because they underestimated demand and weren't able to rapidly respond to meet it in the midst of a new hybrid console/handheld introduction. Literally the only thing that could support that thought was the relative scarcity of the NES Classic Edition.

    The NES Classic Edition though appeared to be the definition of a mass market item. It was primarily sold at mainstream retailers, carried a modest $60 MSRP, and was targeting nostalgic consumers that theoretically would've picked it up on a whim had they ever actually had the chance to walk by and see one on the shelf if Nintendo hadn't so misjudged demand. Nintendo just screwed it up is all, I suspect.

    I expect to see the same approach here, just with much larger numbers produced (With perhaps the first couple of weeks of shipments carefully managed to suggest it will be hard to come by and you should grab one the first chance you get, in classic Nintendo style).

    There just aren't enough people lining their walls with cardboard videogame boxes and such, to support something on this scale. Nintendo has to court the casuals as well.
     
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    CraigF

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    Not by me, I was thinking of products that use the same processor, plus have a bunch of auxiliary functions ("trivial" ones such as 4Kx60 video with 7.1 audio capability [unlicensed], wifi/Gigabit ethernet, USB ports) that cost no more than $10 to manufacture. I do not expect the typical consumer to have any idea of how much fairly sophisticated video-oriented products/chips cost these days. Even in small quantities. I can buy equivalent-to-Classic electronics for $5, in singles, in Canada, and I assume they're selling at a profit...

    And hey: the NES Classic Mini and the upcoming SNES equivalent even made the regular (broadcast) news here today. We're not all crazy! There is actual general interest in these, and I do agree more people would be interested if they could actually see the product on a shelf, it would get them thinking.
     
  18. LeoA

    LeoA Cinematographer

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    Did any of you score one of these over the past day or so? Judging by the forum at AtariAge, one last flurry of shipments went out to retailers.

    I've really enjoyed mine since launch, but not if it was much more expensive than MSRP. It's a great $60 plug and play, but not a $150 + one.
     
  19. Clinton McClure

    Clinton McClure Casual Enthusiast
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    I am still loving mine. I read where Best Buy was getting their last shipments yesterday but I didn't go looking for one. I have also heard Target and Walmart got one or two units per store but, once again, I already have one so I didn't bother to go look for another.
     
  20. Bryan^H

    Bryan^H Producer

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    My niece got one at a Best Buy in Arizona. She said there was a large line-1 per customer-
     

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