Nintendo and Ubisoft are still strong partners, but partnerships only work when both companies are benefiting from the relationship. To better understand the situation between Nintendo and Ubisoft, we should analyze the past five months between the two companies. Let’s make something clear. Ubisoft already reduced their plans for Wii U back in June. If Wii U hardware sales and Ubisoft’s Wii U software sales don’t improve after the holidays, they may decide to further reduce their Wii U plans in the future. I have spoken to employees at major third party publishers, and they are placing plenty of pressure on Nintendo to turn Wii U around this holiday season.
On June 12, 2013, Senior Research Analyst David Gibson posted on Twitter, “Ubisoft at investor meeting said it has reduced plans for Wii U following soft launch and expects price cuts given sales and weaker yen.” This official decision was made public to investors on the same month as the Electronic Entertainment Expo (E3). Most of the Ubisoft Wii U games releasing this year were in development before Ubisoft decided to reduce Wii U plans in June 2013.
Ubisoft at investor meeting said it has reduced plans for WiiU following soft launch and expects price cuts given sales and weaker yen
— David Gibson (@gibbogame) June 12, 2013
When Ubisoft E3 Show Aisha Tyler was asked about why Wii U didn’t have a bigger presense at E3, she hinted that Wii U is an abandoned console.
According to the International Business Times, Ubisoft’s CEO said the company would re-evaluate the Wii U based on its performance during Christmas 2013. Ubisoft is scheduled to talk about the company’s Q3 sales on Thursday, February 7, 2013. In a July interview with Gamesindustry International, Ubisoft CEO Yves Guillemot said,“We will continue to support the Wii U this Christmas, and we’re expecting it to take off in terms of sales. And we’ll review what happened again at the beginning of next year.”
During that same month, Ubisoft told reporters that two screens are the future for next gen consoles — but Wii U isn’t part of the focus.
“It’s not confirmed yet, but if it’s possible to do it and it makes sense, yes we will provide some kind of experience on the Wii U. Our focus is on the new generation of Microsoft and Sony consoles,” said Ubisoft Quebec managing director Nicolas Rioux.
On July 23rd, nine months after Wii U was launched, Ubisoft CEO Yves Guillemot told Gamasutra that the lack of powerful next gen consoles was hurting the creativity of developers.
“We have been penalized by the lack of new consoles on the market. I understand the manufacturers don’t want them too often because it’s expensive, but it’s important for the entire industry to have new consoles because it helps creativity,” says Guillemot.
2014 games that Ubisoft has announced for the Wii U:
- Watch_Dogs (Wii U, PC, PlayStation 3, PlayStation 4, Xbox 360, and Xbox One)
- Child of Light (Wii U, PC, PlayStation 3, PlayStation 4, Xbox 360, and Xbox One)
2014 games that Ubisoft has not announced for the Wii U:
- The Crew (PC, Xbox One, PlayStation 4)
- The Division (Currently PlayStation 4 and Xbox One)
- Tom Clancy’s Rainbow 6: Patriots (PC, Xbox One, PlayStation 4)
- South Park: The Stick of Truth (Xbox 360, PlayStation 3, PC)
- “Valiant Hearts: The Great War” is coming to PC, PlayStation 3, PlayStation 4, Xbox 360, and Xbox One
- Assassin’s Creed Liberation HD is coming to PC, Xbox 360, and PlayStation 3
On November 18th, Gamesindustry International had an interview with Tony Key, senior vice president of sales and marketing at Ubisoft. He says Ubisoft believes the sales of PlayStation 4 and Xbox One will be double of their predecessors.
Key said, “Our feeling is the installed base of these machines will be much faster to take hold than previous generations,” he says. “In the first couple of years, we expect double the installed base of previous generations [during that same time period]. … The reason why is: the last cycle was longer, so there’s a lot of pent up demand.”
Keys then spoke on long term goals stating that Ubisoft will develop versions of games for both current gen and next gen consoles. But down the road, they’ll eventually transition resources to next gen consoles, and it will then become difficult to make current gen versions of games due to the power of Xbox One and PlayStation 4.
“So, for now, developers and designers are focused on making a game that works really well on all of the systems [current gen and next gen] – but as we transition resources to the next gen, it’s going to be more difficult to do that because the power of these machines is going to allow so much more creativity,” says Keys.
The Geographical Problem With Wii U’s Install Base
Former Electronic Arts CEO John Riccitiello once said that the Wii’s large install base was slightly misleading since a big portion of that install base was Japan, and many western franchises would not achieve the same success in Asia as in western markets.
John Riccitiello explained, “I would point out, by the way, the 50 million number of course includes Asia or Japan and I don’t think any of the Western companies are likely to participate much at all on the Wii platform in Japan, so the addressable market we see is just a little bit below 40 million but that is still an important opportunity.”
This same logic can be applied to Ubisoft. They are not super concerned with how Wii U sells in Japan when most of their software revenue comes from the west.
According to Ubisoft’s most recent annual report:
- 53 percent of Ubisoft’s revenue comes from the United States/Canada
- 40 percent comes from Europe
- Only 7 percent of Ubisoft’s revenue comes from Asia.
That means 93 percent of Ubisoft’s revenue comes from everywhere except Japan. The problem is almost 30% of Wii U’s worldwide install base is Japan. When 30% of Wii U’s install base are people who don’t traditionally purchase Ubisoft’s software, the Wii U’s addressable market seems much smaller in the eyes of a western publisher than the current worldwide number. This isn’t good because Wii U’s worldwide install base is already small as it is with 3.9 million (almost 4 million units sold worldwide).
Ubisoft loves PlayStation 3 because 30 million units (37.5% — almost 40%) out of those 80 million units worldwide were sold in Europe. Ubisoft loves Xbox 360 because over 95 percent of units are sold in North America/Europe where 93% of Ubisoft’s software revenue comes from.
The chart below is Ubisoft’s revenue by geographic destination from their last annual report:
When Wii’s install base skewered to the west, we saw third party publishers jump on board. When the install bases of GameCube and Wii U skewered more Japanese, western third party publishers abandoned those systems. The fact is, the most powerful game publishers are western publishers, and over 90% of their revenue comes from North America and Europe.
The Wii install base is 13% Japan, 48% in “The Americas”, and 39% in other (Europe, Australia, etc).
The Wii U install base is 29% Japan, 45% in “The Americas”, and 25% in other (Europe, Australia, etc).
Wii sold 100.3 million units worldwide with 87 percent of the install base in the west.
Wii U sold 3.91 million units worldwide with only 71 percent of the install base in the west.
The data in the chart below was taken from Nintendo’s most recent financial report.
New Consoles = Less Shelf Space For 3rd Party Wii U Titles
Since 53% of Ubisoft’s revenue is from the United States, what if you were told that Target — the second biggest U.S. retail chain — wasn’t even buying Wii U SKUs from some third party publishers this season?
One week ago, I stumbled across this NeoGaf post from John Harker, who is well respected by the NeoGaf community for providing reliable information on the game industry and the Wii U’s situation. He stated “Target didn’t even buy Wii U SKUs from some third parties this season.”
The next gen platforms are currently competing for shelf space with the current gen platforms. Retail stores have limited shelf space between Xbox 360, Xbox One, PlayStation 3, PlayStation 4, PlayStation Vita, Nintendo 3DS, Nintendo DS, Nintendo Wii, and Nintendo Wii U. When shelf space is split between nine different platforms, retailers are less likely to purchase Wii U SKUs of third party titles because they aren’t making the store any money.
If major U.S. and U.K. retail chains buy less Wii U SKUs from third party publishers like Activision or Ubisoft, then publishers will become more reluctant about porting games to Wii U. Why make games if retail stores refuse to stock them due to limited retail space?
When I saw John Harker’s post, I couldn’t help but think of the GameCube era when retailers refused to buy the GameCube SKU’s of certain multiplatform titles.
In 2003, retailers told Acclaim that they would only stock first party/licensed GameCube games since everything else on GameCube was not selling.
Rod Cousens, the former CEO of now defunct Acclaim said this in 2003: “We’re getting increasing negativity at retail just in pushing GameCube products. The reports we get from retailers are that the machine’s not selling, they’re not going to stock it, and they’re only going to stock the top three to five games, and they’re all going to be licensed or first party. This makes it increasingly difficult for us to make it viable to do any GameCube games.” said Cousens.
With Xbox One and PlayStation 4 in stores, we’ve seen recent stories (like this) about Walmart stores moving the Wii U section to the side so they can give more space to PlayStation 4 and Xbox One. I asked my Twitter followers if they had noticed Target or other retailers refusing to stock Wii U SKU’s of third party titles.
The only time I’ve seen any positive stories relating to retailers pushing the Wii U is when Toys R’ Us is involved. There was a story yesterday about Toys R’ Us locations beefing up their Nintendo displays. Can Nintendo convince other retailers to follow the steps of Toys R’ Us in pushing Nintendo’s products? I guess we’ll have to see.
Ubisoft’s Casual/Family Games Generate Less Revenue Every Year
One can argue that Ubisoft will continue supporting Wii U as long as they publish family titles, but there’s another angle to this whole “family” market with Ubisoft.
Ubisoft’s family/casual games — for all platforms — aren’t selling like they use to. In fact, Ubisoft’s casual/family business has been generating less revenue year-after-year, and it seems like Ubisoft is pushing their casual content away from consoles and more into mobile devices with titles such as “Rayman: Fiesta Run” and “Rabbids: Big Bang”. Although Nintendo 3DS is a huge success, Ubisoft says Nintendo 3DS only accounts for 1% of their total revenue, and that could explain why Ubisoft wasn’t rushing to bring “Rayman Legends” to the Nintendo 3DS.
In 2010, casual games accounted for 46% of Ubisoft’s revenue, which was pretty substantial for their business at the time. Between 2012-2013, that percentage dropped by half with casual games representing less than 26% of Ubisoft’s total sales. For 2013-2014, Ubisoft’s most recent annual report says casual games are expected to generate less than 20% of Ubisoft’s total sales.
Rayman Legends (PS3/Wii U/Xbox 360/PC/PS Vita) was released September 3rd in North America. It did not rank in the NPD Group’s top 10 best selling games for September 2013 or October 2013. Ubisoft went public about the game not performing up to the company’s sales expecations even after it went multi-platform. Even in Japan, “Call of Duty: Ghosts” for Wii U had a stronger debut than the Wii U version of “Rayman Legends”. The Wii U version of “Rayman Legends” sold better than any of the other versions, and Ubisoft was still not happy with the sales.
Just Dance 2014 (PS3/Wii/Wii U/Xbox 360) was released on October 8th in North America. Just Dance 2014 did not rank in the NPD Group’s top 10 best selling games for October 2013. If you rewind two years ago when Just Dance 3 debuted, it ranked at number 5 on NPD Group’s top 10 best selling games for October 2011. In fact, when last year’s “Just Dance 4” was released, Ubisoft said that game saw a 14% decline from the previous Just Dance game.
What happened to the “Just Dance” series? Why did Just Dance 3 debut at number 5 in the October 2011, but Just Dance 2014 struggles to debut in the top 10 in October 2013? Just Dance was a series that use to sell two-to-three times more than it sells now. As Ubisoft’s revenue in casual games declines year after year, it’s possible we could be witnessing the decline of the “Just Dance” franchise as well. On NeoGaf, two trustworthy users named Creamsugar and Aquamarine posted some unofficial NPD numbers stating that Just Dance 2014 sold less than 150,000 copies (for all consoles) in October 2013. Again, these NPD October numbers are unofficial/unconfirmed until Ubisoft confirms them, but those two people have been considered accurate sources for NPD numbers on NeoGAF for awhile now.
According to Ubisoft, the majority of Just Dance’s sales still come from the Wii, and if the Wii market refuses to move on to another platform (like Wii U or Xbox One’s Kinect), then the “Just Dance” series is in trouble. Why do you think Ubisoft pushed Nintendo to do the “Just Dance 2014” bundle for Wii U? You can’t expect Wii to live forever just so the “Just Dance” series can sell every year. The Wii market generated 33% of Ubisoft’s revenue in 2011 until it declined sharply in 2012. Now, Ubisoft reports that only 16% of their revenue comes from the Wii. If the “Just Dance” audience never moves on from Wii to another future platform, then the Just Dance franchise will slowly die off and disappear like ‘Guitar Hero’ or ‘Rock Band’.
Here is a chart that shows Ubisoft’s revenue by platform.
Wii U’s Install Base and M-Rated Games
In May 2013, Gamesindustry International reported that “Assassin’s Creed III”, “Far Cry III”, and “Ghost Recon: Future Soldier” increased total revenues for the full year by 18% (reaching $1.62 billion). It’s not surprising that violent core games make Ubisoft money because the Entertainment Software Association says 68% of gamers are age 18 or older.
Wii U’s marketing has been heavily focused on families with small children since launch in November 2012 through December 2013. If Ubisoft’s revenue for casual games are shrinking every year, and revenue for Ubisoft’s M-rated hardcore games are growing, why does Ubisoft need Wii U? Wii U’s current marketing may attract some families to Wii U’s install base to buy “Just Dance”, but it won’t attract an audience that buys violent Ubisoft titles like: “The Division”, “Watch_Dogs”, “Assassin’s Creed”, “Splinter Cell”, “Far Cry”, “Rainbow Six”, “The Crew”, or “South Park”.
The Wii U’s third party problems are less about the size of the install base and more about who the actual audience is. Nintendo fans have grown accustomed with buying multiple consoles to receive both Nintendo franchises and definitive versions of third party titles. Publishers like Electronic Arts and Take Two Interactive have caught on to the buying habits of Nintendo fans.
Outside of the occasional “Bayonetta 2” and “Ninja Gaiden III”, Nintendo believes they don’t need to publish games aimed at older audiences because third party publishers will provide those titles. In July 2012, Nintendo’s CEO Satoru Iwata said consumers shouldn’t expect Call of Duty-like games on Nintendo platforms. Can you imagine if Sony and Microsoft decided against making family titles just because third parties can make those games?
Third parties shouldn’t be given the responsibility to bring adult gamers to Nintendo platforms. It is the job of first party publishers, not third parties, to establish an audience on their platform. The only job of a third party publisher is to take advantage of an existing audience for their own self interests and financial gain. Third parties don’t want to build a platform’s audience, they only want to take advantage of it.
Let me show you how Sony and Microsoft create both a family or adult audience on their consoles to attract third party support.
If Microsoft didn’t bother to create the family market with Kinect, would third parties bring their family/kids games to Xbox 360? Most likely not. If Microsoft didn’t invest money into the family audience, the Xbox 360 would have just become a machine for cinematic shooters and sports.
How about Sony? Should they stop making Sly Cooper, LittleBigPlanet, or Ratchet & Clank because third parties can provide family games? Should Sony stop making MLB baseball games because Take Two Interactive makes professional baseball games for PlayStation 3?
Nintendo’s over-reliance on third parties to create and market third party games for adults is why Nintendo machines will never have an audience for M-rated titles. If Nintendo wants an adult audience then they need to put their own effort behind it because buying “Bayonetta 2” is not enough to cut it. Also, launching with an enhanced port of the poorly reviewed “Ninja Gaiden III” is not going to light anyone’s fire.
The Costs Of Porting To Wii U
In July 2012, Ubisoft CEO Yves Guillemot had stated that the average cost of a Wii U port is $1.2 million dollars which is a pretty small investment. If Ubisoft believes porting games to Wii U is so cheap and easy, then why do they keep cutting corners on their Wii U ports?
Why were some lighting and particle effects found in the PS3/360 versions of Assassin’s Creed 3, but they were missing in the Wii U version? Why did Ubisoft remove co-op local multiplayer from the Wii U version of “Splinter Cell: Blacklist”? Why is the Wii U version of Assassin’s Creed 4: Blag Flag not getting any DLC?
It’s obvious that Ubisoft cuts corners on Wii U ports to reduce costs because Wii U ports have not been super profitable. On another note, I doubt Ubisoft felt good about spending time and money to patch and fix the Wii U version of “Splinter Cell: Blacklist” when only a tiny group of people own it. “Splinter Cell: Blacklist” was released for all platforms (including Wii U) in August. By October 16th, two and a half months later, Ubisoft said the game sold poorly across consoles with 300,000 units while the Wii U version only sold 10,000 units. Selling 10,000 units in two months is not how most publishers make back money on ports.
We need to ask ourselves how many Wii U copies need to be sold for the Wii U version of any game to break even.
According to The Los Angeles Times (via Kotaku), publishers make approximately $27 for every $60 game sold physically in retail stores. The rest of that $60 price tag is split between retailer margins, returns, distribution, cost of goods, game development costs, and platform royalties. If Ubisoft made approximately $27 for every physical game sold in retail stores, the Wii U version of most multiplatform game would need to sell approximately 44,000 copies to break somewhat even on $1.2 million.
There is nothing more that I want than Wii U to be successful and put up a real fight against PlayStation 4 and Xbox One. I want Ubisoft to stick around with Wii U because because they provide M-rated content that helps diversify the Wii U’s lineup of software. But Ubisoft expects a positive turnaround for this platform, and Nintendo has to sell at least a few million Wii U units worldwide between September through December.
This will be Wii U’s second Christmas, and Christmas is when a huge portion of video game purchases are made. Therefore, it is in Nintendo’s best interest not to waste this Christmas away, and do everything they can to drive sales. There were rumored reports that Wii U sold around 55,000 units in October’s NPD, and if these reports are true, Nintendo is under even more pressure to sell systems in November and December. That same month, October’s NPD revealed that Xbox 360 — an 8 year old console — sold 166,000 units in North America. Furthermore, it was reported today that Xbox One is already due to overtake Wii U’s entire lifetime sales in the U.K. That’s music to Ubisoft’s ears because ten percent of their revenue comes from the U.K. alone.
Ubisoft is not going to create software for Wii U just to keep Nintendo or their fans happy. Ubisoft will create software for Wii U if they believe it is financially viable for their business, and if there is an audience for their software. From that perspective, if you’re a Wii U owner who enjoys Ubisoft’s games, then I would suggest buying “Assassin’s Creed 4”, “Rayman Legends”, “ZombiU”, or “Splinter Cell: Blacklist” this holiday season.