Why is the Wii wilting?

Nintendo's Wii has been one of the most profitable games consoles ever sold, and after its launch in 2006, Nintendo took months to satisfy pent-up demand. This enabled the company to charge a premium price for its hardware and make large profits while rivals such as Sony and Microsoft were losing money on every machine they sold.

Traditionally, manufacturers lose money on early sales in order to create a large fanbase. They make it back through sales of high-priced games and, later, on the consoles themselves, thanks to high-volume manufacturing and reducing the cost of the parts.

In the early days, Nintendo gained an extra benefit as the main – almost the only – supplier of Wii games. Third-party software developers such as EA had not expected the machine to be such a success and had not planned many games for it.

A third factor was that Wii reached many more casual gamers, including the very young and the old. Rivals such as Microsoft's Xbox 360 and Sony's PS3 appealed more to hardcore gamers, who are usually the early adopters of new consoles.

Nintendo's winning strategy has unravelled this year, for a number of reasons. First, casual gamers may have cut back their spending during the recession, and they tend to be less bothered about having the latest and greatest titles. They may be buying second-hand ("new to me") games that make no money for Nintendo, or have just tired of their toy.

Nintendo has failed to encourage to them with must-have Mario titles. Its only recent blockbuster has been Wii Sports Resort, and Wii sports games look an increasingly tired franchise.

Meanwhile on the hardware side, both Microsoft and Sony have cut prices, and their games consoles are much more powerful than the Wii. This has obliged Nintendo to follow suit. In the key US market, the Wii dropped from $249.99 to $199.99.

Finally, Sony, in third place in the three-way battle, has done extremely well with the recent launch of a slimmer, cheaper version of the PS3. In September, it was the US's best-selling console for the first time, according to retail sales tracking company NPD. Its consoles are still sold at a loss, but Sony's Jack Tretton was able to boast a 112% increase on the same period last year.

Year-on-year, the whole console games industry is suffering from a substantial revenue decline. If Nintendo appears to be suffering more than rivals, it's mainly because it was doing so very much better than them before.

But the year's not over. NPD Group director David Riley says: "For Wii, we can expect titles like New Super Mario Bros, as well as some key third-party titles, to hit big for the platform. Will it make up for the losses experienced year-to-date? Who can say for certain, but given the fact that the last quarter of a calendar year tends to represent close to half of annual sales for this industry in the US, we will likely see a strong performance – especially with the recent Wii price cut."