Satoru Iwata briefs investors and reveals many challenges for the industry

Nintendo is certainly having a good old time in Japan. The 3DS is dominating hardware sales in the region, so much so it has already surpassed the 10 million sales mark. However, things aren’t looking as rosy in the overseas markets, namely the US and Europe, where Nintendo’s consoles have done reasonably well against their competitors, but not to the level that the company would like.

As previously reported, Nintendo President Satoru Iwata held a Corporate Management Policy Briefing recently, where he met with investors and showed some disappointing results regarding Nintendo’s performance in overseas markets, as well as the revealing trend that the video game market on a whole is shrinking.

The portable consoles market in the US, for example, isn’t as healthy as it once was. The 3DS did gain some momentum with the launch of the 3DS XL as well as New Super Mario Bros. 2 in August, but the subsequent growth in sales was not sufficient. On the positive side the 3DS became the number one selling handheld in the US, but its year-on-year sales actually decreased, so much so that fewer units were sold in the US than in Japan – astonishing considering the size of the US market.

The US market, though still considerably large, has certainly shrunk in recent years. Last year the entire market contracted by 27% (on a year-on-year basis). Only two times more hardware were sold in the US than in Japan, this includes all platforms. Nintendo has sold 10 million units of hardware in the US for nine consecutive years, however in 2012 that ended with the company only shifting 8.5 million units in total.

It’s not just the hardware market that’s seeing a slump either, software sales have also dropped, with a 23% (on a year-on-year basis) decline in 2012. Nintendo points to the lack of “powerful” first party titles leaving gamers keeping their cash rather than buying new games. Digital distribution is another factor, however it has not grown anywhere near enough to explain a 23% drop.

Of the main three regions, Nintendo performed most poorly in the US last year. Nintendo says its recent downward revision of its financial forecast is largely down to the slow growth in US sales combined with a contracting market. Of the top 20 best selling games in 2012 only five were prominent on Nintendo systems: New Super Mario Bros. 2, Mario Kart 7, Pokemon Black Version 2, Just Dance 4 and Just Dance 3. This shows that people sure do love to dance but also that Nintendo lacked killer titles in 2012, resulting in poor sales.

Europe didn’t fare too well either. As was expected Wii didn’t have as much of a presence as it did in previous years, but probably most alarmingly for the company its successor, the Wii U, lost its momentum fastest in Europe. As with other regions the 3DS sold the most units in the handheld market, but similar to the US its sales peak was quite low and never reached the golden 300,000 units per week mark, which it previously had done.

Just as the US hardware market shrank, so too did the European market. In the last three years sales across all consoles and manufacturers decreased year-on-year, and in 2012 hardware sales dropped as much as 24% compared to the previous year. As Europe has many regions, Nintendo took data from the UK, Germany, France and Spain to get a rough picture of what was going on. Of those four markets France and Germany showed the most cause for optimism while the UK, on the other hand, did not.

Of all major countries Nintendo operates in, it performed worst in the UK. It is the largest market in Europe and yet only five titles made it into the top 20 best selling games for 2012: Super Mario 3D Land, New Super Mario Bros. 2, Mario Kart 7, Mario & Sonic London 2012 Olympic Games and of course Just Dance 4. Worryingly, most of these games found themselves languishing towards the bottom of the table. The 3DS is particularly suffering, experiencing its biggest year-on-year drop in 2012.

Nintendo’s market share in Japan resembles clear dominance, but once the other regions get added all of a sudden it becomes much more of a level playing field.

These worrying figures certainly represent a challenge to the gaming industry. It is true that sales may well be expected to be low, with the Wii, PlayStation 3 and Xbox 360 all nearing the end of their product life cycles, but the way the market has contracted in the US and Europe will surely have people at Nintendo, Sony and Microsoft worrying about the future of their new hardware.

What are your thoughts on these slightly depressing findings? Do you think the gaming industry is on a decline? Let us know in the comments below.