After looking at Nintendo’s balance sheet, it is still in a much better position than Microsoft and Sony to innovate. It has total assets of about $1,760,000, while only having about $430,000 in total liabilities. The large difference between assets and liabilities gives Nintendo the opportunity to experiment, whereas its larger counterparts may have to forgo such opportunities. Low production costs combined with a favorable assets-to-liabilities spread gives Nintendo the most ability to innovate. It also allows Nintendo to release products at lower costs, which is a major factor for consumers.
One of the main reasons the Nintendo Wii is so successful is its affordable price point. But Nintendo is only able to offer this kind of technology at such a low price because of its low production costs. The Wii did not have to be sold at a premium like the Xbox 360 or PlayStation 3 because of this. As such, Nintendo had lower costs to recoup. This emphasis on keeping costs low will enable Nintendo to keep innovating and investing in riskier projects that its competitors may not be able to.
Looking at Microsoft’s balance sheet, it has total assets of $86,000,000 and total liabilities of $40,000,000. Microsoft has a little more than twice as many assets as debt, which still gives it some room to innovate. However, Microsoft is not just a video game company. Some of its investment decisions may be limited by its main business activity, which is computer software. They are most likely not willing to risk sacrificing valuable capital for those projects by over investing in the Xbox Kinect and future motion technology products. Like Nintendo, its lower liabilities allows Microsoft to offer its consoles at lower price points. Microsoft’s entrance into the motion technology video game market show that they, as well as Sony, feel that there is still money to be made. If not, they wouldn’t spend the money and time.
The Xbox 360 was initially released at $299 and $399, citing its higher production costs. This is somewhat understandable, as the Xbox 360 was a more powerful console than the Nintendo Wii. In the fall of 2010, Microsoft released the Kinect, a motion sensing add-on. The Kinect released at a price point of $150, which isn’t too expensive. This low cost will enable Microsoft to recoup its initial investment in motion technology quicker than Sony will. The Kinects sales have even surprised me. Perhaps Microsoft took a page out of Nintendo’s book and realized that it is not necessary to spend large amounts of money to make a great console. If the technology is there, customers will buy it.
Sony is the largest of the three companies by only looking at total assets and liabilities. It also has the most debt, with a staggering $106,000,000. Its total assets are $138,000,000. Although its spread is only a little less than Microsoft’s, the shear size of it means that Sony has to take extra precaution to not harm its cash flows. If it does not, it risks not being able to pay back its creditors. Although this is an unlikely scenario due to Sony’s success in various industries, it still must be considered. Sony also had high production costs for the PlayStation 3. This was the main reason for its $400 price tag. Only recently did Sony begin to profit from it. If Sony wishes to compete against Nintendo, and now Microsoft, with innovation, it needs to get its production costs under control. High upfront costs will limit its ability to innovate in the future as it has done in the past.
Sony seems to have learned its lesson from its mistakes with the PlayStation 3. The Move system is offered for $99.99, probably due to Sony finally profiting from PlayStation 3 sales. This is lower than the price of the Kinect, but the Move doesn’t offer a different gaming experience than what’s already available. For this reason, it is imperative that Sony puts its money into making motion technology sync with power hungry games. This is Sony’s core customer group anyway, and they can capitalize on this customer segment while Nintendo and Microsoft are focusing on the family/group gamers.