Despite it being the undisputed market leader in the current generation of home consoles, Cowen & Company's Doug Creutz believes that Nintendo's Wii is just "fool's gold" to game company investors.
"The choice here is really between investing for the Xbox 360 and PS3 -- since their capabilities are fairly similar -- or the Wii. I would caution investors and developers that the larger installed base of the Wii is really a bit of a red herring," he said.
"In the U.S., there is a 19-million unit installed base for the Wii versus 22-million units combined for the 360 and PS3. Assuming some overlap in the 360/PS3 installed bases, they're roughly equivalent."
"In addition, Nintendo is the dominant publisher on the Wii with over one-third of software market share on its platform. Guitar Hero and Rock Band account for one-sixth of sales."
"So the addressable market for third-party Wii titles is only about half of what the installed base would imply. The situation on the 360/PS3 is less daunting, with less than a quarter of software dollar share going to first-party publishers and Guitar Hero/Rock Band."
"The other issue is that the Xbox 360 and PS3 are AAA-oriented platforms, while the Wii is casual-oriented. There is a very clear correlation between game quality and unit sales on the 360/PS3, while there is very little correlation on the Wii, at least for third-party games."
"Thus, in some sense you have more control over your fate on the 360/PS3 if you can come up with a high-quality game. Whereas on the Wii, it's a bit of a crapshoot for what works and what doesn't."
"I think the Wii installed base represents, to a certain extent, fool's gold for someone looking to invest in video game development," Creutz concluded. "You're rolling the dice on succeeding in a market which has proved very resistant to generating meaningful hits away from Nintendo titles and the music genre."
