Measuring the N-Gage's Financial Success

8 replies · 4,086 views · Started 28 January 2005

Ewan 28 Jan 2005, 09:07

Part of Nokia's Financial Results for 2004 included numbers on the sale of the N-Gage and N-Gage QD - 1.3 million units to the end of Dec 2004. Given Nokia launched the device in October 2003, that works out to an average of around 92,000 units a month. Nokia have been reluctant to give out any more figures on intermediate sales, so it's hard to place an exact number per month, or if the QD really did shake up the market, but let's have a look and compare those numbers.

October 2003 to September 2004 saw 11,450,000 Symbian OS units sold [1], and the N-Gage makes up 1,104,000 of these [2] around 92,000 units a month. Consider the Symbian OS sales are over 6 companies and 29 different phone models [1], that means the N-Gage is responsible for close to 10% of the Symbian OS market.

This shouldn't be at all surprising. Firstly, it's a Series 60 device, which means it has huge compatibility with the majority of Symbian OS devices. And if you look at the price point of the N-Gage and N-Gage QD (around $200 [4]), it's between a third and a half of other Series 60 devices. Okay there's no camera, but it has more memory, better battery life, a clearer screen, a direction pad that works and a slew of extra games that really make it worthwhile.

Forget all the hype about the PSP and the DS selling 60,000 units a week. Yes they're big numbers, but the biggest isn't always the best - and these are numbers directly after the much hyped launch. Nokia were never looking to win a battle purely in terms of volumes measured against new handhelds, they were looking to understand the gaming market, gain respect, and have a nice little ecosystem.

Now here's some very speculative numbers. The build cost of the N-Gage QD is (conservativly) around $40-$50. Let's say $50 to be fair. The offline price for the unit is around $200 [4]. Adding in markups for wholesalers and retail chain, and it'd be fair to say Nokia are making around $50 per unit, so gross profit per month on unit sales is around $4,500,000.

Okay, let's throw in the other variable, and that's MMC Development Costs, which run to between $100,000 and $500,000 per game [3]. All About N-Gage has 50 MMC Games in the database, so if we assume the average Development cost is $400,000 a title, that means the MMC games have cost $20,000,000 in total, or an average of $1,400,000 a month over the retail life span of the N-Gage.

We've not counted a lot of other ancillary things (such as advertising, distribution, staffing costs, or even the revenue from selling the MMC games) but a gross profit of over $3,000,000 a month isn't to be sneezed at.

The one problem in all of this is the perception of the press. Nokia aren't playing the game (one reason some of the numbers up there are educated supposition) and everyone is going to label them a Quixotic failure just because they want to beat up Nokia over something - and it's so easy to do when Sony and Nintendo post headline sales numbers in six or seven figures. But so what if Nokia are making a profit, and are one of the few companies to be able to take a decent fight to Nintendo? Let's just kick them because they're doing something different.

The N-Gage may have performed below Nokia's expectations. But given the numbers here, I'd say it's proving to be one of the most popular Smartphones out there. It's also a source of continuing revenue for Nokia - and if they can capitalise on that over the the next year, look at some different distriibution models for the game titles, and continue to win supporters, then the N-gage is going to be just as strong next year. Nokia promised three festive seasons to the N-Gage to prove itself. With two down and one to go, I'm quietly confident that Nokia are pleased with the results...

References...

[1] Symbian Q3 2004 results
http://www.symbian.com/press-office/2004/pr041111.html

[2] N-Gage Sales Oct 2003 to Dec 2004, Nokia's 2004 Financial Report
http://press.nokia.com/PR/200501/977727_5.html

[3] Ilkka Raiskinen on gamesindustry Biz
http://www.gamesindustry.biz/content_page.php?section_name=new&aid=1784

[4] T-Mobile Bundle at EB Games. With Slight subsidy, but we'll ignore that. If we didn't, the numbers would look even better.
http://www.ebgames.com/ebx/product/245094.asp

Ewan 28 Jan 2005, 09:21

A lot of people are going to be worried about that build cost of $50. Let's say that it turns out to be $100. Nokia sell that to wholesalers at $150 (still making their $50 a machine). That gets sold on to retaillers at $200, who sell off line at $250. Now add in a bit of Network Subsidy and that $200 deal from T-Mobile is still viable given a higher build cost.

You can splice the numbers, but even then you'll still get a nice gross profit of around $1,500,000 to $2,000,000.

krisse 28 Jan 2005, 10:21

Yeah, I was a bit suspicious that Nokia would be making a profit on a $200 QD, considering how much other Series 60 things sell for. If it is a profit, it definitely isn't the kind of profit they'd be accustomed to.

The big reason Nokia are doing this I think is because they want to do something other than just phones, as diversity is the best way of protecting a company. Sony would be in deep, deep trouble if they hadn't diversified into games, and the PlayStation unit is the only part making any significant profits nowadays even though the company's glory days began with walkmans and TVs.

Apparently N-gages are very popular on sites that sell Java games, which implies there's a big market for downloading games straight onto the phone. At the moment this isn't plausible for large N-gage games (it would take too long and cost too much due to GPRS charges) but when 3G comes to N-gage (and presumably GPRS charges will go down too) it will be eminently possible to sell all the games straight onto the deck.

The potential for impulse purchases would be huge: any game, any time, straight onto the console, for much less than the cost of buying it in the shops.

Another idea might be to give away some games for free but somehow take a share of the Arena costs by doing an agreement with networks to share the amount people pay for GPRS. Speaking personally, I've definitely spent more on Arena charges than the actual games.

dwlt 28 Jan 2005, 13:29

I think your development costs for the MMC games are way to low, certainly for some of the products anyway. I have it on pretty good authority (ie, about as good as I can get without actually getting sight of the contracts) that large pots of cash were rolled toward several of the publishers.

And when I say large, I do mean large. Rainbow end-dwelling leprechauns would be jealous.

Ewan 28 Jan 2005, 13:45

dwlt: probably, but then with Nokia being very cagey it's hard for me to get confirmation on exactly how many leprechauns were rolled towards The Sims...

jjjjkkkk 29 Jan 2005, 01:04

Trust me, it is an unprofitable product.

If it were profitable Nokia would wave that banner.

And the underwritten subsidies Nokia is obviously committing to, in order to move the n-gage off the shelves, undermines any potential profitability that might exist.

When this product is offered at zero cost under contract in the US, it isn't becuase the carrier is underwriting that cost basis. It's Nokia underwriting that cost.

So you take a product that's marginally profitable to begin with, then subsidize it with additional incentives to the carrier to convince them to sell it, and you've got a loss leader.

It's a three year experiment in market share for convergence devices.

And if it weren't, Nokia would be telling the market otherwise.

Anonymouse 31 Jan 2005, 10:45

You could get a reasonable estimate of cost from here:
http://www.teardown.com/channels/pdas/Nokia_NGage.asp

Let's make some assumptions on the cost of producing a game for N-Gage.

Let's assume that the game takes 12 months design, port and test.

During this time let's assume:

2 graphic artists (in game and box graphics)
4 programmers
4 testers
1 project manager
1 technical author

Let's assume that they are all paid the same, and that they take home, on average $60,000 pa

Let's assume that they work in an office, have PC's, electricity, mobile phones etc, let's also assume that the company pays various taxes etc. Total cost for employing these nice people is about $100k per annum.

Now I make it that there are 12 of them - thus to create a single N-Gage game is going to cost $12m

A little more than the $0.5m you propose....

Ewan 31 Jan 2005, 14:21

On the game dev cost, the figure was garnered from here... http://www.gamesindustry.biz/content_page.php?section_name=new&aid=1784

MightyMouse44 01 Feb 2005, 12:31

The other big ticket item on here is marketing costs, its safe to say that the Nokia ad spend alone on the N-Gage probably ate up any possible profits (remember the TV campaign? not to mention all the various print and online offerings).

Then consider all the various and varied launch and roadshow shindigs at various events around the globe, and all those snowboard events they have had to sponsor to get down with the kids 😉

However, I don't think Nokia were ever aiming to make significant bucks on the devices, they were after the gameboy model of razors and razorblades making the cash on the MMCs. I'd be interested to see what their initial projections on per-device MMC sales were (I'd wager they were talking 1 per month / month and half) and then compare them to reality (I'd wager were talking an average of one or two per device in total). Ergo the product has tanked.

IMHO they were in trouble the day they thought they'd win by focusing on rehashed existing titles rather than playing to the strengths of having connectivity. If they spent the game dev dollars on orignial titles which combined connectivity and community they would have offered something unique and different rather than a head to head with Nintendo which they were always gonna lose.

They would have also got the operators on board, who could care less about money made in retail sales, for whom its all about the data and voice revenues.....