With its warning last week of a big annual loss and a dramatic shortfall in Wii U sales, things have perhaps never looked darker for Nintendo. The adoption of casual games on smartphones and tablets and the shift to online gaming elsewhere have evidently caught the venerable Japanese company napping, throwing its future into question.
Instead of its projected profit of $100-million, Nintendo is instead looking to post a $240-million loss, thanks mostly to the anemic Wii U, projected to sell only 2.8 million units by year-end (March, 2014) instead of the 9 million the company originally expected to ship. Not surprisingly, big-time change is on the agenda, with the company now promising to provide more information on its short- and medium-term strategies at a briefing on Jan. 30.
"Its console-based business model spells doom for stakeholders. It has no choice but to accept the change," Jefferies analysts wrote in a note. "We believe Mario on mobile is coming."
Is that on the table? Well, with this particular company – a storied operation that has almost always gone against conventional wisdom – pretty much anything is possible. One thing is for sure: It would be foolish to count Nintendo out.
Started in 1889 as a maker of trading cards, the company has made transformation a routine habit. Before ultimately settling on video games in the 1970s, it experimented in businesses as diverse as taxis, television networks, food processing and even love hotels (the short-stay room rentals used by couples for sex that are popular in Japan).
In the 1980s and 1990s, the company found its modern calling and helped propel the games industry into the multi-billion-dollar business it is today with such hit consoles as the Super Nintendo Entertainment System and the GameBoy handheld. The likes of Mario and Donkey Kong became household names in the process.
By the 2000s, however, Sony and Microsoft had arrived and stolen much of Nintendo's gusto. After the GameCube struggled against consoles from those companies, Nintendo decided to go in an entirely different direction in 2006. The result was the goofy-sounding Wii, which shunned the high performance and graphical power of rivals and instead focused on simple games that made use of its innovative motion-sensing controller. Against everyone's expectations, it became a phenomenon, with more than 100 million units sold. That success has also made Nintendo's current woes and lack of follow-up look all the more dour.
The company once again finds itself searching for a new future. Given its history, perhaps the only realistic thing to expect from Nintendo is, in fact, the unexpected. Here are just a few of the possibilities:
Triple down on hardware
Almost every stock analyst or games-industry watcher thinks Nintendo must eventually ditch hardware and just license its own games for other platforms. But anyone who hopes to keep seeing great Nintendo-character games should recall that strategy didn't work out so well for Sega.
So maybe the most logical move is for Nintendo to make a new console to replace the ailing Wii U (or a significantly altered version of the current device). The company could decide to play Sony and Microsoft's game – pardon the pun – and get to work on a truly next-generation device that would out-muscle even the recently released PlayStation 4 and Xbox One machines.
Alternatively, the company could focus its energies around some new emerging technologies. It could, for example, acquire Oculus Rift (the virtual reality headset that is attracting considerable attention) or it could try to game-ify the emerging category of wearable computers. The play here would be to take games in a new direction, much like the Wii did.
In the first case, the question is whether Nintendo has the money and time to execute a reversal. Even if the company could design or upgrade new hardware quickly, there isn't much evidence that the market can support three consoles aimed at core gamers. Developers certainly don't want to create for three different platforms any more than gamers want to buy a third console.
Besides that, Nintendo also has a reputation as a purveyor of family-friendly entertainment, which would be a big obstacle to overcome with that core audience. More on that in a second.
As for the latter option, radically new technology is partially behind the Wii U's big flop. By focusing on "asymmetrical gameplay," where the player using the console's GamePad tablet/controller is doing or seeing something different than the other players, Nintendo dug itself a hole by creating gaming situations that were difficult to explain. The Wii U was thus the diametric opposite of the excessively simple Wii. New technology isn't to be shunned, but if it's not extraordinarily simple and accessible to the mainstream, it's very risky.
Another new and radical game system would simply add to the problems Nintendo already has with third-party developers. The company is famously difficult to work with, and right now it lacks credibility with outside developers and the so-called core gamer audience they serve. As one of those developers illuminated in a recent article for EuroGamer, it would take a large cultural shift inside Nintendo – not to mention a long time – to learn how to smoothly interact with developers.
And, as industry analyst Michael Pachter has noted, a key reason you have a console is to attract royalty revenues from third-party game designers, that is usually the gold mine for console makers. According to Pachter, Nintendo has seen those revenues drop by almost two-thirds from the peak days of the first Wii.
Fix the culture problem
As we just mentioned, Nintendo lags behind Microsoft and Sony in an area that is increasingly key to the any game company's global success: Attracting game devs to its platform. With the exception of Texas-based Retro Studios, just about all of the company's internal development is done in Japan. Indie developers, meanwhile, tend to find it confusing if not difficult and frustrating to create for the company's platforms, with some citing translation as an issue.
Between Sony and Microsoft, there's little doubt about who has more and better first-party exclusive games: it's PlayStation, by quite a margin. That's because Sony has been acquiring top-notch development studios around the world for years, from U.K.-based LittleBigPlanet maker Media Molecule to Netherlands-based Killzone creator Guerilla Games.
Sony has also taken pains to attract independent developers to its platforms, which is why most of the best indie games – such as Thatgamecompany's Journey or Guacamelee from Toronto-based Drinkbox Studios, for example – inevitably show up on the PlayStation or Vita.
In the bigger picture, Nintendo's failure to take steps like Sony's results in a myopic culture that is evidently not working in a business that is truly global. On a more tangible level, it results in a never-ending string of Mario and Zelda games, with few new ideas – or intellectual properties, as they're known in the business – managing to break through. If there's anything that's keeping the core gamers away, it's that. There are only so many Mario games one can play, after all.
People buy consoles to play games, and they choose between the existing consoles based on exclusive features or titles. If Nintendo wants to compete in the global gaming business, it must start finding a way to open up its culture and work with developers outside of Japan. That can happen through studio acquisitions or a system that's truly friendly and easy for foreign independents to deal with.
License to thrill
Over the past few years, Disney has been making a concerted effort to get further into video game development. What if Nintendo were to do the reverse and leverage its kid-friendly IP catalog into theme parks? It seems like Mario, Zelda, Donkey Kong and the rest are tailor-made for roller coasters, 3D rides and midway attractions, so why not? "Nintendo Land" amusement parks could certainly help the company's bottom line.
Mario creator Shigeru Miyamoto seemed open to the idea, telling MyNintendoNews last year that it could happen. "With Nintendo being in the entertainment industry, there may come some point in the future where that might become a possibility," he said.
With a file from Reuters