Tonight Nintendo is discussing its current earnings predicament with analysts and investors. Most gamers have already heard the news that the Wii U is not doing well, and the 3DS, despite healthy overall sales, is seeing stagnant growth. The end result is Nintendo has lost some money. They have a huge war chest of funds to keep them healthy for quite a while, the same war chest that fended off a Microsoft buyout in the past, but the company cannot sit back and rest on the money it made in previous generations. The question then that armchair analysts and critics alike have been posturing on is how does Nintendo fix the problems that are causing them to lose money?
Knee-Jerk ReactionsThere has been no shortage of commentary on Nintendo's predicament. Major news outlets like Time as well as smaller tech-centric blogs like Techno Buffalo have all had things to say about what Nintendo should do with Wii U. Some of the comments and opinions have focused on an extreme scenario where Nintendo, after only a couple of unprofitable months following years of profitability and high dividends, would immediately dump their hardware manufacturing arm for a software only model, similar to Sega after the Dreamcast tanked. That is wishful thinking though for people who want Nintendo software without paying for the hardware.
For starters, Nintendo's situation is dramatically different than Sega's. Nintendo is still flush with cash, so there is no immediate need to do anything that drastic. Additionally to think Wii Sports would have been such a cultural phenomenon on any system other than the Wii is laughable. Nothing even close in terms of play-ability and financial success (according to VGChartz, Wii Sports has moved over 81 million units, many of which were sold with the console itself) has ever been produced for Microsoft's Kinect peripheral or Sony's Move. The same can be said for less important but still relevant games like Mario & Luigi: Dream Team or The Legend of Zelda: A Link Between Worlds on 3DS. Those games could never have been done on a handheld other than Nintendo's flagship dual screen, and both are over a million units sold. The combination of Nintendo's available funds and their ability to craft and curate experiences specifically for their devices and controllers makes this idea of abandoning hardware illogical to me and many others. They are in a similar situation to Apple in that they build experiences for their devices, not for devices that other companies have built.
One other problem I have with people stating as fact that Nintendo moving to other consoles or mobile devices such as tablets and smartphones would bring in ridiculous sums of money is lack of evidence. Admittedly there is no evidence to refute these claims either, but that is the major issue. Nintendo has no guarantee that any of us have seen that if PS4 had Nintendo titles or if iPad had Nintendo titles that they would sell with the runaway success some people have predicted. One firm went as far as putting a $2.7 billion profit tag on a mobile push by Nintendo, but I am not aware of any consumer surveys or marketing predictions that can justify these claims. I would actually love to see Sony or Apple in particular run a survey of their respective install bases asking franchise by franchise if players want to see a Mario game on their hardware, a Zelda game, a Metroid game, legacy games from previous generation Nintendo consoles, etc. I think this would be enlightening but also never expect it to happen.
What is Nintendo Really Going to Do?In the near term, Nintendo President Mr. Satoru Iwata has taken a 50% pay cut and announced smaller but still significant cuts for other top executives for the next five months. He has apologized and stated that Nintendo is evaluating reform within the company to right the sinking Wii U ship alongside a stock buy back to shore things up further. This is great, but it has not given us much to calm the rumor mill with.
What we do know is Nintendo has some strong Wii U titles in the pipeline for 2014, and through recent earnings it was revealed that the attach rate of the Wii U is actually not terrible (Wii U attach rate is sitting just over five software titles per console sold, a better attach rate than 3DS currently has). I suspect that Nintendo is hoping Donkey Kong Country: Tropical Freeze in February and Mario Kart 8 in Q2 can bring a little life to their home console while they figure out what to do next. Bayonetta 2, Super Smash Bros, X, the next Legend of Zelda entry, and several other games have been announced but not dated. The sooner the better for Nintendo because these have the potential to be system sellers and at least get Wii U off of life support. The 3DS has a few strong titles early in the year like Bravely Default from Square Enix; however, it is much less of a concern with its install base of over 42 million units. The new 2DS system actually seems to be attractive to new emerging markets like China, so Nintendo may continue to rely on the handheld's sales to keep losses low while they attempt to figure out the Wii U.