nintendo

Game Over? Nintendo admits the need to look at a new business structure

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Seems Mario and Co. have finally realized the Wii U is far from a competitive machine, and in order to stay relevant in today's market, they need to seriously look at another opportunities in order to keep the house that Mario built open. Friday, after many months of embarrassingly bad sales and market performance, Nintendo revised their Wii U sales expectations between April 2013 to March 2014 down from 9 million units to 2.8 million units. A total drop of 69% compared with previous forecasts. This colossal loss in system sales also means the associates software sales will take a significant hit as well, with Nintendo reporting they are expecting a 50% loss in software sales as well, down to 19 million units from 38 million. 

The ripple effect of these downsized sales forecasts though is  historic:  Trading in Nintendo's home market of Japan saw the company stock drop to 13,145 yen ($126) from 14,645 yen ($140) on Friday, according to Reuters. This is far below the company's record high stocks in 2007 that saw share prices at 73,200 yen ($704). Especially brutal to see investors in the Japanese market dumping their stock. Japan has always been Nintendo's stronghold of consumer confidence, where Nintendo can do no wrong. 

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The news is not entirely surprising to those in the gaming community. We have seen this coming for years. I reported on it months ago. The fact is, Nintendo has become stagnant. Attempting to continue living off the incredible reputation and quality of their core intellectual property like Mario Bros and the Zelda franchise, Nintendo has counted on these properties to keep questionably  competent hardware afloat. Nintendo has finally realized that they missed the boat in the hardware market, and that their stubborn and steadfast decision to not adapt to industry standards like HD, online gaming, entertainment based features, and sufficiently powerful hardware has all but killed their hardware business. Instead of innovating new, more powerful systems like other manufacturers, Big N has instead been pushing an iterative path for new hardware: The Wii U is simply a gimmicky retooled Wii. The Nintendo DS has seen 6 different versions of the system, all with questionably gimmicky improvements: DS Lite: Smaller, DSi: Added an exceptionally low res camera (.3MP.. I had a 10x more powerful camera in a cell phone 10 years ago.), DSi XL: You guessed it, larger screens, same system. 3DS: Marginally Effective 3D, 3DS XL: Yep, bigger, and lastly, the simply abysmal and inexplicable 2DS, an exceptionally large aesthetic nightmare. The fact is, Nintendo has simply lost their way. They have not released a single actual innovation since 2006 with the launch of the Wii.  They are a GAMES company. They make several of the world's most critically acclaimed and successful franchises in history: Mario, Zelda & Pokemon.  Nintendo themselves admitted that they are failing with their current business model, with current President Satoru Iwata stating “Given the expansion of smart devices, we are naturally studying how smart devices can be used to grow the game-player business,” Iwata said. “It’s not as simple as enabling Mario to move on a smartphone.”

While this may be true, these massive losses will need addressed immediately. Nintendo may very well have to reconsider being in the hardware business altogether. Given the sheer brand power and quality of their 1st party software, it is time for them to take these amazing titles and license them. Open up the titles to other platforms: Smartphones, Tablets and competing Consoles. Nintendo could make a king's ransom on the licensing of these title s for play on other consoles. And Nintendo could, with the freed up resources from the hardware business, focus more energy and attention to these software titles, bringing more quality software to it's fans. Maybe Nintendo could get out of the home console business, and still push their handhelds, which have outsold their home consoles by wide margins for decades. 

Whatever decisions the company makes in the coming weeks, things will be interesting, but one thing is sure: Drastic change is vital if Nintendo wishes to avoid joining Sega in the afterlife. 

Nintendo's future is cloudy... at Best.

Nintendo

There was a day when Nintendo reigned supreme as the king of all electronic entertainment. In 1985, having a Nintendo Entertainment System in your house was a badge of honor, a symbol of status almost. Then the Super Nintendo did the same. Nintendo ruled the american gaming industry for decades. Even in the face of competing systems, Nintendo made a fortune and won the hearts of gamers worldwide. When the Nintendo partnership with Sony to develop a CD based add-on for the Super Nintendo fell apart, a jaded Nintendo started on a radically different path than the rest of the gaming industry. And while that path would still capitalize on the loyalty of several generations of die hard fans, it would ultimately leave them playing catch-up in a market they once ruled with an iron fist.

Nintendo Entertainment System

Reeling from the bitter experience of working on a disc based add-on, and way behind their competitors working with a superior medium (CD), Nintendo had no choice but to push forward with a medium they were experts in (cartridges) in a graphical environment that was almost alien to them (3D). Enter the Nintendo 64. Technologically superior and released later than its competitors, the N64 was a hit with hard core Nintendo fans. Packing nearly 3x's the processing power of the PlayStation, the N64 was a technical marvel. Even with the limited texture cache that resulted in limited dimensions and color depth couldn't stop the N64. However, the cartridge format with it's limited capacity and higher cost, coupled with Nintendo's feisty and onerous licensing requirements sent developers running to the much easier to develop for CD based competitors. And it was here that the slide began. Nintendo's GameCube was another impressive juggernaut. With power and graphics processing that literally stomped the PS2. What started holding Nintendo back wasn't power or capability, it was perception. Since developers were highly reluctant to work with them now, the large majority of memorable titles were in-house 1st party favorites from Nintendo themselves. And even though they were finally working with a disc based format, the ever stubborn Nintendo opted for a niche product, a proprietary mini-DVD format that had far less storage capacity than it's competitors. Many started to wonder if Nintendo was losing it's touch.   

Legend of Zelda: The Wind Waker

Legend of Zelda: The Wind Waker

As if the challenges of proprietary formats and lack of developers weren't bad enough, Nintendo had also typecast themselves. With family friendly and focused titles like Mario, Pikmin and Animal Crossing being core fair on the GameCube, an ever increasing number of even die-hard loyal Nintendo fans started to perceive Nintendo as a children focused company. Add in the fact that the GameCube itself even looked like a child's toy, with it's purple housing and carry handle. And when Nintendo finally released Legend of Zelda: The Wind Waker, the outcry regarding the cartoon cell shaded visuals and protagonist that looked like a 7 year old was so prevalent the truly gorgeous look and even better gameplay were lost in the mix. The overwhelming perception that Nintendo was a developer focused on kids pushed a large number of Nintendo's core fan group into the arms of their competitors, who had libraries of more mature content. And with the fans, went the rest of the A list content from developers. 

With Nintendo clearly at the bottom of the pack, they needed to get back in the game. And with their future viability on the line, they needed to do something radical. If you're months behind the release of your two main competitors and your previous-generation console is in last place, what are you going to do to stand out?

Nintendo chose to change directions completely. Instead of focusing on a powerful system with high end graphics, they chose to devise the most revolutionary way to control games ever. This was more than a huge gamble. Given the current state of the gaming industry, it would ultimately decide whether Nintendo could compete anymore in the console market. 

Nintendo Wii

In many ways, the Wii was a commercial success. Having sold 100+ Million units, you certainly cannot call it a failure. But sales numbers are simply that, numbers. They don't touch on what makes a system successful. But the issue it presents for Nintendo is a very big one. The Wii sold in spite of continued lackluster support from third party developers, but it sold on 2 premises: A gimmicky controller, and a significantly lower price point than it's competitors. The Wii sold like hot cakes for a year, because everyone wanted to see what the fuss was about. A few sessions of fun with Wii Tennis or Wii Bowling, and the system sat on a shelf, only being used occasionally. In addition, the Wii never never became a "centerpiece console", or the primary household console. The Wii became the addition to the primary game system in the home. Many owners of PS3's, Xbox 360's and Gaming PC's have a Wii in the house. But another current gen console is still the primary system in the home. In addition, due to the high cost of the PS3 and Xbox 360 at launch, the Wii became the platform of choice for those on a budget, making the Wii a compromise purchase, simply because the desired systems were out of the budget range for these households.

 Saddled with their intentional decision not to focus on system power or graphical prowess, the lesser capabilities of the system became problematic. Several factors kept the Wii from being competitive. In a market of HD capable systems, yet having made their "NO HD" policy very clear, Nintendo had already drawn a line in the sand defining that they were headed in a different direction than even the gaming community as a whole. Even the famed game designer and Mario creator Shigeru Miyamoto stated "One of the key reasons that such things as the core (gamers) and the casual (gamers) exist today is that we decided not to adopt HD on the Wii console. Of course, besides that there are things like issues with the controller and the challenges that it brings, network functionalities and many other things, but I think HD was the biggest factor that everyone was able to clearly understand the difference." Then significant price drops on competitor systems further tipped the scales. The only factor making the Wii unique at this point was it's revolutionary controller. And even that changed when both the Xbox 360 and the PS3 introduced their own motion sensor controllers. Nintendo acknowledged these faults, and in an effort to compensate, they developed the Wii U, a kind of overpriced Wii Reboot, a spiritual Wii 2.0. But the dismal sales of the new system are failing to meet Nintendo's expectations.

While all this competition in the gaming market was going on, the mobile electronics market exploded. More and more casual gamers have shifted to more affordable, simpler games on smartphones and tablets, a market heavily driven by Apple's iPhone. Sony and Microsoft, both famed "Devices and Services" companies, adapted and learned to compete in this new arena. However, the ever steadfast and defiant Nintendo refused bend and diversify. Nintendo has been clearly against allowing it's first party franchises like Mario, Link and others to be played outside Nintendo-made handhelds and console systems. As Reggie Fils-Aime states "That's why we're so focused on having content exclusive to our platform, When the consumer wants to play Mario, Zelda, and Pokemon, they have to purchase our hardware to do so. And that preserves our overall financial model." That said, as much as Nintendo preaches that they are "About the Games", they are, and always have been, a hardware company. A hardware company that completely shunned the market shift to smartphone and tablet gaming. Nintendo simply refused to entertain the idea of leveraging the mobile market to increase it's sales. And as a result, their sales have suffered. Significantly. In a recent meeting on Tuesday with CNET, Fils-Aime stated: "We're constantly thinking about how to leverage mobile as a marketing vehicle," Nintendo President Reggie Fils-Aime said on Tuesday during a meeting with CNET editors. "How do I give little tastes of content, little experiences that then drive the consumer back to my hardware environment?"

Nintendo has made an art-form of surviving on the backs of quality software. They are far from the forefront in the gaming arena, but they continue to make magical software that is unforgettable. The questions is, if Nintendo continues to push failing console hardware, will the losses sustained prevent them from having the cash flow to continue to make great software in the years to come?