Can Nintendo Survive in a Smartphone World?

Mario has much bigger problems these days than fending off a bunch of angry, toothy mushrooms.

Those of us who grew up in the late 1980s and early 1990s used the word “Nintendo” synonymously with video games. I never asked my friends, “do you want to play a video game?” It was always, “do you want to play Nintendo?”

But while Super Mario Bros. and The Legend of Zelda will live on in players’ hearts forever, a Nintendo that’s the only game in town is something we’ll never see again.

Xbox and PlayStation consoles have been winning living room gamers away from Nintendo for years. The new Wii U sold poorly, and the market for gaming on television sets is only getting tougher with competition from the Android-based Ouya and future “Steam Machines” from PC giant Valve.

While a surge of success followed the introduction of the Wii in November 2006, it hasn’t lasted into the present day. For a time, Nintendo couldn’t make enough Wii consoles to meet demand. But the new gamers Nintendo attracted generally didn’t buy many games, and hard-core gamers—the kind that obsessively purchase new games—stuck with the traditional controls and high-definition capabilities of the Xbox 360 and PS3.

Nintendo has never been a one-trick pony, as it’s dominated the handheld gaming market for two decades with Game Boys, DSes and 3DSes. But even there, Nintendo faces a potentially existential threat from the booming smartphone and tablet market.

Losing the Hardcore Gamers

“I grew up, I guess, as a Nintendo fanboy,” said Jay Pavlina, who created Super Mario Bros. Crossover, a nostalgia game that brings many Nintendo characters together into one grand platform adventure. “I pretty much only had Nintendo consoles until PlayStation 2, that was when I finally switched to the other side.”

Pavlina rarely plays new Nintendo games anymore. “I always felt like Nintendo abandoned the hardcore fans when the Wii came out,” he told Slashdot. “I don’t want to sound harsh, but I kind of feel like they’re dying. They just don’t seem to be making smart decisions. I know they have a lot of money but it’s eventually going to run out.”

Nintendo posted its first ever annual loss as a public company in 2011, losing more than $500 million. The company turned a net profit of about $88 million in its most recent quarterly earnings report, but also reported an operating loss of about $50 million.

In preparing this story, Slashdot contacted Nintendo’s PR agency first on Oct. 7. The company told us this week that it is still considering our request for an interview.

Nintendo’s losses aren’t surprising to longtime gamers or financial analysts. Nintendo has major problems, and even those who believe the company will turn things around realize it will be difficult.

There are bright spots, to be sure. Despite a disastrous start, a price cut and an improving game lineup have helped the 3DS outsell the Xbox 360 and PS3 in recent months. But that may not be incredibly impressive, given how the 360 and PS3 are nearly eight and seven years old, respectively. Gamers are also likely waiting for the Xbox One and PS4 to make their hardware purchases. Nonetheless, it still belongs in Nintendo’s win column.

“As of August data, the 3DS has led hardware sales for four straight months, so it is clearly attracting an audience,” NPD Group games industry analyst Liam Callahan told Slashdot. “Regarding its future, the platform is showing that it can co-exist in a world of smartphones and tablets by releasing compelling games that differentiate from what is available on mobile devices. Case in point, Nintendo just announced that Pokémon X & Y sold 4 million copies worldwide over 2 days. The 2DS also has the potential to expand the audience for the 3DS family as it is targeting younger children under the age of 7.”

Wanted: Third-Party Games for the Wii U

The Wii U poses a bigger challenge. After a recent price cut, Nintendo announced that U.S. sales of the console tripled between August and September. But that just barely keeps Nintendo in the running. While no official count was given, an Examiner article said Wii U sales in the U.S. are thought to have increased from 30,000 to 90,000. That likely leaves the Wii U a few thousand units behind the Xbox 360 (which sold 96,000 in August) despite being seven years newer.

Nintendo’s Wii U.

While Sony and Microsoft introduced high-definition gaming in the previous console generation, Nintendo only just got there with the Wii U. Microsoft and Sony are about to leap ahead of Nintendo again with new consoles, although to be fair Nintendo has rarely staked its success on CPU horsepower. Nintendo is about fun gameplay for people of all ages, largely featuring characters invented by legendary developer Shigeru Miyamoto.

That likely won’t change, but a shortage of premium third-party titles is hurting the Wii U. Electronic Arts’ Madden NFL series is skipping the Wii U this year, and the makers of Need for Speed: Rivals are doing the same because of the platform’s poor sales.

Former Nintendo employee Kyle Mercury believes the company has traditionally been reluctant to embrace third party games. Mercury worked in marketing for Nintendo of America between 2001 and 2007, and was one of the managers of the Nintendo Fusion Tour, a traveling festival designed to generate excitement for new hardware and games.

It was a struggle to convince Nintendo to showcase third-party games, Mercury told Slashdot. “They would never want to say ‘we’re really successful because of Resident Evil.’ They wanted to be successful because of Mario and Zelda and Metroid, because of their first-party games,” he said.

In addition to losing out on games from major third-party studios, Nintendo has lagged behind Microsoft and Sony in attracting indie developers, an increasingly important category. The Xbox 360 has more than 3,000 indie games listed for sale. Nintendo didn’t get serious about building a market of downloadable indie games until the Wii U came out, and it’s lateness shows: the Wii U eShop’s indie section had just 11 games listed as of this week.

Courting Indies

Nintendo is trying, though, as game developer Alex Preston knows well. Preston raised $645,158 on Kickstarter to make a game called Hyper Light Drifter. It’s coming to Windows, Mac, Linux, Ouya, PS Vita, PS4, and the Wii U.

PS4 and Wii U were late additions after Sony and Nintendo reached out to Preston to ask if he’d be interested in bringing the game to their living room consoles.

Sony was first in contacting Preston, but Nintendo wasn’t far behind. Mario’s maker has stripped away many of the obstacles that pushed independent developers toward rival consoles, Preston said.

On the Wii, “the original store had some really huge barriers to entry, like you had to move 30,000 units otherwise you wouldn’t get any money, and you had to have an established office whereas a lot of developers work out of their homes,” Preston said. “It was an insurmountable problem to many small developers. But now, they’ve gotten rid of most of the arcane things and they’re trying to make it as easy as possible and open for all developers, like iOS has been.”

Although Microsoft’s indie platform is a force to be reckoned with, Preston wasn’t impressed. “It’s a much larger machine and you have to deal with a lot of different corporate structures so certain things aren’t possible with them. I’m not willing to make certain concessions to get on their platform,” Preston said, declining to specify what those concessions would be.

Nintendo has a well-deserved reputation for being aloof from the indie scene, even though it originates in behavior from several years ago rather than its actions today.  “As a very new player in the business, with no previous release on record so far, Nintendo and their platforms are pretty much dead last on our list of potential publishing platforms,” video game developer Germain Couët told Slashdot. “My general impression is that they are rather remote from the independent movement, and that their business model is incompatible with the self-publishing model we are currently exploring.”

Couët’s small team, Sauropod Studio in Montreal, is creating a game called Castle Story for Windows and OS X. Sauropod remains a PC-only developer for now, but will look to Sony and Microsoft first if it expands its horizons. “Until recently, going with other big players like PlayStation and Xbox was also out of the question, but their promise of indie support and self-publishing options is opening new possibilities and we may consider these platforms in future projects,” Couët said.

Nintendo is starting to roll out self-publishing and other indie-friendly options on the Wii U, but has a hard time getting the word out to developers that such options exist. Nintendo of America’s Dan Adelman, manager of business development licensing, told Polygon that developers often say, “‘Yeah, I’d love to release a game on a Nintendo system, but I work from home and I know you guys have this requirement to work out of an office.’ I’ll say, ‘Actually, we got rid of that.’ And that will be a big surprise.”

He added: “Or they’re working on a game in Unity, and say ‘I hear on consoles to release a Unity game… costs tens of thousand of dollars.’ Actually, we have a deal with Unity so we’ve covered the licensing fees for the entire platform. So it’s free for you to release on our system.”

Some developers are warming to Nintendo’s message. “It was an easy decision for us to go with Wii U when we started thinking about a console version of Little Inferno,” said Allan Blomquist of Tomorrow Corporation, whose Little Inferno game is one of the few indie titles on the platform. “We had an existing relationship with Nintendo from previous games, so we knew that working with them would be a great experience. Also, the Wii U GamePad was a natural fit for the control scheme that we had developed for the game.”

Nintendo’s Risky New Control Scheme

The Wii U GamePad has its own screen, letting players play games both on what is essentially a big handheld device and on their TV. It’s also a touchscreen with a stylus, which some developers have put to good use.

That’s a departure from traditional control schemes, just like the Wii remotes a few years back. “One of the main reasons why the Wii U was slow out of the gate had to do with consumers not quite understanding Wii U’s unique GamePad,” analyst Liam Callahan said.

Callahan is confident in Nintendo’s ability to stay relevant.

“As more consumers begin to understand what the Wii U has to offer, the install base will grow and so will the attraction to third parties,” he added. “Nintendo platforms are extremely viable for younger properties like Skylanders, Lego games, and Disney franchises.”

David Helgason, the CEO and co-founder of Unity Technologies, maker of the widely used Unity3D game engine, tells a similar story: “Nintendo has done well making it a friendly platform for indies, and spent a lot of energy reaching out to the smaller studios in the Unity community, and there are already quite a few titles in production for the Wii U using Unity.”

Perhaps tellingly, though, Unity has so far not adapted its game development platform to the 3DS, despite doing so for the PS Vita, which is capable of rendering far more realistic scenes than Nintendo’s handheld. Helgason said there are “no new updates” on whether Unity will support the 3DS.

Developers of 3DS games can still generally charge more than developers of smartphone and tablet games, which tend to be sold for $1 or just a few dollars. But as smartphones and tablets become entrenched in the culture, developers are following users and finding ways to rake in money.  Some do so with simplistic, addictive gameplay and freemium pricing. Others (such as the makers of Infinity Blade for iOS) gained success with inventive gameplay and console-quality graphics.

Unity has enjoyed much of its success selling the tools that developers use to make games for iOS and other mobile platforms. Helgason thinks the heyday of gaming on home consoles is over. “A big share of gaming happens on mobile devices,” he said. “But remember that a lot of these players are truly new gamers, that haven’t left the console as much as never known it.”

Mario on iPhone? It’s Not Happening

I’m not ashamed to admit to being a lifelong Nintendo fanboy—or at the very least, a shameless fan of all things Mario, Link, and Zelda. I also dislike smartphone gaming. Give me buttons and thumb sticks over a touch screen any day.

Yet it’s not hard for me to imagine the worst-case scenarios for Nintendo, with living room consoles marginalized to the point of near-irrelevance, and a mobile platform pushed into the abyss by Apple’s phones and tablets.

If that happens, could Nintendo do the unthinkable—sell games for hardware not assembled by Nintendo? Theoretically, Nintendo could leave the hardware business and become a successful software publisher, making games from its core franchises for every platform under the sun.

The company has steadfastly avoided doing so. Even an obvious money grab like selling classic games from the 1980s to smartphone and tablet users has been off-limits. Nintendo’s identity is tied up in an integrated hardware-and-software platform that the company would be loath to abandon.

“People say ‘never say never,’ but I think I can make a case for saying it here: I don’t see Nintendo ever publishing on other platforms,” Callahan said. “Nintendo’s impressive IP library is at the heart of its business as it drives hardware acquisition and sets it apart from the others. Why mess with success?”

Nintendo doesn’t like having its in-house games “released into an environment that is not completely under their control,” Mercury suggested. “These characters and these games are the heart and soul of Nintendo so it’s critically important to them that they control the experience the player has from start to finish.”

Nintendo has been criticized for relying too much on its history, trotting out new Mario games that are identical in many respects to previous titles in the series, for example. Yet some of the company’s longtime fans feel Nintendo hasn’t capitalized on nostalgia smartly enough. The amount of time Nintendo fans spend playing old games on emulators or fan-made nostalgia games points to an opportunity Nintendo may not be leveraging to the hilt.

“I feel like Smash Bros. [a fighting game featuring many Nintendo characters] is the one game that they actually are connecting with everything that everyone wants,” Pavlina said. “It brings in all the nostalgia and it’s a great game. If they could apply that same concept to other games they could do a lot better.”

Super Mario Bros. Crossover, which brings Link, Mega Man, and other iconic characters to Super Mario Bros., fills that nostalgic need for many. (Pavlina said Nintendo has never issued him any legal threats over Super Mario Bros. Crossover, perhaps because, as a Flash game, it has limited adoption.)

Other than New Super Mario Bros. U, Pavlina has barely played the Wii U. In addition to a game lineup that pales in comparison to Sony’s and Microsoft’s, the console seems odd to Pavlina because multiplayer games allow only one person to use the GamePad while everyone else must use Wii remotes. “We only played that one game,” he said. “I never felt any other need to turn it on.”

Preston noted that Nintendo has turned things around before, and could do it again. “Something like the Wii U, it’s just had a slow start,” he said. “People doubted the Nintendo 64 would do very well. People doubted the GameCube would do very well, but they did fine. I don’t think they’re going to be Microsoft, but they’re going to have their first-party titles, everybody will buy them. They might not have the massive third-party support the PS4 or Xbox One will have, but they have their bread and butter and they know how to work it well and they make amazing games.”

Today’s King is Tomorrow’s Nostalgia

Mercury believes Nintendo got a little too cocky during the Wii’s heyday, thinking the success of previous console generations was back for good. “Nintendo never believed they could fail, and that they were successful by virtue of the fact that they were Nintendo,” he said. Nintendo obviously learned that wasn’t the case. “I hope that lesson has not been forgotten,” he said.

However the Wii U and 3Ds fare in the coming years, it’s certain that many longtime players will be rooting for the company whose innovations in the 1980s and 1990s made gaming what it is today.

“Nobody from my generation wants to see Nintendo fail, no matter what,” Mercury said. “It’s such a heartfelt and sincerely adored company for the people who grew up with the games.”

But while Nintendo struggles to find its place, Mercury (who also briefly worked for Microsoft) has moved on to a new love.

“I have an Xbox 360 and I absolutely love that console with all my heart and soul,” he said. “I’m sure in 10 years I’ll look back, and I’m wondering if my experiences with the 360 will become my new nostalgia that Nintendo was to me 10 years ago now.”


Images: Nintendo

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