Nintendo’s revenue and profits are tumbling faster than Mario into a bottomless pit.
The iconic Japanese game-maker’s stock price took a major hit Jan. 20 (plunging several percentage points) after company executives suggested the next-generation Wii U console would sell 2.8 million units between April 2013 and March 2014 (PDF)—significantly below the 9 million units predicted in previous estimates. Contrast that with Sony’s PlayStation 4 and Microsoft’s Xbox One, which sold 4.2 million and 3 million units, respectively, in their first six weeks of release.
“Wii U sales… showed some progress in the year-end sales season as we released various compelling titles from the summer onwards, launched hardware bundles at affordable price points and also performed a markdown of the hardware in the U.S. and European markets,” Satoru Iwata, Nintendo’s President and CEO, wrote in a lengthy letter to shareholders about the modifications to the company’s sales forecasts, “however, they fell short of our targeted recovery by a large margin.”
In lowering its hardware and software estimates, Nintendo also expects to take a loss by the end of its fiscal year in March. It’s a thorny quandary for a company that once dominated the video-gaming segment, only to fall behind as Sony and Microsoft poured billions into their own console efforts. Nintendo’s attempt to carve a niche for itself as an ecosystem for casual gamers also ran into a massive obstacle in the form of smartphones and tablets, which quickly developed into popular gaming platforms: why spend hundreds of dollars on Nintendo products when, for a few bucks, you can download a fun puzzle game or platform shooter to your iOS or Android device?
Attempting to regain its crown, Nintendo released the Wii U in 2012. The console featured a controller with a built-in touch-screen, which in theory creates a whole new dimension of play—for example, players in competition could make adjustments to characters or strategy on the touch-screen without alerting rivals to their moves. But many reviewers felt the Wii U’s advances worked better as concepts than as actual hardware, and potential customers seemed to agree; this created a vicious cycle, as the struggle for consumer adoption led third-party developers to shy away from building games for Nintendo in favor of other platforms.
Is the wake of that debacle, Nintendo is reportedly considering a “new business model,” according to Bloomberg, with Iwata telling a gathering of reporters in Osaka: “Given the expansion of smart devices, we are naturally studying how smart devices can be used to grow the game-player business. It’s not as simple as enabling Mario to move on a smartphone.”
Well, that wasn’t an outright denial that Nintendo games are coming to iOS and other platforms. Indeed, if that’s the case, the company could leverage its deep and much-loved portfolio of games; given the number of emulators already out there for NES, SNES, and even GameCube content, there’s clearly a lot of demand to play the hits of yesteryear. Making its games platform-agnostic would also expand the audience for current Nintendo software to millions more users.
But focusing on software across multiple platforms might fatally weaken Nintendo’s hardware business. It would also constitute a rejection of the integrated hardware-software model that originally made Nintendo such a force—and as so many companies have demonstrated over the years, there’s little harder than convincing a group of executives to give up a paradigm that worked so well in the past.