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Nintendo flags possible changes to its entire business model

Date
Nintendo's intellectual properties like Mario are its strongest assets. Is the venerable company going spread the characters around?

Nintendo's intellectual properties like Mario are its strongest assets. Is the venerable company going spread the characters around?

Nintendo, the last company standing out of the giants who ruled video games in the 1980s, is in serious trouble.

The home of Mario and Zelda has long attracted a devoted fanbase, but its latest console, the Wii U, has failed to catch on. Revised sales figures revealed to shareholders last week demonstrated just how dire the situation has become: projected financial year sales of 9 million Wii U consoles was cut to only 2.8 million, and projected game sales for the console were cut from 38 million to 19 million.

The financial result of this is a reversal of the projected ¥55 billion (AU$600 million) profit to a net loss of ¥25 billion (AU$270 million), Nintendo's third consecutive annual loss. Thanks to the wild success of Nintendo's previous hardware, the popular DS handheld and the original Wii, Nintendo has a large cash reserve to draw from, estimated at around ¥463 billion (AU$ 5 billion), but the news will no doubt see the company's stock price plummet.

In announcing these deeply disappointing figures, Nintendo's president Satoru Iwata made some interesting comments about the changing habits of video game fans. "We are thinking about a new business structure," he said. "Given the expansion of smart devices, we are naturally studying how smart devices can be used to grow the game-player business."

What does this mean, precisely? Could we be seeing Mario iPad games or a Nintendo-branded Android phone? Nothing so drastic, apparently, with Iwata adding, "It’s not as simple as enabling Mario to move on a smartphone."

The future of dedicated video gaming handhelds has been in question for some time, with many commentators - including yours truly - wondering how long people will continue to buy a device that only plays games when they already have a powerful phone or tablet in their pocket. Sony's PS Vita was subject to the same kind of questions.

Still, Nintendo's current generation of handheld is doing fairly well, significantly better than its TV-bound sibling. In almost three years on sale, the 3DS has shifted around 40 million units worldwide, and games like Animal Crossing: New leaf have been very strong sellers. Nintendo's overall figures would be a lot worse than they are without the 3DS softening the blow.

On the other hand, there is obviously still a strong market for non-portable gaming hardware, with both the PlayStation 4 and the Xbox One smashing through sales records around the world. In only two months on sale, they have sold around 4.5 and 3 million units respectively.

Clearly, something is going wrong with Nintendo, and Iwata was brave enough to admit it. he said that the company needs to evolve, and to "propose something that surprises our customers".

"The way people use their time, their lifestyles, and who they are have changed," he said at last week's press conference. "If we stay in one place, we will become outdated."

It is a very fine line that Nintendo needs to tread. Mixing things up too much risks alienating their dedicated fans, those who are happy with their beloved old games undergoing slow evolution rather than sudden transformation. On the other hand, Nintendo's critics are calling them "out of touch" and "old-fashioned". Iwata himself said that he had failed in his duty as president to issue "the appropriate instructions".

It seems, then, that change is on the horizon for Nintendo. If they decide to follow their old arch-rival Sega out of hardware manufacturing entirely and become only publishers of games software, then they will be in a strong position: arguably, their intellectual properties have long been more valuable than their consoles.

Could Nintendo become the company that makes Mario and Zelda games for PlayStation, Xbox, and iPad? I guess we'll have to wait and see.

One thing is certain, though: they will surprise us. They always do.

 - James "DexX" Dominguez

twitter Screen Play is on Twitter: @jamesjdominguez

15 comments so far

  • I'll take a wait and see approach. These articles pop up every now and again whenever Nintendo experiences any kind of trouble. Considering they weathered the storm with the N64 and Gamecube, they could likely do it again. Also they do have a big reserve.

    A couple years ago with the PS3's performance and it wiping out all the profit the PS2 ever made, there were predictions that Sony was doomed. Take a look at it now and would you say the Playstation division is failing?

    Commenter
    Raito
    Date and time
    January 21, 2014, 8:59AM
    • It's good that they have realised their current business model isn't sustainable. The bad thing is it may be too late. Continuing to rack up losses while trying and failing with various offering until they hit gold my spell the end of Nintendo.

      Here's hoping they hit gold sooner rather than later because they really fill a specific gap in the gaming market.

      Commenter
      Knotpossible
      Date and time
      January 21, 2014, 9:01AM
      • I think it's a bit to early to call the "it's too late" statement at this point.

        DS and 3DS is still making reasonable profit for Ninty. It's the same how the GBA carried Ninty through the "supposed" failure of the Gamecube. And as Raito said they have a huge cash reserve to fall back on.

        The moment Ninty drops the ball on BOTH handheld & console is probably the time you should put up the red flags.

        Commenter
        RocK_M
        Location
        I want chinese take-away!
        Date and time
        January 21, 2014, 10:38AM
      • I mean too late to remain a relevant, legitimate 3rd party to the gaming oligopoly. While they may remain profitable and apparently have cash to burn (not a legitimate excuse for continued failure either by the way) the scale of their business and their standing in the gaming marketplace will go the same way of Sega. The difference is it may be a slow death as they burn their large shareholder equity sitting on the balance sheet chasing the next "big one".

        Commenter
        Knotpossible
        Date and time
        January 21, 2014, 2:18PM
      • I would agree w/ the "way of Sega" if it wasn't for the fact that Nintendo is still very much in charge of the hand held gaming market.

        A lot of people point towards iPhones and Tablets taking over. But they just can't beat the dedicated hand held gaming machine. "Casual" gaming has its place in the market ecosystem but I find it a bit naive to think this would push/replace that "core" audience. Casuals are basically just a different slice of the gaming pie. A very big slice but not something that would replace the "core" audience.

        Hence I said calling "red flag" on Ninty at this point would be a bit premature. The moment they loose the handheld and console at the same time then you start having problems.

        Commenter
        RocK_M
        Location
        I want chinese take-away!
        Date and time
        January 21, 2014, 4:26PM
    • The real value of Nintendo is not the IPs themselves, but one step before that - the ability to produce creative, quality games that continue to build value into their IPs.

      They have lost the plot on hardware and related services - the Wii U is underpowered (in a relative sense) given its target market, and the stern-teacher-with-lots-of-barriers-and-rules approach to online is unpalatable to a gaming market that is now dominated by adults, not children.

      Go third party Nintendo. I want to give you my money for your games. I’m just over everything else about you.

      Commenter
      JPR
      Date and time
      January 21, 2014, 9:06AM
      • +1 to this. I had every console from Nintendo right up to the wii, the wii, although fun, wasn't enough and I hated missing out on titles because it was so underpowered, and I didn't even bother with the wii u. If they go 3rd party I'll be a very happy man.

        Commenter
        Davo B
        Date and time
        January 22, 2014, 8:20AM
    • I see the gaming press are finally starting to take Nintendo seriously for the first time since the early 00s.

      Commenter
      Leigh
      Date and time
      January 21, 2014, 11:23AM
      • I don't know if it will actually happen, but I want them to do a SEGA. Going third party would mean that I could enjoy the odd Nintendo title without having to fork out for the substandard (my opinion) hardware with a limited library.

        Commenter
        ryvman
        Date and time
        January 21, 2014, 11:48AM
        • To be fair their hardware only became "substandard" last generation and this generation. And if anything Ninty consoles were actually a lot sturdier than other consoles of the time (RROD and YLOD anyone? xD)

          It's rather interesting that their 2 most powerful consoles processing wise on release - N64 and GameCube are actually considered to be the one's w/ the lowest sales.

          Commenter
          RocK_M
          Location
          I want chinese take-away!
          Date and time
          January 21, 2014, 1:31PM

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