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Why Nintendo must stay the course with hardware

Wii U and 3DS missed targets, but a future without hardware still looks commercially unappealing for the House of Mario

Nintendo is heading back to black, with the company's financial announcements this week revealing that it's expecting to post a fairly reasonable profit for the full year. For a company that's largely been mired in red ink since the end of the glory days of the Wii, that looks like pretty fantastic news; but since I was one of the people who repeatedly pointed out in the past when Nintendo's quarterly losses were driven by currency fluctuations, not sales failures, it's only fair that I now point out that quite the reverse is true. The Yen has fallen dramatically against the Dollar and the Euro in recent months, making Nintendo's overseas assets and sales much more valuable in its end-of-year results - and this time, that's covering over the fact that the company has missed its hardware sales targets for both the 3DS and the Wii U.

In short, all those "Nintendo back in profit" headlines aren't really worth anything more than the "Nintendo makes shock loss" headlines were back when the Yen was soaring to all-time highs a few years ago. The company is still facing the same tough times this week that it was last week; the Wii U is still struggling to break 10 million units and the 3DS is seeing a major year-on-year decline in its sales, having faltered significantly after hitting the 50 million installed base mark.

"In spite of the doom and gloom around downward-revised forecasts for hardware, Nintendo was still able to pull out a list of this year's million-plus selling software that would put any other publisher in the industry to shame"

In hardware terms, then, Nintendo deserves all the furrowed brows and concerned looks it's getting right now. Part of the problem is comparisons with past successes, of course; the Wii shipped over a million units and the DS, an absolute monster of a console, managed over 150 million. In reality, while the Wii U is having a seriously hard time in spite of its almost universally acclaimed 2014 software line-up, the 3DS isn't doing badly at all; but it can't escape comparison with its record-breaking older sibling, naturally enough.

Plenty of commentators reckon they know the answer to Nintendo's woes, and they've all got the same answer; the company needs to ditch hardware and start selling its games on other platforms. Pokemon on iOS! Smash Bros on PlayStation! Mario Kart on Xbox! Freed from the limited installed base of Nintendo's own hardware - and presumably, in the case of handheld titles, freed to experiment with new business models like F2P - the company's games would reach their full potential, the expensive hardware division could be shut down and everyone at Nintendo could spend the rest of their lives blowing their noses on ¥10,000 notes.

I'm being flippant, yes, but there's honestly not a lot more depth than that to the remedies so often proposed for Nintendo. I can't help but find myself deeply unconvinced. For a start, let's think about "Nintendo's woes", and what exactly is meant by the doom and gloom narrative that has surrounded the company in recent years. That the Wii U isn't selling well is absolutely true; it's doing better than the Dreamcast did, to pick an ominous example, but unless there's a major change of pace the console is unlikely ever to exceed the installed base of the GameCube. Indeed, if you treat the Wii as a "black swan" in Nintendo's home console history, a flare of success that the company never quite figured out how to bottle and repeat, then the Wii U starts to look like a continuation of a slow and steady decline that started with the Nintendo 64 (a little over thirty million consoles sold in total) and continued with the GameCube (a little over twenty million). That the 3DS is struggling to match the pace and momentum of the DS is also absolutely true; it's captured a big, healthy swathe of the core Nintendo market but hasn't broken out to the mass market in the way that the DS did with games like Brain Training.

Yet here's a thing; in spite of the doom and gloom around downward-revised forecasts for hardware, Nintendo was still able to pull out a list of this year's million-plus selling software that would put any other publisher in the industry to shame. The latest Pokemon games on 3DS have done nearly 10 million units; Super Smash Bros has done 6.2 million on 3DS and 3.4 million on the Wii U. Mario Kart 8 has done almost five million units, on a console that's yet to sell 10 million. Also selling over a million units in the last nine months of 2014 on 3DS we find Tomodachi Life, Mario Kart 7 (which has topped 11 million units, life to date), Pokemon X and Y (nearly 14 million units to date), New Super Mario Bros 2 (over 9 million), Animal Crossing: New Leaf (nearly 9 million) and Kirby: Triple Deluxe. The Wii U, in addition to Mario Kart 8 and Super Smash Bros, had million-plus sellers in Super Mario 3D World and Nintendo Land.

That's 12 software titles from a single publisher managing to sell over a million units in the first three quarters of a financial year - a pretty bloody fantastic result that only gets better if you add in the context that Nintendo is also 2014's highest-rated publisher in terms of critical acclaim. Plus, Nintendo also gets a nice cut of any third-party software sold on its consoles; granted, that probably doesn't sum up to much on the Wii U, where third-party games generally seem to have bombed, but on the 3DS it means that the company is enjoying a nice chunk of change from the enormous success of Yokai Watch, various versions of which occupied several slots in the Japanese software top ten for 2014, among other successful 3DS third-party games.

Aha, say the advocates of a third-party publisher approach for Nintendo, that's exactly our point! The company's software is amazing! It would do so much better if it weren't restrained by only being released on consoles that aren't all that popular! Imagine how Nintendo's home console games would perform on the vastly faster-selling PS4 (and imagine how great they'd look, intones the occasional graphics-obsessive); imagine how something like Tomodachi Life or Super Smash Bros would do if it was opened up to the countless millions of people with iOS or Android phones!

Let's take those arguments one at a time, because they're actually very different. Firstly, home consoles - a sector in which there's no doubt that Nintendo is struggling. The PS4 has got around twice the installed base of the Wii U after only half the time on the market; it's clear where the momentum and enthusiasm lies. Still, Super Smash Bros and Mario Kart 8 managed to sell several million copies apiece on Wii U; in the case of Mario Kart 8, around half of Wii U owners bought a copy. Bearing in mind that Nintendo makes way more profit per unit from selling software on its own systems than it would from selling it on third-party consoles (where it would, remember, be paying a licensing fee to Sony or Microsoft), here's the core question; could it sell more copies of Mario Kart 8 on other people's consoles than it managed on its own?

If you think the answer to that is "yes", here's what you're essentially claiming; that there's a large pent-up demand among PlayStation owners for Mario Kart games. Is there really? Can you prove that, through means other than dredging up a handful of Reddit posts from anonymous people saying "I'd play Nintendo games if they were 1080p/60fps on my PS4"? To me, that seems like quite a big claim. It's an especially big claim when you consider the hyper-competitive environment in which Nintendo would be operating on the PS4 (or Xbox One, or both).

Right now, a big Nintendo game launching on a Nintendo console is a major event for owners of that console. I think Nintendo launches would still be a big event on any console, but there's no doubt that the company would lose focus as a third-party publisher - sure, the new Smash Bros is out, but competing for attention, pocket money and free time against plenty of other software. It's not that I don't think Nintendo games could hold their own in a competitive market, I merely don't wish to underestimate the focus that Nintendo acquires by having a devoted console all of their own underneath the TVs of millions of consumers - even if its not quite the number of millions they'd like.

"The market seems to be changing faster than Nintendo is prepared to keep up with, [but] I'm not convinced that any of the company's critics actually have a better plan right now than Satoru Iwata's "stay the course" approach"

How about the other side of the argument, then - the mobile games aspect? Nintendo's position in handheld consoles may not be what it used to be, but the 3DS has roundly trounced the PlayStation Vita in sales terms. Sure, iPhones and high-end Android devices have much bigger installed bases (Apple shifted around 75 million iPhones in the last quarter, while the lifetime sales of the 3DS are only just over 50 million), but that comparison isn't necessarily a very useful one. All 50 million 3DS owners bought an expensive device solely to play games, and the lifetime spend on game software of each 3DS owner runs into hundreds of dollars. The "average revenue per user" calculation for Pokemon on the 3DS is easy; everyone paid substantial money for the game up front.

By comparison, lots and lots of iOS and Android users never play games at all, and many of those who play games never pay for them. That's fine; that's the very basis of the F2P model, and games using that model effectively can still make plenty of money while continuing to entertain a large number (perhaps even a majority) of players who pay nothing. Still, the claim that moving to smartphones is a "no-brainer" for Nintendo is a pretty huge one, taken in this context. The market for premium, expensive software on smartphones is very limited and deeply undermined by F2P; the move to F2P for Nintendo titles would be creatively difficult for many games, and even for ones that are a relatively natural fit (such as Pokemon), it would be an enormous commercial risk. There's a chance Nintendo could get it right and end up with a Puzzle & Dragons sized hit on its hands (which is what it would take to exceed the half a billion dollars or so the company makes from each iteration of Pokemon on 3DS); there's also an enormous risk that the company could get it wrong, attracting criticism and controversy around poor decisions or misjudged sales techniques, and badly damage the precious Pokemon brand itself.

In short, while I'm constantly aware that the market seems to be changing faster than Nintendo is prepared to keep up with, I'm not convinced that any of the company's critics actually have a better plan right now than Satoru Iwata's "stay the course" approach. If you believe that PlayStation fans will flock to buy Nintendo software on their console, you may think differently; if you think that the risk and reward profile of the global iOS market is a better bet than the 50-odd million people who have locked themselves in to Nintendo's 3DS platform and shown a willingness to pay high software prices there, then similarly, you'll probably think differently. Certainly, there's some merit to the idea that Nintendo ought to be willing to disrupt its own business in order to avoid being disrupted by others - yet there's a difference between self-disruption and just hurling yourself headlong into disaster in the name of "not standing still".

There's a great deal that needs to be fixed at Nintendo; its marketing and branding remains a bit of a disaster, its relationships with third-party studios and publishers are deeply questionable and its entire approach to online services is incoherent at best. Yet this most fundamental question, "should Nintendo stay in the hardware business", remains a hell of a lot tougher than the company's critics seem to believe. For now, beleaguered though he may seem, Iwata still seems to be articulating the most convincing vision for the future of the industry's most iconic company.

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Latest comments (34)

Jeff Kleist Writer, Marketing, Licensing 5 years ago
A better way of putting it is:" without the albatross of game hardware development and support, and with the sweetheart royalty rates virtually guaranteed from Siny and Microsift, NINTENDO will sell just as many, if not more games, and make more money, and have the support of quality hardware, networking, and software engineers who will help their games reach their full potential"

Staying in the hardware is a vanity, they need to quit while at least the DS is still ahead.
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Dave Buckingham Engineer, Playground Games5 years ago
Typo I think Rob, the Wii shipped over a million units alright! (Third paragraph)
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Nick McCrea Gentleman, Pocket Starship5 years ago
If you think the answer to that is "yes", here's what you're essentially claiming; that there's a large pent-up demand among PlayStation owners for Mario Kart games. Is there really? Can you prove that...
It's an interesting question. Is there no way Nintendo could test this assumption without signalling the death of their hardware?
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Show all comments (34)
Robin Clarke Producer, AppyNation Ltd5 years ago
Well articulated as ever, Rob.

I don't think a lot of these analysts who think Nintendo should flog the family silver quite grasp how much more valuable their IP and ecosystem is than virtually anything else in the sector. Nintendo's games make their dedicated fans pay $100s over many years. And then buy them for their kids. Who else can make that claim?

Anyone arguing that Nintendo don't know the size of the market unless they enter it need only look at how Sega have systematically devalued their IPs, or how Square Enix's forays into iOS, while undoubtedly profitable, have rarely troubled the Top Grossing charts.
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Jeff Kleist Writer, Marketing, Licensing 5 years ago
@John

Sega had nowhere near the IP strength, nor the software sales Nintendo enjoys. Sega was, and still is, Sonic. And I doubt NINTENDO would ever ship the number of crapfactories Sonic has. Thry simoky wouldn't allow it
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Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.5 years ago
Thank you, Rob. You're a perceptive voice in a sea of media that can't see past their Oculus Rifts.
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Steve Peterson Marketing Consultant 5 years ago
Rob, I disagree that "stay the course" is the best strategy... and Nintendo is trying something different with its Quality of Life initiative into medical devices (which I don't think is going to be a big thing outside of Japan, and perhaps not even inside of Japan). You are right that other courses suggested for Nintendo (putting games on other consoles or going mobile) are fraught with peril... but so is the console business. Many think the PS4 and Xbox One may be the last consoles... so in the long term, would it really be a great move for Nintendo to do a new console?

Yes, it's a concern that the 3DS and Wii U aren't doing better, but to me the greater concern is that Nintendo is mostly rehashing old IP (when you get to version 8 and 10 in your games, I think it's fair to say you are mining your old IP pretty thoroughly). Where's the fascinating new characters and new game play ideas? Splatoon looks interesting, but I'm not sure it will become an icon. Yes, Nintendo puts a level of polish on its games that I wish other publishers would approach, but the fact remains the company is getting slower at putting out big titles, and taking fewer creative risks.

What's the answer? I don't know, but I think they should be trying something other than trundling along the same well-worn path.
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Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.5 years ago
Steve, trying something is one thing. Jumping ship to greener pastures (metaphor mashup) is a one time deal. You can't turn back from that. The QoL product line is certainly new (and you're right to question its validity both in and out of Japan) and a statement that they are certainly willing to do something other than staying the exact course.

But you can never go back once you go 3rd party or mobile or F2P or whatever. What happens when the market shifts again and they are at the mercy of whatever platform they are now leashed to? Nintendo is navigating tough waters but do you really think it wise to abandon ship and board the Titanic just because it looks luxurious right now?

Let Nintendo be Nintendo. Forcing them to conform to something they are not is asking them to ring their own death knell.
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Steve Peterson Marketing Consultant 5 years ago
Jim, I don't know what the right answer is for Nintendo, but I think they need to be bolder -- and they have the cash to do it. I don't feel that it's necessarily an all-or-nothing bid. For instance, they could try taking some old titles (a Super Nintendo Mario, or Mario 64) and put it on iOS and Android and see what happens. That wouldn't have a negative effect on any new hardware or software, but it would certainly get their brand in front of more people, especially kids.If any company could sustain a premium price for games on mobile, it would be Nintendo -- so they wouldn't have to try and make it free-to-play.

For that matter, dedicated Nintendo fans are already playing old Nintendo games on mobile by using emulators and pirated ROMs -- and Nintendo makes no money from that.

This effort could be done by a studio Nintendo hires, so it need not take any of their precious in-house development resource (who wouldn't know the mobile platforms anyway). Just spend some yen out of the piggy bank, and give it a shot. What bad thing could happen? 3DS sales might drop? Well, that's happening already.

There's risk in every direction, and the biggest risk is to take no risk.
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Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.5 years ago
So put premium priced content on a device that already has a consumer base playing the same games for free (emulated)? And in the process harm their already declining portable software (and virtual console) sales?

Why cut off one hand to heal the other?

I'm not suggesting they do anything without risk and I agree they need to be bolder (QoL isn't bold enough?) but they should never sacrifice or harm what they already have to test a different market. Imagine if that test fails AND they damage their current market even further? Risk is one thing but risk that could take you out is another.

They have cash and they do need to spend it. That's been my biggest complaint for a long time now. They could buy studios, up their marketing game, invest in R&D (did that already a bit with the new combined home and portable R&D facility), buy up some IPs when they hit the market (THQ anyone? Is Sega next?) but they sit on it...probably for down periods like this one. Which now that I think about it was probably a pretty smart move. Nintendo doesn't have MS or Sony's supplementary divisions to sustain itself through massive losses like both Sony and MS have had to do.
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Robin Clarke Producer, AppyNation Ltd5 years ago
"Mostly rehashing old IP" was the point at which I smiled and shook my head at Steve Peterson's comment. Assuming reusing recognised characters and brands in new contexts is the same thing as iterating on versions of a piece of software is a really basic error.

Every games publisher (and all of Hollywood to a far, far greater extent) is guilty of dressing up new ideas in familiar clothes. Nintendo are hardly alone and far from the worst at this practice.

Then we're back to the old chestnuts (already shot to pieces in the article) of nothing being harmed by brand dilution, and Nintendo magically being able to shape consumer behaviour on other platforms to fit the fantasy narrative. Sigh. It's like talking to a brick wall, isn't it?
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Keldon Alleyne Strategic Keyboard Basher, Avasopht Development5 years ago
Steve: and Nintendo is trying something different with its Quality of Life initiative into medical devices (which I don't think is going to be a big thing outside of Japan, and perhaps not even inside of Japan).
@Steve: According to the CDC around 50 million Americans experience trouble with concentration due to sleep-related difficulties (source), so Nintendo might be on to something.

I do think Nintendo could do a great deal more with regards to new IPs. Pokémon is 20 years old now! Regarding risk, I think their last two console launches were about as risky as could be. The Wii not only did away with the traditional controller, it was half a generation behind and featured a new control mechanic. The Wii-U was a complete generation behind featuring an expensive controller that included a screen. The 3DS featured a 3d screen at the expense of graphical power. So for the past decade I think it's fair to say that Nintendo has taken massive risks with every console (hence their losses).

All Nintendo needs to do to be competitive in the future is perhaps to be quicker on the ball with their own releases and to strike up a Rare like partnership that brings out new IP and appeals to a wider range of demographics.
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Jeff Kleist Writer, Marketing, Licensing 5 years ago
@John

I got my first job to buy a Master System, believe me, I lived and breathed Sega. The only console of theirs I never owned was 32x, because, well, that was a waste of money and I knew it :)

Shenmue was an amazing, groundbreaking game, and like so many other Dreamcast games and practices, something that has defined everything that has come since

But Shenmue has never moved very many units. Jet Set Radio, Crazy Taxi, Phantasy Star, you name it. The Virtua series is fabulous, but again, if people don't buy it, it's not that big. What Sega property gas moved toys and t-shirts? Had a successful multi-decade cartoon? What Sega game has moved 29 million copies? In fact if you combined console sales of all Sega titles the last five years, would it be 29 million?

Nintendo has a merchandising and game empire in Pokemon alone. theres huge appetite for their games, but not an appetite to drop $250-300 to play the latest warming over of their franchises. There is no point to them making hardware, they're not good at it, and they're a decade behind technologically. Sega always rode the cutting edge, they were just terrible, and continue to be terrible at everything Nintendo was good at. Once they lost Kalinske, Sega fell apart.

Nintendo is a rich field of great IP that will continue to make mad bank for years, as long as they're snart eniugh to realize they're tossingood money after bad. Hardware has to go. Pokemon needs to be on the iPhone, Mario Kart needs to be in Xbox Live, and Zelda needs to be on PS4. And NINTENDO needs to sell to Disney, who can help them exploit their brands outside gaming
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Greg Wilcox Creator, Destroy All Fanboys! 5 years ago
I'd imagine one of the main reasons the 3DS is still viable is original first and third party games can be produced quickly and relatively cheaper than games made for other (HD) platforms. I'm sure an HD portable has been something some have wanted for a while. But I have no idea if Nintendo will make the leap. Still, I wonder what would happen if there were Nintendo supervised ports of some popular mobile titles (Puzzle & Dragons, for example) that were retail or download complete versions with a single price point and no microtrasactions...
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Jeff Kleist Writer, Marketing, Licensing 5 years ago
Greg

From a production side I agree with you. The #1 selling point is still:"it's cheap to replace when junior drops it, unlike an iPad" :) kindle Fire is huge with kids for that very reason.
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Keldon Alleyne Strategic Keyboard Basher, Avasopht Development5 years ago
@Jeff: Nintendo released cutting edge consoles until the Wii, so it's only for two generations that they've released a machine with dated hardware, and that's by choice not because they can't. It's really not rocket science to order the latest APU!

Their development teams however may be behind, as demonstrated in the difficulties with the HD jump.
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Reza Ghavami Marketing Analyst, NVIDIA5 years ago
Freed from the limited installed base of Nintendo's own hardware - and presumably, in the case of handheld titles, freed to experiment with new business models like F2P - the company's games would reach their full potential, the expensive hardware division could be shut down and everyone at Nintendo could spend the rest of their lives blowing their noses on Ą10,000 notes.
Forgive me, but after reading that line, I must now stop reading this article and go kick myself in the balls.
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Jeff Kleist Writer, Marketing, Licensing 5 years ago
That's every aspect of development. You're correct that they won't build hardware they can't support, but the end result is the same
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Paul Jace Merchandiser 5 years ago
I've said it before and I'll say it again, Nintendo should leave the console hardware business to focus strictly on their handheld division. They would continue making a good deal of money this way as well as alleviating loses from their console division. Or atleast thats one possible solution I'd suggest to them.

I'm also not in the camp of them becoming a third party publisher for Microsoft, Sony and ios. If they are going to make games for another system it should only be if they merged with another company. I think Jeff mentioned the other day that this would probably be with either Amazon or Microsoft because frankly Sony couldn't afford Nintendo. Ideally the merger would allow Nintendo to run things in Japan and the other company to run things in the US/UK.

But even a merger should be a secondary route to them only making handheld systems and games. They should atleast try that after the Wii U leaves the market and focus on the 3DS family and whatever successor it has.

Edited 2 times. Last edit by Paul Jace on 31st January 2015 1:11am

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Jeff Kleist Writer, Marketing, Licensing 5 years ago
@Ken

NES was not cutting edge, Master System was a better piece of hardware in virtually every way, even if it didn't have the breadth of catalog. GameCube was not cutting edge, though certainly far more competitive than subsequent units. Really the only time Nintendo has been citing edge was snes, and that had a much slower CPU than genesis, but better video processing and sound.
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Greg Wilcox Creator, Destroy All Fanboys! 5 years ago
The funny (and yes, odd to some here) thing is, I'd bet a shiny new penny that the bulk of Nintendo consumers don't care a whit about "cutting edge" as much as everyone who hits the company for not being up to spec with the competition. They just want to play what's new (or old and resold). Yep, that's sad in a big way, but I think those folks will always be around as long as Nintendo keeps cranking that handle...
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Jeff Kleist Writer, Marketing, Licensing 5 years ago
I completely disagree that consoles are unnecessary, or going anywhere. Cloud processing will extend the life of the existing platforms for sure.

I maintain its a false equivalency between Sega and NINTENDO. There is no hardware animosity with the customer base and there's a major difference in the size, and fervency of the cult. Sega had poor management, made lots of poor games, and made poor choices. They dug their own grave. Nintendo just has to slap a name on a box and make the same game but prettier and they'll sell 5 million
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Keldon Alleyne Strategic Keyboard Basher, Avasopht Development5 years ago
NES was not cutting edge, Master System was a better piece of hardware in virtually every way, even if it didn't have the breadth of catalog. GameCube was not cutting edge, though certainly far more competitive than subsequent units. Really the only time Nintendo has been citing edge was snes, and that had a much slower CPU than genesis, but better video processing and sound.
1. The NES came out two years before the Master System, so naturally the MS would be able to advance on the technology, but at the time of release it was most certainly cutting edge.
2. The SNES CPU had a lower frequency but had higher MIPS. CPU speed isn't the only performance factor. Sound wise I think the Genesis won as it had the Yamaha FM synthesizer, while you're contending with cartridge space to make much use of the SNES PCM audio channels. And let's not forget the FX chip. If you were around at the time of the SNES you will know that
3. The N64 featured cutting edge graphics at the time. The first console to feature a GPU with a depth buffer, perspective correct texture mapping, trilinear mip-map interpolation, anti-aliasing, environment mapping, depth cuing (fog etc), load management (for pop up protection), real time lighting and a programmable GPU
4. The GC was more powerful than the PS2 (bearing in mind it came out something like a year later). It also had additional graphical effects that gave it capabilities that could not be replicated in any way on the PS2.

That to me is a streak of cutting edge machines.

As to whether they have a future in the console business, I just say let's wait for the future because nobody could have predicted the success of the Wii so until it happens you will never know. For all we know a new player could emerge and take the number one spot while making Nintendo obsolete. You just won't ever know until it happens.
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Patrick Frost QA Project Monitor 5 years ago
I wholeheartedly hope that Nintendo stays in the hardware market. I think that their forays concerning hardware have strong impact on gaming culture as a whole and I think that the huge amount of resources now invested in mobile development are in part due to the DS demonstrating an appeal of short burst games to an much older audience. In short, although it's not always successful for them, Nintendo's hardware makes up an important part of the fabric of games.

Part of the argument that I think Rob didn't mention (this time!) was that Nintendo's hardware is directly profitable for them with the rare exception of the 3DS (for a time) and the Wii U (but profitable after the purchase of a single game). By removing this, you are suggesting that Nintendo should abandon a profitable section of business because it's not as profitable as it was before? And there is no alternative to that.

My hope is that Nintendo consolidate the handheld and console into a hybrid machine. I'd like to see all of their development and marketing resources focused on a single platform which could attract both of those audiences. From my experience running a StreetPass UK group, I've noticed that a lot of people weren't buying the Wii U because they were perfectly happy with the 3DS.
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James Podesta Programmer 5 years ago
I see no evidence that Nintendo can release a console that will have any decent sales. They've been on decline for decades and Wii was only successful because of the gimmick of motion control and hitting a new untapped casual market which they were unable to replicate in Wii-U and are unlikely to replicate in any future console. The casual market is well and truly tapped now with mobile and tablets and they certainly don't want multiple consoles in their living room like hardcore gamers are willing to do.

They have a ridiculously strong IP line up - any suggestion that Sega was even on the same league in IP as Nintendo is absurd.

For consumers it would be a huge boon if they released their IP on PS4 - apart from not having to buy new hardware, and finding space for it in front of the telly, you'd get to share the social network and trophy system with all your existing games.
Assuming nintendo isn't making a huge profit on hardware sales, I think they'd make more profit concentrating on their kick-ass software titles.

I agree it would be some loss of face to admit failure in the hardware market, and I can't predict the full outcome of that, though I don't think they'd lose any more face than they did with the failure of the Wii-U.

Edited 2 times. Last edit by James Podesta on 1st February 2015 11:42pm

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Shane Sweeney Academic 5 years ago
Keidon the most powerful console has never been the market leader in any console generation. The Gameboy and DS should be enough of a constant reminder of that.

Nintendo's mantra has always been "lateral thinking with withered technology". It's the cornerstone of there hardware design and always has been.

Sega, Konami, Namco make most of there money from Pachinko machines. Nintendo has never entered the gambling industry, and with Casinos looking to be legalized in time for the 2020 Japan Olympics this industry might be in trouble anyway. I think you will find if Nintendo abandons the hardware industry they will be better off than Sega in the short term and worse off then Sega in the long term.

I do agree that Nintendo needs to be liberated from the lounge room and expand into new markets on new platforms. But I think the new platforms should be Nintendo's very own invention. Nintendo needs to innovate and bring gaming to sectors we never thought possible while sustaining there existing user base.

Nintendo have enough capital and enough innovative to create new markets.

Edited 1 times. Last edit by Shane Sweeney on 2nd February 2015 3:46am

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Nick Parker Consultant 5 years ago
Rob, you say "The market for premium, expensive software on smartphones is very limited and deeply undermined by F2P; the move to F2P for Nintendo titles would be creatively difficult for many games, and even for ones that are a relatively natural fit (such as Pokemon), it would be an enormous commercial risk."
I think that Nintendo could extend their IP to mobile premium and disregard freemium. The IP alone would be recognisable and, as such, mobile gamers would be more likely to pay to download something they know and love rather than a new game brand demanding a price. Nintendo could try premium download on mobile devices as a brand extension (like DVD following theatre release of movies) to mop up more sales from non-owning Nintendo 3DS mobile gamers. A concern would be getting the price right as, at less than $4.99, potential 3DS games purchasers may wait for the smartphone version. Just a thought.
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Robin Clarke Producer, AppyNation Ltd5 years ago
If Nintendo don't drop the RRP of first party 3DS games to hoover up 'aftermarket' sales, why would they go to the expense and effort of porting them to mobile (leaving aside the issue of whether there even are any 3DS games that could be effectively ported) to glean a tiny fraction of the revenue per sale?

No premium mobile game has approached the profitability of Nintendo's crown jewels, and plenty of them have had compelling IP attached. Monster Hunter has pretty much exactly followed this plan (premium at $14.99 on iOS), and I'm sure it's made a ton of money, but that ton of money is probably still a rounding error compared to what e.g. Pokemon/3DS/2DS bundles do.
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Klaus Preisinger Freelance Writing 5 years ago
Jack Daniel's is the best selling whiskey in the world. Still, would you serve your whiskey enthusiast friends JD when they visit? In recent years, video games have experienced the same split happening to their customers. Sure, you can sell f2p dishwater to people and make a lot of money. You can also make a great game for refined tastes and not make any money. Any combination is possible.

Nintendo used to enjoy home-filed advantage, since they were always a force to be reckoned with when it came to being the company who develops the gaming taste-buds of their customers. Be it classic SNES gaming, DS brain trainers for elderly ladies, or core gamer infuriating motion controls. But that time is over and we have yet to see how Nintendo reacts to a generation of gamers which did not grow up on them.
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Art C. Jones Writer / Blogger 5 years ago
Nintendo could get it right and end up with a Puzzle & Dragons sized hit on its hands (which is what it would take to exceed the half a billion dollars or so the company makes from each iteration of Pokemon on 3DS)
Great line, and one I keep pointing to.
Nintendo would have to have ALL OF the biggest hits on mobile to equal what it is ALREADY doing on 3DS. One game in the top 10 on iOS would mean overall less money for Nintendo than they're already making on their 3DS games.
However, on mobile they would have tons of competition, they'd be a rookie in the F2P marketplace, and they'd be walking away from their biggest differentiator - a console made for games.
Moving Smash or Mario to mobile would be a watered down experience that doesn't appeal to their fans. The touch screen is no replacement for a controller. Mario w/o a controller is a pale shadow of Mario (hello Mario Endless Runner and Jumper [Sonic says 'hi']).

...and those games would have to be as big a hit as the biggest F2P games for Nintendo to BE EVEN with where it is now. Not to pull ahead, to BE EVEN. Equal. Same. At the same level. Just moving the games to mobile is a poorly thought out solution. That doesn't mean what Nintendo is doing is great, but it is better than that!
I'm being flippant, yes, but there's honestly not a lot more depth than that to the remedies so often proposed for Nintendo.
AMEN!

Edited 1 times. Last edit by Art C. Jones on 2nd February 2015 5:20pm

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Daniel Hughes PhD Researcher, Bangor University5 years ago
I don't think by advocating Nintendo 'stay the course' Rob is advocating they don't change, he's simply saying that riding out Wii U/3DS before pushing a major new idea is better than cutting and running right now, as so many people seem to think they need to. Nintendo have already said they want to "redefine" their platform business within two years. The last time they began to make statements like that, they came up with Wii/DS.

I am by no means suggesting here that a Wii/DS style growth spurt is two years away, but at the very least there's a significant shift in strategy coming from Nintendo. Why risk damaging their existing audience and brands with a rash move now? If they have the cash to make a major move, why not wait until you can make the right move? Why risk botched 3DS/Wii U style launches? Why risk internal development bottlenecks?

I also agree entirely with Robin with the point on IP. Regurgitating the same mechanical ideas and gameplay concepts is very different from using the same well-loved characters to tend old pastures and explore new ideas. Nintendo's most recent successes were also most reliant on the combination of new IP doing things videogames hadn't done before. I won't pretend to offer a solution for Nintendo, and I certainly think transitioning from Wii U/3DS onto a new platform is their most significant challenge as a business since they entered the games industry in the 1980s, but I also wouldn't write off Nintendo remaining an independent publisher and platform holder. Platform holder doesn't necessarily mean Nintendo will be tethered to one home console and one handheld per generation, either, especially not if they're planning to redefine what a Nintendo platform is.
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Jeff Kleist Writer, Marketing, Licensing 5 years ago
Umm, I will cite Segs again to show what happens when you try more than one per generation
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Rafael Deogracias Journalist & Community Manager 5 years ago
There are 2 extremes I don't generally agree with when it comes to speak about Nintendo's future:

- Looking at hardware sales, the company will crash, it will be its end, and it will disappear.
- Looking only at software sales, the company performs fantastically, it's wonderful, it's loved and everything is bright and sunshine.

Sure thing Nintendo has an amazing number of million-selling IPs and can still make money, and it's far from the status of Sega when it went to hell. But that doesn't mean the "current course" is the optimal one for the company's future: it knows how to sell software in millions, but has lost its popularity as a hardware company. For several generations now, as mentioned by Rob, Nintendo has lost popularity amongst the hardcore market and their consoles have become the "3rd option"... in a market of 3 companies. That's bad, and it would be blind not see it.

Furthermore, it's not only about "making money" or "surviving": it's about making as much money as you can. And having the worst selling hardware is not a good strategy.

I think Rob mentioned the main reason why Nintendo hasn't really become a 3rd party, and it's basically the royalties it would have to pay to either Microsoft or Sony. It works as a percentage of the sales, so can you imagine the huge amount of money they would have to pay for every title? It's not convenient with the current way the business works.

However, even Iwata mentioned in a company briefing that selling hardware for 200-300$ doesn't really work for them. I think the best bet for Nintendo at the moment is wait for an open-platform to work well in the console market (Steambox would be a fantastic bet for them) and in that case create their own e-shop (where they wouldn't have to pay royalties to anyone) while not depending on the sales of hardware to sell games. If not, they may have to look at streaming market options if they become popular.

Other than that, I think the stubbornness of making their own hardware is just simple greed: they don't want to pay huge royalties, and don't even want to invest high enough to be a serious competitor to Sony or Microsoft. But, fairly enough, the competitive markets don't usually reward greedy companies.

And please, let's stop comparing Nintendo with Sega. Before becoming a 3rd party, Sega already had incredible internal issues that were dynamiting it from the inside, and also relied a lot on arcades, which were doomed to disappear. Becoming a 3rd party didn't destroy Sega, Sega itself did it. However, staying as a hardware seller and limiting their market to the hardware sales could end up hurting Nintendo very seriously.

Edited 1 times. Last edit by Rafael Deogracias on 2nd February 2015 11:31pm

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I keep seeing the same recurring points here, so I'm going to add a couple of different ones.

1/ look at these figures (converted to US at 100 yen - $1 for simplicity):
- total sales (9 months): $4.5bn
- R&D spend: $450m
- marketing spend: $440m (down from $570m)
- total est. profit for 2014-2015: $300m

Nintendo will still have spent the entire R&D budget on marketing - which is 1.5x the total est. yearly profit. I know a lot of that money is likely to be "salaries" - but what would happen if they dropped the marketing budget by say, 90%? Sales would drop - but surely not by that much. This could *double* the profit they make for the entire year (much of which is not operating profit anyway).

Iwata has started moving to "lower-cost" marketing (Nintendo Directs being a good example), and this needs to continue. Dump anything expensive - including TV advertising. Focus on internet/mobile ads. Or maybe take 2-3% of that marketing budget and turn that into "mobile game/ads". It must be possible to create a F2P mobile "light game" experience that doubles as effective hardware and software advertising.

2/ Nintendo needs to get better at transforming their ideas from the "game domain" to "long term services". I'll give 2 examples:

Nintendo pioneered the whole "Brain Training" genre about 10 years ago. Brain training was a smash hit for several years... then basically died out. These days, an entire *industry* has sprung up to take its place - and Nintendo is no where to be seen. Luminosity is one example - Nintendo should be owning/running that.

WiiFit. It was massive with the Wii - but Nintendo never took it beyond "toy" stage. Same as above - now an entire industry has sprung up (specifically fitness bands and tracking) - and Nintendo is no where to be seen. They should have owned Fitbit and spun off a company just to manage that.

Nintendo are great at coming up with original ideas - but sucky when it comes to proper commercialization of them for the long term. The one exclusion here is "The Pokemon Company". If they hadn't spun that off, Pokemon might be dead by now.
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