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Nintendo's had a tough year so far - but those predicting or celebrating the Wii's decline are deluding themselves.

The Circle of Life

Only a few years ago, Microsoft was the company that couldn't do anything right in the games market. The original Xbox was widely ridiculed - it was the size of a house, its controllers were designed for gorillas rather than humans - and the company's quarterly reports, each revealing the scale of the gaping money pit in the Home & Entertainment division, were a steady dripfeed of further fodder for the fire.

Soon, though, it was Sony's turn to occupy the stocks in the middle of the village. Around the launch of the PS3, the formerly dominant hardware firm couldn't do anything right - and the slightest misstep was construed as a company-killing disaster.

The game of musical chairs moves on. This year, there's no doubt who's been left standing up when the music stopped. It's Nintendo, the one-time underdog made good, whose powerful position in the market and relentless courting of new demographics has made it into the bete noir of gamers - while their own failure to sell decent volumes of software on the Wii platform encourages many industry types who should really know better to snipe from the sidelines as well.

Giant corporations don't really go in for introspection, so of course, neither Sony nor Microsoft will have pangs of empathy for Nintendo's newfound whipping-boy position - and even if they did, a quick glance at the Scrooge McDuck style money vaults beneath the company's understated Kyoto headquarters would quickly assuage any guilty feelings. Frankly, rival executives and spokespeople are simply going to be glad that the heat is off them, and keen to stick the boot in where possible.

No Rhyme, Nor Reason

However, as any platform holder exec will admit (after a few drinks, at least), the wrath of consumers and industry alike does not, as a rule, select its target based on cold, rational logic. The original Xbox, in hindsight, was a pretty good console - whatever you thought of its industrial design, it boasted features and power well ahead of its rivals', and had software like Halo available from the outset. Sentiments run higher over the PS3 at the moment, but the reality is that Sony's missteps with the console have never been remotely as awful as skim-reading websites and forums would suggest.

So, too, is the situation with Nintendo - a situation thrown into sharp relief by the firm's recent announcement of financial and unit sales forecasts, which have rather unfairly provoked a loud chorus of "ding, dong, the witch is dead" from the firm's detractors.

Let me be clear - the figures aren't great, but they aren't great by Nintendo's standards, which is a bit like a top restaurant dropping from three Michelin stars to two, rather than having the whole establishment bulldozed and replaced with a McDonalds. A six month profit figure of three quarters of a billion dollars is still an eye-watering figure and one that most executives in the industry would sell their grandmothers to achieve - even if it is 52 per cent lower than the even more insane profits the firm generated a year previously.

The real concern, however, isn't Nintendo's profitability. Bear in mind, after all, that the Yen is extremely strong at the moment, so every Pound, Euro or Dollar of profit the company generates overseas is contributing less to its bottom line this year than it was last year - not to mention the impact currency changes have on the firm's vast foreign investments. A significant chunk of the profit decline can be explained away in those terms.

But the Numbers Have Dropped...

What can't be explained away quite so easily, however, is the rapid slow-down in sales of the Wii in the first half of this year - dropping to 5.75 million from around 10 million in the same period last year.

Does this mean that the Wii has peaked entirely? Having traced a sales curve more rapid even than the PlayStation 2, is Nintendo's wunderkind to plateau before reaching even half the lifetime sales of Sony's bestselling platform? Plenty of gamers and industry types fervently hope so, and are already arranging barn dances on the console's early grave.

Those hoping for the demise of the Wii - because it's not hardcore enough, because it's hard to make a profit from as a third party, because it's committed the cardinal sin of making gaming mainstream and widely accepted, shock horror - are popping the champagne corks too early.

Nintendo was always going to face an uphill struggle with this console's growth curve. The accusation leveled at the Wii in the outset was that it was a fad, a machine sold on the strength of Wii Sports alone (and later, Wii Fit), one which would be played for a while and then left to gather dust in the cupboard until someone remembered to drag it out again next Christmas.

It's not accurate to categorise the console's entire playerbase like that - bear in mind that plenty of "upstream" franchises have done remarkably well on the Wii - but the description does have a number of grains of truth to it. To some extent, Nintendo didn't care all that deeply. It doesn't make huge losses on hardware and most of the successful software on its platform is first-party, which means that it can make solid profits off console purchasers who only buy a game or two every year.

However, the problem with fads is that they burn out. The Wii hasn't done too badly on this front - it's continued selling far longer than many people believed it would, and a "fad" that sells around 55 million consoles at a price tag of GBP 180 each is pretty remarkable. These latest figures, however, suggest that the Wii's curve is flattening out. With the PS3 and 360 still building strongly on their installed bases, this race could yet mimic the finale of the children's tale of the hare and the tortoise.

Knowing is Half the Battle

Consider this, though - Nintendo knows what it's done wrong. It's not blustering and stonewalling over the drop in its fortunes, nor is it blaming the global recession - when, in fact, it's probably one of the few companies that could quite honestly drop some of the blame on that doorstep, since we'd always known that newcomers to gaming would probably drop the pastime like a hot potato when financial troubles loomed and belts needed to be tightened.

No, Nintendo understands that its basic problem was with its software. It didn't manage to keep a solid, high-quality feed of top titles pouring into the market over the first half of this year, leaving the Wii to rest on the laurels of Wii Sports and Wii Fit when what the market really needed were new things to reignite interest. A huge number of the Wii's owners are downstream consumers, uncommitted newcomers to the gaming market, and after an immensely promising start, Nintendo failed to deliver the kind of software that encourages those people to swim upstream and get more deeply involved in gaming.

It's not, by any means, too late. Those people aren't going anywhere. Their Wii consoles may continue to gather dust and they may continue to buy only a minimal amount of software, if any at all, but it's highly unlikely that they will migrate to the offerings of any of Nintendo's rivals or dispose of the consoles entirely. Nintendo still has a window of opportunity to engage those consumers by offering them software and experiences which appeal to them and encourage them back into the market.

The fact that Nintendo knows and understands this means that the company is not only determined not to throw away its lead in the market - it also knows how to avoid doing so. It knows that those millions of Wii consoles which were sold to families that had never previously engaged with videogames are one of its most powerful assets, and it knows that it has left that asset untapped so far. It's a mistake Nintendo will undoubtedly spend the next year fighting to rectify. Even a failure to do so convincingly would still probably leave the company solidly profitable and ready to fight in the next round - but if it succeeds, it could have a major impact on the landscape of the market in the coming years.

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