Nintendo finds itself in a very different situation than it was in five years ago, when the DS and Wii dominated the world. Its new Wii U console has performed poorly in the six months since its launch, and the company posted its second ever annual operating loss this year. The first was in 2012.
"Smartphones and tablets are nibbling away at the edges of the market for games," said veteran games industry analyst Michael Pachter when Nintendo lowered its sales forecasts in January. "If they can't beat it, they should consider making money off it. Why can't Mario be on the smartphone?"
Why indeed. Mobile devices have no doubt taken a large chunk out of the market for traditional consoles and portables, and it's easy to imagine Nintendo topping the App Store charts with a mobile version of Super Mario Bros. But as long as the company's president, Satoru Iwata, remains in charge, the chances of that happening are slim to none.
"We may look back at the decision not to supply Nintendo games to smartphones and think that is the reason why the company is still here."
"If I was only concerned about managing Nintendo for this year and next year — and not about what the company would be like in 10 or 20 years — then I'd probably say that my point of view is nonsense," said Iwata, in an interview with The Wall Street Journal at this week's E3 conference. "But if we think 20 years down the line, we may look back at the decision not to supply Nintendo games to smartphones and think that is the reason why the company is still here."
Iwata is credited with orchestrating Nintendo's turnaround in the mid-2000s. Taking the reins from longtime patriarch Hiroshi Yamauchi after the release of the unspectacular GameCube, Nintendo and Iwata soon launched two innovative products that shook up the games industry in a big way: the Nintendo DS and the Wii.
Perhaps more than any other in Nintendo's history, the two systems highlight why the company will only create games for its own hardware. Under a decade after the Nintendo 64's analog stick and Super Mario 64 revolutionized 3D games, the DS's touchscreen input and the Wii's motion-sensing controller made new types of software possible for Nintendo, and the systems reached an entirely new audience with titles such as Nintendogs, Brain Age, and Wii Sports. The TV-style Wii remote, in particular, appealed to many who had never picked up a game controller before.
What good is an iPad-style controller to a household with an iPad?
That expanded audience was behind Nintendo's huge success with the Wii and DS, but it's largely the same crowd that now considers games on smartphones and tablets "good enough." It's no surprise that the Wii U isn't selling as fast as its predecessor — what good is an iPad-style controller to a household with an iPad?
But that doesn't mean that Nintendo should switch to selling smartphone games. "I understand the reality that there are some in the market who are more supportive of doing things differently than the way we are doing it," says Iwata in the WSJ interview. "If you want to make short-term profits from the stock price, then I am a very bad president. But I don't think I'm so bad for maximizing the long-term value of Nintendo."
"If you want to make short-term profits from the stock price, then I am a very bad president."
Nintendo has a huge range of exclusive franchises that are more or less guaranteed to sell like gangbusters, and it's that exclusivity that makes them so valuable. The company turned a profit even through the unsuccessful GameCube years, buoyed by fans of its Mario, Zelda, and Pokemon games, and maintains healthy cash reserves. By comparison, Microsoft is thought to have lost close to $4 billion helping the original Xbox reach a similar install base to that of the GameCube.
Make no mistake — the Wii U has been a massive misstep on Nintendo's part, and the chances of it coming close to its predecessor's success are worse than narrow. But even with a subdued E3 showing, the company displayed enough to ensure that the system won't be a total bust. Nintendo's developers can knock out titles like Mario Kart 8 and Super Mario 3D World in their sleep, and the Wii U will get a sales bump each time.
"People will buy hardware just to buy a single game if the game is really compelling," says Iwata. The Wii U sold relatively well in its first month, backed by first-party titles New Super Mario Bros. U and Nintendo Land, but has yet to see any major new game releases six months on. Nintendo relies on its major exclusive titles, and the fact is that it hasn't really delivered any for the Wii U yet.
Iwata expects Nintendo to get back in the black this year with an operating profit of ¥100 billion ($1.04 billion). If the company achieves its goal, it won't be because the Wii U has the best graphics or the most expansive entertainment content — it'll be because of the insatiable appetite for its core brands. The 3DS is the latest system to prove that axiom, with recent entries in the Animal Crossing and Super Mario Bros. series selling in the millions.
While Nintendo could get an easy revenue boost by switching to smartphones, don't expect it to play anything other than the long game. The Kyoto giant has been around for over 100 years, and owes its devoted fanbase to a strong sense of tradition. Whether the Wii U can mount a serious challenge to the Xbox One and PlayStation 4 is almost besides the point — Nintendo's philosophy is closer to that of a boutique toy company than an international force in consumer electronics. As long as its fans keep buying Nintendo titles, the company will survive. And it won't need the iPhone to save it.