The house that Mario built is in a lot of trouble right now. Nintendo, which has been making hit games like Super Mario Bros. and The Legend of Zelda for more than three decades, announced last week that it will face its third straight year of operating losses for the fiscal year of 2013. Even worse, the company was forced to cut annual sales projections for its flagship Wii U console by a whopping two-thirds, down to just 2.8 million systems as well as projections for its more successful 3DS handheld. The company’s stock price tumbled as a result of the news, and investors and analysts are now clamoring for dramatic change at the company.
Nintendo once led gaming trends, from handheld gaming with the Game Boy to motion-controlled innovations with the Wii. But the company has been caught flat-footed by tectonic shifts in the gaming industry. These devices that have grabbed the attention of the kids and casual gamers that used to flock to Nintendo titles. President Satoru Iwata has said the company needs to change and is considering a new business structure , but it’s not clear exactly what path Nintendo will take to try to turn things around. Here are three drastically different strategies worth exploring, and three that might sound good at first but could actually send the company down an even darker path:
3 Solid Strategies
Embrace smartphone and tablet games – Investors and media pundits are saying that the quickest path to a turnaround is through mobile devices, the fastest-growing gaming platforms out there. But it’s unlikely that Nintendo will release full-fledged titles for iOS or Android anytime soon. A typical retail Wii U game is $60, while hit mobile games like Candy Crush and Angry Birds are free, at least initially. Instead, the company might release smaller games that promote their mascots and somehow entice players to upgrade to Wii U or 3DS versions. (Competitors Microsoft and Sony have already released simple games based on their flagship franchises on iOS and Android.) Nintendo might also consider developing a tablet for kids and selling original games through that platform.
Get rid of home consoles and focus on handhelds - While the Wii U is giving Nintendo headaches, the company’s 3DS handheld was actually the best-selling video game system of 2013 and is projected to sell 13.5 million units for the fiscal year. Nintendo’s handhelds have consistently outsold its home consoles ever since the Game Boy was introduced in 1989. It might be time to entirely eliminate the bulky home systems, which are expensive to produce and rarely get robust support from third-party developers. By focusing on a single console, Nintendo could create a game lineup strong enough to turn the heads of both casual iPhone gamers and core Xbox fans who might want some quality gaming on the go. Nintendo could even include connectivity to allow these games to be beamed to the big screen when players are at home, similar to Google’s Chromecast device.
Launch a game streaming service – This is an ambitious proposition, but it’s plausible. Sony is already prepping a video game streaming service, through which players will be able to rent and play old PS3 and PS2 games without having to purchase a physical console. Nintendo, which has the most prolific back catalogue of games in the industry, could corner this market. Seeding the service with hard-to-find classic games and providing a way for gamers to play them in high-definition on their TV screens could be an appealing sell to old-school fans and parents looking for an affordable way to entertain the kids. Through a streaming service, Nintendo could get its content onto hot mobile products like the iPhone without having to share 30 percent of each game download with Apple.
3 Disastrous Plans
Stay the Course – With the Wii now projected to sell worse in the 12 months of fiscal year 2013 than it did in its first five months on the market, weathering the storm isn’t really an option for Nintendo. The Xbox One and PS4 are already on the market and enjoyed successful launches. Another head-to-head matchup with Sony and Microsoft with a new line of consoles in a few years would just lead Nintendo to sink more R&D money into an expensive system that appeals to neither casual nor hardcore gamers. If the company chooses to release another home console, it will require a differentiating factor truly out of left field, like the original Wii’s motion controller.
Develop Big-Budget Games for Xbox One and PlayStation 4 – This is the dream scenario for a lot of gamers, but it’s a dangerous proposition for Nintendo. The company has never had too much trouble creating the games with the largest budgets and best reviews on its own consoles. On the other systems, though, Nintendo would face stiff competition from gaming giants like Activision, which publishes the Call of Duty series, and Take-Two Interactive, which just spent an estimated $160 million on Grand Theft Auto 5. Nintendo president Iwata has already admitted that managing the expense of high-definition games has been a challenge for the company. It wouldn’t be any easier on systems that are considerably more powerful than the Wii U, as the new Xbox and PlayStation both are. What’s worse, there’s no guarantee big-budget Nintendo games would find the same success on competing consoles. Action games developed by Western companies have usurped Japanese-developed titles as the era’s most popular games.
Agree to a Merger or Acquisition - Back when Nintendo’s GameCube console was floundering in the early 2000s, Microsoft considered buying the company. In more recent times some in the gaming industry have floated the idea of Disney snapping up Nintendo. But these scenarios are far-fetched. With a market capitalization of almost $17 billion, Nintendo would be an extremely expensive purchase (for comparison, Disney paid $4 billion for Marvel Entertainment in 2009). Moving under a larger company’s wing might not benefit Nintendo in the long run anyway. The game-maker has survived this long by consistently releasing odd products, some of which failed (remember the Virtual Boy?) while others became enormous successes, like the Wii controller. A buyout would likely lead to a drastic change in corporate structure and perhaps stifle the creativity that has helped Nintendo innovate its way out of trouble in the past.
On Jan. 30 Iwata is expected to discuss a new management strategy after Nintendo releases its full quarterly results. Whatever path he chooses, the year ahead will be tough for one of the world’s oldest video game companies.