One my my pet peeves -- not that I haven't done it myself -- is when those in the media give "advice" to major companies, as if CEOs running hugely complex multi-billion-dollar global businesses care about what any of us think.
And these days, one of the most common recipients of this advice is Japanese video game revolutionary Nintendo Co., Ltd
(OTCMKTS:NTDOY), which, before its recent stumbles, was the darling of the industry, courtesy of its revolutionary Wii console and DS handheld.
If you have a short memory, you may have forgotten that the Wii had perhaps the most innovative user interface
in any technology product released in the past decade, easily on par with Apple's
(NASDAQ:AAPL) iPhone, which brought touchscreens to the masses.
The Wii's motion-control system was incredibly friendly to non-gamers, and for a short period of time, it did what Microsoft Corporation
(NASDAQ:MSFT) and Sony Corporation
(NYSE:SNE) could not: It created a new legion of gamers
However, as cool as the Wii was, there was a certain faddishness to it, and sales eventually slumped following initial years of huge demand.
Simultaneously, smartphones and tablets rapidly improved their gaming capabilities to provide a high quality -- or at least "good enough" -- alternative to standalone handheld gaming devices like Nintendo's current 3DS, which has underperformed
relative to the blockbuster DS.
As a result, Nintendo shares are down over 84% from the glory days of Wii/DS mania:
Now, the most common suggestion is for Nintendo to give up on its own hardware efforts, particularly in mobile, so it can join the Apple iOS/Google Inc
(NASDAQ:GOOG) Android app boom that has fueled the success of franchises like Angry Birds.
There is some merit to this argument. Nintendo's biggest asset is its incredible library of game franchises like Mario, Zelda
, and Metroid.
In the first quarter of 2013, consumers spent far more money on iOS/Android game apps than on games for dedicated handhelds. According to the research firms IDC and App Annie, gaming revenue from the Apple App Store and Google Play was almost triple that of gaming handhelds:
And for years, demand for specialized portable gaming hardware has been stalling out, as evidenced by lackluster sales of the Nintendo 3DS and Sony PS Vita
So the question is, how can Nintendo best monetize its number one asset (its game library) in an era of diminished demand for its hardware (the only way to play its games)?
This is a fairly complicated issue.
From one key standpoint, there's a major obstacle in Nintendo's incredibly strong corporate culture, one that resists the idea of abandoning its hardware plus software formula, even though it clearly hasn't always worked well.
On Tuesday, Nintendo's president Satoru Iwata emphatically told the Wall Street Journal
that the company is not succumbing to the temptation to go software only:
"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," Mr. Iwata said during the interview at the Electronics Entertainment Expo earlier this week.
"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."
So at least for now, even with its struggles, Nintendo is digging in its heels -- and to some extent, it's probably right to do so.
Nintendo could sell an infinitely larger quantity of games if it made iOS and Android ports -- but the products would have to sell at a much lower prices, and they would officially be competing with games that are free or nearly free, effectively devaluing its intellectual property.
Although I haven't seen much discussion in this area, alternately, I'd like to see Nintendo give up on hardware and let Sony and Microsoft bid for the right to get Nintendo games exclusively on their new consoles -- not that Nintendo is listening to me.
Those two companies are primed for a serious fight, and there aren't many weapons better than franchises like Mario
. Nintendo could probably extract a big fat upfront payment with a sweet royalty deal on future game sales.
So is Nintendo doomed? The answer is yes -- perhaps not to the point of death, but the company's most likely to see a ceiling on its financial success because it just isn't moving the hardware to support its incredible software franchises.
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