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Is Nintendo’s Wii U Problem Terminal?

The company once dominated consoles, but the Wii U is a disaster and smartphones continue to eat into 3DS sales

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It can take years to develop a new game console, so there’s no immediate replacement for the Wii U. On the mobile side, Nintendo released the cheaper 2DS in 2013 — a $129 3DS variant in tablet form that lacks 3D capability — but that did little to stop the slide (2DS sales are included in the 3DS numbers).

One obvious solution that’s been frequently suggested is that Nintendo cave and release games featuring its iconic properties for iOS and Android. Games and characters like The Legend of Zelda, Mario, Pokemon, Donkey Kong and Metroid have been Nintendo exclusives for decades.

The demand is there, but Nintendo would have to sell an awful lot of Mario titles for iOS and license a ton of merchandise to make up for its hardware business — which it would essentially be throwing away, since most people who buy a Nintendo console do so to gain access to those exclusive games. As recognizable as Mario and company are, they aren’t at the Disney (DIS) level of pop culture significance.

Going this route would likely be short-sighted and disastrous for Nintendo in the long run. History has not been kind to console makers that dumped hardware in favor of licensing their games. Just look at Sega (SGAMY) and Atari — former console market leaders that are shadows of their former selves today.

Some have suggested leaving the tablet controller out of the Wii U altogether to slash the price of the console and to make it easier for developers. Doing so would come at the cost of eliminating the console’s only real technical advantage over the PS4 and Xbox One while alienating existing Wii U owners who paid for a premium for an accessory that was supposed to be integral to the gaming experience.

Another possible way to staunch the bleeding is for Nintendo to appeal to gamers and developers by upping support for third-party downloadable titles through online app stores. Doing so would help to combat the huge price advantage enjoyed by iOS and Android games while helping to level the playing field with Sony and Microsoft who enjoy strong independent game developer support for their consoles. The company would need to beef up its app stores (which crashed under the load of the existing Nintendo customers over the holidays) and actively reach out to independent developers.

There’s no question that the company is between a rock and a hard place with few options. However, it does have the cash needed to weather the Wii U crisis and prepare a replacement console. If it goes that route, the next product launch will be do or die for the company. And in the meantime, NTDOY is likely to continue to take a beating.

Nintendo President Satoru Iwata announced he will be presenting short-term and mid-term prospects for the company on January 30 (the day after Q3 financial results are reported), so we can expect to hear Nintendo’s strategy at that time.

I’m betting the strategy involves staying the course with both the Wii U and 3DS for the near future, while doing everything possible to make the platforms more attractive to developers. The Wii U problem isn’t terminal yet … but another misstep like this, and the company will be on its last life.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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