The Nintendo booth at the Game Developers Conference 2014 in San Francisco on March 19, 2014.
Nintendo’s earnings report for the fiscal year ending March 31, 2014, is not pretty. Sales of the company’s Nintendo Wii U have been slow and, in the final tally, the company lost hundreds of millions of dollars. It may be time for Nintendo to reinvent itself — again.
I can still remember the absolute glee seven years ago when my daughter found out she got a Wii for her birthday (the moment is documented on YouTube). I’d essentially called the product the best thing ever. As the first successful motion-controlled game system for the mass market, it was innovative, smart and enormously fun. I wasn’t alone in my adoration; Nintendo Wii usually sold out as soon as retailers stocked it. For years, I could not find the console on store shelves.
I never realized that would be Nintendo’s high point.
While sales of the Wii chugged along, Nintendo did little to update the console, even as competitors adopted HD resolutions (making hand-held motion control seem ridiculous). When Kinect for Xbox 360 launched, it was an immediate sensation, selling millions of units in a matter of months. In a way, Microsoft has Nintendo to thank for Kinect’s success; the Wii's handheld motion recognition and control system primed the public to use their bodies to drive gameplay and interaction. The jump to doing so without an external device was a small one.
Meanwhile, Nintendo incrementally improved the Wii’s remote controls with tiny add-ons that significantly increased sensitivity. I continued to play Tiger Woods Wii Golf years after the legend fell into disgrace. Sony’s wand-based motion capture system, never had the same impact as the original Wii, and certainly was not as well-received as Microsoft’s Kinect.
Nintendo didn't sit still, but in virtually all subsequent hardware releases, the gaming company that was once on target appeared to have developed faulty aim.Nintendo didn't sit still, but in virtually all subsequent hardware releases, the gaming company that was once on target appeared to have developed faulty aim. A perfect example is the Nintendo 3DS, the company’s super-hyped followup to the Nintendo DS, which sold millions of units.
No company deserves more credit for creating the handheld gaming industry than Nintendo. When Nintendo launched the iconic Game Boy in 1989, it quickly rocketed to gaming stardom and went on to sell over 100 million units. It was eventually followed by Game Boy Advance SP, which looked like a tiny laptop and sold 43 million units. The successor to Nintendo's wildly popular Game Boy line of handheld game systems, the dual screen (DS, get it?) pocket game, was also a monumental hit among preteens. It arrived three years before the first iPhone and several years before games for the iPod, making it the go-to device for handheld gaming for a while. Both my kids had the first, second and third generations of the touchscreen devices.
By the time the 3D version of the venerable gaming device arrived in 2011, the mobile gaming landscape had shifted. iPods, iPads, iPhones and, to a lesser extent, Android phones, were becoming the default devices for mobile gaming, and not just casual games like Kingdom Rush. Powerful hardware and software enabled fast-paced driving and action games like Infinity Blade, once the sole purview of console systems.
Entering this playing field was Nintendo's 3DS, a device almost fated to underwhelm. It essentially uses lenticular technology (a generous description if there ever was one) to create an adjustable 3D image on the top screen. Lentiuclar screens use tiny lenses embedded in the 2D display to force the eyes to see and combine two slight different images at once—thereby faking a 3D image. The 3DS is still for sale and works fine, but Nintendo overestimated the demand for the handheld device. To be fair, I think everyone overestimated the demand for 3D imagery in 2011 and 2012.
In a large part, Nintendo equally mishandled its Wii console system over the last few yearsIn a large part, Nintendo equally mishandled its Wii console system over the last few years, from the red Wii Mini to the Wii Family and the Wii Balance Board.
The Wii U never appealed to me. The large second-screen play and control device looked as it though it was designed with toddlers in mind and, though the device is a solid home entertainment system, the design seemed woefully out of step with the deep colors, sharp lines and aesthetics of home entertainment systems Microsoft and Sony adopted for their hero game console systems.
Many are still interested in and love Nintendo and its products. Young adults likely grew up playing with Nintendo hardware, and they still share a collective nostalgia for the DS system, early Wiis and Game Boys.
Regardless, Nintendo's earnings report paints a bleak picture for its hardware business. While the company seems quite able to muster growth for its software sales, the hardware appears to be in a death spiral.
Nintendo DS sales dropped roughly 11% year-over-year, and the console business tumbled by almost 25%. Digging into unit sales, the picture is even grimmer. While the original Nintendo DS sales are, in light of newer hardware, in free fall, 3DS sales are also dropping. The company sold more than 12 million units last year, but sales fell by roughly 1 million units. Nintendo reports that to date, sales of Nintendo 3DS sit at roughly 43 million, but that still pales in comparison to the 154 million Nintendo DS devices.
The Wii U’s outlook, though, is far worse.The Wii U’s outlook, though, is far worse. Its unit sales fell by 1 million units year over year. While the company has sold more than 101 million Wiis to date, Nintendo sold a little more than 6 million Wii U units since its launch less than two years ago. Microsoft and Sony sold 5 million and 7 million new consoles, respectively, in well under a year. (It's unclear what percentage of Wii hardware sales include hardware accessories, like Wii remote control replacements).
Software sales fared somewhat better; sales of titles for both the Wii U and Nintendo 3DS are on the rise. Even so, titles for legacy hardware are, in some cases, falling precipitously, so Nintendo will have to make up the difference on new platforms if it expects to turn things around in 2014.
It’s time for Nintendo to cut its losses on hardware. The console market is now a two-horse race, and the mobile gaming market is in the hands of companies like Apple and a host of Android partners.
Times have changed — and now it’s time for Nintendo to change, too.