3 Crazy Plans to Save Nintendo

How much has Nintendo been struggling since the Wii peaked in popularity? Well, a picture (or... chart) is worth a thousand words. 

Data from S&P CapitalIQ

The most recent blow to the company came on January 17th when it announced shipments for the Wii U during its current fiscal year (April 2013 to March 2014) would come in at 2.8 million. That was down from the company's original forecast of 9 million. 

Nintendo walking back expectations wasn't shocking. Between April and September of this year, the company shipped an astonishingly low 460,000 Wii U's over a six-month period. Everyone knew there was no way the company would come close to its target of 9 million systems shipped. However, Nintendo's January 17th announcement did verify suspicion that the Wii U's holiday season wasn't particularly strong. 

The good news for Nintendo? It has over $10 billion in the bank, which is an impressive war chest. Yet, even with vast sums of money, technology companies can quickly fall behind and be forgotten. Microsoft  (NASDAQ: MSFT  ) had a pretty mighty cash hoard of its own across the past decade as rivals in mobile blew by it. 

For that reason, Nintendo needs to act decisively in a few key areas, or risk an astonishingly fast collapse from its golden age in 2009. Below, are three bold moves Nintendo should consider. 

1.) Attack smartphone gaming by creating the "Netflix of Video Games." 

The white-hot core of debate around Nintendo is centered on one issue: should the company put Mario on smartphones? Nintendo President Satoru Iwata addressed the debate head-on at a news conference following the company's pre-announcement of poor Wii U sales. He said that while the company failed to appreciate the full impact smartphones would have on the video game industry, the right strategy wasn't "to put Mario on smartphones." 

Those opposed to Nintendo putting its games on smartphones liken the situation to picking up pennies in front of a bulldozer. App store sales charts have shifted toward games that are free and offer in-game purchases. Think FarmVille or Candy Crush. Games like Angry Birds that charge an up-front cost -- rarely of more than $10 -- have declined in popularity. Nintendo could put its past library, or even new Mario games on a smartphone, but the potential revenues would be minuscule relative to what it gets from selling mobile consoles. In addition, the company selling games on smartphones could depress sales of its still popular 3DS system. 

One suggested alternative would be to think about mobile entirely differently than app stores. I recently put forth the case on how Nintendo could create a very successful Netflix-like video game subscription service. 

If you want more details on the specific plan, the article can be read here. The simple idea is that streaming services can be more appealing than selling a la carte digital sales. Revenues collected by digital film services came in at $3.16 billion in the U.S. last year while sales of individual digital films were $1.19 billion. 

Nintendo has exactly what Netflix has managed to build up, a deep catalogue of classic titles. Renting out its entire library at a fixed, monthly cost (excluding certain areas like recent systems, much like how Netflix's catalogue of newer films is lighter) could prove far more lucrative than selling individual titles. The best part is that advances in cloud-technology make such a service very feasible not only on mobile, but across other devices like television. 

At the end of the day, a Nintendo streaming service could not only be a big revenue generator on its own, but also increase awareness of Nintendo games, providing a boost to newer systems. 

2.) If sticking with new hardware, abandon the Wii U faster than expected.

Suggesting Nintendo abandon the Wii U already might seem like madness. After all, the system was just released in late 2012. However, sticking with the platform too long could leave Nintendo doomed to repeated its mistakes when it next releases a system. 

A huge reason for the Wii U's failure is that it doesn't feature enough extremely popular first-party games. Sure, a full-fledged 3D Mario game hit the system with the release of Super Mario 3D World this holiday season. However, buyers of a Wii U are still waiting on new Mario Kart, Zelda, Metroid, Donkey Kong, and other major franchises to hit the system. Nintendo says the games are coming, with a new Donkey Kong slated for a February release and Mario Kart 8 slated for Spring. 

There are reports that Nintendo has already begun prepping for its next-generation system. While you don't want to look too far into unconfirmed rumors, Nintendo's own comments do seem to indicate the company is conducting a rethink of its overall business strategy. Such soul-searching is likely caused by a realization the Wii U missed the mark. If reports are correct, that's a difficult, but necessary move on Nintendo's part. 

If Nintendo is expecting to launch a next-generation console faster than expected, it'd be wise to shift developers on some of its best franchises toward the new system as fast as possible. The company has already lost third-party support from developers like EA with the Wii U. If Nintendo wants the chance to bring third-party developers back to its camp and have strong initial sales of a new system, the company needs to have a very strong slate of game releases near the system's launch. If that means most major franchises get only one (or zero) games released on the Wii U and game releases dry up after 2014? That's a tough pill to swallow for current Wii U owners, but it's the kind of difficult decision Nintendo needs to make if it wants to give its next system the best shot at succeeding possible. 

3.) Do something really crazy. 

I was at CES earlier this month, and the one product everyone was talking about was Oculus VR. The company is still small, with its last funding round at about $75 million. With the company's newest VR set winning a barrel of "best in show" awards, isn't that precisely the kind of "reinventing video games" product Nintendo would love to invest in? Nintendo should consider investing in some proven innovation outside its walls with just a fraction of its total cash. 

Or, if Nintendo's situation continued to worsen, and it looked at leaving the home console market more seriously, why not strike a major deal? Between the launch of the Xbox and the first quarter of 2012, the financial units at Microsoft that contained its Xbox division lost a cumulative $4.1 billion. The red-ink around Xbox has largely turned black in recent years, but the bottom line is that Microsoft also has a lot of money, and is open to big-spending to win the war for the living room. 

What if Nintendo signed an exclusive agreement with Microsoft to produce video games for Xbox, in exchange for a big payday? Microsoft would get an ultimate trump card over Sony. If the deal was structured properly, Nintendo could pour its payments from Microsoft back into its valuable mobile gaming console business as well, while moving past console gaming. If rumors surrounding Nintendo's next-generation "Fusion" gaming system are correct, the company might be moving in this direction anyway. 

Would such a move ruffle feathers? Of course it would. Yet, the major point isn't that Nintendo would need to do that specific deal. Instead, it's that Nintendo has valuable enough franchises, and its name means enough that it could command some pretty incredible deals. If Nintendo were to enter smartphones, could it negotiate with Apple  (NASDAQ: AAPL  ) to go exclusive to the iOS and get a default main screen link to a "Nintendo Hub?" Such an arrangement would keep Nintendo away from the cutthroat world of App Store best-seller lists. Also, two of the markets where iOS has its best market share -- Japan and America -- happen to be areas of strength for Nintendo. 

Maybe Apple would never go for such a deal, or maybe it would see an exclusive pact with Nintendo as a fantastic way to stay differentiated from Android. 

Either way, Nintendo's name still means enough it could dare to dream big. Those that compare Nintendo leaving hardware to Sega underestimate what a kingmaker Nintendo could play between Sony and Microsoft in the console wars, or even in something like smartphones. Sega never had the kind of leverage Nintendo possesses. The house of Mario would be wise to at least explore what kind of deals it could get. 

Some ideas beyond video games
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Read/Post Comments (14) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 26, 2014, at 6:59 PM, CatchTwentyTwo wrote:

    Wow that's absolutely brilliant. I really hope someone from Nintendo is debating about your ideas right now. If Sony or Microsoft brokered a deal for exclusives to Nintendo games it would be revolutionary. For the IOS Nintendo could release Pokemon, people think Candy Crush is addictive, try Gotta Catch them All! They have a lot of options and I think you explored some really good ones, now lets see what happens.

  • Report this Comment On January 26, 2014, at 7:52 PM, normgarry wrote:

    Nintendo should abandon the console market and focus on it's handhelds. There is no way that kids aren't going to flock to the Sony and Microsoft systems. There's no way the market is going to support a third system when people are spending so much money on smart phones and tablets.

    The 3DS is successful Nintendo should focus on serving its catalog of classic titles to the handhelds.

    You really want to play all the best classics you don't need a WII:U. all you need is the old Wii.

    There's no reason at all to buy a WII:U.

    That's the reason why it has already failed.

    Nintendo thought that they could re-create the magic of the WII. Apparently- this time around -grandparents, senior citizens, physical therapy patients and other assorted bed ridden people aren't interested.

  • Report this Comment On January 26, 2014, at 7:55 PM, normgarry wrote:

    You won't see Nintendo putting exclusives on Apple smart phones. The problem with old-school Nintendo games is that they were mostly twitch oriented reflex games. That gaming model does not work with flat-panel touchscreens. You really need a D pad and you need physical buttons. Playing Metroid, Contra or Mario Brothers on a touchscreen really isn't that fun. I seriously doubt Nintendo would want to sell their games on iOS or android for the prices that the market would want to pay for them. We can get games for $1dollar or even five dollars. Why would I pay any more for old games I've already played on a console.

  • Report this Comment On January 26, 2014, at 8:14 PM, hisradness wrote:

    The subscription idea isn't a bad one. Nintendo has to being working a new system, as is the competition, but when could that possibly see launch? Two years, or maybe three, everyone knows Nintendo doesn't rush a console. Patience also means a quality system(no red ring of death). It's unlikely that Nintendo would jump in bed with the enemy, though Microsoft is the most likely target, I can't see them partnering with a Japanese competitor.

    Okay, so if a new system wouldn't be out till 2016 or '17, that leaves the subscription idea. But what they should really do is market the WiiU properly before Mario Kart 8 and Super Smash Brothers is released. This won't save the system, but it could set them up to eventually break even. This is also the cheapest option, if it fails, the next console they develop better be more powerful than anything available and not rely on a new controller. And they better present it on a grand scale.

  • Report this Comment On January 26, 2014, at 10:07 PM, skittlesnt wrote:

    I'd like to see MS buy Nintendo. That would make my decade.

  • Report this Comment On January 26, 2014, at 10:27 PM, OmahaDad wrote:

    The subscription model would never work. Nintendo doesn't hold the licenses anymore to most of the classic games we all remember. Your monthly subscription would only include older first party nintendo titles, the games you already own on your Wii, and you other old dusty systems. They can't even keep Donkey Kong Country on the Wii store due to licensing with Rare. Teenage Mutant Ninja Turtles is the same way. You'll never see the original Teenage Mutant Ninja Turtles II Arcade game on Virtual Console either, it had Pizza Hut licensing. They would have to edit the game to release it.

    Putting Mario on PS4, and Xbox One, would save it. Release Zelda, mario kart 8, super smash bros, and the back log catalog on PS4 and Xbox One.

  • Report this Comment On January 27, 2014, at 1:00 AM, jmatth14 wrote:

    It's really this simple.

    Most of us who grew up with Nintendo are now anywhere between the ages of 21-40. We're mature, and we want mature games and consoles. We don't want these gimmicks that they're trying to attract kids between the ages of 6-12 with. We want to play Mario. We want to play Zelda. We want to play Ninja Gaiden, and Metroid, and everything else that we remember from the original systems, but we want the experience to be more adult-like. The Wii-U and 3D-S do nothing for most of us; they aren't attractive systems to game with for the adult user. If Nintendo were to give us something more similar to an Xbox or PS then we would flock to it instantly (assuming the games were good). I know I would. I want to support the company that gave me thousands of hours of enjoyment in my youth. But I will not support that company if they continue to target children who appreciate gimmicks that have zero appeal to me and my $$$.

  • Report this Comment On January 27, 2014, at 8:03 AM, floydcott wrote:

    i definitely think that nintendo should produce a smartphone... imagine a smartphone with pokemon x&y, mario kart, zelda etc., lol

  • Report this Comment On January 27, 2014, at 9:15 AM, targeyone wrote:

    All of these ideas are clearly from someone who has no clue about Nintendo's business ethics, and didn't feel like they could be bothered to check into them.

  • Report this Comment On January 27, 2014, at 10:12 AM, pitcher wrote:

    i think nintendo needs to do hat sega did instead of having all of the games the way they used to have them they need to put all of there games on the nintendo its self and i know people would buy it.

  • Report this Comment On January 27, 2014, at 11:06 AM, BHGamer wrote:

    Though I do agree Nintendos main focus, and the stigma of being "kiddy" is the right label based on the vast majority of 3rd party software available for the Wii. With that being said, the "mature" games argument for me is different because yes there is certainly a lack of M rated games, but many E rated games that are still fun without the M rating. If you want the shooters and stuff, then yes a Nintendo console is not for you and that's their own fault that their systems turn away those developers.

    As far as the 3 points. I can't see them developing for other platforms, that just puts them one step closer to being Sega, HOWEVER, I honestly can't see the company surviving a normal console 5-6 year generation on 3ds profit alone. So they're going to have to do something, and I can't see releasing new hardware being the answer because then you alienate all the current Wii-U users, and that still doesn't solve the problem of sales because if people aren't buying the Wii U, guess what, they're not going to buy a new system either. it's Nintendo's chosen demographic they went after that dictates the console sales, you have people that do not want to upgrade from the Wii, so it's not going to matter if they abandon the Wii-U or not. Whatever they release, unless it completely blows away the PS4 or XBOX ONE is not going to appeal to those two consoles target audience. Again I'll say it, Wii-U is Nintendo's last home system.

  • Report this Comment On January 27, 2014, at 4:41 PM, Coldkilla86 wrote:

    IF they go the way of just being a software game making company then they can definitely make games go multi-platform. Make Mario, Pokemon, Donkey Kong, and a ton of other Nintendo exclusives on all platforms. Can you imagine Pokemon made for the hardware of the PS4 and XBox One? How big the worlds can be and how graphically it would look, still play the same, and how much more animations they can do with it and effects thanks to the much beefier hardware in it than the WiiU? Cell phones have equal or better hardware in it than a WiiU does. If they stay a console company then they need to either be on par with XBox One or the PS4. Hardware can limit you as well as software but if you have both then you can be a contender no pun intended. I would love to see pokemon on my PS4 but I'm getting tired of the very kiddy-ish looking Pokemon. They should make it like Dragonball Z. Keeping it cartoony but bringing it to life like the series with cut scenes for special attacks and effects.

  • Report this Comment On January 27, 2014, at 9:24 PM, gigachanger wrote:

    crazy idea make more games then make them new 29.99 lets see sony and microsoft compete with that

  • Report this Comment On January 28, 2014, at 12:34 AM, llazzarr wrote:

    Here's a safe idea that can easily generate revenue. Add a majority of the old hits to the 3DS downloadable market. They rarely update the "Virtual Console" and when they do, they add one or 2 crappy games I hadn't heard mentioned since the 90's. It isn't expensive to offer content they own. The 3DS has been a bright spot for Nintendo. Take advantage of it! Blow Sony out of the water and make the competition seriously reconsider entering the handheld gaming market in the future. Nintendo used to be a futuristic technology company. Now it seems like they don't have any common sense. I also hate how limited the 3DS is when it comes to using the internet/watching videos.

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