These days, the gloom and doom in the air enshrouding Nintendo (NASDAQOTH:NTDOY) after it slashed its 2014 sales forecasts is so thick that you can't even see the company anymore.
Although a 70% reduction in Wii U sales and 20% decrease in 3DS sales certainly looks bad, Nintendo isn't about to go belly up anytime soon -- the Japanese gaming giant has still sold 5.5 million Wii U's, 101 million Wiis (which have not been discontinued in the U.S.), 42.6 million 3DS units, and countless first-party titles -- all of which helped it generate sales of ¥196 billion ($1.92 billion) in the first half of fiscal 2013.
Yet there are two big problems. Nintendo's Wii U, which had a year's head start in the eighth generation console race, could soon be overtaken by Sony's (NYSE:SNE) PS4 (4.6 million units) and Microsoft's (NASDAQ:MSFT) Xbox One (3.2 million units) -- both of which launched two months ago. Meanwhile, Nintendo's bottom line is crumbling -- the company is headed toward a total operating loss of ¥35 billion ($339 million) for fiscal 2013.
Faced with these sobering facts, the media started speculating wildly about Nintendo's next move. Would the company be forced to follow in its former rival Sega's footsteps and abandon hardware altogether? Would it become a software-only developer instead, bringing Mario, Link, and Samus to rival consoles?
Or would it finally release cheaper mobile games for Google (NASDAQ: GOOG) Android and Apple (NASDAQ: AAPL) iOS mobile devices?
Mobile strategy? What mobile strategy?
As it turns out, the answer might not be what anyone expected.
The Japanese business publication Nikkei originally claimed that Nintendo planned to launch free mini-games for mobile devices, which will serve as demos of full-priced console titles. The promotional games would reportedly allow users to purchase the full games from within the mobile game, and possibly include additional videos and information about the titles.
Nintendo, however, stated on Jan. 28 that it had "no plans to offer mini-games on smartphone devices," and that the Nikkei article contained information that simply referred to "Nintendo's willingness to make use of smart devices" to promote its games and consoles.
Real or not, the strategy originally reported in Nikkei is definitely an interesting one that deserves a second look.
Major video game publishers like Electronic Arts (NASDAQ:EA) often release mobile versions of their established PC or console titles on mobile platforms, but the console version is intended to drive sales of the mobile one, and not the other way around.
EA's business model is simple -- it uses a higher budget title (Mass Effect, The Sims, Mirror's Edge, Need for Speed) as an anchor for the mobile version. Although the mobile versions are graphically degraded and shorter, they also cost substantially less ($5 vs $50) than the original titles.
This business model has served EA well. Last quarter, EA's mobile and handheld division reported sales of $125 million -- a 26% jump over the prior year quarter. Growth like that is one of the primary reasons that critics claim Nintendo should follow suit and release cheaper versions of its first-party console titles on mobile devices.
Nintendo needs to go all in or avoid the mobile market altogether
If Nintendo is unwilling to adopt EA's business model of selling mobile games, and it is also unwilling to sell mini-game demos of its own, then it really only has one other option -- promotional apps.
Whereas EA hopes customers will make $5 purchases based on their love for its $50 games, Nintendo would need to get a customer to buy a $50 game based on their love of a free promotional app.
That strategy faces two major problems.
First, there's the matter of hardware availability. EA assumes that most of its PC and console gamers also own mobile devices, so it can safely anticipate a large market for its mobile titles.
Nintendo, on the other hand, could make clever, must-download promotional apps for its games, but it still needs the mobile user to actually own a Wii U or 3DS to seal the deal. Otherwise, Nintendo needs a non-Nintendo gamer to purchase one of its consoles ($170 for the 3DS to $300 for the Wii U) before buying the advertised game.
Second, EA's business model is based on the fact that most mobile users aren't willing to pay much more than $1 to $7 for a paid app. Nintendo caters to a different crowd -- gamers who are willing to fork over $40 for a longer, higher-quality handheld title like The Legend of Zelda: A Link Between Two Worlds.
There's really only one choice
After all of this speculation, there's really only one choice for Nintendo when it comes to mobile devices -- follow EA's lead and release mobile versions of its full games or avoid it altogether.
Strange middle-ground ideas like promotional apps, videos, or possibly mini-games won't do very much to boost sales.
In a way, Nintendo is right to refuse to release mobile games for Android or iOS -- they cheapen its core franchises and the appeal of its full-length 3DS games.
However, I don't see the harm in releasing a handful of bite-sized puzzle or mini-game titles featuring its iconic characters. These titles don't diminish the importance of its core franchises. They are cheap to develop, could generate some additional revenue through app or in-game purchases, and serve as free advertising -- similar to the way movie studios release mobile games to promote their films.
In conclusion, Nintendo definitely needs a mobile strategy -- worldwide smartphone users are forecast to hit 1.75 billion later this year, up from 1 billion only two years ago. That soaring number could be the key to getting its sales back on track.
What do you think, dear readers? Will Nintendo clarify its mobile strategy soon, or is it doomed to miss out on a golden opportunity to revive its lagging sales? Let me know in the comments section below!
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Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.