Nintendo Has a Character Problem

Nintendo's overreliance on a great cast of characters is limiting its ability to compete with Sony, Microsoft, and mobile.

Jan 31, 2014 at 6:48AM

Nintendo (NASDAQOTH:NTDOY) has made a lot of questionable decisions over the last two decades. Its poor choice in storage formats, hesitance to embrace online gaming, and the positioning of Wii U as successor to its Wii console are among the strategies most frequently cited by critics. The company has also managed to consistently remain profitable and has overseen monumental successes like the DS, which helped to usher in the age of touch-screen gaming.

One area that does not typically receive a great deal of focus is Nintendo's handling of IP's and its willingness to introduce new, character-based properties. It's clear that Nintendo has a very different philosophy when it comes to IP utilization than rivals Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT). Is the company's reliance on its storied franchises still sound, or is Nintendo painting itself into a corner?

It's time to make new friends
Few, if any, software companies have the breadth of legacy titles that Nintendo possesses. If you were to look at the big franchises on the PlayStation or Xbox platforms, you would find that most of them trace their lineage no more than a decade back. Nintendo franchises like "Mario," "Donkey Kong," "Zelda," and "Metroid," on the other hand, made their first appearances in the early to-mid 80's. These titles and their associated characters helped define gaming and long served as the standard to which other aspiring franchises were compared. As gaming progressed, so too did the company's premier series' . This created a powerful association between Nintendo and its medium of choice, but the strength of that association is now faltering.

Mario may remain the most recognizable face in gaming, but the empire that he helped to build is in danger. Nintendo has become overly reliant on the IP's that helped to cement its place in the industry. The last new character-based IP that the company internally developed was Pikmin, a 2001 launch title for the company's Gamecube console.

During the Wii generation, the company's forays into new IP largely followed the precedent established by the system's flagship title Wii Sports. Games like Wii Fit and Wii Play used simplistic, stylized characters called "Miis" which users could create and customize at the system level and use in a variety of titles.

Visionary creator and characterization pioneer Shigeru Miyamoto seemed to focus much of his efforts on critical and commercial underperformer Wii Music. The company's software output for the Wii U has followed a similar trend, primarily consisting of "Mario" titles, a "Pikmin" sequel, and updates to titles in the Wii series.

Different approaches to casting
To say that Sony and Microsoft have taken more progressive approaches to new IP would be putting it lightly. These efforts arrive out of necessity. The reason that Nintendo has chosen to stick with its premier franchises, often eschewing the creation of new character-based IP's so as not to divert attention from its existing stable, is that the strategy has consistently worked. With each subsequent generation, Microsoft and Sony have made concerted efforts to establish new, generation-defining IP's; these new IP's often come on the heels of brand deterioration or complications attached to previous flagships.

Swapping partners
Microsoft's Xbox console succeeded largely on the strength of the "Halo" series developed by Bungie Software, a company now partnered with Activision Blizzard. While the studio stuck with Microsoft for most of the Xbox 360 generation, it was already planning a multi-platform future around the completion of Halo 2 in 2004. The company had ambitious plans for its then-conceptual game, Destiny, and feared being relegated to constant work on "Halo" sequels and spinoffs.

For the Xbox 360, Microsoft managed to secure another generation-defining exclusive by partnering with Epic Games for the "Gears of War" series, which, along with "Call of Duty," shaped a new breed of console software. With Epic going the multiplatform route, Microsoft has pursued a familiar strategy by partnering with Electronic Arts for the upcoming Xbox-exclusive Titanfall.

Internal nourishment
Sony's approach to studio and IP management differs from Microsoft in notable ways. The company has shown itself more interested in building up internal studios than partnerships that nab generational blockbusters. The result is a selection of highly varied, generally critically acclaimed exclusives that have built broader platform value but typically failed to outsell their Xbox counterparts. Halo 3 outperformed the first two games in the "Killzone," "Uncharted," and "Resistance" franchises combined.

There's promise outside the comfort zone
Whether one is speaking of mobile or console gaming, it's difficult to overstate the importance of established franchises. With more and more young gamers cutting their teeth on mobile and the Wii U tucked into its deathbed, Nintendo's brands are weakening. Titles like Angry Birds and Minecraft are attracting demographics that Nintendo once commanded. The company that unleashed Pokémon needs to marry its design expertise and stated passion for innovation with new and iconic characters. Mario is great, but the guy needs a breather every now and again.

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Keith Noonan has no position in any stocks mentioned. The Motley Fool owns shares of 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.

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