Despite reassurances throughout last year that Wii U sales would improve, Nintendo (NASDAQOTH: NTDOY ) finally admitted last month that sales were coming in significantly slower than the company had hoped. Having already lost support from third-party publishers like Electronic Arts (NASDAQ: EA ) and having only a couple of first-party games from major franchises, the future of the Wii U looked bleak.
To be honest, it still looks somewhat bleak. While Nintendo will likely be able to turn around its recent losses and return to profitability over time through software sales, 3DS sales, and the reduction of manufacturing costs, it is obvious even to the company that the Wii U isn't going to become a hit. That doesn't mean that it can't find an audience, however.
The Wii U's problem
Nintendo's greatest strength has largely been its first-party content. While games such as Goldeneye 64 are classics, Nintendo is more widely associated with characters such as Mario and Samus Aran than James Bond. Early Nintendo systems launched with a "Mario" game included, and later consoles typically had a major franchise game coming out relatively close to release. Even the Wii enjoyed a launch with a Wii version of the GameCube's The Legend of Zelda: Twilight Princess available to hold fans over until the Super Mario Galaxy launch a year later.
The Wii U seemed to launch with a softer first-party lineup. The biggest first-party game in its early lineup was New Super Mario Bros U, which offered a few upgrades to New Super Mario Bros Wii but wasn't enough to draw players to the console. The "Zelda" title under development for the console was delayed significantly by the development team scrapping content that they didn't feel provided the quality that gamers wanted, and the HD rerelease of The Legend of Zelda: The Windwaker released to tide gamers over wasn't enough to drive sales. The release of Super Mario 3D World a year after the console's launch gave it a fun "Mario" game, but some elements seemed a bit too close to the "New Super Mario Bros" franchise to build the excitement that a unique game might have produced.
In short, the Wii U was lacking in one of the top selling points of any Nintendo console: Nintendo games.
The year of Nintendo
In 2013, Nintendo began a slightly over-a-year-long event known as "The Year of Luigi." While no theme has been announced for a successor promotion yet, the company could almost call 2014 "The Year of Nintendo Games."
Last week, Nintendo released Donkey Kong Country: Tropical Freeze to significant acclaim, with reviewers making comments like "It's an incredibly crafted platformer with an HD sheen and an insane attention to detail..." (Destructoid) and "It has an endearing quality that will capture you, and a challenge level worthy of even the most skilled players..." (Cheat Code Central.) While the game isn't going to suddenly propel the Wii U into new popularity, those Nintendo fans who've held off on buying the console until it had more must-play games will see its release as a positive sign.
The company will also release Mario Kart 8 in May, and both Super Smash Bros and co-developed Hyrule Warriors (a "Dynasty Warriors"-like game set in the world of the "Zelda" series) are expected for release later this year as well. Nintendo has also promised an expanded presence at E3 this year (as compared to its minimal presence last year) so additional core game announcements may be made as the year progresses. One of these games might even be the next full entry in the "Legend of Zelda" franchise.
Luring back the faithful
At this point, Nintendo's plans shouldn't include attempts at competing with the likes of Microsoft (NASDAQ: MSFT ) or Sony (NYSE: SNE ) ; both the Xbox One and PlayStation 4 have left the Wii U behind, and it isn't Nintendo's style to try and compete directly with the big console makers anyway. It's likely that Nintendo is hard at work on designs for a successor to the Wii U (with some rumors saying that there's already a new console in development), and in the meantime the company is trying to make the most out of the Wii U and salvage what it can. This approach won't make the console a massive hit, but producing games that Nintendo fans want to play will at least get the console into the hands of the company's core audience.
The best way for Nintendo to do this is to focus on the games that Nintendo fans want to play. While every conversation about Nintendo's core franchises inevitably has people commenting about how "nobody" likes Mario or Link anymore, these games still tend to be major sellers on Nintendo systems even if they don't sell as well as they did when Nintendo was at the top of its game. While new IP from Nintendo would be wonderful, there's always a risk that new and untested games will flop ... and the Wii U can't afford lackluster first-party games right now.
The next step for you
Want to profit on business analysis like this? The key for your future is to turn business insights into portfolio gold through smart and steady investing … starting right now. Those who wait on the sidelines are missing out on huge gains and putting their financial futures in jeopardy. The Motley Fool is offering a new special report, an essential guide to investing, which includes access to top stocks to buy now. Click here to get your copy today -- it's absolutely free.