How Nintendo Co. Opted Out of Partnerships With EA and Activision and Damaged Its Gaming Empire

Just last hardware generation, Nintendo was broadly viewed as one of the most exciting companies in tech. Now, a series of bad decisions and a seeming inability to play nice with potential partners threatens the company's gaming empire.

Apr 19, 2014 at 11:30AM

Screen Shot

Source: skylanders.com

Nintendo (NASDAQOTH:NTDOY) has a long history of failed and aborted partnerships. The company was once the most powerful force in the gaming industry and dictated terms and conditions to third party publishers that shaped both the development ecosystem and the progression of the medium at large.

Nintendo's often troubled relationships with developers created the widespread belief that the company was difficult to deal with and overly concerned with retaining control. This reputation and the actions that led to it facilitated the rise of competitors like Sony and Microsoft in the gaming space and contributed to the weakening of Nintendo.

Now, the company faces greater adversity than at any point in the last decade. Nintendo's share price hovers around 10-year lows, the dedicated handheld market is evaporating thanks to the rise of mobile, and its Wii U home console is dead in the water. Things could have been a lot different for Nintendo if the company had chosen to pursue key partnerships with Activision Blizzard (NASDAQ:ATVI) and Electronic Arts (NASDAQ:EA).

The rise of Skylanders
Activision's Skylanders series is one of the modern gaming industry's biggest breakout hits. The series makes use of toy action figures that can be scanned and imported for use as playable characters in games. Players can purchase individual figures or themed packs that feature multiple characters—a model that generates more revenue per user than the typical $60 game.

The success of the series and its toys-to-game hook did not go unnoticed by competitors. Disney (NYSE:DIS) rushed to introduce its largely similar Infinity series, while Nintendo is expected to debut its own variation on gaming's latest craze at this year's E3 conference. Nintendo apparently passed on a chance to partner with Activision in the creation of Skylanders in hopes of building its own competing product, a move that hindsight casts as incredibly shortsighted.

Nintendo missed out on a Pokemon-like success
According to an article published by Polygon, Activision approached Nintendo at the early stages of the Skylanders project in hopes that the two companies might partner to create the next Pokemon-like sensation. Nintendo was riding high on the success of the Wii, and the company's rich cast of characters seemed ideal for bridging the gap between toys and video games.

While demonstrations of the Skylanders concept apparently impressed Nintendo executives, the company opted not to get in on the ground floor of what would eventually become one of the biggest things in gaming. Paul Reiche, one of the chief minds behind the creation of the Skylanders craze, is quoted as being shocked that Nintendo hasn't more quickly readied a competitor. While one is likely to emerge within the next few months, Reiche believes that Nintendo would have wiped the floor with Disney's Infinity. While that may have been true at one point, it's likely no longer the case. 

Screen Shot

Source: disney.com

Nintendo's bargaining position has weakened
Nintendo's decision to pass on the Skylanders project meant that the company was also missing out on the opportunity to align itself with America's biggest gaming publisher. Now that the Wii U has proved to be a flop and developer support is sparse, the move looks increasingly condemnable.

It's likely that Nintendo wanted to retain greater control by creating its own toy-based software offerings, but its slowness in readying such a competitor has limited the chances of breakthrough success. The Wii U's GamePad controller was built with the Near Field Communications technology that Skylanders hinges around, but any game that releases on Nintendo's disastrous console is going to have a limited audience.

An unprecedented failure
Nintendo's failure to team with Activision on Skylanders is doubly problematic when viewed in conjunction with the company's failed EA teaming. Put forth in 2011 as an "unprecedented partnership" with the potential to reshape the industry, the deal quickly fell apart and relations between the two companies deteriorated.

EA was supposed to help Nintendo modernize its online infrastructure and reach groups of gamers that were otherwise settled on Sony and Microsoft platforms. The end result was a small number of ports that sold incredibly poorly, a decree that EA would no longer develop for Wii U, and a souring of terms between two industry giants. Had Nintendo been able to effectively navigate a meaningful partnership with Activision or EA, the company's present fortunes might look a lot different.

Could Nintendo partner its way out of its current predicament?
After missing out on two potentially massive partnerships and finding itself on the brink of irrelevance in the home console market, Nintendo has stated that it will proceed with a more open policy regarding team-ups and licensing. Unfortunately, the early results of this new approach do not seem to be particularly meaningful.

Rsz

Source: officialnintendomagazine.co/uk

Nintendo's valuation has the potential to explode with the right partnership, but the company has repeatedly shown that it is difficult to deal with and that it has a pension for torpedoing potentially transformative deals. The idea of Nintendo teaming up with an Apple or a Disney is rife with possibilities, but the fact that the company missed the boat with Activision on Skylanders and lost EA's support is a reminder of fundamental issues that led to its present, undesirable state.

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Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard and Walt Disney. The Motley Fool owns shares of Activision Blizzard and Walt Disney. 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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