Nintendo Co Ltd Suggests Massive Changes for Its Next Gaming Systems

Will Nintendo pursue this risky course in hopes of restoring its hardware empire?

Jun 30, 2014 at 9:00PM

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Source: Nintendo.com

Nintendo (NASDAQOTH:NTDOY) is in a tricky spot. After delivering incredible successes with its DS handheld and Wii home console, the company found itself in a market that it was no longer ideally suited for. The rise of mobile platforms from Apple and Google and strong direct competition from Sony (NYSE:SNE) and Microsoft hurt the hardware and software maker's business at multiple levels. Its Wii U console has been a major underperformer, and the likelihood of a turnaround remains scant. The 3DS handheld has performed well enough given market realities, but the current technological progression looks to render dedicated handheld gaming machines irrelevant in short order.

Facing tremendous pressures, the task of engineering its next hardware platforms becomes increasingly complex for Nintendo. Publishers like Electronic Arts have sworn off development on Nintendo's home console, and a strong presence from third parties is viewed as essential to building a viable gaming platform. With these elements in mind, Nintendo is planning big changes for its next hardware releases. Will the company's new hardware strategy be a brilliant gambit or prove to be a misguided move of desperation?

The father of Mario and Zelda wants to bring the hardware family together
Recent comments from Nintendo's legendary game designer Shigeru Miyamoto suggest that Nintendo's next home console and handheld will be built to play many of the same games. In an interview with Kotaku, the "Mario" creator indicated that unifying its hardware problems represents a substantial opportunity for the company. One of the chief criticisms leveled at Nintendo consoles is that the company's big game releases are punctuated by long stretches of software drought. Creating games that can be played on both its handhelds and home consoles would do away with that problem and give Nintendo a way of better supporting two concurrent platforms.

Nintendo's President suggests it will pursue a unified platform strategy
Miyamoto's comments on the promise of a unified hardware ecosystem aren't the first out of the company to indicate that it will take that direction. President Satoru Iwata has previously stated that its next hardware platforms will feature architecture largely similar to what is found in the Wii U. Nintendo's handheld and home console divisions have also recently been unified, so there appears to be little reason to doubt that this will be the direction it takes with its next hardware releases.

Has a unified hardware platform been successful for Sony?
Sony has already built a hardware ecosystem reminiscent of the one suggested by Nintendo's comments. There are a substantial number of games that can be played across the PlayStation 3, PlayStation 4, and PlayStation Vita, and some titles even allow users to buy the game once and have access to it on the other platforms in the family. While this strategy has had obvious benefits and greatly improved the value of PS Vita, there are reasons to doubt its broader efficacy.

The PS Vita was positioned as a powerful handheld that was capable of playing near-console-quality games. Its streaming abilities even allow it to run software that would otherwise be far beyond its technological limits, but that hasn't done much to spur interest in the device. The Vita never broke into the mainstream because many of its offerings could be found elsewhere, and often in superior form. The system never received the type of platform-specific breakout hits that typically drive handhelds.

Unified hardware could limit individual platform appeal
Nintendo's vast array of characters and franchises stands as an incredible asset, but switching to a cross-platform model far from guarantees that the company will be able to grow or expand its audience. The effects of mobile platforms on the dedicated handheld market have been abundantly apparent, but much has also been made about the depressing effects that tablets, smartphones, and set-top boxes could have on home consoles.

For now, the traditional console industry has escaped the deleterious effects of new and increasingly popular competition thanks to the ability of its main players to provide suitably differentiated products. There are experiences that can be had on home consoles that can't be matched by non-dedicated alternatives. Nintendo's plan to make console and handheld games one and the same could make the company ill-equipped to handle the challenges presented by the changing market.

Nintendo's implied strategy sounds massively risky
Hardware sales currently make up approximately 60% of Nintendo's business, making the introduction of successful new platforms an absolute necessity. The move to unify its hardware systems makes sense given that third parties have been hesitant to support the company's consoles, but the strategy could expose Nintendo to tremendous risk from mobile and set-top box competitors. If the plan goes through, its level of success could very well make or break Nintendo.

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Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), 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.

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