Does the Upcoming "Pokemon" Game for iPad Mean Nintendo Is Finally Embracing Mobile?

Source: PokémonTCG.com.

There has recently been a lot of pressure on Nintendo (NASDAQOTH: NTDOY  ) to bring its software to mobile platforms. The company's hardware business is facing serious decline, with combined sales of Wii U and 3DS all but guaranteed to come up at least 150 million units short of their predecessors' cumulative total.

In a year that President Satoru Iwata Nintendo stated would be characterized by a return to profitability, the company's first-quarter report delivered an operating loss of approximately $92.7 million. Shortly after these disappointing numbers, rumors of internal dissatisfaction with Iwata's refusal to explore the mobile market began to circulate.

Now, a version of the Pokemon trading card game has been announced for Apple's iPad, and Nintendo's share price has jumped because of it. Is the valuation bump warranted? Will Nintendo soon embrace mobile platforms as hosts for its software?

Gotta catch 'em all
Confirmation that the Pokemon Trading Card Game would come to iPads this year has prompted Nintendo's share price to rise approximately 4%, a notable gain on the heels of the substantial valuation decline that occurred after the release of the company's most recent quarterly report. That said, investor enthusiasm for the move is likely founded on faulty assumptions. While the upcoming iPad version of Pokemon Trading Card Game Online can technically be described as the first Nintendo game to release on a mobile platform, a version of the upcoming title has been available on PC and Mac for over three years, and the title is not developed by a first-party studio.

The move to bring the card game to iPads may also not be wholly attributable to Nintendo, as the Japanese hardware and software maker does not have majority ownership of the game's publisher, The Pokemon Company. Also worth noting, the iPad version of Pokemon Trading Card Game Online isn't the first mobile app tied to the long-running and incredibly lucrative franchise. 2012 saw The Pokemon Company publish Pokedex for iOS, an app that provides information and pictures of Pokemon characters, and also prompted the belief that Nintendo would soon take a more proactive approach to smartphone and tablet gaming. The Pokemon Company's foray into mobile was followed by PokeTouch, a Pokemon-themed typing instructor available on PC and iPad in Japan.

The significance of Pokemon on iPad is being overstated
The fact that "Pokemon" mobile efforts come courtesy of a company Nintendo only owns 32% of suggests the platform holder is continuing to take a tepid stance on releasing games outside of its hardware ecosystem. The beginning of 2014 saw the company confirm that it had no plans to release games on platforms other than its own, instead stating that it would create some type of marketing app. It's not entirely clear whether the iPad version of Pokemon represents a deviation from this stated strategy.

If Pokemon Trading Card Game Online for iPad is similar to what's currently available on Mac and PC, it won't feature in-app purchases, instead requiring users to enter codes from physical versions of the trading cards. Accordingly, it's hard to imagine that the upcoming game will generate significant revenue. At best, the impending release looks to be a testing of the waters, and it's easy to see why Nintendo has been hesitant to pursue a greater mobile presence.

Nintendo is still a hardware company
In the previous fiscal year, approximately 57% of Nintendo's revenue came from the sale of hardware. The basic rationale behind not bringing its properties to mobile platforms is that such a move would take away from the appeal of Nintendo's consoles and complicate the value of its software. The vast majority of mobile gaming revenue comes from in-app purchases in free-to-download software. Given the opportunity to enjoy less-expensive versions of Nintendo's signature gaming experiences, consumers might easily opt to forgo the company's hardware altogether and lose interest in its premium console content. Nintendo is already feeling the negative effects from the rise of smartphones and tablets as gaming platforms, and making its content available on iOS and Android would seemingly give consumers less reason to invest in Nintendo hardware.

Platforms like the App Store and Google Play also lack the degree of content oversight found on console platforms, allowing for wide ranges of knock-offs and derivative products. For example, the hugely popular Flappy Bird made illegal use of Nintendo-owned art assets. Alternatively, it's clear that there is a demand for Nintendo-like experiences on mobile platforms, as Pokemon-imitator Micromon climbed to the top of the paid-download charts on the App Store, but the game can be downloaded for just $1.29. Consider that the Pokemon X and Pokemon Y had combined sales of more than 12 million units as of April 7 at a price in the $40 range, as well as the driving impact that these games had on 3DS hardware sales, and offering ostensibly competing series entries on mobile platforms starts to look like a bad strategy.

Foolish final thoughts
Nintendo is already committed to the development of its next hardware platforms. As long as the company's business revolves around the sale of gaming consoles, it's difficult to imagine it will bring significant game support to mobile platforms. Meaningful mobile releases could create great short-term windfalls and spur investor excitement, but it would likely further destabilize the company's fundamentals.

Nintendo is clearly in need of change going forward, but its structure suggests it will continue to keep its games exclusive to its hardware platforms for at least the next several years. Support for mobile platforms will likely only arrive if the company's next gaming systems and health-based "Quality of Life" platform prove to be duds.  

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 19, 2014, at 3:12 PM, awang0718 wrote:

    "...with combined sales of Wii U and 3DS all but guaranteed to come up at least 150 million units short of their predecessors' cumulative total."

    I would be very surprised if the 3DS and Wii U sell less than 100 million units combined lifetime. With the Wii U outselling the Xbox One worldwide, I don't think a site like this should make predictions like that.

    Unless the future mainline Pokemon games utterly bomb and fail to boost Nintendo's hardware sales (VERY unlikely given the resounding success and impact of Pokemon X/Y, as stated in this article), Nintendo will not approach the mobile market seriously.

    They will, however, allow The Pokemon Company to make Pokemon spinoffs on other platforms as a way to market Pokemon, since that is The Pokemon Company's job.

  • Report this Comment On August 19, 2014, at 5:35 PM, keithnoonan wrote:

    Thanks for the comment, awang0718.

    At this point, 3DS and Wii U reaching combined sales of 100 million units (let's say 80 mil for 3DS and 20 million for Wii U) seems highly unlikely. Hitting that figure would likely require Nintendo to not have profitability/take significant losses on hardware, something it probably doesn't want to do in the current climate.

    Sales of Wii U are tracking well below those of the GameCube (approx. 22 million lifetime sales) and 3DS sales are collapsing rapidly.

    As for whether or not this type of speculation should be on the site, my understanding is that a certain degree of speculative analysis is encouraged. That said, Nintendo losing more than 150 million hardware sales from last gen to the current one seems to be among the safer predictions that a person could make about games industry happenings.

    Seems like we're in agreement on other points, though. It'll be interesting to see if Nintendo can pull another rabbit from its hat.

  • Report this Comment On August 19, 2014, at 11:44 PM, awang0718 wrote:

    Thanks for the response.

    The 3DS sales are going down, but far from "collapsing rapidly". A very good holiday season is expected for Nintendo's handheld, and Amiibo will affect 3DS sales way more than it will affect Wii U sales (due to price).

    As for Wii U, lets wait and see. Wii U sales were up 213% YOY during the April-June quarter, whereas Gamecube sales began to decline after its first year. If Wii U sales continues its positive trend upward into 2015, when more games will arrive, then sales could definitely surpass the Gamecubes measly number.

    Again, I'm using a lot of "ifs", but saying the 3DS and Wii U are "guranteed" to sell 150 million units less than last gen is a very extreme, though possible, situation.

  • Report this Comment On September 01, 2014, at 10:57 PM, awang0718 wrote:

    It looks like Nintendo just announced the New 3DS and New 3DS XL, which supports a plethora of new features, including:

    - A faster CPU

    - A slightly larger screen

    - An additional Second analog "nub"

    - Better steriscopic 3-D

    - Additional ZR and ZL buttons

    - A micro-SD card slot

    - SNES color schemes for face buttons

    - Customizables cover plates

    - Built in NFC for Amiibos

    These revisions will not only boost 3DS hardware and software sales significantly, but they will also ensure that the 3DS maintains a healthy 6-7 year lifecycle (since 2011).

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