Nintendo (OTC BB: NTDOY.PK) is clogged up, and even the plumbing proficiency of Mario and his brother Luigi can't get the pipelines flowing again.
The video game company behind the Wii console, several DS handheld incarnations, and a stable of proprietary game characters has posted its first annual profit decline in six years.
Sales for the fiscal year that ended in March fell 22%, to $15.4 billion, with earnings taking an 18% tumble to $2.5 billion.
Unfortunately, this doesn't appear to be a one-time glitch for the Japanese gaming pioneer. It expects to post lower earnings and revenue for the current year as well.
The video game industry has been in a funk for more than a year, but console rivals Microsoft (Nasdaq: MSFT ) and Sony (NYSE: SNE ) have held up relatively better lately. What's going on with Nintendo? Several factors are holding the company back these days.
One frequent argument is that the popularity of LCD and plasma televisions has placed an emphasis on detailed graphics, which was never Nintendo's strong suit against the superior Xbox 360 and PS3 spec sheets. It also doesn't hurt that the PS3 can play Blu-ray discs at a time of home theater convergence.
Nintendo stood out originally for its motion-based controllers, but Microsoft and Sony are expected to raise the bar by rolling out new controllers later this year.
Nintendo also set itself apart from Sony and Microsoft with its audience-widening games. Between the Wii Fit workout regimens and Brain Age cerebral ticklers, video games began to hook players of all ages. However, that wider net is also creating a problem, as social gaming on Facebook and cheap diversions through Apple's (Nasdaq: AAPL ) iPod touch, iPhone, and iPad grow in popularity.
Nintendo has denied that last point. It naively dismisses Apple as a threat.
"It doesn't look like their platform is a viable profit platform for game development because so many of the games are free versus paid downloads," Nintendo of America President Reggie Fils-Aime told video game website Kotaku last month. He went on to describe Nintendo games as snacks and full meals, whereas Apple isn't "even a mouthful" when it comes to gaming experience.
It's only natural for a declining company to publicly dismiss a competitor. The numbers tell their own story. Nintendo slashed the price of its Wii console before last year's holiday season, hoping to make it up in volume through high-margin software sales. That scenario hasn't materialized, and Nintendo's guidance for the year ahead is a sobering admission that it's not going to happen in the near term.
Nintendo is trying. Last month it became the third and final console maker to allow gamers to stream Netflix (Nasdaq: NFLX ) , through their Web-tethered Wii systems. The rub is that iPad owners can do the same thing on their handheld tablets.
The pressure will be on Nintendo to wow diehard gamers during next month's E3 conference. If beefed-up systems and slam dunk accessories aren't in the playbook, it better hope that its slate of holiday releases is well-received.
Nintendo was special a few years ago. These days? Not so much.