The Wii U console from Nintendo (NASDAQOTH:NTDOY) looks like a certifiable flop after its first year on the market. Hardware sales have been slow across all major territories, and titles from some of Nintendo's biggest franchises have debuted to disappointing sales. The recent releases of the Sony (NYSE:SNE) PlayStation 4 and the Microsoft (NASDAQ:MSFT) Xbox One have highlighted a lack of consumer interest in Nintendo's console.
Even worse, price cuts and software bundles have not driven a substantial uptick in system sales, indicating that the fundamental appeal of the system is so lacking that an improved value proposition will not create the momentum needed to sustain the system. Will Nintendo attempt to rebrand its Wii U hardware and minimize its market share losses?
The next Dreamcast
NPD Group tracking puts Wii U's North American sales for the month of November at approximately 220,000 units. This lags behind the approximate 910,000 units that the Xbox One moved in the tracking period. Figures for US PS4 sales are less readily available, but it is widely-known that the system was the best-selling hardware for the month.
That the new consoles outsold the Wii U in their launch months is not particularly big news. What is shocking is just how close the Wii U's sales are to those of Sega's ill-fated Dreamcast. In its second November sales period, the Dreamcast sold a comparable 192,000 units in North America.
That Nintendo needs to initiate drastic action to preserve its position in the console market has become a foregone conclusion. The company's structure relies on drawing revenue from both handheld and console hardware, and it's become apparent that price drops and Nintendo's big franchises will not be enough to drive consumer interest in the system. The company needs to address the major issues that have plagued the console or risk cementing the idea that Nintendo no longer matters in the space. The company needs to ditch the GamePad.
Time for a new game plan
The Wii U's GamePad controller was introduced with the promise that it would enable "asymmetric gameplay" -- providing different user experiences and roles depending on which controller was used. The concept, questionable since its inception, now seems to have been abandoned altogether.
Very few games on the system make significant use of the GamePad, making the cost that it adds to the system difficult to justify. Conceptually, the controller has a good deal in common with the similarly named uDraw Game Tablet that helped to sink former publisher THQ. The GamePad has been rejected by the market. It's time for Nintendo to move on.
When the Wii U was first introduced, substantial confusion existed as to whether or not a new system was being unveiled or if the GamePad was merely an add-on for the existing Wii console. Everything from the familiar look of the new system to its poorly chosen name contributed to this.
If Nintendo were to create a SKU that ditched the GamePad, rebranded the package as Wii 2 or something more obviously iterative in nature, and featured a new casing for the hardware, it would have a shot at salvaging its Wii U investment. The system could hit retail at a sub-$200 price point with the GamePad sold as an optional controller, allowing Nintendo to sell its software to an expanded base and ride out a shortened console cycle.
A problem of vision
Second-screen gaming is not entirely devoid of promise. Sony hopes to normalize the feature by positioning its struggling VITA handheld as a PS4 accessory, and Microsoft looks to mine connectivity between SmartGlass and the Xbox One. Both of these companies had the good sense to position these features as ancillary rather than the defining elements of their new machines.
Nintendo's greatest strengths are its stable of valuable IPs and its ability to deliver quality software content. The GamePad is limiting the potential market for its franchises and causing their value to diminish. A hypothetical Wii 2 that jettisons the lumbering controller won't solve all of the company's console problems (such a move comes with its own branding and compatibility issues to consider), but these are desperate times and corresponding measures must be taken.
It's now or never
With the news that it took the PS4 and Xbox One a matter of days to eclipse Wii U's LTD in a number of territories, Nintendo cannot afford to ignore reality any longer. While it has publicly refused to acknowledge the gravity of the Wii U situation, the console's issues should have been readily apparent six months ago.
Given that generous timetable and Nintendo's statements that it takes approximately 1.5 years to realize a hardware revision, a rebranded Wii 2 could be ready for the 2014 holiday period. Failure to actualize this strategy likely correlates to forfeiting the console space for the next several years.
Keith Noonan has no position in any stocks mentioned. The Motley Fool owns shares of 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.