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Nintendo Co., Ltd Just Announced 5 Radical Changes It Hopes Will Save Its Business

By Sam Mattera – Jan 30, 2014 at 7:05AM

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Nintendo's facing more competition from Apple and Google's mobile platforms. Can the company's new policies save the iconic game maker?

Nintendo (NTDOY 1.45%) is on the ropes -- its video game consoles, the Wii U and 3DS, aren't selling as well as it anticipated, and Nintendo now expects to report its third consecutive annual loss.

Nintendo's management is well aware of the challenges it's facing, and though it continues to resist calls to release games for Google's (GOOGL 2.16%) Android and Apple's (AAPL 0.70%) iOS, it did unveil a number of a radical changes to its business model on Thursday. Can Nintendo's save itself from slipping into oblivion?

Flexible game prices
Nintendo pioneered the traditional video game model -- selling consoles for $200 or $300 and games for $30-$60 each was the standard Nintendo established more than 30 years ago. This model has held up well, but in recent years, it has come under heavy assault -- developers have begun to embrace new pricing policies, with some games, notably Candy Crush, generating hundreds of millions in revenue despite letting gamers play for free.

Nintendo doesn't plan to release free games anytime soon, but the company did say it would experiment with its pricing policy dramatically going forward. In particular, Nintendo said it would offer discounts to loyal buyers -- gamers who bought many of Nintendo's titles would be able to buy games at reduced rates.

Creating an integrated platform
And when they do purchase Nintendo's games, they'll do so through a single Nintendo account. As Apple uses iTunes accounts to connect all of its devices, or Google uses Gmail across its different services, Nintendo plans to introduce a single account system that will link up to all of its hardware, in addition to smartphones and tablets.

This change is hardly revolutionary -- consumers have long come to expect global account systems -- but a very necessary one. Previously, each Nintendo device was treated differently, and losing or breaking an old Nintendo console could mean the loss of one's entire digital game collection.

Nintendo plans to use smartphones and tablets
Gamers will be able to access their accounts through a Nintendo app, which Nintendo hopes will serve as a focal point for the company going forward. Given the rapid growth of mobile gaming, analysts have suggested Nintendo should bring its games to Apple and Google's platforms.

Nintendo doesn't intend to do that -- "If you report that we will release Mario on smart devices, it would be a completely misleading statement," Nintendo's president, Satoru Iwata, said. But even as Iwata warned analysts and reporters not to mischaracterize his statements, he didn't explicitly rule out the prospect of mobile games:

We recognize that attracting consumers' attention among the myriads of mobile applications is not easy, and I said before, we feel that simply releasing our games just as they are on smart devices would not provide the best entertainment... however... we feel that we will not be able to gain the support of many consumers unless we are able to provide something truly valuable... accordingly, I have not given any restrictions... even not ruling out the possibility of making [mobile] games.

Another game console aimed at emerging markets?
Despite its ongoing problems, Nintendo's shares briefly surged earlier this month after the Chinese government lifted its restriction on video game consoles. In theory, Nintendo could sell its ailing consoles to would-be Chinese buyers, but in practice, few of them would be able to afford Nintendo's relatively expensive hardware.

To expand into emerging markets, Nintendo suggested it that may release low-cost, low-powered consoles:

For a large majority of consumers in the new markets... the current prices of hardware and software... are generally difficult to accept. To leverage Nintendo's strength as an integrated hardware-software business, we will not rule out the idea of offering our own hardware for new markets, but for dramatic expansion of the consumer base there, we require a product family of hardware and software with an entirely different price structure from that of the developed markets... we plan to take significant steps toward such a new market approach in... 2015.

Investors looking for China to give Nintendo's ailing consoles a boost shouldn't get their hopes up. If Nintendo does enter these markets, it will likely be with an entirely new product.

Nintendo's moonshot bet
Perhaps the most interesting bit from Nintendo's presentation was its introduction of a radical new business venture -- what Nintendo is calling its "Quality of Life" platform. Unfortunately, details remain scant, but Nintendo did say it would leverage its experience in crafting video games to encourage healthy habits.

Nintendo specifically mentioned wearable technology, but don't expect a Mario-themed competitor to Apple's long-rumored iWatch or the Fitbit. Nintendo claimed that, while still growing, wearable technology was a market that was already fiercely competitive. Rather than compete with Apple and Google, Nintendo aimed to leapfrog the technology with what it called "non-wearables."

Nintendo said this new business venture would not become a factor for another year, but it planned to announce more details later in 2014. Without knowing any specifics, it's difficult to characterize it as an investment catalyst, but it could emerge as a major part of Nintendo's business in the coming years.

Can Nintendo recreate itself?
As a company, Nintendo is positively ancient -- it is more than 100 years old, and has gone through many transitions over the years. Although it's billing these initiatives as the next great transition, it offered nothing of substance that would prompt investors to change their outlook.

In the handheld space, Nintendo is still facing growing competition from mobile devices, and in the living room, it's getting beat by its traditional rivals even as major companies like Apple and Google prepare to enter the space.

Some of the announcements -- creating a universal account system, cutting loyal customers a deal -- are just playing catch-up, while the others -- designing separate strategy for emerging markets, expanding into "non-wearables" -- are far-off projects with little clarity.

For now, Nintendo remains a company that's still deeply challenged.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. 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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