The Game Boy blows out 25 candles this year. But is the video game industry blowing out the candle on Nintendo (NASDAQOTH:NTDOF) as well?
Nintendo's 8-bit Game Boy revolutionized the playground and the video game industry, popularizing the handheld console market and selling 118 million units worldwide since its inception in 1989. It became the console for some of the most iconic games of that generation, including "Tetris," "Super Mario Land," and the "Pokemon" series. With a screen displaying a radical four shades of gray on a green background, the Game Boy added depth to the handheld console market both physically and mentally in the minds of gamers.
Nintendo and the video game industry as a whole have come a long way since 1989.
Nintendo's handheld consoles then and now
The original Game Boy wasn't the first handheld console, but it was the first to be mass marketed. By the end of 1989, Nintendo had sold more than a million units in the U.S., reaching 25 million by 1992.
Working off its initial success, Nintendo released Game Boy Pocket in 1996 and Game Boy Light in 1998, though the latter was released only in Japan. The Game Boy Color was released in 1998, and was discontinued after the release of the Game Boy Advance SP (which stands for special) in 2003. All of these units together factor into its 118 million unit total.
Nintendo almost immediately followed up with its Nintendo DS in 2004, the original model of its latest and current line of handheld consoles. Newer iterations include the Nintendo DS Lite, released in 2006, and Nintendo DSi in 2008.
The latest console from Nintendo is its current Nintendo 3DS, where Nintendo sought to capitalize on the growing interest in 3D media. The 3DS surpassed sales of the Game Boy Advance with 15 million units sold in Japan by its 154th week, as compared to Game Boy Advance's 11.64 million units, though it still has not been as popular as the first DS, which sold 20 million units in the same time period.
By the end of 2013, the DS models have sold nearly 154 million units, which makes it the best-selling handheld game console line to date, beating out its competitors like Sony's (NYSE:SNE) PlayStation Vita and PSP, among others. In 2013, Nintendo sold 9.4 million 3DS units and 649,000 DS units, for a combined total of 10 million units and 36% of the total handheld console market share, as compared to Sony's combined Vita and PSP sales of 4.5 million and 16%.
As it would appear, Nintendo is doing quite well in the handheld console business, sitting atop the industry with more than twice the market share of its biggest competitor as of 2013. But these numbers may not be indicative of the company's success as a whole when compared to Sony and Microsoft (NASDAQ:MSFT) and their set-top video game consoles.
How Nintendo matches up in the set-top game console market
While Nintendo might have the handheld console market cornered, the same cannot at all be said for its successes—or lack thereof—in the set-top game console market as of late. With such high-flying competitors as Sony's PlayStation 4 and Microsoft's Xbox One, both released in November 2013 just in time for the holidays, Nintendo and its Wii U has thus far not stood a snowball's chance.
According to a January article in the The Wall Street Journal, "Nintendo's forecast to sell 2.8 million Wii Us this year—down from a previous forecast of 9 million—compares with Sony's ability to sell 4.2 million PlayStation 4s in just two months. Microsoft has sold more than 3 million units since November."
With a forecast of a ¥35 billion ($342 million) operating loss, Nintendo will report its third annual straight loss, a stark contrast to the ¥100 billion ($977 million) profit the company had predicted in April. With glaring numbers such as these, what is it about Nintendo's business and product strategies that is currently failing the company, despite its successful past?
Is Nintendo's product strategy working?
Part of what's going on with Nintendo has to do with its product strategy, which has essentially not changed in 40 years, when the company first branched out into the video gaming industry.
Despite pleas from Nintendo fans, Nintendo appears to have no plans to release any of its signature games or franchises, such as "Super Mario Bros." or "The Legend of Zelda," on mobile devices, as other game companies have done. Nor does the company seem too keen on experimenting with any online free-to-play formats.
Instead, Nintendo refuses these suggestions, saying that it will keep its branded games on its own platforms because, "Its success depends on keeping alive the player experience on its own dedicated hardware," according to the The Wall Street Journal. For this reason, some users are beginning to find Nintendo to be "out of touch," which has harmed its industry reputation—and it has the sales stats to prove it.
Another issue for Nintendo has been the loss of third-party support. According to Wii U Daily, Ubisoft, arguably the Wii U's biggest third-party supporter, "had less than 5% of its sales come from the Wii U, despite releasing half a dozen Wii U games in the first year alone." Still worse, at this year's Game Developers Conference, only 4% of developers responded that they will develop games for the Wii U this year.
Nintendo itself is partly to blame—the company primarily markets its current flagship product, the Wii U, to kids and parents who will buy the console for those kids. If that's the case, developers of big action games have little motivation to create games specifically for that console. Since those big-budget action games appear to be the main focus of many third-party publishers, this could spell trouble for Nintendo.
Also, most Nintendo buyers buy these consoles for the Nintendo-developed games, not third-party games. As Ubisoft's sales demonstrate, Nintendo buyers simply don't buy third-party games -- so can Nintendo support the entire Wii U console on first-party games alone?
Game Boy made Nintendo in its heyday, and while the company still dominates the handheld game console market, it has a lot of catching up to do in terms of technology, games, and overall reputation to compete once again with stiff contenders like Sony and Microsoft.
Carolyn Heneghan 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.
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