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.