Nintendo (NASDAQOTH:NTDOY) will stop building Wii U gaming consoles by the end of 2016, according to a report from Japanese business magazine Nikkei. With another gaming machine on the horizon, Nintendo can let go if its troubled console. But don't throw your Wii U tablet controller at the wall just yet. In response to the Nikkei story, Nintendo told Japanese gaming site ITmedia that the Wii U still has some life left in it. Nikkei's report was not an official Nintendo announcement, and a Nintendo spokesman said that the console will be produced well beyond the end of 2016.
I'm sure that Nintendo's press team is telling the truth, but that might be a mere technicality. The company could very well ramp down Wii U production to an insignificant trickle, thus fulfilling both of these contrasting stories.
So which way is Nintendo more likely to lean? Has the Wii U met an untimely end, or is there still time for a last hurrah?
Let's make more of these!
Favoring a longer production run, I'll note that the current three and a half years of Wii U availability would be a short run indeed. The good old Wii rolled off manufacturing lines for seven years, and the GameCube lasted five and a half years.
Meanwhile, Microsoft (NASDAQ:MSFT) offered the original Xbox for more than seven years, followed by six years of Xbox 360. There is plenty of overlap between the generations here. By contrast, Nintendo killed the Wii very quickly, pulling the plug just one year after introducing the Wii U.
Sony (NYSE:SNE) followed Microsoft's lead, leaving the PlayStation 2 on store shelves for 13 years. PS3 arrived in 2006, and was only discontinued late last year. The PS4 may get another long-lived reign, as Sony reportedly plans to introduce a mid-generation upgrade with more graphics horsepower but still using the PS4 brand.
Long story short, gaming consoles tend to last much longer than four measly years. Sure, the Sega Dreamcast was euthanized after just 18 months on the market, steamrolled by the PS2 monster. But that fiasco was also the end of Sega as a gaming hardware producer.
Killing the Wii U now would mean throwing in the towel on Nintendo's core market. And with nearly 13 million units sold worldwide, the console is actually not running all that far behind the Xbox One's 19 million consoles.
From this perspective, it seems silly to give up on the Wii U so quickly. Nintendo is still working on new titles for this hardware, including new titles in the well-known Zelda, Paper Mario, and Star Fox series. That looks like a lot of effort to put into a dead system walking. Maybe we should expect the Wii U to hang around a bit longer.
But on the other hand ...
Right, so there's a solid flip side to this story.
Nintendo itself may be putting in some blood, sweat, and tears to keep the Wii U running, but third-party developers have not followed suit. Many of the larger game studios have actually said that they don't want to waste much time and money on Wii U titles anymore, and others are simply voting with their wallets.
The list of upcoming non-Nintendo titles for the Wii U is a festival of indie and small-scale developers, with hardly any big-name support at all. The biggest and best planned titles I can find would include Super Meat Boy and a couple of half-hearted Bandai Namco swings.
In short, Nintendo stands alone in a sea of unproven partners. That's not the way to sustain an already struggling system.
Moreover, that next-generation system is coming -- and Nintendo wants it out the door quickly. Codenamed Nintendo NX, that system might come with full support for Wii U games, avoiding the pitfall of developing games for a dead system. In that light, the Wii U could get swept under the rug and forgotten in a hurry.
This could go either way until we get more detail on Nintendo's plans for that next-generation design. But here's what I expect:
The company will slow down the Wii U manufacturing lines, and independent reports say that this has happened already. Some of the slow sales in recent quarters allegedly came from tight supply rather than soft demand. If there is a market for this system, Nintendo is doing its best to offer at least an illusion of exclusivity.
I agree with industry watchers who see Nintendo stuffing the NX console with top-of-the line components and launching at a premium price point. That's the polar opposite of how the Wii and Wii U launches were handled. Assuming that these high-quality systems can handle Wii U emulation and play all of the older system's games, that tactic would let Nintendo offer high-end and low-end options for the same market. So the Wii U lives on in the discount bin, while the NX gets a lot of developer love to produce titles that simply won't play on the older hardware.
It's a gambit, but not a terribly risky one. The Wii U is already fading fast, and Nintendo won't suffer much from killing it softly. Jumping up to a more premium market segment will put fresh pressure on Sony and Microsoft to fight back, and should boost Nintendo's flagging profit margins.
None of this will work unless Nintendo can come up with high-quality NX titles and win back the support of the major game production studios. It's a shot in the dark, but far better than doing nothing at all. Nintendo stock is more of a gamble than an investment right now.