Let's say you are a 15 year old boy and really like first person shooters. Let's say a game called Call of Duty 2 comes out. You don't get it, but you hear it's pretty cool. The next year Call of Duty 3 comes out. You play it at a friend's place and then buy it and have a lot of fun. The next year, you get Call of Duty 4 on launch day. Suddenly you realize dozens of your friends and acquaintances are playing this game too. This is your preferred form of entertainment, and you are having more fun with it than ever, with more different people that you didn't even know liked videogames.
We know what happened from there. Activision kept making annual CoDs. No nonsense sequels with lots of new content. Sure, with DLC you feel like you're spending a lot, and there's a crisis with one of the development studios behind the game, but for several more years, the games keep having lots of content right in the sweet spot you love.
Let me give you four alternate histories following the success of CoD4.
Scenario 1. Let's say after CoD4, very few other companies are interested in making shooters. Ubisoft does establish a shooter division, and they make a few good games, but mostly they miss the point. They make games like Imagine: World War 3, with a picture of an 8 year old boy dressed up like a GI on the cover. Luckily Activision, with their new found success, is interested in exploring every different area of this huge market. They have other teams make every different variation of shooter you can imagine, and while none is quite as good or as explosively popular as CoD, they really provide a lot more entertainment that compliments CoD. But disappointingly, they only release one true sequel to CoD4 for the rest of the generation, leaving other companies to fill the gaps. You enjoy the games for awhile, but as they dry up, you slowly fall away from gaming.
Scenario 2. After CoD4, Activision is interested in making more shooters. But instead of really exploring what is possible in the genre, they basically make much dumber versions of shooters featuring Crash Bandicoot. They make Crash Shooting Party and Crash and Sonic Play Paintball in China in an unexpected partnership with SEGA. Other companies all establish shooter divisions, but only release inexplicably bland games like Shooting Stuff Party, Shooting Games, and Kane and Lynch. After a few years, Activision come out with a single true sequel to CoD4. The game comes with extra RAM for your console, and Activision explains that they needed the extra RAM to really create the best and most realistic experience possible, so you get ready for more shooters now that this extra power is in place. Instead you get Crash and Sonic Play Paintball in England, which doesn't even use the extra power. Since they are really the only options you have, and they are actually pretty decently designed, you play the Crash games for awhile, but eventually get bored with the lack of great games and fun content.
Scenario 3. After CoD4, Activision leaves the rest of the market 100% to other companies. They literally release no other shooters, at all. After a while, they come out with a game called Call of Duty 4 Plus. It is the same game, bundled with a new map pack. As you may expect by now, other companies establish shooter divisions. The most notable shooter from another company is EA Sports Shoot. Other games include Ted Nugent's Shooting Ultimatum 2009 and We Shoot Family. You get pretty mad. The lack of good shooters is inexplicable. Releasing a map pack as a sequel is unacceptable. When you're done with CoD4, you put down shooters until someone does them right, and take up paintball again.
Scenario 4. After CoD4, Activision doesn't even pretend they want to make more first person shooters. Instead, they come out with a game called Call of Duty Universe, which, inexplicably, is in 2D. It's basically a misguided Contra clone. Then they release a sequel... Call of Duty Universe 2. When a new console comes out, their launch game is Call of Duty Universe 3. Other companies release shooters... As digital downloads. They release undersized, downloadable shooters, which think they're being cool and clever by aping Doom and Call of Duty 1 aesthetics. (Incidentally, in this scenario, Call of Duty 1 came out in 1991.) You bought a console to buy CoD4, but now you're done. There's no way you're buying another system if no one has any intention to make more than 1 awesome game. Instead you start researching shooters from the 90s to play.
Every one of these 4 scenarios ends the same way. Your mom and dad roll their eyes at you. They look at your pathetic macho games and see how after playing for a little while, you put them aside and went back to your other hobbies like promiscuity and drugs, or whatever kids do. In scenario 1, they are still playing with their DS systems, because Brain Training 7 just came out, and it really raises the bar more than any BT since BT4. In scenario 2, they are having such a blast with all the combat, action and adventure games Nintendo released to follow up Wii Sports, that in comparison, you really don't seem to care about games at all. You just played CoD4 for 3 months and then didn't do anything. In scenario 3, your parents are just finishing up their second go-through with Wii90X, and are thinking of going back and replaying the stack of other fitness games they played in the past, which replaced their workout DVDs entirely. In scenario 4, in addition to the old shooters, you still play Mario Bros. Everyone loves that. And Nintendo isn't stupid enough to just release 1 Mario Bros. game per system. Only one thing is for sure. Activision really needs to take their focus away from the CoD franchise and all the shooters they are releasing. It's clear from their flagging sales that the shooter market is fickle, and maybe CoD4 wasn't as much of an evergreen title as they initially thought.
Flashback. 2005. Call of Duty 2 hasn't come out yet. The CoD games have always been outperformed by the Medal of Honor games and the Halo games. They're 3rd place if they're lucky, and the fact is, no one would be surprised to see the franchise disappear.
Flashforward. 2011. Any one of these scenarios has played out after the success of CoD4. Activision is clearly number 1 compared to all the pathetic games other companies are releasing from their terrible shooter divisions. How can you possibly bet against them?
Yet the reality of the situation, with retrospect, shows that Nintendo wasn't doomed THEN, but is doomed NOW.
"[Our former customers] are unable to find software which they WANT to play."
"The way to solve this problem lies in how to communicate what kind of games [they CAN play]."
Satoru Iwata, Nintendo President. Only slightly paraphrased.