They could do it, and almost did, but I don't think it works as a long term strategy. Nintendo was able to hold on to the fans it did by consistently making quality titles. Still they were haunted by the stigma of being the "losing" console saleswise. An increasing proportion of the sales of their consoles were merely the devoted fanboys of the system. But each generation more and more of these Nintendo fans would leave and few others would come in to replace them. I seriously doubt that with lower and lower console sales Nintendo would be able to continue to produce the quality titles that earned their few remaining fans' love. They had to expand their consumer base and they couldn't have waited much longer.
Yes Nintendo is able to make money solely off of their own products but they realize they have to get 3rd party support to be truly succesfull and to stay in the business for years to come.
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