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ViolentPhlegm said:

@jarrod: the fact that Wii fell behind PS2 shows how dramatically it declined. 

Now, lots of consoles have had weak years for software, but what's happened in Japan (and has been happening since launch) is pretty much unprecedented and most analysts (including Iwata) think it has to do with Japan becoming bored of the Wii tech. Check out this link which shows the 12-month moving average through April of this year.  (For the rest of 2009, the Wii line would have been in constant decline until MH3 released at which point it would have gone up from 1.72 million to 1.77 million per 12 months, then declined again until the Wii price cut at which point it would have started to increase slightly to just above flat.)  At the point when the graph ends (April), Wii was at "2.2 million for last 12 months" whereas it now sits at about "1.75 million for last 12 months".  For reference, PS2 was doing "3.9 million for last 12 months" at this point in its life cycle (just after its peak).  PS3 was at around 1 million when the chart was done, but is now at 1.38 million and increasing sharply.

The point is that the behaviour of Wii in Japan shows a sales trend that I don't think has ever been seen before anywhere.  You say yourself that consoles tend to hit a peak which is true.  But Wii peaked in Japan during its first 12-months on the market and (I think) other than Mario Party 8 and SMG, its biggest titles didn't come out until after that.

Lots of people keep saying the Wii's decline is all about software, but there's obviously bigger momentum issues at play.

http://dubiousquality.blogspot.com/2009/04/console-post-of-week-japan.html

I agree the problem's bigger than software, but you're actually overlooking Wii's 4 biggest games (Wii Sports, Wii Play, Wii Fit, Mario Kart) which all also released in it's first 16 months.  2 were launch games even.  Wii was fine until late summer 2008, that's when the decline started and it began tracking behind PS2 and that's also when Wii Music and Animal Crossing "failed".  You also can't misconstrue Iwata's words, he's always maintained that any consumer disintrest or "boredom" came from their inability to supply compelling software.  Software driving hardware is basically Nintendo's motto.  This isn't an inherent tech problem, it's a problem on properly capitalizing on that tech. 

Although a turn around for Wii isn't impossible, and we've had "late bloomer" platforms before in Japan.  The original PlayStation notably, which didn't really start taking off (ie: outselling SFC comparably) until 3 years post-launch.  If it's going to happen though, Nintendo needs to fix the 3rd party "problem" and get their own house in order.  Showing off DQX would help too, even if it's still 2 years off.