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So many armchair CEOs in this thread...

What should Nintendo do? I'm not sure, there seems to be downsides to whatever route they take. If they try to compete with Sony hardware wise and fail, they potentially sink the company.

They go the gimmicky route, it's not as much of a money pit, but Nintendo gets pushed further out of the console market.

The answer is that I'm not really sure and neither does no one else, except perhaps Nintendo who knows most about their own company.