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Nintendo's problems started manifesting themselves in the N64 era with talk of the "Dream Team" of developers which was code for developers that we like and that we can make heaps of money from. I think pissing off many of the third party developers forced Nintendo into being the 'everything man' in terms of software on their console. The had to keep the core fans happy with remakes of the favourite franchises and had to innovate in order to keep ahead of the curve.

In steps Playstation and says come one and all 3rd parties, make software for us, we'll pay you more and you don't have to worry about the overheads of cartridge manufacturing. By capturing so many software houses' imaginations with the opportunity to make money they were almost guaranteed, by the numbers, to get core software and some innovation into the mix.

Nintendo painted themselves into a corner where they had to try to keep everybody happy and as good as Nintendo is at making software it just can't do that. The creation of 'mature' titles showed for the first time there was a kind of software that Nintendo couldn't make and from there they were on the downslope of losing PR battle.

I think the cracks really started showing however when Nintendo delivered, for them, relatively substandard versions of many of their top franchises (Mario, Mario Kart, Zelda WW) on the Gamecube. Here not only were they not providing "mature" titles that were available on the competing consoles but they were being accused, for the first time in large numbers, that their core franchises were losing freshness. They had to do something, and they did 2 things.

The Wii-mote and making the Wii non-HD. The wii-mote facilitated pushing games in brand new, previously unforeseen directions, that is to say creative innovation. Making the 480p i will assume was to encourage third parties back to the table with lower development costs and the chance to once again make money on a Nintendo. It could be argued that neither strategy has fully realised it's potential yet but you have to give Nintendo props for trying.