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So why not just let them create a new character? It didn't have to be Kid Icarus.

Nintendo was so stubborn with giving Western devs any money during the Wii/DS era even though they were swimming in mountains of cash then.

What's the harm in throwing a studio like Factor 5 that's worked well with Nintendo in the past a project? Now they're a defunct studio unfortunately, which is a shame because it would be nice to see what they could do on the Wii U ... I bet they'd really push the hardware and show us what it's max capabilities are.