It's the path that they've chosen. Changing that path now would require serious effort and money, neither of which Nintendo seems keen on dedicating to western third party developers and publishers--though they will give money and attention to Japanese third party develops and publishers. If I were a Nintendo fan, I think I would be more annoyed about that discrepancy than anything.
Otherwise, many companies do just fine by sticking to a niche.
It's a bit different being a hardware manufacturer than simply a content provider, however. A niche company on iPhone, for example, potentially has access to all of iPhone's consumer base. When your entire platform is niche, on the other hand, you have to continually find ways to bring in new customers to make up for the ones you lose naturally over time. A lack of growth will eventually lead to contraction and brand erosion down the line.
