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curl-6 said: 

It's still sinking the same resources into a 3 million seller as could be spent on a 10 million seller, which just isn't good for business. Nintendo still promoting ARMS occasionally doesn't tell us much; as of the last quarterly report sales have slowed to a crawl, it's on track to sell less than 1-2 Switch and in the eyes of the general audience it's already forgotten. That's the thing about rolling the dice on a new IP, sometimes you get a new breakout megaton hit like Splatoon, and other times you don't. Honestly, rolling the dice again on a Nintendo FPS along the lines of Paladins or Overwatch would probably be a better use of their resources, that could have far more sales potential than ARMS 2.

But again, Nintendo never goes into new IP thinking they're going to be Splatoon-like Megahits. They set a base estimate of around 1-2 Million copies for major titles, and if the game meets those expectations, then it's worth doing again. The only exceptions to this are the golden boys  which can blow well past 2 million copies (Mario, Smash, etc.), or small niche one-shot projects developed usually with a external partner just for fun (Sushi Striker, Snipperclips, etc.). There are Nintendo IP that sell far less than ARMS ever has, yet Nintendo still at least keeps them in mind anyway. Pikmin has never been a Mario-like phenomenon, yet it's already on 3 main entries plus a spin-off, with a fourth game on the way. Metroid Prime has never sold beyond 2 million copies, yet Nintendo is making a 4th installment anyway. Star Fox had been struggling since the GameCube, with the recent Wii U entry being a giant critical flop, but Nintendo still hasn't given up on the IP

I'd say the fact that Nintendo doesn't enforce a "Blockbuster only policy" should be considered a good thing. It shows they're willing to take creative risks and not adhere to conventional AAA publisher standards, its refreshing in an age where most big Japanese publishers like Capcom have become more risk-averse. Besides, Imagine how boring Nintendo's yearly output would be if they did what you describe. That is, gutting teams and locking them into only making guaranteed system sellers. We'd have less games AND less variety from Nintendo as a whole.