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RolStoppable said:
It's not a failure, but at the same time it didn't sell well enough to make a sequel a sure thing. It sits right there in the area where things can go either way with about equal chances.

That's fair enough. But as I said, Animal Crossing only started off with 2 million copies, but it gradually grew in popularity and sales with each entry. While it's not a sure thing ARMS will get a sequel, I do think it's on the table for Nintendo, as it has the potential to become another staple series.

Of course Nintendo doesn't make games thinking that they will turn into new longrunning series, but it's their goal. They know that not every game will pull it off, but they won't know for sure before trying.

Of course, they do hope that many of their IP can turn into a steady stream of new games. But as you mentioned, they know its not possible for every game. Either due to lack of developer interest, or diminishing returns for a series (F-Zero is an example for both).

Nintendo isn't aiming for games to sell well, rather they aim for games that sell well over a long period of time. Not only do such games bring in revenue and profits on a consistent basis, but they also remain in the consciousness of potential consumers and therefore can help to sell hardware which lifts the overall business. That's how Nintendo hardware is so successful in the absence of major AAA third party support, because the first party portfolio makes a Nintendo console a high value product.

This is also true, but Nintendo knows that different games have different longevity. Some games last the entire generation, while others only a few years, and then there's games that are anywhere in between. ARMS still sold well even all the way through 2018, so there was still enough interest in the game left a year after release. It's sales have kind of maxed out at this point, so we'll likely get a sequel either sometime during the Switch, or for a successor.

The point I want to make is that Nintendo doesn't care if a New IP doesn't do Mario or Splatoon numbers on its first game. Sure, they'd be happy if a game can do that, but if it sells well for a good few months or even a year or two after release, then it's worth keeping around to grow. People forget that much of Splatoon's success was down to luck. It was a rare instance that a new IP that became a breakout hit on its first try, and that was on an unpopular console. But Rhythm Heaven, another Nintendo IP for example, only ever sold a few million copies with each entry, yet it's already got 4 games under its belt. Success should be measured on a game-by-game basis, as not all games are made equally.