It's now out in the open, EA has come clean in their snubbing Nintendo, and it sure sheds light on the lack of interest other developers like Epic have when it comes to Nintendo. Meanwhile, we are hearing a slew of positive things from indie devs and support from other very important 3rd party publishers such as Sega and Ubisoft so it seems like Nintendo is doing something right and the other players that are snobbing Nintendo are likely doing it for political reasons, or because they don't understand the business opportunity Nintendo presents to them.

With all that said, I believe it's time for Nintendo to step up to the plate. Since they are not getting Frostbite support, not getting Unreal support, not getting Lumina it seems, I believe it's time for Nintendo to beef up its technical arsenal and create an engine for developers and start entering that market asap.

Retro studios, known to make some of the most technically advanced games on Nintendo systems, should be charged with developing an engine for Nintendo that would squeeze out the juices of Nintendo's machine, and implement some of the features of competing engines in the market (Unreal 4, Lumina, Frostbite, etc.). Though the U is relatively not next-gen tech, it has the ability to pump out an estimate of 270 GFlops more than the PS360. 

Max Gflops PS360: 230.4 

Max Gflops WiiU: 500

Also, the system has a lot of custom parts which remain a mystery, so making the most use of those components would make a better engine.

Lastly, though some features of cutting-edge engines can't be accomplished on WiiU, many next-gen features are based on scientific breakthroughs that may not require advanced hardware per se but more need to be integrated into the latest engine. I believe this may be an example of what I mean here (post comments if you disagree):

http://www.extremetech.com/gaming/154172-nvidias-physx-has-finally-cracked-realistic-real-time-rendered-water

This may not be novel for some, but I believe that Nintendo needs to start taking full ownership of its conquest of the cutting-edge market now that the cat's out of the bag and we know that the industry is not backing Nintendo for all things next-gen.

Nintendo will rule.

The other Dolphin is back from banned land! :D
I was worried at first that this was yet another EA thread, so nice to see that's not exactly the case.
So newb question, why is it so important to have an engine?

take over...what? whats are you trying to say?

I think that one of the reasons to enter the game engine market and compete with Unreal is because it enhances the company's focus on cutting-edge, increases their expertise by injecting resources behind the project, and increasing quality by including external customers in the use of the engines. To support such a product, more resources are needed with serious credentials such as to offer customers of the U engine with the best tools possible.

Also, in competing with other big names in the industry (Epic, EA, Square) it would set the bar up even higher for the company making the game engine, because demand by customers for features found on competing engines would drive integration of those features.

It would mean that the engine makers would sharpen their ability to producte top-end features, as well as increase the effort behind the product.

Take over the project of having a cutting-edge game engine available for their platform, produce one themselves, become a full-fledged game engine supplier and compete with the big boys out there who aren't willing to lift a finger. It's time for Nintendo to do it themselves.

What if Ubi didn't have to use their own engine for ZombiU, and could use Retro's engine, saving dev time while making the best use of the U thanks to said engine, for Nintendo exclusives?

Also, I believe that would encourage companies to make cutting-edge Nintendo exclusives and build that market on the U rather than revert to games for the casual audience, as well as help Nintendo shed this image of being out of the cutting-edge game altogether when that may not be entirely true.

pretty much what Rol said.

Ill add that Ninty doesnt even want to go cutting edge with there hardware, what makes you think they'll do it for a game engine that is even less lucrative?

@happydolphin:
Ah, well if it would help build relations with 3rd parties then I'd be all for it, but I don't think Nintendo can afford to do that right now. All their devs got to be hard at work pumping out games, namely for the Wii U who's library is uber lacking right now. Though honestly, even if they did have the manpower, I kinda doubt Nintendo would do that. Graphics don't seem to be one of their top prioritys anymore which is understandable.

@bold. You'll notice that I replied. The Wii had support for non-casual content and the best-selling 3rd party game atm is ZombiU. You'll have to defend those points if you're going to side with him.

@2. In the link I provided, Iwata said that for certain games he was ready to dispatch resources for what he called "power games". He knows there is a need for games that cater to that market. That makes me believe a strategy that helps him push that objective would interest him, including empowering partners with top-tier dev tools (e.g. a game engine).

Why would they waste money doing that? 3rd parties already have their own in house engines and those who don't have the Unity Engine available to them.

There's no need to do such a thing. Would be a waste of their time.