Everything that needed to be said about Nintendos current situation and business outlook has already been said and laid out by Rob Crossley on CVG. After his writing, nothing more needs to be said apart from how long will it take to happen.
Source: http://www.computerandvideogames.com/446277/blog/nintendo-must-reinvent-itself/
If you're not making mistakes, goes the saying, then you're not doing anything.
That's likely the most generous evaluation one can make of Nintendo's swing from trendsetting market leader to the predicament it finds itself in today.
On Friday, the company's investors were left reeling from new disclosures regarding the Wii U's commercial performance. The severity of the console's struggle, now fully exposed in unambiguous sales figures, has triggered a frenzy of speculation about Nintendo's future.
Chief executive Satoru Iwata, who revealed he will now take a pay cut, has insisted he should not resign despite growing questions over his leadership. Some think the company should put an end to its thirty-year tradition of building hardware. Others say Nintendo should swallow its pride and try to flourish on smartphones. Some believe it is doomed regardless.
It would of course be extreme to suggest that Nintendo is on the verge of capitulation, especially considering it has cash reserves that could cover the investment required to carry both the Xbox One and PS4 combined.
But regardless of how much time it can buy, Nintendo must accept it is on a downward spiral. Its decades-old production cycle of self-serving hardware platforms will eventually consume the business. Drastic action, however painful, is now a necessity.
The Wii U is cornered
Those who want to understand the extent of the current problem are spoilt by a wealth of alarming statistics. One of the worst, undoubtedly, is that Nintendo sold more Wii U units in its first seven weeks than in the entire financial year that followed.
Another is that the machine's predecessor, which launched eight years ago and was recently discontinued in key territories, is still selling more games than the Wii U. Then of course there is the latest stabbing wake-up call; Nintendo has flattened its annual Wii U sales projection from 9 million to 2.8 million units. It's a figure that doesn't just reveal the limited appeal of the system, but also how oblivious Nintendo is of the problem.
Wii U sold better in its first seven weeks since launch than in the twelve months that followed
Retailers have, inevitably, lost patience. Across the UK and the US, various supermarkets and chain stores have in some cases condensed Wii U shelf space to a small in-store island, while others have pulled support entirely.
Most worrying of all is that Nintendo's dependable system sellers, those garlanded games released to an unopposed market, cannot shoulder such a burden.
Super Mario 3D World, a flagship Nintendo EAD title that is eulogised by critics, recorded the worst debut sales of any 3D Mario game yet. Across the UK and US, it didn't register on the top-ten charts. It suggests that upcoming key releases (Mario Kart, Smash Bros, et al) may not reverse the console's fortunes. A killer game, or two, may not do it this time.
Perhaps Nintendo, which delivered a near-flawless 3DS campaign last year, knows the game is up for Wii U. Certainly, it is not meaningfully advertising the system any longer - a sign, some might say, that the company knows you either go big on marketing or not at all, and the Wii U is not worth the risk.
"PERHAPS NINTENDO, WHICH DELIVERED A NEAR-FLAWLESS 3DS CAMPAIGN LAST YEAR, KNOWS THE GAME IS UP FOR WII U."
Cynical perhaps, but a wise decision nonetheless. Advertised or not, the Wii U's central concept has proven to be fundamentally unappealing to the masses. It is a core console built with mothers in mind and the result is as messy as that sounds. Most gamers consider the hardware underpowered, while casuals find the controller mix both foreign and daunting.
The breadth of such problems, and indeed the spectacle of their emergence in the same year, has perpetuated serious discussions about whether Nintendo should hasten the system's downfall by no longer supporting it.
Fortunately for active Wii U owners, such a betrayal is out of the question. One of Nintendo's most important assets, perhaps moreso than the console it trades, is a lifelong bond with its customers. Sometimes this is exemplified in the small things (Nintendo has your email address but won't spam you with promotional messages, for example) but on the subject of console support, even for failing systems, it will not tarnish that reputation just because it's convenient to.
Nintendo's dilemma is age-old
The problem is a matter of legacy and tradition too. Nintendo is a keystone of Japanese culture and history, now months away from its 125th anniversary and older than most cities across the country. Its philosophies and values on entertainment are, relative to other media companies, ancient and ossified.
Treasured as that may be, it's the reason why Nintendo is struggling in the rapidly advancing world of interactive entertainment. The corporation's age-old principles, of quality and universal appeal, are still important but not enough to sway a modern audience.
In fact, if one takes the Wii as the anomaly (bear with me on that), historical figures show that Nintendo's home console sales have been in steady decline since the '80s.
The positive impact Nintendo has on people's youth and adulthood is without question, but millions of its fans have demonstrably moved elsewhere at the dawn of each new generation.
That's the problem with honouring history when tastes move on. Competitors such as Sony, Microsoft, Valve and Apple have released game platforms that, in many respects, are perfect for gamers who grew up with Nintendo but now want experiences better suited to their eclectic tastes.
In the three decades since the NES, game enthusiasts have become absorbed in 2D fighters, racing sims, stealth-action games, MMOs, cinematic adventures, Grand Theft Auto and military shooters. Nintendo has barely touched any of these genres, which suggests both a commendable commitment to perfecting its craft yet also reluctance to be honest about gamers' evolving habits.
The recent Wii U calamities may portray Iwata as a businessman who has lost his touch, but the system's struggle is the continuation of the downward spiral that was drawn more than a decade ago - one which it managed to avoid in recent years, but not escape.
In 2002, when major retail chains held fire-sales of remaining GameCube stock, and when a growing number of publishers pulled support for the platform, executives at Nintendo had a clear choice in front of them. Either compete with Sony and Microsoft on their own terms or find a new market entirely.
George Harrison, Nintendo of America's head of corporate communications at the time, said doing neither would have been devastating.
"We knew that direct three-way competition in the hardware space was not going to support Nintendo financially in the future, so something had to change," he told CVG years later.
"We knew we could probably never get that 80 per cent market share back, but we decided that there was a better chance if we went after a different audience."
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So Nintendo decided to quit the console race, at least in the traditional sense. The outcome of that thinking was the Wii, a pioneering and idiosyncratic console that caught the imagination of the masses and dramatically reversed Nintendo's fortunes, at least for a while. But few foresaw that its new casual audience would be so resistant to games industry convention, and in particular, the concept of recycling consoles.
Most families see no reason to replace their Blu-Ray, DVD and VHS player unless it breaks, and it has been this way for decades. Irrespective of Nintendo's poor attempts to demonstrate the Wii U as a new console in the first place, why would a non-committal customer throw away a working console to buy another? Why would an average family even understand the logic behind that?
Perhaps the thinking was: Since a completely different audience replaces their consoles every five years or so, this must be true of everyone.
"A NEW CONSOLE WILL NOT BREAK THIS CURSE. WHAT NINTENDO NEEDS IS A BOLD AND BRUTAL ASSESSMENT OF ITS TRADITIONAL PHILOSOPHIES"
There are reasons to believe the Wii's casual audience was fickle, especially since many of them now play games on smartphones and tablets instead. But the last major mainstream Nintendo title targeted for such a market was Wii Party, released in 2010. As far as the masses are concerned, there are simply no new Wii games anymore.
Whether Nintendo is to blame or not, the company has fallen back to a GameCube audience size and revisits the dilemma that came with it. Where will Nintendo find an audience now? Lifelong fans still follow, and are repaid with some of the finest games in the world, but the numbers are unsustainable.
That's why a new console alone will not break this curse. What Nintendo needs more than anything is a bold and brutal assessment of its traditional and institutionalised philosophies.
Nintendo must modernise
If any company can inspire Nintendo to reinvent the business, it's Sony. The story of PlayStation across the past five years has been one of a company that has soul-searched for answers on why it lost half its market share and the drastic changes it made thereafter.
Sony has demonstrated a willingness to go as far as it takes. It has torn itself from its roots in order to adapt with the times. PlayStation 4, crafted at SCE's Tokyo headquarters, is still not available in Japan. The console's delay in its homeland, once a nasty rumour, was enacted so that the bigger markets of Europe and the US could take priority. Meanwhile, Ken Kutaragi's vacant role as system architect was filled by an American who doesn't even work for the company (he is, incidentally, a genius).
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Over the past decade, the games industry has undergone a tectonic shift of power from east to west. Sony has accepted this, not just as a painful reality, but as a pillar ideology that informs all of its decisions. From enlarged, FPS-friendly controllers to localised development support teams, PlayStation 4 has embraced the westernisation of games, and in turn has thrived.
Nintendo's casual audience has fled to mobiles. The company must utilise, not resist, their appeal
Conversely, Nintendo's Japan-centric thinking has left it stranded. On Friday, Iwata expanded on the problem, claiming that "in Japan, I can be my own antenna, but abroad that doesn't work".
It's not the time for half-measures, however. The company must understand that relocating a Kyoto businessman to Germany is not going to magically reverse its fortunes. Nintendo's European and North America offices, which should be hubs for local development support, are little more than sales outposts for skilled marketers like Reggie Fils-Aime. They need to be much more than this.
What's now essential is a restructured western-facing business model, and a presence across Europe and North America's development and retail sectors. Yes, it's vulgar that every games company has to do the same thing, but what's worse is the eventual outcome if they don't.
One publishing executive, working on perhaps the biggest franchise in games today, recently told CVG that he felt Nintendo "just doesn't care about US developers". He claimed that not only is there a language barrier when studios submit development queries up the chain, but that his studio had to wait days for Nintendo to reply.
Geography and language are not the only obstacles here. Nintendo is wilfully ignorant of the plight of third-party studios and indie developers. Ever since the days of cartridges, the corporation has prioritised its own software sales over the livelihood of its development partners.
It is not uncommon to hear old stories of Nintendo taking months to certify games that would've, if released on time, competed with its own releases. Or tales of Shigeru Miyamoto touring western studios to ensure Nintendo's self-developed N64 games were a cut above the competition.
Such flagrant competitiveness has ensured Nintendo software leads the way on its hardware, but its bonds with third parties have eroded in an age when they need to be stronger than ever.
Gone too is the opportunity to compete with Microsoft, Sony, Apple and Valve in the internet age. Fifteen years ago, Nintendo was right to believe online gaming would become a pit of screaming teenagers and abusive language. Yet it has failed to yield the internet's true power, and is not prepared for an age where connectivity has transformed concepts of participation and ownership.
"NINTENDO WAS RIGHT TO BELIEVE ONLINE GAMING WOULD BECOME A PIT OF SCREAMING TEENAGERS... YET IT HAS FAILED TO YIELD ITS TRUE POWER"
PlayStation 4's killer app is not a game, but a subscription service that offers free titles and various discounts. That is telling of the rapid evolution of the games industry and, due to inaction at executive level, why Nintendo has become so outdated.
Nintendo can no longer be so pugnaciously inflexible at a time of fluid price points and discount frenzies, and to some extent it is listening. But to even meet the baseline requirements of today (a robust network infrastructure, an expansive library of titles, a seamless cloud storage solution) Nintendo requires a new workforce with online expertise.
You're either in or you're out
Tales of past Nintendo turnarounds have always begun with innovation; an ingenious idea that allures past customers. Quick fixes like the Wii, as exciting as they were, have only delayed the work required at the company's foundations. To remedy its growing list of shortcomings, Nintendo must build a sustainable and future-proof business structure that is both cosmopolitan and connected.
Even flagship games have failed to stimulate Wii U sales
Before anything, the most important decision Nintendo needs to make is decide who, exactly, should be its target audience. What the Wii U demonstrated so effectively was that trying to entice both core and casual gamer fails to work on either.
"Nintendo was dead to us very quickly," one EA source told me when asked about why the publisher fell out with Nintendo so soon after committing to the system.
"It became a kids IP platform and we don't really make games for kids. That was pretty true across the other labels too. Even the Mass Effect title on Wii U, which was a solid effort, could never do big business, and EA like Activision is only focused on games that can be big franchises".
Candid words but helpful feedback. If Nintendo wants to entice the core gamer, it must summon meaningful support from the third party publishers who earn their crust with berserk and shouty war games.
To do this, the platform holder must establish that audience, not just wait for it, which means getting dirty with its own PEGI-18s and Rated-Ms. A depressing betrayal of its ancestry, certainly, but the only chance it has to reclaim the core.
Chief executive Satoru Iwata has taken a pay cut, but resists calls for his resignation
On the other hand, if Nintendo wants to recapture its glory days of the Wii, then it must come to terms with a different problem entirely; that its casual audience now consider smartphones their primary games device. On Friday, Iwata cryptically explained that Nintendo is "studying how smart devices can be used to grow the game-player business".
Naturally this led to speculation that Mario games will jump to mobiles - a strategy that Nintendo, quite rightly, understands would be another short-term gain that would ultimately jeopardise its future. What is more likely is that Nintendo will, instead of resisting mobiles, embrace them as input devices. It could be a ingenious decision, especially considering the ubiquity of mobiles are, and how comfortable consumers are with them.
Whichever audience it targets, it can't be both. When those polarised concepts are forced together, the design is taken down a path where a Frankenstein console, like the Wii U, is the inevitable outcome.
What then, of Iwata? His critics grow by the day and his position, understandably, is routinely questioned. To restructure the business, shouldn't that begin at the top? It's a tough call. Iwata has reinvented Nintendo before, and for a few years had struck gold by backing unusual ideas that were questioned internally. Those famous reserves of cash would not be so vast were it not for him.
Modernising a company requires nerve, vision and a prodigious ability to absorb punishment. Iwata provably carries such traits. Nintendo under its current chief executive is a corporation that carries two things essential for any company reinvention; an openness to radical thinking and a willingness to try anything. Yes, that means he will stumble again here and there, but the important part is that he wants to try. After all, if you're not making mistakes you're not doing anything.
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