I don't really see the point of the "but it doesn't mean Nintendo isn't happy" argument. Seems pretty clear to me that Nintendo wants what Microsoft brought to the forefront, which is customers becoming tethered to the ecosystem. You don't really get that with people dropping in and out. People who feel attached to an environment spend more freely and people who subscribe to a service are more likely to feel a need to use that service in order to justify having it in the first place. I don't think there is any real argument that longer term subscribers aren't a more stable revenue stream. PS Plus and Xbox Live don't just represent subscription fees, they represent higher levels of engagement. There is no business that doesn't push long term subscriptions, even though the short term subscriptions would yield a greater return IF the consumer keeps renewing--I mean, everyone knows WHY the long term subscriptions are better deals, right? It's because businesses want customers to pick those plans over the short terms subscriptions.
Regardless, Nintendo is doing a poor job of creating ecosystem engagement. That's kind of inexcusable when the model is RIGHT THERE in front of them and has been for many years. Microsoft understands this completely and does everything they can to make people want to stay connected to the Xbox ecosystem. That's the whole point of things like Achievement records and Gamer Scores--once people build that stuff up, they feel like they'll lose it all if they walk away. Everything they do, it's to keep that leash in place.
Sony did something clever when they decided to go up against Xbox Live--they tied value to the service. They made it so that a smart user could get more out of the service than they put in, financially speaking. The years I had PS Plus (33$ each year) I'm almost certain I got that back in discounts alone. Microsoft wisely matched that value.
Now, Nintendo doesn't have to do what Sony did to compete with Microsoft, or what Microsoft did to even up the value disparity, because Nintendo isn't really trying to take the place of those services (which is why I think the much cheaper rate is a good move) but they do need to avoid looking bad in comparison. They're going to have to at least raise the quality of the service while providing more of those built-in engagements, like Achievements. As far as the free games go, yeah, I think they overestimated the appeal of random NES games to the market. I understand that they have to spread out freebies to make them last for many years but they should have started with something really big, perhaps by picking one title from different generations. They need to avoid turning people off at this point.