Oh, Nintendo will be fine, they've always pursued their own unique strategy, and will continue to be wildly successful. It's Microsoft which should be deeply worried, because they've clearly run out of ideas.
Mii-like avatars are nice, but can't compete with the ease and friendliness of the Big N, while Netflix downloads can't compete with Sony's multimedia savvy. The PSN is turning into a true digital portal, and Microsoft simply doesn't have the core competencies to compete in this area. They're a PC company, not a media company.
It's funny, but after all these years, Microsoft is still very much the same old unimaginative monopolist, trying to recreate its Wintel empire all over again. They really need to rethink their whole console strategy if they want to be more than a footnote in the game industry.