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Curtis Sprung / MEDILL

The 3DS continues to be a source of positive sales and innovative gameplay.

Nintendo faces difficult market head-on

by Curtis Sprung
Feb 20, 2014


Curtis Sprung / MEDILL

The Wii U is Nintendo's current home console and features a unique controller with a built in touchscreen.

Nintendo chart

Curtis Sprung / MEDILL

After a year of sales, the Wii U currently has greater market penetration than its rivals, but they are quickly catching up after only 2 months on the market.

For many people, Nintendo Co. Ltd. has long been the face of gaming. No surprise there: Nintendo – which brought us a stable of iconic figures such as Mario, Donkey Kong and Samus – was an industry pioneer back in the 1980’s, and its long run of successful products played a key role in shaping today’s multibillion-dollar global gaming market.

But these days, Kyoto-based Nintendo is under heavy competitive pressure and scrambling to stay relevant in the marketplace it helped create. Sluggish console sales and a fluid handheld market increasingly dominated by smartphones and tablets see Nintendo facing greater challenges than ever before.

“The popularization of the Internet and smart devices shows that people’s lifestyles are changing dramatically,” said Nintendo CEO Satoru Iwata during a corporate management policy briefing on January 30.

More and more consumers are switching from dedicated gaming handhelds to smartphone devices, and Nintendo faces poor sales and new competition in the console market. As of December 31, the company’s Wii U console sold around 5.9 million units after being available for more than a year. Sony Corp.’s Playstation 4, on the market for less than 2 months, has sold 4.2 million units. And the Microsoft Inc.’s Xbox One, available for around the same amount of time as the Playstation 4, has sold around 3.9 million units.

“They won’t let go of hardware sales, but if not enough people want hardware, then what?” said Gerald Storch, CEO of Storch Advisors Inc., a Minnesota-based management consultancy. “They need better in-demand hardware, or they need to abandon hardware and become a software company.”

The company’s recent financial performance underlines the point. For the nine months ended December 2012 and 2013, Ninentendo net income fell 29.9 percent to 10.2 billion yen ($99.6 million) from 14.5 billion yen ($142.1 million).

Fans and analysts have both called for Nintendo to branch out with its intellectual properties onto different platforms, and so far they have resisted this change.

“We believe we can capitalize the most on our strength in platforms which integrate hardware and software,” Iwata said during the meeting.

But he also acknowledged the changing landscape of interactive media and the need for Nintendo to venture into new territories. Nintendo intends to release a smartphone app sometime this year with the purpose of, “attracting consumer attention and communicating the value of our entertainment options.”

“The biggest point is to create consumer awareness and use that opportunity to have consumers know more about our information,” Iwata said. “I have not given any restrictions to the development team, even not ruling out the possibility of making games of using our game characters.”

Iwata has said,it is probably premature to assume that Nintendo will be developing stand-alone game titles for smartphones and tablets, but the fact that it is utilizing new technologies to connect with consumers is a positive shift.

Nintendo also acknowledged that the separation of the home console and handheld markets has been a barrier for sales in the past, and hopes to remove that boundary for future consoles. Citing Apple and Android as innovators, Iwata spoke of moving more towards a unified model, stating, “We are hoping to change and correct the situation in which we develop games for platforms individually.”

He also surprised investors by revealing plans for a new, health focused device with an emphasis on improving quality of life. Iwata cited new trends in wearable technology such as Google Glass or smartphone watches and expressed a desire to utilize an integrated hardware-software platform characterized by, “non-wearable technology.” This health-themed initiative isn’t expected to launch until the fiscal year ending March 2016.

But Wall Street analysts aren’t convinced that these new initiatives are enough to turn the company around.

Nintendo’s American Depository Receipts, traded on New York’s OTC Markets is currently valued at about $15.00 each, off their 52-week high of $19.15.

“The strategy makes sense for longer term, but concern over earnings could increase for now,” said Haruka Mori, an analyst for JP Morgan Securities Asia, in a note. “Nintendo’s biggest problem in our view is declining awareness of its franchise intellectual properties among children.”

Nintendo is looking to combat this by licensing its stable of characters and promote its brand across a wider variety of products. This doesn’t mean that Mario and Luigi will be appearing on rival video game consoles, but that they will be appearing on more tangible products and potentially showing up in third-party titles exclusive to Nintendo consoles.

“Having Mario loved by many people in various settings is by no means a bad thing for our future,” Iwata said. “And if we can do that in the right manner, it will in fact help our business.”

Nintendo has weathered periods of difficulty before, but has always bounced back stronger than ever. The Nintendo Gamecube, which only sold around 21.7 million units in its lifetime, paved the way for the Wii, which has sold just over 100 million units as of the end of 2013.

As a company, Nintendo has always been an innovator, crafting its own way forward and refusing to bend to market trends. In the coming years, Nintendo will face significant challenge from rival companies and a changing marketplace. These policy changes are an attempt to regain market share and once again become a leader in electronic entertainment.