What Nintendo needs to do to make a comeback

Can the Wii U fix Nintendo's problems, or will the company have to do something more drastic?

Nintendo will need more than Mario to solve its problems.

Nintendo is one of the most iconic companies in gaming, but it faces the real possibility of oblivion if it doesn't find a way to turn its fortunes around.

In October 2007, less than a year after the release of its blockbuster Wii console, Nintendo was worth $78.50 per share. That equated to a market cap of $85 billion -- double the value of Sony at the time.

However, Nintendo's fortunes have only gone south since then. With Wii sales cooling and mobile apps the hot trend in gaming, Nintendo's stock collapsed this month to $14.50 per share, leaving it with a market cap of just $14.8 billion, a fifth of its value in 2007.

Super Mario just isn't so super anymore.

Nintendo's been on a steady decline the last four years.

What happened to Nintendo, a company that has been around for 123 years? A variety of trends have dramatically changed the gaming industry over the last 5 years:

  1. Mobile gaming is growing. Nearly half of smartphone users say they play a mobile game daily. That's great for Apple, but not so great for Nintendo, which has yet to release a game for iOS or Android.
  2. Social gaming has grown into a multibillion dollar industry, though its growth is slowing.
  3. Console gaming sales have collapsed across the board.
  4. The Nintendo 3DS, the company's most recent handheld gaming device, failed to meet expectations, forcing Nintendo to cut its price to boost sales. Sales are now picking up, but it's simply not generating as much revenue as Nintendo had hoped.

The end result? Nintendo posted its first ever annual loss, losing $533 million during its last fiscal year.

Nintendo needs a 1 Up Mushroom

It's clear Nintendo is suffering, but how does it regain its mojo?

The company's first priority is the Wii U, its next-generation console due sometime during the holidays. It's an innovative device that includes a lot of unique game play, thanks to its iPad-like controller. I've tried it several times now, and I've come away impressed by its potential.

However, a hardcore gaming console simply isn't enough in a market that demands streaming video and greater connectivity. Microsoft has done the best job of expanding the Xbox 360 beyond gaming. The tech giant no longer considers its console a gaming device, but an entertainment platform . It streams Netflix, plays music, and even has ESPN (my favorite feature of the Xbox during college football season).

Microsoft doubled down on this strategy recently with the announcement of SmartGlass , a suite of mobile apps that lets you interact with the Xbox through a second screen. The result has been 29 percent year over year growth .

It's this type of strategy that Nintendo needs to learn from if it's going to make a comeback.

The Wii U cannot just be a gaming console -- it has to be an entertainment hub that can make money off of subscriptions as well as games. The Wii U GamePad has huge potential, but it needs to expand beyond Samus Aran (the protagonist of the Metroid games) and become the center of a home's entertainment universe if it's going to catch on. Most people can get their gaming fix from their iPhones, but the additional functionality will help push people over the edge and buy the console (depending on its price).

The other part of a Nintendo comeback has to come from mobile. The gaming giant recently announced the 3DS XL , complete with a bigger screen, better battery life, and more memory. It's an impressive device that should generate some movement on the company's struggling bottom line.

The bigger trend is clear though: dedicated handheld consoles are a dying breed. The Nintendo 3DS has sold only 17 million units, far less than the 150 million Nintendo DS units or 81 million Game Boy Advance units the company has sold. Meanwhile, mobile gaming is expected to become an $18 billion industry by 2014, driven by cheap, casual games available on smartphone app stores.

Nintendo has a few choices for its mobile strategy. It can try to convince more people in the market to become hardcore mobile gamers. It can add unique features to its handhelds that go beyond gaming (making them complementary devices to smartphones). Or it can embrace the mobile gaming trend and build games for Apple's and Google's platforms.

The harsh reality is that Nintendo has to do all these things if it is to survive. It needs compelling casual games on smartphones that can turn consumers into dedicated Nintendo gamers, and it needs to bring more entertainment features to its flagship consoles. The company must find a way to grow beyond its gaming roots and become an entertainment company of the future.

 

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