Pacific Money

Third Straight Annual Loss for Nintendo: Is it Time to Embrace Mobile Gaming?

After slashing console sales forecasts, Nintendo CEO finally considers smartphones.

Third Straight Annual Loss for Nintendo: Is it Time to Embrace Mobile Gaming?
Credit: Wii U via Shutterstock

At last summer’s Electronics Entertainment Expo (E3) in Los Angeles, Nintendo’s stubborn CEO dismissed the idea of bringing Mario, Zelda, Donkey Kong, or any of the Japanese gaming pioneer’s other iconic characters to mobile devices.

“If I was only concerned about managing Nintendo for this year and next year – and not about what the company would be like in 10 or 20 years – then I’d probably say that my point of view is nonsense,” Satoru Iwata told The Wall Street Journal during the convention in June. “But if we think 20 years down the line, we may look back at the decision not to supply Nintendo games to smartphones and think that is the reason why the company is still here.”

Then, in August, Iwata told CVG that “I would never think about providing our precious resources for other platforms at all.”

Never say never.

After his company posted its third consecutive annual loss (thanks in large part to the disappointing Wii U console), Iwata has admitted to considering a new business model that involves the possibility of Nintendo apps for smartphones and tablets.

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“Given the expansion of smart devices, we are naturally studying how smart devices can be used to grow the game-player business,” Iwata said in an interview with Bloomberg yesterday. “It’s not as simple as enabling Mario to move on a smartphone.”

This is a bold revelation from a CEO who, in 2010, said that Apple’s iOS devices were the “enemy of the future.”

Iwata has every reason to consider new revenue streams. On top of the $240 million loss, sales projections for Nintendo’s Wii U and handheld 3DS were both slashed.

After the highly anticipated releases of Sony’s PlayStation 4 and Microsoft’s Xbox One, the Wii U was largely overlooked by holiday shoppers. Iwata had originally predicted global sales of 9 million Wii U consoles for the 2013 fiscal year – a number that has now been reduced to 2.8 million.

The PlayStation 4, which wasn’t released until November 15, had already sold 4.2 million units by January 1.

“It’s no surprise that the Wii U isn’t selling as fast as its predecessor – what good is an iPad-style controller to a household with an iPad?” asked The Verge.

Nintendo’s portable 3DS – despite being the best-selling piece of gaming hardware in the U.S. for 2013 – also saw anticipated sales cut from 18 million to 13.5 million.

Nintendo’s stock fell 6.2 percent in Tokyo after reporting the holiday sales slump – wiping out $1.2 billion in market value. It goes without saying that Nintendo investors aren’t pleased, though a persistent Iwata insisted that no changes would be made to management.

Michael Pachter, an analyst with Wedbush Securities, told Bloomberg that Iwata could be pressured to exit hardware production in a bid to turn the company’s flagging profits around.

“With more than 1.5 billion smartphones in consumers’ hands, Nintendo could release 10 games a year from its library of 1,500 titles, charge $5 to $10 per mobile game, and sell at least 50 million copies of each to a core Nintendo audience,” he said. “These products alone would generate $2.5 billion to $5 billion a year in high-margin sales without the expense of making hardware.”

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Nintendo’s next investor meeting in scheduled for January 30 – expect mobile gaming to be a topic of much debate and discussion.

Even if Nintendo refuses to embrace iOS and Android, the Kyoto-based company can probably afford to weather a few console flops. Nintendo operates without any long-term debt and with cash reserves of roughly $10 billion.