The gaming world is abuzz about Thursday night’s official unveiling of the Nintendo Switch, the company’s crazy new hybrid portable/TV console, expected to launch in March 2017. I’m excited, you’re excited, we’re all excited.
But if I’m Nintendo (and I’m pretending I am for a second), I’m feeling more than excitement. I’m feeling nervous. I’m feeling scared. Because in a very real way, this is a make-or-break situation for Nintendo. And depending how the Switch goes over with consumers, it could mean the end of Nintendo as we know it.
It’s not that Nintendo is at risk of going out of business any time soon. Nintendo has over $5.7 billion in the bank in cash as of its last earnings report, plus billions more in other assets. That’s enough to keep the lights on at Nintendo for the foreseeable future.
It’s really that, after a year of disappointments, Nintendo needs a hit — badly. If it doesn’t deliver the goods with the Switch, Nintendo’s investors are likely to pressure the gaming legend into shifting focus away from its own hardware, and towards making more software for smartphones and tablets.
Worse yet, investors are already bearish on the Switch: When Nintendo debuted the first trailer for the console, its stock tumbled. Gamers are excited, but analysts are concerned that the Switch’s core gimmick of a tablet that can hook up to a TV isn’t enough to set it apart from the more powerful and well-established Microsoft Xbox One and Sony PlayStation 4 gaming consoles.
The bottom line here: With the Nintendo Wii U flopping, and the long-awaited “Super Mario Run” for iPhone making way less money than expected, Nintendo is running out of breathing room in the market. And while the company has long found success by ignoring the conventional wisdom and going its own way, Nintendo is only as good as its latest hit.
The problem is that Nintendo is coming into this from a position of weakness. The Nintendo Wii U, the Switch’s predecessor, was a major flop, selling only 13 million units in its lifetime — compared with the admittedly once-in-a-lifetime smashing success of the original Nintendo Wii console, which sold 101 million unites, or the Nintendo DS, which sold 154 million unites.
The Nintendo 3DS, the company’s current handheld system, has been a more reliable performer in the choppy waters, with more than 60 million devices sold. But as the Wii U has floundered, it’s dragged Nintendo’s overall revenue down with it. As a result, Nintendo stock has been kind of a roller coaster ride the last few years.
Meanwhile, investors and gamers had been after Nintendo to build smartphone games for almost as long as the App Store has existed. In 2016, Nintendo finally relented, releasing the odd “Miitomo” and the much-anticipated “Super Mario Run.”
Expectations for “Super Mario Run” were high. And while it had over 40 million downloads, it didn’t generate the revenue that analysts and industry-watchers were hoping for. (Despite common belief, “Pokémon Go,” as lucrative as it is, wasn’t actually made by Nintendo.)
Part of that is because of Nintendo’s insistence on the player experience: Players can try a few levels of “Super Mario Run,” can pay $9.99 to unlock the rest, and no further payments are necessary or even possible. It’s a counterpoint to the extremely lucrative “microtransactions” of, say, “Clash of Clans.”
And so, as investors realised in the last weeks of 2016 that “Super Mario Run” was unlikely to be the ongoing cash cow that they hoped it would be (and Nintendo purposely kept it from being), the stock started tanking. Again.
Nintendo has largely been given free rein by its investors to pursue idiosyncrasies. Remember how crazy the stylus was on the original Nintendo DS? Or the first time you heard the name “Wii” and saw those controllers? More often than not, it’s proven itself right.
But right now, in January 2016, Nintendo is coming off one high-profile failure, the Wii U, and one financial disappointment in “Super Mario Run.”
The Nintendo Switch is a smart move, that takes the success the company has had in portable console gaming and extends it to the TV. But it won’t be enough for investors if it’s a minor hit, or has an active community, or has the best games on the market.
What Nintendo needs to do is make a lot of money on the Switch, and quickly.
Because, while it may have a lot of cash in the bank, its goodwill with investors won’t last forever. If they decide to step in and pressure the company even further, you won’t see any bold experiments like the Switch out of Nintendo for a long time. And you’ll probably see a lot more free-to-play games with the Super Mario or Legend of Zelda brands that aim for nickel-and-diming you rather than a fun game to play.
But if it works, this could be a real return to form for Nintendo — and investors will remember that sometimes, investing in the offbeat and the innovative does pay off.
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