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TheStreet Open House

Apple and Nintendo: A Match Made in Purgatory

Stocks in this article: AAPLMSFTGOOGSNE

Updated from March 13th to include news surrounding Mario Kart 8.

NEW YORK (TheStreet) -- It's no secret that Nintendo has had its struggles, as the Wii U gaming system has proved to be a flop and the rise of mobile games are increasingly taking attention away from traditional console gaming. While some look to Apple (AAPL) to be Nintendo's savior, it may not be so easy as that.

Nintendo has come under increased pressure recently to rethink its strategy, which has been to make and sell its hardware and build software for that hardware, similar to what Apple has done with its iDevices and iOS, its mobile operating system. Hedge funds, in particular Seth Fischer of Oasis Management, have asked Nintendo's President Satoru Iwata to start making mobile games, despite Iwata's continued resistance to do so.

Fisher's point is that Nintendo sits on arguably the largest library of casual games, including Super Mario, Donkey Kong, Zelda and others. The people who grew up playing those games are now active on smartphones and tablets. This is a demographic whose engagement on the smartphone is worth more than $100 billion, according to Fisher, and it looks like Nintendo is missing out on a big opportunity.

While it looks like it would be an open-and-closed case, with Apple's strength in hardware (iPhone and iPad) and Nintendo's incredible library, not all consumers want to see a tie-up.

"I think it would be too problematic playing a game like The Legend of Zelda without a controller," Michael Urbanski, 30, said via text to TheStreet. "It [iPhone] would vastly change the gameplay. How are you to watch a TV while looking at an iPad to see where to touch as a 'controller'... doesn't work."

That mind set is part of the reason why the Wii U Gamepad would allow Nintendo to stand out from the likes of Microsoft (MSFT) and Sony (SNE), with their Xbox and PlayStation consoles, respectively.

In a note to clients, Hudson Square Research analyst Dan Ernst noted this: "Nintendo said part of the failure of the Wii U has been their failure to create unique gaming experiences for the Gamepad, and that they were making such development a priority for the coming year. However, while many developers are interested in second screen gaming, the concept is not currently central to having fun with video games, and in this regard the Game Pad is more feature than benefit, and given the added cost to the system, it really more of a burden."

The console market is slowing, despite PlayStation 4 winning this go-round so far. According to data from NPD via TechCrunch, the console market has sharply contracted over the past seven years. In January 2007, North American console sales were approximately 2 million, with Nintendo's Wii selling more than 400,000 consoles. Fast forward to 2014, and the PS4 topped the market in January, with just 271,000 consoles sold. The Wii U has only sold around 49,000, nearly nine times less what it sold in January 2007.

TechCrunch noted the January 2014 data isn't official, since the data wasn't officially released, but it still shows that the console market, and Nintendo's position in gaming, has been cut down sharply no matter which way you look at it. The other companies which make consoles, Sony and Microsoft, have other businesses besides gaming -- Nintendo does not.

Update: In February, it appears that Nintendo's fate has turned around a bit. Nintendo sent out a press release noting both the Wii U and 3DS increased in sales year-over-year, with the Wii U growing 180%, thanks in part to the success of Donkey Kong Country: Tropical Freeze. Research firm NPD said sales rose 25% year-over-year, as the company sold 100,000 consoles.

Update 2: The Wii U may have some life to the platform after all, as sales of Mario Kart 8 have helped boost interested and awareness of the platform. Nintendo said it sold 1.2 million units of the game across Japan, Europe and the Americas in its first weekend, while industry research firm GFK noted "Mario Kart 8 helped boost sales of Wii U in the United Kingdom by 666%, "of which 82% are the Mario Kart 8 Bundle."

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