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Nintendo Should Scrap the Wii U

The appeal of the Nintendo 3DS portable game console is also under threat, gradually being cannibalized by the rising use of smartphones and tablets for casual-game playing.

Nintendo, though no longer being viewed as the winning stock in the gaming hardware universe, still can have a shot at becoming a real marketplace leader again by fully leveraging its strongest software brands such as the classic Super Mario series to the new generation of casual-game players through the iOS and Android platforms. While the company's key software titles haven't guaranteed a translation to new hardware sales, they themselves typically continue to exhibit strong performance.

For instance, Pokemon X and Pokemon Y for the 3DS was one of the top-selling video games of 2013 with 7.64 million units sold. Animal Crossing has also performed very well. Mario Kart 8 for the Wii U sold around 2 million copies within the first month of its late May release. These are all examples of top Nintendo software brands that would be powerful enough to compete in the smartphone- and tablet- gaming market if Nintendo were to create a good monetization strategy for them, according to Mintel tech analyst Bryant Harland. Meanwhile, hardware sales haven't necessarily been moving in lockstep with the popularity of Nintendo's software.

Of the buyers of Pokemon X and Y and Animal Crossing, many were already existing owners of the 3DS rather than new 3DS purchasers. And most of the other casual gamers were playing other games on their iOS and Android devices. Mintel data shows smartphone and tablet gaming have surpassed dedicated portable console gaming, with 52% of consumers playing games on a smartphone or tablet, compared to 33% utilizing a portable gaming device. And despite the nice bump for Wii U sales in June with the debut of Mario Kart 8, the fact remains that the console continues to lag behind other systems. Market forecaster DFC predicts that while some good Nintendo products arriving in late 2014 and 2015 should help bolster Wii U sales, they will not be sufficient to help Nintendo catch up to Microsoft or Sony. "The Wii U is truly just for core Nintendo fans," says Cole.

Although comparing Nintendo's user base to that of Android and iOS tablets would that Nintendo is currently raking in far less profit per sales, the company does have the ability compensate by ramping up many times over the number of games shipped and sold, thanks to the strength of Nintendo's software brands, Windsor noted. But as Windsor pointed out, why settle for less when Nintendo could significantly reduce sunk costs by discontinuing altogether its hardware development to become fully present on iOS and Android without having to deal with the high cost of hardware development.

As a pure game maker, Nintendo would employ less people and potentially have lower revenues than it does today, but be making money rather than losing it, said Windsor. For many, that would be okay, because at the end of the day, the only thing a Nintendo investor really cares about is profit.

That said, why has Nintendo been stubborn to constructive change? Complacency and corporate culture are among the main culprits. Firstly, Nintendo still has a lot of cash in the bank; 795 billion yen ($7.82 billion) at last check. That means the company can continue to rack up losses for quite a while before solvency forces it to make changes.

The second issue is corporate culture.

"If you look across Japanese corporate history, what tends to happen is a Japanese company will hold onto a losing strategy longer than it should," Windsor explained. Sony is just one example of a Japanese company that was unable to catch the technological waves of the last few decades. It fell behind on TV and portable device opportunities including the flat-panel display and the iPod. It had the tools to build an iPod-like gadget years before Apple launched it in 2001, but had neither the flexibility nor the adaptability.

"Nintendo is completely missing out," said Windsor. "It has really good gaming brands but it is passing on the opportunity and missing out. I would say that until Iwata comes forward and basically admits that the Wii U is not going to work and discontinues it, he'll be doing more apologizing."

-- Written by Andrea Tse in New York

Follow @AndreaTTse

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