Market Overview

Is Nintendo's Wii U Destined to Flop?

Nintendo (OTC: NTDOY) is on the cusp of unveiling the price and release date of Wii U (the company's long-awaited game console) in the United States and Europe . The whole world should be beaming with anticipation, but are consumers too distracted by the iPhone 5 hysteria to care about anything else?

Six years ago, Nintendo entered the fall shopping season with a level of hype and anticipation unlike any other. At the time, Microsoft (NASDAQ: MSFT) had already used the Xbox 360, which was released a year earlier, to steal some of Nintendo's potential market share. Sony (NYSE: SNE), the former leader of the industry, was preparing to launch PlayStation 3. It was a difficult time for Nintendo, no doubt.

The company weathered the storm -- and came out on top -- by doing two incredible things. First, Nintendo prepared its newest console, Wii, with a plethora of high-profile games from its own development teams. This included Super Mario Galaxy, Metroid Prime 3: Corruption, and Super Paper Mario. Next, the company developed an entirely new franchise, Wii Sports, around the motion controller that launched with the system. Then Nintendo decided to give away the game for free with every unit sold.

At launch, Nintendo implemented a brilliant marketing campaign that demonstrated the true potential of Wii. It showed how unique the console was and cleverly encouraged families and seniors to buy and share the new machine.

Second, Nintendo moved The Legend of Zelda: Twilight Princess from GameCube -- which was a dying console -- to Wii. GameCube owners could still buy the game, but the best version appeared on Wii.

In the months ahead, Nintendo made it clear that there were many great games coming to Wii. The company showed that this was not only a console to buy at launch, it was a device that consumers would enjoy for many years to come.

These strategies worked beautifully -- Wii sold out at launch and went on to sell nearly 100 million units worldwide.

When critiquing Wii U, many analysts disregard the success of the Wii. Instead, they focus on the overall market and its miserable decline. Last year, Zynga (NASDAQ: ZNGA) was frequently cited as part of the problem. Now that the FarmVille maker has lost most of its value, the attention has shifted to smartphone gaming, which critics blame for the decline in traditional gaming devices.

Who would they blame if smartphone gaming suddenly tanked? Movies, music, TV, or some other entertainment medium?

The truth of the matter is that video games are not declining because people's tastes are shifting -- they are declining because the industry has no idea what to do next. The same thing happened in 1994. At that time, there were very few triple-A games released. Arcades began to suffer, and as the Super NES and Genesis aged, console gaming started to decline.

Things changed in 1995, which saw the release of two game consoles (Saturn and PlayStation), one hugely successful arcade game (Mortal Kombat 3), hype for Nintendo's next console (Nintendo 64), and numerous sequels to high-profile games.

For the next 15 years, gaming thrived. When Nintendo stumbled in 1996 and 2001, Sony was there with exciting alternatives. When Sony stumbled in 2006, Microsoft and Nintendo were there to take its place.

Things are different now. Nintendo 3DS, the only new game machine released last year, has done nothing to revitalize the industry. PS Vita, the first game device released in 2012, has failed in that regard as well.

By all accounts, Wii U should have been the game console that would turn things around. Thus far, Nintendo has squandered the opportunity. Instead of coming to the market with a strategy that mirrored the original Wii, Nintendo baffled and disappointed show attendees, turned off consumers, and created a lack of interest from the mainstream media.

Earlier this week, an unnamed PR veteran painted an awful picture when describing Nintendo's situation.

"My main thought is that Nintendo has a bigger PR problem than the date of its press conference," the PR veteran told GamesIndustry.biz. "The biggest issue Nintendo has is the lack of anticipation or confidence. They have not created enough excitement and confidence among both consumers and developers, nor has their quiet given people the sense that a delightful surprise awaits."

The PR veteran went on to say that there seems to be a cloud of "concern" hanging above Nintendo. "They did not do a great job after E3 of bridging toward the fall," he said. "If they want this press conference to succeed, making people believe that there will be a surprise or proof of a big flagship title may help. Highlighting their focus on third-party or any other innovations would also help."

Nintendo tried to highlight its third-party support at E3. That strategy might have ruined Wii U's chances of success. While consumers are content to buy Sony and Microsoft consoles for third-party games, they purchase Nintendo consoles specifically for Nintendo games.

Sony attempted to rebrand PlayStation 3 as an entertainment device that "only does everything," as its slogan claims. Microsoft has been more successful in this regard, as the Xbox 360 is now used by millions of consumers to watch videos.

Wii U is unlikely to make the transition from game console to entertainment device. Even if it did, that would not help the unit sell, because Microsoft made its transition long after core gamers purchased an Xbox 360.

Right now, Wii U stands to lose the core gaming market. If core gamers don't buy it at launch, third-party developers like Activision (NASDAQ: ATVI) and Electronic Arts (NASDAQ: EA) won't be able to sell any games. If they fail to sell a significant number of Wii U games this year, they will be less likely to develop for the platform in 2013. Slowly but surely, the console could spiral out of control, leaving Nintendo with a very large paperweight.

If Wii U had stellar third-party support, consumers might be willing to overlook the fact that it lacks great first-party content (Pikmin 3 excluded). But with old Batman and Mass Effect games leading the charge, Wii U's third-party lineup is downright laughable.

Ubisoft is attempting to cash in by developing all-new content for Wii U. The company did the same for the original Wii, as well as the Nintendo 3DS. Neither effort resulted in quality content.

To transform Wii U into a successful console, Nintendo must rise above its own disjointed strategy and release games that people actually want to buy. With only a couple of months until the console is scheduled to be released, it is unlikely that Nintendo can accomplish this goal.

It is wholly possible that Nintendo will start its Wii U press event with some stellar new games. But even if it does, odds are those games will not come out this year.

In other words, Nintendo cannot win. The company has put itself in a horrible position. If the company is smart, it will cut its losses and start preparing for its next gaming device to ensure this does not happen again.

Follow me @LouisBedigianBZ

Posted-In: News Tech Best of Benzinga

 

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