What's Nintendo's Next Move?

This article first appeared on USgamer, a partner publication of VG247. Some content, such as this article, has been migrated to VG247 for posterity after USgamer's closure - but it has not been edited or further vetted by the VG247 team.

Let's face facts: Wii U is in trouble. Hardly anyone has a good feeling about Nintendo's newest console. Not retailers, not third parties, not analysts, and not consumers.

Even Nintendo seems squeamish about it. They've admitted the expanded cost of high-definition development caught them off guard -- which only goes to reinforce the idea that Nintendo functions in a vacuum, seeing as every other developer in the industry came to terms with that reality years ago. This shouldn't have been a surprise. Nevertheless, Nintendo fully expects to lose money on Wii U development for some time to come.

The situation has inspired a gloomy thread of conversation that's woven itself into practically every online discussion of Wii U's future: Namely, that it has no future. For many people, the question hovering over Wii U isn't, "Will Wii U fail?" but rather, "What happens when it it fails?" Will Nintendo go third party, they wonder (because Wii U demonstrates certain parallels to Sega's Dreamcast)? Will Nintendo go out of business, they ask (because the system seems that disastrous)? Or will Nintendo switch to mobile development, they muse (because that 2010-vintage line of thought still has remarkable traction)?

Personally speaking, I don't see the future in such absolutely dire terms. The Wii U may be badly off course, and I can't imagine it ever being a serious competitor to its incipient rivals Xbox One and PlayStation 4, but I hardly think this is the end of the road for Nintendo. They've screwed up plenty of times, and they've always managed to right the ship.

In looking at Nintendo, it's essential you take the long view: Consider them not just with the perspective of their own history, but with the realization that it's decidedly not an American corporation, doesn't behave like one, and shouldn't be treated as one. Short term gains with little regard for long-term viability; endless cycles of quick hires to capitalize on a momentary uptick in business followed by regretful layoffs months or even weeks later; treating employees as objects, assets to be built up and then cut loose at a moment's notice with no regard for how it affects their lives: Nintendo doesn't operate like that. Both for better and for worse, it's one of the most doggedly Japanese companies in the games industry.

The individuals who created Nintendo's legendary games in the '80s remain with the company three decades later. Nintendo certainly isn't a perfect corporate culture (as I've learned both through books like Game Over and off-the-record anecdotes alike), but it does hold dear a certain kernel of loyalty and long-term thinking intrinsic to traditional Japanese businesses. If you look at the names attached to early arcade and NES games -- Shigeru Miyamoto, Yoshio Sakamoto, Takashi Tezuka, Hajime Tabata, and more -- they're still prominent and active decades later. Name a single other game company for which that's true. Even NCL's president, Satoru Iwata, got his start programming NES games before leaving to work with HAL Laboratories (which quickly became a de facto Nintendo second party), eventually returning to run the show after Hiroshi Yamauchi's retirement. Kind of like Steve Jobs. Nintendo always did have a thing for Apple.

Iwata recently spoke about the company's reluctance to lay off staff in these troubled times for fear it would undermine company morale. If only all executives had such empathy. His reticence certainly doesn't do any good for the company's bottom line in the immediate term, but it does speak to an innate conservative streak that will likely help the company weather this new console's rocky (and potentially brief) life.

Yes, Wii U may very well be doomed, but that doesn't mean the same is true for the company itself. The story might be different if not for the success of the 3DS; but despite the Wii U suffering one of the worst sophomore quarters of any console in history, Nintendo managed to wring a profit out of its most recent quarter, thanks entirely to the booming success of their handheld. Remember when everyone was pumped for "Project Cafe" (as Wii U was originally rumored to be called) and certain the 3DS would die a pathetic death at the hands of mobile gaming? Somehow, things have flipped radically.

The seeds of the turnaround, of course, were sown when Nintendo braced up to how badly it had bungled the 3DS launch, ate some bitter crow, and revamped that system's value proposition by slashing prices and giving early adopters 20 free games. The former sweetened the system's appeal for most gamers, while the latter made amends to their most loyal customers. When the 3DS library began to properly come into its own a few months later, the system was better positioned to entice gamers to buy in.

So why haven't we seen them make a similar move with Wii U? Nintendo fell on its sword just five months after the 3DS debuted, but we're in month nine of Wii U's life. While the new console has fared far worse than its handheld counterpart, we've seen no sign of contrition or a strategic shift from Nintendo. One possiblity: They may be waiting until next month's Tokyo Game Show. Even though Nintendo has never taken part in Japan's largest trade show, they've increasingly capitalized on the world's eastward focus during the event to make their most significant announcements. News of a potential Wii U overhaul could be mere weeks away.

However, another possibility is that Nintendo simply won't budge on Wii U. Already they're producing the console at a loss, and any further price cuts will only increase the bleeding. Speaking of Dreamcast parallels: That console suffered from the exact same conundrum, which led to Sega's decision to discontinue the Dreamcast early. Had Sega slashed its price to compete with PlayStation 2, the additional loss on each unit sold would have ruined the company. Likewise, Nintendo's managing to eke out a company-wide net profit right now, but if they were to upset the ledger balance by increasing their losses on each Wii U sold, that would no longer be the case. Certainly there's strategic value to be found in increasing market share at a loss; both Microsoft and Sony played that game this past generation. However, that's never been Nintendo's way; and unlike the competition, it doesn't have other divisions to fall back on during the games business' lean times.

In fact, Nintendo may not care to increase Wii U sales right away. Wii's success aside, consoles haven't been Nintendo's breadwinner for nearly 20 years. Once the Game Boy launched -- a system that absolutely embodied Nintendo's preferred strategy of using dated technology to allow them to sell hardware cheap and still profit handsomely -- the company's rock-steady money-earner has been the portable market. While three successive generations of Nintendo consoles performed worse than the last (1986's NES beat 1991's Super NES, which outsold 1996's Nintendo 64, which handily beat 2001's GameCube) and ceded more and more marketshare to rival systems, each generation of Nintendo handhelds has crushed the competition. As N64 reeled and GameCube foundered, Game Boy and GBA quietly kept the company's numbers in the black.

That being said, we can probably look to GameCube for clues to Nintendo's plans for this generation. Much like Wii U, GameCube inspired many to herald the end of the company's tenure as a first party publisher; prior to this spring, the GameCube generation marked the only time Nintendo's fiscal reports had dipped into the red since it entered the console business. Third parties abandoned GameCube in droves, and its meager selection of exclusives -- notably the so-called "Capcom Five" -- quickly found their way to other platforms.

And yet, the company survived. Nintendo buckled down and produced a slow trickle of top-notch first-party GameCube releases to placate loyal fans, all while they fixed their eyes on the future. Meanwhile, the steady earnings provided by Game Boy Advance kept them solvent long enough to regroup and take a risk on the oddball DS and the Wii. The Wii U situation resembles the GameCube era more than a little, and 3DS is only growing stronger. June's Animal Crossing marked the system's first truly large-scale global hit, and the upcoming global launch of Pokémon X & Y versions is guaranteed to sell millions of units of software (and probably millions of systems, too).

The fact that Nintendo has pushed the Western release of X & Y to the same week as the Japanese launch gives perhaps the surest sign of just how much is riding on its -- and the 3DS's -- success. Japan has always enjoyed at least six or seven months' lead on Pokémon games, but Nintendo desperately needs a Pokémon-sized hit this fall all around the world. Rather than pour their resources into building awareness for Wii U and fighting an uphill battle, Pokémon offers them an easy short-term win while they rethink Wii U.

The question is, what will their ultimate approach to the console turn out to be? The simple reality of the Wii U is that Nintendo badly misjudged its fundamental strategy with the system's design, and its would-be killer app -- the Game Pad -- has proven to be an anchor around its neck, dragging it to the depths.

It's not hard to see why Nintendo shackled its fortunes to the Game Pad; their greatest successes in the previous generation came from radical new game interfaces. But not every risk pays off, and the Game Pad fails for all the same reasons Wii's remote succeeded. Rather than simplifying the game experience and lowering barriers to accessibility, the Game Pad presents casual players with the industry's most complex interface. Playing Pikmin 3 with a Wii remote and nunchuk reminded me just how fantastic that style of interface can be when done right, and how inelegant the Game Pad is. Worse, the device drastically increases the system's price; that unreasonably high (and seemingly inflexible) price tag can be chalked up to the fact that its controller is practically a separate video game system.

With the Game Pad, Nintendo clearly hoped to confront the tablet market head-on. But they badly misaimed the attempt. Tablets threaten handhelds like the 3DS, not consoles, so Wii U is waging a crucial battle on the wrong battlefield. While the Game Pad may resemble a tablet, it offers little of the convenience of the real thing: There's no multitouch sensitivity, no intuitive gestural shortcuts, and no freedom (it's tethered to a range of about 10 feet from the base console).

Both Microsoft and Sony have been quick to jump on Nintendo's bandwagon by imitating the "second screen" concept for their next consoles, but the difference is neither Xbox One nor PlayStation 4 depend on that particular gimmick. There, the second screen is strictly an add-on relying on outside devices. And while Microsoft's approach -- requiring the $500 Xbox One be augmented with an equally expensive Surface device -- makes the Wii U seem like an incredibly good deal, the upshot is that when the reality becomes clear that second screen distractions are ultimately damaging to the core gaming experience, Xbox One and PS4 will work just fine without those tacked-on tablets. Wii U, unfortunately, will still be locked to Game Pad. Too many games require it at this point for Nintendo to be able to sell the base console with Game Pad as an optional peripheral.

So, Nintendo has a few options, but none of them are particularly appealing. Still, none of them can be any worse than its current strategy, which seemingly consists of offering blithe denials of any real trouble and crossing their fingers for a Christmas miracle to happen in what will surely be the most heated holiday season for video games in nearly a decade. Their killer app this fall is a rerelease of a decade-old game in a series whose star has recently lost much of its shine.

My hunch, however -- and this has no scientific basis, so treat it as the speculation it is -- is that Nintendo will treat Wii U much like they did GameCube. They'll continue supporting it, relying on a few high-profile titles to entice fans, but their eye will be on the next generation. Sure, they could make a massive effort to push the console, entice third parties for exclusives, and basically buy their way to something akin to relevance... but again, that's simply not how Nintendo operates. The company has plenty of money in its war chest, but those riches are in place precisely because it's too conservative to buy its way out of tough spots.

And what of Wii U? Trapped in a tough spot by high cost, low interest, and a meager library, the writing certainly seems to be on the wall for the system. And 3DS won't hold the line forever, especially with hackers eager to break open the system's security measures -- ostensibly to do away with region-locking, though the obvious unspoken subtext is the promotion of piracy, a phenomenon that greatly weakened the DS market in that system's later years. The clock, it seems, is ticking.

Fortunately, Nintendo is often at its best when it's terrified for its life. The doldrums of the GameCube era gave us the inspired Wii remote interface; the looming threat of the Sony PSP resulted in the DS. Throughout Nintendo's entire tenure as a game publisher, they've consistently innovated their way out of tough spots -- a trait going all the way back to Donkey Kong's "Hail Mary" pass, which prevented thousands of unwanted Radarscope cabinets from bankrupting the company by converting them into a beloved masterpiece. The question isn't whether or not Wii U is doomed, but rather, can Nintendo learn from Wii U's troubles to innovate their way back to the top again as they have so many times before? And if so, what form will that innovation take?