How Nintendo Plans to Make Money Again

Nintendo's path to continued prosperity is not chasing after whatever is currently hot, but attempting to identify an opportunity no one else is thinking of. CEO Satoru Iwata thinks he's found it: Spinning off Nintendo's line of self-help products like Wii Fit, Brain Age, and Personal Trainer: Cooking into their own product line, with a dedicated platform that is sold not as a game machine but as a device specifically for health and wellness.

Is this idea a winner? Who the hell knows. First, we have no details about the actual product. Second, the most educated analysis of said product, when it appears, will come from experts in health technology, not videogame guys like me.

But Iwata is right in the main: Nintendo must try things like this if it wants to continue realizing the success it's had in the past as a maker of hardware and software. As I've said, the videogame industry and the medium itself are still young, and there are infinite iterations on the theme of man-machine interaction that have not been tried or even imagined yet. Believing that Nintendo is no longer capable of innovating in this space – that is, believing that it should "get out of hardware" – is pitiably small thinking.

At this point, with no details whatsoever on the product, that's about all there is to say before we get into the realm of wild hypotheticals. Although the "Quality of Life" platform was the main announcement, Iwata did make a number of statements about Wii U, Nintendo 3DS and other initiatives that might benefit from analysis and/or context. So here we go:

We are now sure that we can solve the technical problem of displaying Virtual Console software from Nintendo DS on the GamePad.

Let's get this out of the way first: Running as much old software as possible should have been a key design feature of 3DS and Wii U. You should have been able to download and play legacy DS games on 3DS on day one and there should by now be hundreds of them on the service. But on the current plane of reality we occupy, this is a good move. If there's no technical reason not to do it, then do it.

Hopefully Nintendo also can resolve the technical problem of getting these games running on 3DS (Yes, DS cartridges and DSiWare downloadable games do run natively on 3DS, but moving cartridge games to a downloadable format is not a trivial problem.). And of course, now that user accounts have been merged, DS games at least should be a single purchase that works across both devices.

Now that they have observed the success of “Puzzle & Dragons Z,” the number of companies who have approached Nintendo with an offer to provide Nintendo 3DS with the titles which they originally designed for and grew on smart devices has been increasing. With the overall software lineup, we aim to make this year and the next one a profit-generating phase for Nintendo 3DS.

Due to its making serious miscalculations about shifts in the game industry, Nintendo has in the span of a few years gone from being the platform on which massive new game franchises are born to the one on which massive new game franchises are ported if they sell well elsewhere. The crappiness of this situation surely is not lost on Satoru Iwata, but how's that old expression go? Oh, that's right: Beggars can't be choosers. If software makers are going to move their smartphone hits over to 3DS, this is an improvement over the current situation where they put nothing on 3DS.

Note also that Iwata says the next two years will be the profit-generating phase for the Nintendo 3DS, implying both that the past few years have not been part of the profit-generating phase and he may not expect the same period to be a profit-generating phase for Wii U.

Our top priority task this year is to offer software titles that are made possible because of the GamePad.

Why this wasn't Nintendo's top priority task since the middle of 2011 I have no idea. As it stands, Nintendo has saddled Wii U with the expensive GamePad controller then produced next to no software that justifies its existence. After a string of games that could be played perfectly well with traditional controllers, its next big Wii U game Donkey Kong Country Tropical Freeze takes this trend to its logical conclusion and displays absolutely nothing – as in, the screen is turned fully off – when you're playing it on the television.

Was this Nintendo setting itself up to back away from the GamePad? Apparently not, since it intends to revamp the touchscreen controller's image with new games that are only possible with GamePad. Better late than never.

Unfortunately, however, after starting up Wii U, there is a wait of over 20 seconds before we can select a video game title, and hence it is not an ideal situation for users now. To solve this problem, a quick start menu for the GamePad will become a reality after a future system update planned for early summer.

This confuses me – not that Nintendo would make a minor tweak to improve the usability of its user interface, but that it would call it out so prominently as if it would change anyone's opinion on Wii U.

We will showcase our detailed propositions for utilizing the NFC functionality at E3 in Los Angeles in June.

More specifically, Nintendo called out the GamePad's heretofore unused near-field communication feature. Roughly speaking, the GamePad is like the Skylanders "Portal of Power" or the Disney Infinity base unit–it can communicate with toys or other devices when they are brought near to it. The interpretation that one might immediately jump to is a game like those two, only with Nintendo's stable of characters. Perhaps this is one of the plans, and it would be a very good one. The collector mentality that's driving millions of people to raid Walmarts around the country for the latest Skylanders and Infinity figures could drive similar sales of Mario and Link figurines. But this isn't the only way Nintendo could use the NFC feature, and it does seem to be saying that there will be multiple concepts.

Our future platform will connect with our consumers based on accounts, not devices. ... In other words, our platform will not be bound to physical hardware and, instead, will be virtualized.

Again: This should have been an obvious move about five years ago, but Nintendo's just catching up to it now. The next step is to charge consumers once for a single piece of content and make that experience seamless across both devices. Again, this by itself will not help Nintendo succeed, but going ahead without it would be like starting to train for a marathon while you still have a rock in your shoe.

It is our intention to release some application on smart devices this year that is capable of attracting consumer attention and communicating the value of our entertainment offerings.

This is the big question mark for those focused on Nintendo and mobile: What is this thing? An all-encompassing "Nintendo App" would be interesting – the ability to browse Miiverse, buy new games and learn about new products and deals. No reason Nintendo can't use the device in your pocket to remind you that Nintendo is a thing that exists. Iwata did say that interactive game features were not off the table as a carrot to get people to actually download and use the thing ("download this and get marketed to!" being a terrible sales pitch) but stressed that this would not be tantamount to "putting Mario on smartphones."

With respect to services previously released on dedicated video game systems that are, however, capable of improving usability and consumer experience when they are implemented on smart devices, we will try to actively shift their focus to smart devices.

Here's what we'll most likely see the app used for – Iwata said that he believes that mobile devices can be a better storefront for Nintendo's products than the 3DS and Wii U eShop interfaces, and so we should expect Nintendo to put more energy into those "off-device" implementations than the "on-device" stores that can currently be accessed by turning on the game devices themselves.

We aim to establish a new sales mechanism that will be beneficial to both consumers and software creators by encouraging our consumers to play more titles and increasing a platform’s active use ratio without largely increasing our consumers’ expenditures.

Nintendo wants to try adjusting digital game prices based on consumer behavior – by giving you discounts as you spend more money, for example, or by giving you a discount on a game if your friends are playing it. It could go further, but it's encouraging to see it doing more than setting high prices for software and occasionally putting them on sale.

Also, we are planning to utilize Nintendo’s abundance of character IP more actively [and] be flexible about forming licensing relationships in areas we did not license in the past, such as digital fields, provided we are not in direct competition and we can form win-win relationships.

When Iwata says "digital fields," my mind immediately goes to Line, the popular Japan-developed chat application for mobile devices. One of the primary ways it makes money is through the sale of "sticker packs," which let you chat using cute artwork of popular characters from Sanrio to Disney. There's even a Parappa The Rapper sticker pack; everything, it seems, but Nintendo. Nintendo has a lot to gain by licensing its characters for uses like these, a potential revenue stream that it has ignored thus far.

We will not rule out the idea of offering our own hardware for new markets, but for dramatic expansion of the consumer base there, we require a product family of hardware and software with an entirely different price structure from that of the developed markets.

Nintendo, through a joint venture company called iQue, has released specialized versions of some of its game platforms in China. But these have had limited appeal and very small game libraries – as in, the iQue 3DS XL has two games. It does seem like larger success in these markets would require a radically different approach.

If there's a common thread running through these statements and initiatives it is that Nintendo does not believe that it has tapped out all of the money that it could possibly make – that there are revenue streams it has not yet explored that do not compromise its primary mission of running its own game platforms.

In the past, Nintendo has done well enough that it never had to consider these options; today, it has finally run out of reasons not to.

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