iwata holding u

Written by contributor Evan Campbell.

About the author: Evan Campbell is a former writer for Nintendojo.com for seven years, and he is now currently writing for Nintendo Force Magazine.  You can follow him on Twitter at @evancampbell.

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Two years ago, when Nintendo was dealing with its first fiscal year in the red since going public decades earlier, President Satoru Iwata told investors that a change in strategy was unnecessary.

“We have something to reflect on, rather than change our strategy,” he said Jan. 30, 2012.

“Two years later, with Nintendo facing its third year of underperforming sales numbers, Iwata has changed his tune.”

“We are thinking about a new business structure,” Iwata said at a press conference last week after announcing huge forecast cuts to Wii U and 3DS. “… We must take a skeptical approach whether we can still simply make game players, offer them in the same way as in the past for 20,000 yen or 30,000 yen, and sell titles for a couple of thousand yen each.”

To many, a new strategy is long overdue. Critics have pummeled Nintendo over the past couple of years, first for slow sales of the 3DS and now the cratering of Wii U, for which the company slashed the fiscal year forecast from 9 million units to 2.8 million. Chris Kohler of Wired sums up many of these complaints, pointing out the company’s reluctance to adapt to cheaper pricing, failure to deliver a more open publishing platform for indies, and an inability to capitalize on a rich back catalog of games.

But how will Nintendo adapt and change? Will such a conservative company drastically alter course? And how will it do so? The best way to find answers to these questions is through the company’s president, Iwata. The former game developer has been coping with declining sales for years now, with investors questioning him at every turn.

And one of Iwata’s more recent statements regarding fiscal 2014 is arguably the most terrifying, even in light of last week’s comments.

“I have put a lot of energy into thinking about how we can accomplish this performance goal [meeting fiscal 2014 targets], but comparatively I have not put much effort into considering what we should do if we fail to achieve it,” he said July 5, 2013.

Let’s hope he was bluffing. Nintendo has been swimming in murky waters for the past three years, and a contingency plan is crucial. But how did the company arrive at this position? The 3DS started the downward spiral, but the Wii U has exacerbated it, so I’m going to focus on the struggling home console.

“Whenever we launch a new video game hardware system, if we cannot sustain the momentum during the launch period and a certain period thereafter, it can invite very challenging situations just like the one the Nintendo 3DS experienced,” Iwata said in January 2012, eleven months before Wii U’s launch.

Iwata was aware of the consequences, especially after similar problems with 3DS, but was unable to deliver quality titles after the launch month for Wii U. Nintendo only released two games in the first six months of 2013 — Lego City Undercover and Game & Wario — and the former wasn’t even developed in-house. 

What’s more frustrating is the fact that Iwata claimed this post-launch drought wouldn’t happen just weeks before the Wii U went on sale.

“Nintendo tends to release too many titles at the launch of a hardware system and, as a result, suffers a drop in new games for quite some time after launch, and for the Wii U launch, we are being very careful not to let it happen,” he said Oct. 29, 2012.

While the lack of major software played a significant role in the Wii U’s woes, the trouble started before the launch of the system with Nintendo’s marketing strategy.

“We will develop a marketing strategy for the Wii U launch to ensure that consumers know a number of games leveraging asymmetric gameplay will be coming,” Iwata said June 12, 2012, during that year’s E3 investors meeting.

Did this ever happen? Did Nintendo ever publicize asymmetric gameplay? The “How Will U Play Next” launch video — which was cut up for use in TV commercials — showed images of people playing multiplayer but didn’t really demonstrate or explain how this was different with the GamePad. Nintendo quickly abandoned asymmetric gameplay, as consumers never understood the term — or the gameplay, for that matter. Iwata acknowledged that Nintendo Land fell well short of being the Wii U’s “Wii Sports.”

What was Nintendo’s next big bet, then? Iwata pointed to a strong latter-half 2013 release lineup, weirdly headlined by “Pikmin 3,” which he argued would showcase the strengths of the Wii U.

“In this sense, starting with “Pikmin 3,” we aim to include functions that make good use of the GamePad that consumers can appreciate,” Iwata said in June at the E3 2013 investors meeting.

Not only is “Pikmin 3” perfectly playable for the most part without the GamePad — many critics noted that the Wii Remote and Nunchuk controller setup is ideal — but Iwata weeks later would say the game was only achievable on Wii U.

“I think the quality of [“Pikmin 3”] is something that only Wii U can achieve,” he said July 5, 2013.

No offense to Shigeru Miyamoto and Nintendo, but I doubt I’m the only one who doesn’t buy that statement. I could see “Pikmin 3” — which was originally a launch-window title — working on various other platforms, including PC.

At that July 5 meeting, though, Miyamoto shed some light on the development problems for Nintendo with Wii U, possibly exposing a main cause for the software drought on the platform.

“… Wii U with HD graphics requires about twice the human resources than before,” the creator of Mario and The Legend of Zelda said. “Please allow me to explain that we may have underestimated the scale of this change, and as a result, the overall software development took more time than originally anticipated.”

Think about that for a moment. Nintendo watched the whole industry deal with the growing pains of HD development for six-plus years when making games for Xbox 360 and Playstation 3. But the company was still caught off guard. This incompetence falls squarely on Iwata, and there really are no excuses.

Also inexcusable is Nintendo’s lacking online initiative, which most recently failed during the crucial holiday season. The eShop went offline for days worldwide, starting on Christmas. But the company’s online troubles date back much further, and Iwata has even talked about how far behind Nintendo is compared to competitors as recently as June 2012.

“I think that what we see in terms of online gaming networks on existing dedicated gaming platforms is not particularly well suited to the approach Nintendo has taken,” Iwata told investors, adding that it’s not a smart strategy as competitors have spent years developing their online platforms.

So far, Nintendo’s approach seems like a subpar version to other companies, with Miiverse serving as the lone bright spot. But Miiverse isn’t without its quirks, with a sluggish interface. There’s also the untapped potential of the social media network and the company’s online platform in general, which Iwata talked about 18 months ago.

“Furthermore, for example, our goal is that, in the future, you will also be able to purchase games found in the Miiverse from that smartphone or tablet device and, by the time you arrive home, that game will already have arrived on your Wii U system through SpotPass,” Iwata said in June 2012.

How this type of access is still not available is beyond me. Once again, the only word that comes to mind is incompetence. But it’s just not Nintendo’s services, it’s also the online-connected games. When an investor asked Iwata about online multiplayer in “New Super Mario Bros. U,” the president tiptoed around the question.

“… We focused most of our effort on enabling those five people to enjoy the game all together so we did not focus on online play,” Iwata said July 5, 2013.

Why can’t the game offer both experiences? Why is it an either-or answer? Iwata didn’t elaborate any further, much to the chagrin of gamers everywhere. Another long-term issue for Nintendo relates to third parties, who haven’t always felt the love from the Japanese company. But Iwata thought everything was in good shape weeks before Wii U’s launch.

“I believe that this [launch] lineup proves that Nintendo’s vision is shared by many, and there is active support for that too,” he said in October 2012. “My aim is to set a successful example toward and after the end of the year that rewards the investment our third-party publishers put into their titles and will then create a chain of other successful titles. Establishing this kind of example at an early stage is crucial since it gives others the incentive to follow suit, while failing to do so casts a dark shadow over their future prospects of the platform.”

The rest is history, right? Third-party games — including standouts like “ZombiU” — failed to light up the sales charts, and Nintendo didn’t seem too involved with helping to promote these games outside of E3. Nintendo didn’t highlight any third-party games in its TV spots, which makes zero sense when Iwata said their success was so important. In the first two months of Wii U’s launch, Satoru Iwata had confidence in ZombiU becoming a focus of attention, but we only saw a minimal amount of advertising for ZombiU in Europe. In North America and Japan, the advertising for ZombiU was almost non-existent compared to when Red Steel was released for Wii.  Why did Nintendo of America decide to wait until two months after Christmas 2012 to release the ZombiU bundle?

“ZombiU will become the focus of attention, not just in Europe, but around the world including Japan”, said Satoru Iwata, one month after Wii U’s North American launch. “I look forward to ZombiU becoming a seminal title, complementing Nintendo’s own efforts to showcase the reason why Wii U had to have the Wii U GamePad as its controller by demonstrating yet another way of doing things.”

When faced with third parties dropping support of Wii U during E3 2013, Iwata claimed that a bigger install base would bring these companies back.

“If software developers decide not to support a platform when, in fact, it has momentum [from a slew of Nintendo releases] and other software developers have experienced good results, people will definitely question their decision,” he said.

No one is questioning the decisions by third parties, especially now. But I bet plenty of investors question Iwata on the Wii U strategy during the past holiday season.

“We have an offering of software for the end of this calendar year that encourages family fun at home. Nintendo is preparing a number of Wii U games for next year that greatly appeal to highly skilled users, but at the end of this calendar year, we have quite a few offerings that can be played by the whole family, dad and the kids, or grandparents and the kids,” he said. “… Thus, in the sense that we attract consumers interested in this category of video games, I think the launch of other video game systems (Xbox One and Playstation 4) is also good for us because they energize the video game industry as a whole. … This year, what Nintendo is promoting is, conversely, to stand out in the game industry for individuality. I believe we have become a unique value.”

Well, after slashing Wii U forecasts by 6.2 million units, I think it’s safe to say that consumers didn’t find a unique value in the home system. Aquamarine of NeoGAF has done a bang-up job of showing how Wii U sales in December pale in comparison to even GameCube, which is Nintendo’s worst-selling home console ever.

Speaking of sales, Nintendo also has been slow on the draw regarding new pricing models, only recently exploring free-to-play games (though none are out in the United States) and microtranscations. While these models are the primary source of income on smart devices, Iwata has worried about them undermining the video game business.

“What I wanted to deliver at the Game Developers Conference [in 2011] to the game developer community,” Iwata said in June 2012, “was a thought-provoking message: ‘The monetary value of the product in digital form could be depreciated at an extremely high speed if you are not cautious. Paying attention to such value and trying to keep it at high level is very important. Otherwise, it would make the game development business itself quite difficult.’”

Iwata even had stronger words about free and cheap games in October 2012.

“We believe that neither Nintendo nor dedicated gaming systems are worthy of existence unless our games give consumers unparalleled fun, which games for free or for 85 yen do not supply,” he said. “… We don’t think consumers would pay Nintendo for unfinished products, so we don’t intend to change our business style in distributing packaged software.”

His stance has changed dramatically this past year, which I believe points to one of the biggest upcoming changes for Nintendo. Recently, at E3 2013, he talked about how consumer habits are quickly shifting and positioning packaged software against cheap downloadable games is becoming even tougher.

“With countless games offered for free, consumers are far more careful than ever to decide whether it is worthwhile to spend dozens of dollars to buy one game,” Iwata said. “Under these circumstances, we feel that it is important to offer games that are even more polished than before in terms of quality to have consumers buy our products, understand the value that they offer and recommend them to others by word-of-mouth.”

And just a couple of months ago Iwata made a stronger statement about digital goods and pricing.

“Digitalization is progressing in a variety of different entertainment offerings, including Nintendo’s,” he said Nov. 5, 2013. “Here, I am not specifically referring to the games available on smart devices. Such proposals as offering content free of charge or subscription fees to enjoy certain content for a fixed period are becoming more prevalent, so I can understand why some consumers might feel that the prices of packaged software are relatively higher than before.”

Nintendo’s president for the past two investor meetings has acknowledged that the company’s pricing strategy isn’t working, culminating in his skeptical remarks last week. I don’t think it’s a long shot that Iwata starts restructuring the pricing of game content for 3DS and Wii U quickly, with an even bigger focus on digital distribution.

Subscription services for Nintendo’s Virtual Console lineup make a lot of sense too, especially in light of Sony’s announcement of Playstation Now. And Iwata knows that his company has fallen short with capitalizing on its back catalog of games.

“While Wii U and Nintendo 3DS already offer Virtual Console software, I feel that we have not been able to take full advantage of our assets yet, so we would like to enrich our Virtual Console lineup,” he said Nov. 5, 2013.

This comment seems like a no-brainer, as no other video game company has Nintendo’s history of great characters and games. But as of yet, only NES and SNES games are available on Wii U in North America, after more than a year on the market. Look for new pricing models and a different strategy for Virtual Console content out of Nintendo soon, since both changes are seemingly easier to implement than launching a whole new console.

But another third-pillar console shaking things up isn’t necessarily a stretch. Nintendo and Iwata had no problems disrupting the market in 2004 with Nintendo DS. And the president has acknowledged that the company may make more consoles than just handheld and home console in the past.

“What we are saying is that we would like to integrate software development methods, operating systems, and built-in software and software assets for each platform so that we can use them across different machines,” Iwata said Feb. 5, 2013. “This means that if we manage to integrate our platforms successfully, we may in fact be able to make more platforms.”

Maybe a new tablet or hardware model isn’t far-fetched. Almost a year ago, Iwata talked about the strengths of integrating Nintendo’s consoles. What if the GamePad became untethered and worked as a standalone device, with a set-top box available separately? Nintendo needs to think outside the box, and some type of new hardware is definitely a possibility with statements like these.

On the bright side, Iwata seems aware of the struggles ahead for Nintendo.

“I am of course aware that some people say, ‘Nintendo’s business model is perhaps now outdated,’” Iwata said July 3, 2012.

And the president further acknowledged it last week. Nintendo is a conservative company, but with three years of underperformance, playing it safe is no longer an option. The changes may not happen immediately, but this year promises to be make-or-break for Nintendo in more ways than one.

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