Can the Wii U save the console?

Alex is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

At the 2011 Electronic Entertainment Exposition much of the hype was over Nintendo's Wii U, the high powered new gaming console from the declining Nintendo (NASDAQOTH: NTDOY.PK), maker of the Nintendo DS, Wii, 3DS and others. Like RIM, the company produced breakthrough products a few years ago but can't seem to keep up with competitors Microsoft (NASDAQ: MSFT), and Sony (NYSE: SNE), let alone the rising threat to the industry: smartphone gaming. While Microsoft and Sony are enjoying greater market share of the console market thanks to dropping popularity of Nintendo's Wii console, the gaming console industry is facing perhaps it's biggest threat since the PC.

While mobile gaming has been around since Tetris was put on the Hagenuk MT-2000 device in 1994 it only started becoming a common console replacement with the release of the iPhone and the plethora of games that came with the launch of the App Store. Now on your daily commute you can take out your iPhone, play a bit of Call of Duty, and maybe even check the news. Like what happened to consoles in the video game crash of 1983 where Atari's loss of $536,000,000 made Warner Communications sell the company altogether while many other video game companies went out of business. What caused the crash? The PC had become a more affordable replacement for the console that could do more. Much like the smartphones of today they were cheaper than many consoles, and had far more functionality. Who would buy an Atari 5200 for 33% more than the Commodore 64 (which was $200 in 1983 prices), a complete computer that could also play video games for cheaper?

Minoru Arakawa, the head of Nintendo's American Sales decided he'd try a different method. Knowing that retailers didn't want to stock up on poorly selling video game consoles, he marketed the Advanced Video System (Famicom) as an entertainment system with a physical robot to help you perform tasks and light gun games to make it seem like a shooting product and even renamed the console the Nintendo Entertainment System.

While many were intrigued at trade shows where Minoru showed off the Nintendo Entertainment System he didn't receive a single order until he promised to buy back every NES that didn't sell. With nothing to lose, the retailers packed their stores with the new "entertainment system". In less than 3 months the NES sold 50,000 units in New York alone and enjoyed similar success elsewhere in the US. The NES had proved that video games were not just a passing fad and that with powerful graphics and features not found on simple PCs they could still sell very well.

While many are skeptical if the console gaming industry can save itself again it's likely, and considering Nintendo's recent stock performance could provide serious gains for shareholders of Nintendo. 


Motley Fool newsletter services recommend Microsoft. The Motley Fool owns shares of Microsoft. athorburn has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

blog comments powered by Disqus

Compare Brokers

Fool Disclosure