What Nintendo Should've Done

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

The gaming console market is dominated by three companies: Microsoft (NASDAQ: MSFT), Sony (NYSE: SNE) and Nintendo (NASDAQOTH:NTDOY). Nintendo is the first of the big three to come out with a new console within the last few years.

Nintendo has been struggling lately. The stock is down roughly 20% over the past year and the company had a 4.6% decline in revenue in the most recent quarter. The stock peaked at the end of 2007 at over $70 per share, but has steadily declined ever since and now trades at about $15 per share. 

The new Wii U console from Nintendo is supposed to be innovative and draw back consumers who were once thrilled by the Nintendo Wii but have since moved on or lost interest. The original Wii was innovative, as it was the first of its kind to integrate motion controls into game play.

This is something that Sony and Microsoft have now improved upon with their own motion sensing technology; in fact, Microsoft's tech doesn’t require a controller like the Wii. Nintendo is hopeful that the new Wii U will bolster their struggling company. Unfortunately, there is little hope of that.

The new Nintendo device is definitely unique and different. It uses a controller that has a touchscreen in the center so that gameplay is enhanced by having a screen in your hand, which could have something like a map on it, while you control your character on the TV screen.

But the hand held tablet concept adds little to a game experience, other than perhaps being annoying as you have to look down at your hands to look at a map and then back up to the screen to the character you are controlling.

The sophisticated touchscreen tablet concept is also expensive. Thus, even though Nintendo sells the console for $299 they are still taking a loss on every sale, which they hope to make up through software sales.

Old School

Nintendo is old fashioned. People are shifting to social and mobile games, and Nintendo is still trying to create clever game consoles. In fact as one of their top game creators explains they are actively not pursuing the same direction as the general market.

"We think it's the least cool thing to start doing something just because other people are making money doing it," said Mr. Iwata. "We always want to do something that forces people to slap their knee and say 'we didn't think of that’.”

Unfortunately people are more likely to not even notice.

Nintendo has a huge library of games that would be perfect for mobile devices, yet they have failed to release them to mobile for fear that this would pirate sales away from their consoles and diminish their brand.

This is a huge mistake. If anything it would expand their brand. The market for playing games like Super Mario and Zelda on a smartphone would be huge and would give Nintendo a market for showcasing their newest game console as well as creating huge brand engagement across millions of mobile phones.

Here's an idea

Nintendo is losing money on their new consoles because of the expense of their new hand held tablet controller. What if instead of having a controller people could just use their phones to play the Nintendo games on their TV? There are already systems that allow you to connect your phone to your TV as a remote control.

How cool would it be if Nintendo built a system for integrating your smartphone into your console gaming experience? Your phone could be your controller and then switch to being your game console when you left the house. What if you could keep playing the same game with the same friends after leaving the house?

By failing to adapt to the times Nintendo has missed a huge opportunity to connect with people who spend every day of their lives using their phones. They could have saved themselves millions of dollars, increased their profit margins exponentially, connected with millions more users, and been a leader in the console market, all by not building the complicated new controller and focusing on smartphone integration.

Instead Nintendo is merely different than what is already available and is hoping to be able to turn a profit from the 400,000 consoles they have sold at a loss. A company that is no longer innovative and has lost touch with the general market doesn’t seem like something worth investing in.

SeanMSullivan has no positions in the stocks mentioned above. The Motley Fool owns shares of Microsoft and is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Motley Fool newsletter services recommend Microsoft. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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