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Summary

  • The first party to third party shift is harder than you think.
  • The plethora of first-party titles coming out before Christmas will tremendously boost Nintendo’s Wii U sales.
  • Big gaming conventions usually indicate what consoles will be “hot."

Which party to be?
Wii U sales have been sluggish and Nintendo (OTCPK:NTDOY) has been struggling with profitability after the demise of the Wii. Now it seems that the appropriate strategy is to go from a first-party publisher to a third party publisher. However, Nintendo's wide appeal has stemmed from its beloved franchises such as Mario, Zelda and Pokemon. Going from first-party to third party is a giant step and does not always work out as planned.

First there is a cost. With graphic demands and high powered consoles, it takes a lot more money for a publisher to go past breakeven. In the 8 and 16 bit era, if you became a million-selling title that was considered an achievement. Now days that number still means you are at a loss. Development kits are another downside. Developers have to take their time to learn how the kits function and develop the games around each respective console. If you ever wondered why the frame rate or controls for a game are better for one platform compared to the other, this is your reason.

Lastly, PC sales are a cause for concern. Many developers are afraid to bring their games to PC because they know it will get pirated and generally have very low sales. Many times, it is difficult to translate the same experience from console to PC.

Sega does what Nintendo Did Not Do

The first to third party strategy is "pulling" a Sega (OTCPK:SGAMY). Sega is a perfect example of how these strategies flop. Its beloved Sonic the Hedgehog Franchise has failed to have the quality it once had and has been poorly received since Sega quit first-party development. Over the years, the games in its library have amounted to nothing more than subpar movie games. Its other franchises such as Nights and Streets of Rage are dormant.

Value as a First-Party publisher
Game consoles are purchased for their first-party titles. Nintendo is bought for its Mario, Zelda and Pokemon franchises. These franchises historically have really high ratings and high sales. A search on VGchartz and Metacritic will confirm the popularity of each individual game of each franchise. Expanding across multiple consoles will diminish that. It is basic supply and demand.

So what caused the Nintendo Wii U console to not sell? The answer is simple; there were not enough quality first party titles. Recently, Mario Kart 8 sold approximately 3 million units in its first month and boosted Wii U sales. This news is not surprising, since Nintendo always tries to innovate and produce quality games. The sheer driving force for Nintendo is Shigeru Miyamoto. He devotes so much time and effort to his franchises and creates games that he would want to play. There is no focus group involved in the process at all. Going multi-platform would crush Nintendo's innovative nature.

Nintendo is the Apple of the gaming industry - when it innovates others copy. Nintendo's predecessor console Wii forced Microsoft (NASDAQ:MSFT) to come out with the Kinect and Sony (NYSE:SNE) to come out with a motion controller.

I have noticed that the big gaming conventions such as Tokyo Gameshow, E3 and Gamescon normally indicate what console will be in demand based on the quality of the games announced. E3 has confirmed that Nintendo's Wii U will be in demand. With a slew of first party titles coming out before Christmas, it will definitely boost console sales because that will be the catalyst to drive Nintendo's console sales.

Nintendo's current plight is similar to the one it had with the DS when it came out back in the 2000s, and it has gone on to be one of the best-selling hand-held systems of all time. Also, keep in mind the Nintendo 64 and GameCube were both considered failures. If Nintendo can survive those, it can survive this minor setback.

Editor's Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.

Source: Nintendo: The Strategy Is To Not Pull A Sega