Nintendo: Too Stubborn to Adapt

The increasing ubiquity of smartphones and tablets has drastically changed the way multimedia applications are consumed, with perhaps the most drastic alteration being in the gaming sector. In recent years casual gamers have been showing a predilection for smartphones and tablets for their gaming needs, as shown by the massive popularity of games such as Rovio Mobile's Angry Birds and Imagni Studio's Temple Runner.

Mobile games, sold through the app stores of various operating systems, claimed 58% of gaming revenue in 2011. This was a massive jump from 2009's figure of 19%, and the consequential market loss seems to have had a significant effect on the profit margins of Japanese gaming giant Nintendo (Pink: NTDOY), which has been the least willing to adapt of the three main console makers -- the others are Microsoft Corp. (Nasdaq: MSFT) and Sony Corp. (NYSE: SNE) -- to maintain the interest of casual gamers.

Nintendo reported its first-ever operating loss last week, estimating a 43.2 billion yen (US$533 million) loss on the fiscal year just ended. This comes after the company slashed sales expectations on all three of its gaming devices, the Wii, the Nintendo DS, and the Nintendo 3DS, by 3 million, 2 million, and 8 million, respectively.

The stock is down nearly 46% in the past year -- in contrast to Microsoft, up more than 27%, and even worse than Sony, which is down about 43% in the same time. (See Sony Chops TV Manufacturing to Chase Profits.)

Doom and gloom aside, analysts expect the company to find its way back into the black on the strength of new installments of popular gaming franchises like Mario Party 8 and Dragonquest, as well as the Wii U, the successor of the hugely successful Nintendo Wii, due to hit stores before the end of 2013.

Worrisome, however, is Nintendo's intransigence. Secure (at the very least) in the short term, the company apparently sees no need to adapt for the long term. President Satoru Iwata claims to have no intentions of altering the company's strategies for the release of the Wii U and beyond. Presumably, this means that things will remain the same until the company is straddled with a failed device and faces imminent doom.

It's curious that Nintendo, which sells some of the world's most loved games, simply refuses to allow them to be sold through app stores. In fact, the company refuses to sell its titles on non-proprietary platforms in general. Even more curious is that this refusal to make tons of money doesn't appear to be part of any business strategy, like the release of its own tablet or smartphone. Internet forums have discussed the possibility of a “Nintenphone” for years, but in the end there's nothing to indicate that it's anything more than message board banter.

Nintendo is, quite simply, hamstringing itself for no apparent reason. Could the company realistically grab a share of the smartphone and tablet markets at this point? That's open for debate, but it would certainly have some leverage with its stockpile of classic video game titles. To so completely withhold these games, easily hosted on available portable technology, seems ill-advised considering the evident shift in gaming tendencies in recent years.