Nintendo struggles as Wii U worries deepen

TOKYO - Nintendo Co Ltd will likely be reluctant to make radical changes such as allowing its games to be played on rivals' devices as it grapples with poor sales of its flagship Wii U game console, which forced it to slash its outlook and sent its shares tumbling.

Unlike rivals Microsoft Corp and Sony Corp , whose recently released XBox One and PlayStation 4 have seen strong sales, the creator of "Super Mario" has resisted pressure to open up game development to other firms.

Nintendo relies on the popularity of its franchises, such as Mario and Zelda, to drive sales of its hardware. Some analysts say Nintendo is missing out, however, by not releasing a version of its games for smartphones or tablets, which now exceed 1 billion in use and account for a rising proportion of games played.

But there are no signs that Nintendo, which plans to unveil a new management strategy on Jan. 30 after releasing quarterly results, is likely to soften its stance.

"I think the company needs to see more failure before anything more radical is considered," said David Gibson, senior research analyst of games at Macquarie Securities in Tokyo. "It's like a couple of wheels stuck in the mud. We all think they're heading for deeper mud but they're not convinced as such. They're going to try to change a little bit and move this way and that and do a new strategy."

Subtle change

The company, which warned on Friday that it now expects its third successive year of operating losses after previously forecasting a profit of 100 billion yen ($960 million) for the year to end-March, promised changes.

"It's right to question whether Nintendo should continue to use the same model of selling a console for 20,000 yen to 30,000 yen and games for several thousand yen each, and so if you ask if we are thinking about a new business structure, the answer is 'yes'," CEO Satoru Iwata told reporters in Osaka on Friday.

But he dismissed the idea that the rise of games on smartphones and tablets would usher in the decline of game consoles. "It's not something as simple as the spread of smart devices meaning that game machines won't sell," he said. "If we offer something that is in line with the changes around us today, I think people will still need game machines."

Iwata, who has long opposed relinquishing control over software, also said he would not be stepping down and there would be no management reshuffle.

A more subtle change in gear could involve selling Wii U or 3DS games for as little as $1 or a free-to-play model, Macquarie's Gibson suggested, or creating a lower-priced handheld device to attract a younger audience.

Iwata has long maintained that the value of Nintendo's games and consoles comes from their simultaneous in-house development and that allowing other companies to develop games or licensing their own to be played on other devices would affect their quality.

"If we were going to provide Mario for other platforms and if Nintendo stops being the hardware manufacturer, then actually in terms of sales and profit, it might make sense for us in this fiscal year but Mario is going to lose its inherent value," he told media at the Electronic Entertainment Expo (E3) last June.

Analysts attributed weak Wii U sales to its lack of differentiation from its predecessor, Wii, which propelled Nintendo shares to a record high of 73,200 yen in November 2007. The stock has lost more than 80 percent since then. Nintendo shares closed down 6.2 pct on Monday, wiping off about $1.2 billion from its market capitalization, although this was a substantial recovery from the open when it fell 18.4 percent.

Nintendo suppliers also came under pressure, with Hosiden Corp down 6.4 percent, MegaChips Corp off 4 percent and Mitsumi Electric Co Ltd down 4.3 percent.

Additional reporting by Dominic Lau and Yoshiyuki Osada; Editing by Ed Klamann and Alex Richardson