Profits Down at House of Mario

Nintendo's MarioSony continues to lose money in it's entertainment division on sales of the PlayStation 3. And Nintendo continues to turn a profit on sales of the Wii. Then why are investors driving Nintendo's stock down and Sony's stock up? It's because they don't like the direction that they're seeing Nintendo heading. Year-over-year profits at Nintendo are down almost 50% for the first half of 2009.  Wii sales continue to slow, and even a recent $50 price cut hasn't seemed to spur additional sales of the console, worrisome news as we head into the holiday season when most sales are made.

Many critics have long dismissed the Wii as a fad.  They said that it's gimmicky motion controls couldn't stand up in the face of the supercomputer-like power available from the XBOX 360 and PlayStation 3. But even though the motion control is a gimmick, it's a pretty darn good one, opening the console up to some styles of play that are nearly impossible with a traditional controller. Nintendo's problems selling consoles stem from other factors.

First, the casual gamers drawn so heavily to the system have stayed casual. Many of them played the Wii Sports collection that was included with the console in the US, but once they had their fill of that game, they stopped playing. Those gamers either didn't know that they were supposed to go out and purchase more games for the system and keep playing, or they couldn't be bothered to expend that effort. The game store is out of the way for most casuals; their likelihood of going to the store and dropping $50 on a new game every few months is slim to none.

Second, everybody has one. The people who wanted a Wii, from casual first-timers to N64 veterans, probably already have one.  To Nintendo's credit, they sold a lot of consoles. But that has nearly saturated the market, making it hard to find households into which Nintendo can introduce new consoles. It has also created a glut of systems that are no longer being used, thus creating a robust second-hand market. Those in search of a Wii can often look to get a cheap used system or even find someone giving one away. I've heard of a few adults who bequeathed their Wiis to a younger cousin or newphew for no money at all. Those exchanges represent sales that Nintendo doesn't make.

Finally, and perhaps most importantly, are the games or the lack thereof. While the XBOX has exclusive franchises like Gears of War and Left 4 Dead, and the PlayStation has Metal Gear Solid and Uncharted, the Wii has exclusive titles like Imagine Babysitters and Carnival Games. Even a gaming n00b isn't going to be fooled into buying this shovelware from companies that hoped to cash in quickly with a shoddy motion-controlled game for masses. And yet these games fill the shelves of the Wii section in most stores.

Sure, Nintendo has made some killer games for the Wii, including Super Mario Galaxy and The Legend of Zelda: Twilight Princess. And New Super Mario Brothers Wii looks poised to be another Shigeru Miyamoto hit when it arrives this fall. But Nintendo's dominance on Nintendo systems tends to be part of the problem. Third party developers have a hard time finding traction on the console with their mature titles. And even though the Wii is easier and cheaper to develop an original game for, it is probably more difficult to port a game to it. The high-definition resources from the 360/PS3/PC have to be scaled down for the Wii. And the lack of computational horsepower means that it's often better to create a game from scratch than to try and port. This leads to good games that suffer poor sales, like Dead Space Extraction or Dead Rising: Chop Till You Drop.

Game consoles can be lots of things, but first and foremost, they are game consoles. That means it all boils down to the games. And Nintendo just doesn't have 'em the way its rivals do. I suspect that Nintendo is already eyeing the leap to the next generation of hardware, which some have rumored could be out as early as 2011. That's unsubstantiated at this point, but it's reasonable to think that with the cheapest and least powerful hardware of this generation, the Wii would be the easiest to break away from in the near future. But if Nintendo doesn't want to continue on this path of waning interest in its systems, it has to give all those gamers it attracted with it's easy-to-control games a reason to keep playing.