Nintendo has a Wii problem

In 2006, Nintendo took video gaming out of the kids’ room and into the living room, as its hit Wii created a new niche as the console the whole family could share.

But with that Wii boom waning, the successor being prepared by the creator of Super Mario looks like a losing proposition as Apple Inc. and other smartphone and tablet makers take gaming to the bathroom, the commuter bus and back to the bedroom.

Nintendo will today report its first operating loss, after estimating a deficit of 45 billion yen ($544 million) for the business year just ended.

“They have been beaten by smartphones and tablets, in particular, for consumers spending and, more importantly, time,” said David Gibson, an analyst for Macquarie in Tokyo.

The company, which began in 1889 making playing cards in the back streets of Kyoto, has been hammered by a precipitous drop-off in sales of its Wii, DS hand-held console and its new 3DS version.

A year ago Nintendo expected to sell 13 million Wii consoles, 16 million 3DS hand-helds and 11 million DS machines in the financial year. In January it slashed its sales target for all three, lopping three million off its Wii target, two million off 3DS and halving its prediction for the DS.

Promising to return his company to profit this business term, Nintendo’s boss, Satoru Iwata, blamed dismal sales on a strong yen and economic gloom in Europe. No strategic rethink or change to plans for the new Wii console, the Wii U, was necessary, he insisted.

Yet what Nintendo faces is a fundamental shift in gaming habits that analysts argue may require it to shrink its hardware business and instead chase profits for Super Mario and other game titles on devices built by other firms.

Its emerging foe is Apple — already the nemesis of flagging Japanese titan Sony Corp. — whose seamless go-anywhere devices, including the iphone, ipad and rumoured plans for a games controller and “ITV,” are positioning it to grab swaths of the gaming market where Nintendo once held sway.

In a report this month, Macquarie’s Gibson pointed to a recent survey by mobile gaming site Mocospace. It asked 15,000 gamers where they gamed; 53 per cent said they played in bed, 41 per cent in the living room, 72 per cent commuting and five per cent on the toilet.

Yet a game started on a Wii can’t be continued on a DS on the way to work or school. The Wii U, slated to go on sale in time for the year-end shopping season, does not address that convergence hurdle.

Nintendo will probably have a year’s grace to woo core gamers to the Wii U, analysts say, before Sony’s anticipated launch of its Playstation 4 and Microsoft’s updated Xbox at the end of 2013. Nintendo, nonetheless, will still have to contend with the rising flood of smartphones and iphones.

Any drastic strategy shift that would dispatch the Mario brothers into the realm of Android and Apple’s IOS operating system would likely require a change at the top of Nintendo, said Macquarie’s Gibson. And that likely won’t happen for a couple of years until the Wii U is shown to be a clear failure, he added.

Unlike money-losing Sony, where time is running out to counter the pounding it’s getting from Apple and Samsung Electronics, Nintendo, sitting on oodles of cash it made selling the Wii — about $14 billion — at least has time to mull its choices.

“With its 8,000 yen a share in cash, it can afford to still make a bet that its hardware will sell,” Gibson said.