3 radical moves Nintendo must do to surviveFebruary 5, 2014: 5:00 AM ET
Shelve the Wii U, plow ahead with mobile, and more.
FORTUNE -- If Nintendo (NTDOF) isn't desperate by now, it should be.
The hallowed videogame hardware and software maker is estimating a net loss of $240 million for the fiscal year ending March 2014, largely based on poor sales of its current home console, the Wii U. It slashed Wii U sales estimates from 9 million units to 2.8 million and lowered sales projections of its better-selling 3DS handheld from 18 million to 13.5 million for the same period. As a result, Nintendo CEO Satoru Iwata announced he and other executives would take pay cuts of up to 50% for the next five months.
Nintendo can't blame its dire results on the traditional videogame market. Sony (SNE) has sold over 4.2 million units of the PlayStation 4, and Microsoft (MSFT) has moved well over 3 million of the Xbox One since both consoles' release last November. So what's the House of Mario to do? Analysts suggest they throw out the old playbook entirely.
Go cross-platform and license. Nintendo's strength has become its hubris. "They define themselves as a hardware company that creates software to support their hardware, much like Apple (AAPL) views itself," explains Michael Pachter, a Wedbush Securities analyst. That's clearly not working anymore. Nintendo should seriously consider developing for other platforms -- the PS4, Xbox One, and older consoles -- much the way its old archrival Sega already does. Beyond that, it's worth licensing brands like Mario, Metroid, and others for quality merchandise. "Until last Halloween, Nintendo didn't license out their brands for costumes, and they only did that because they saw copycat costumes already out there," explains Pachter, who calls that an egregious missed opportunity.
Pull the plug on the Wii U. Launched in late 2012, the awkwardly-named Wii U console embedded a large 6.2-inch touchscreen right into the controller -- a none-too-subtle attempt to capitalize on the popularity of tablets and smartphones. Problem is, the Wii U is neither here nor there. It lacks mobile devices' on-the-go portability, the hardware muscle to compete with the Xbox One and PS4, and most importantly an expansive, compelling selection of exclusive games. Pachter suggests Nintendo cut it losses on the Wii U, stop making the device, and go back to the drawing board to design a more compelling home console consumers will clamor for because clearly, the demand isn't scarcely there. (Numbers don't lie.)
Pounce on mobile. To date, Nintendo has refused to develop software for iOS and Android devices, a real shame given the hundreds of millions of new users who would pony up dollars to play Super Smash Bros on the ride home. And while developing for mobile might sound like extra work, it doesn't have to be. Nintendo could partner with outside developers to quickly port over existing games, a strategy that studios like SquareEnix, maker of Tomb Raider and the Final Fantasy franchise, already do. Explains Pachter: "They could say, Let's take these 50 games and put them on iOS. They would make a profit, easy."