Gaming consoles have seen declining sales thanks to smartphones and tablets. How consumers react to Ninentedo Wii U later this year may decide the future of consoles, writes Naoko Fujimura

Will Wii U lead Nintendo’s recovery?

Gaming consoles have seen declining sales thanks to smartphones and tablets. How consumers react to Ninentedo Wii U later this year may decide the future of consoles, writes Naoko Fujimura

Nintendo President Satoru Iwata is convinced the future of gaming still centers on handheld and TV-based machines. He’ll get his answer by Christmas, in the number of new Wii U consoles that get bought. Iwata can’t afford to be wrong. Nintendo, the world’s biggest maker of video-game machines, last year cut prices on its 3DS handheld device after shipments missed forecasts, handing the company its first annual loss. Like a character in one of Nintendo’s “Super Mario Bros.” games, Iwata is battling a storm of life-sapping obstacles: shrinking hardware sales, more people playing on smartphones and the Internet, and uncompetitive costs. “The Wii U’s performance will be a gauge of whether there’s still a need for consoles to exist,” said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan, a Tokyo-based hedge fund advisory firm. “If it doesn’t go well, Iwata may have to find a new business model.” That’s something Iwata, 52, has vowed he won’t do, making the entrance of the new Wii console a pivotal moment for the Kyoto-based company. As the first home-gaming machine introduced by any global player since 2006, the Wii U also provides a marker for the industry as a whole. The new machine will probably come with blockbuster game titles including one featuring “Super Mario,” said Hiroshi Yamashina, a Tokyo-based analyst at BNP Paribas. “Nintendo should be able to fare well against smartphones and tablets with its software lineup, which would differentiate its product from other devices,” Yamashina said. “Nintendo wants to avoid losing a lot of money this time, after the 3DS experience.” The machine is being released in the midst of an industry slump as consumers abandon consoles in favor of games played on smartphones and social-networking sites including Facebook. When Nintendo introduced its last home video-game console, the Wii, in 2006, Apple’s iPhone hadn’t yet gone to market, the game “Angry Birds” didn’t exist and social-gaming company Zynga hadn’t been founded. Winning customers with its motion-sensor controls, the original Wii sent Nintendo’s shares to a peak of 73,200 yen in November 2007. They are down 15% this year, compared with a 63% gain for Apple. Retail sales of video-game hardware, software and accessories in the U.S., the world’s biggest video-game market, fell 20% last month from a year earlier, led by a 39% plunge in hardware sales, NPD Group said Sept 6. That followed a 20% drop in July, according to the Port Washington, New York-based researcher. “The console market is shrinking, without a doubt, because of smartphones and tablet PCs,” Myojo’s Kikuchi said. Nintendo sold 9.84 million Wii machines in the year ended March 31, compared with 13.9 million PlayStation 3 consoles in the same period. Microsoft sold 14.9 million Xbox machines in 2011. The Wii U screen on the console’s controller will provide extra information to players as they manipulate games on their TVs, and can become the primary screen when they move around. The machine also includes new social-networking features, allowing players to interact with each other. Still, Iwata has ruled out the possibility of making Nintendo’s characters available for gaming devices other than its own. By contrast, Tokyo-based Sony will introduce the PlayStation Mobile service later this year, offering titles for HTC devices as well as its PlayStation Vita portable player and Sony Xperia smartphone, it said in June. At the E3 trade show in June, Microsoft unveiled an application called Xbox SmartGlass that will link the console to phones, tablets and personal computers from Microsoft and rivals. “We are doing everything that we can do and have prepared ourselves well,” Iwata told shareholders in June, discussing plans for the Wii U. “It is now a matter of showing the results.”