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Summary

Nintendo announced its newest console on October 20, 2016, with componentized hardware branded as the Nintendo Switch. The Switch is both a home console and a portable console with detachable controllers that can facilitate in-person multiplayer. The device is due to launch in March 2017. So far, Nintendo fans have responded positively to the Switch, but there are still two big unknowns: price (the device has multiple batteries and radios and a big high-res screen, so may be expensive) and whether Nintendo has learned from the lessons of the past.

Consumers need to know that the Switch will deliver great gaming experiences

The launch of the Wii U was a disaster for Nintendo. The company's poor communication led to customer confusion about what the tablet controller was supposed to do. Many consumers simply assumed that it was another controller for the Wii gathering dust at the back of the closet. Other consumers thought it was a type of tablet. As a result, the Wii U sold just over 13 million consoles compared to over 100 million Wii consoles.

Exclusive games should have helped, but Nintendo's inability to release a Zelda title for the Wii U, for instance, held loyal fans back from buying. Such a unique platform means it is tricky to port games from other platforms – a lack of third-party developer and publisher support was the final nail in the coffin. Without great games, the console failed to thrive.

It hasn't been all doom and gloom for Nintendo though. Its handheld business still performs well, bolstered by familiar franchises such as Pokémon, Mario, and Zelda, but is under growing pressure from smartphones and tablets, which are now sophisticated enough to offer complex gaming experiences. Nintendo has been slow to embrace smartphone gaming, but the deal with DeNA shows some flexibility, as does the new deal with Apple.

The Switch may well be Nintendo's final go at a home console before general hardware such as set-top boxes, and streamer and cloud services take over. It is unlikely that the Nintendo Switch will be able to compete with the PlayStation 4 and Xbox One in terms of power because it is a portable device, so Nintendo will have to compete on sheer gaming experience. Nintendo has historically done well with this but the lack of third-party games on the Wii U made for a lackluster game library and put consumers off buying the console.

Nintendo will need to work with third-party firms to ensure that the game lineup on the Switch is top-class out of the gate, and sustain that effort for the life of the console. And Nintendo needs to make sure consumers know that the Switch has great games and offers a fun way to play both by themselves and with friends – the way it has invested in Nintendo Direct shows that it can do this without being forced into the massive, costly marketing campaigns that Sony and Microsoft seem to specialize in.

If the Switch is not a success, Nintendo's future is uncertain. Even more uncertain is whether Nintendo can make a success of the Switch. If not, does the firm finally move to being a content firm for other platforms (i.e. "doing a Sega")? The gaming industry has changed a lot in a short time and Nintendo, a famously conservative gaming company, might not have changed enough to keep pace.

Appendix

Further reading

Videogame Revenue Forecast Report: 2015–20, ME0002-000588 (July 2015)

Videogame Revenue Forecasts to 2020, ME0002-000589 (July 2015)

"Pokémon Go is a reminder that online gaming infrastructure is hard to get right," ME0002-000683 (July 2016)

Author

Charlotte Palfrey, Senior Analyst, Digital Media

charlotte.palfrey@ovum.com

Paul Jackson, Principal Analyst, Digital Media

paul.jackson@ovum.com

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