Life After Iwata: Will Nintendo Stay The Course Or Chart A Bold New Path?

Earlier this month, the gaming industry lost a bright, creative mind in Nintendo president Satoru Iwata. The longtime Nintendo leader's untimely and tragic death was felt throughout the community, and his absence leaves us poorer.

But while the company grieves its beloved leader, business must go on. From this perspective, Iwata leaves behind the first steps toward correcting some of Nintendo’s recent financial troubles. The mobile partnership with DeNA will bring new, unique titles to smartphones and tablets. DeNA is also working on a successor to Club Nintendo, which will hopefully transition licensing from hardware-based to account-based.

Nintendo has a difficult road ahead finding a new CEO, and speculation has emerged that famed designer Shigeru Miyamoto or senior managing director Genyo Takeda might be Nintendo's best options. The company must decide if it wants to stay the course with incremental changes to its philosophy or bring someone in to overhaul operations and enter into more direct competition with Sony and Microsoft. 

The financial situation was put into stark relief today as Nintendo released its annual report for the fiscal year ended March 31, 2015. While the company is beginning to slowly recover from the poor performance of the Wii U, the document paints a clear picture of how things have changed since the console’s launch.

In the fiscal year ending March 31, 2011, Nintendo reported net sales of ¥1.01 trillion ($8.2 billion) and operating income of ¥171.1 billion ($1.4 billion). The Wii went on to sell more than 101 million units, cementing Nintendo’s financial position.

Later that year, the Wii U was unveiled at E3 with a flashy trailer showing a number of third-party titles and featuring developers and publishers from across the industry. While many of the games revealed during that sizzle reel (Darksiders II, Tekken, Batman: Arkham City, Assassin’s Creed III, and EA Sports titles) did arrive, the faucet was turned off quickly as third-party publishers fled amidst extremely weak sales.

Since then, Nintendo has been in a steep financial slide. As of March 31, 2015, the company has experienced a sales drop of 46 percent to ¥549.8 billion ($4.6 billion) and a decrease in operating income of 86 percent to ¥24.8 billion ($206 million). The good news is that operating income was positive in 2015 for the first time since 2011.

While Nintendo has the wherewithal to weather this financial storm, even the deepest pockets have a bottom. In choosing Iwata’s successor, Nintendo’s board and top leadership must ask themselves where they want the company to go under a new CEO.

The publisher has long shrugged off the idea that it is in direct competition with Sony and Microsoft. It went its own way with the Wii and struck gold with a new, untapped audience. Nintendo hoped it could make lightning strike twice with the Wii U, but confusion over whether it was a standalone device or an add-on created havoc at the cash register.

The results have been profound, with the Wii U’s November 2012 release failing to live up to expectations. As of March 31, 2015, the Wii U has failed to reach the 10 million units shipped mark. The 3DS, while performing well, isn't reaching the heights of the DS, Game Boy Advance, or original Game Boy. Nintendo has already announced it is working on a new dedicated gaming system, the NX, though what form that will take is still unknown. It could be a home console, a handheld, or some kind of hybrid device.

Nintendo has also delayed its most anticipated Wii U title, a new entry in The Legend of Zelda franchise. Link’s next outing was the keystone of Nintendo’s holiday 2015 lineup, and its absence leaves niche titles like Xenoblade Chronicles X and iffy sequels like Star Fox Zero to hold things aloft.

This leaves The Legend of Zelda likely to be the Wii U’s swan song instead of the title that pulls the console out of its sales mire. But its position as one of the last worthy Wii U experiences could be leveraged by the right marketing and promotion plan.

The right executive leadership could use The Legend of Zelda as a promise of things to come, and he or she could do it in Iwata’s name as a rallying cry. Even if the new vision for the company isn’t exactly what the departed leader would have wanted, the recent hints at change are enough to claim further adjustments are in line with his approach.

Nintendo needs a savvy CEO that respects and honors the company’s tradition of creativity and innovation, but isn’t restricted by its past direction. The new leader must recognize that while Nintendo stands apart, it isn’t exempt from the truths of the market: competition, scarcity of resources, and a fickle audience.

Most importantly, whomever replaces Iwata must rebuild bridges to third-party publishers. While Nintendo’s first-party offerings will always be the highlights, giving people the ability to purchase the NX as their primary gaming platform is crucial.

Whomever is selected to lead Nintendo following Iwata’s untimely passing has a challenge ahead. He or she will need to balance the demands of the company’s faithful fanbase, a broader community that feels burned by the Wii U, and the outliers that made the Wii an enormous success. It’s no small task, but the potential rewards of rebuilding the company’s reputation with the broader gaming community are worth the effort.

Nintendo has a rare opportunity. The sudden and tragic passing of a beloved leader means that change at the top, while difficult, is not burdened by the turmoil of a CEO resigning in failure. Whomever follows him will be able to shape Nintendo's direction. Whether that new version of the company is made in Iwata's image or is sculpted into something new depends entirely on who the board names as CEO.