Mario Kart 8 for Nintendo Wii U

Japanese video game-maker Nintendo’s new chief, Tatsumi Kimishima, appears to be playing it safe lately, raising concerns the company may be losing its sense of inspiration and creativity according to a report at Nikkei Asian Review today.

Nintendo unveiled a new game for smartphones in March, and in May announced plans to move into movie production. Back in February, the company said it would open an attraction at the Universal Studios Japan theme park in Osaka. All these moves were unprecedented in the Kyoto-based company’s 125-year history. Then, in late April, it decided to sell part of its stake in the operator of the Seattle Mariners, the U.S. Major League Baseball team. These steps are aimed at improving the company’s profitability.

NintendoFor the year ending March 2017, Nintendo is forecasting a 37% jump in operating profit to 45 billion yen ($405 million). It expects net profit to more than double, though the figures are enhanced because of a foreign exchange loss of 18.3 billion yen in the previous fiscal year, due to the yen’s appreciation.

Kimishima has played a key part in the recent changes, having taken over as president in September 2015. Kimishima’s predecessor was the highly successful Satoru Iwata. Kimishima, whose background is in banking, is still putting together his production team. He has some big shoes to fill, given the company’s history of creating eye-opening games.

In the past, Nintendo mostly limited the use of its characters, such as Super Mario and Donkey Kong, to video games. Under Kimishima’s leadership, however, the company is trying to lift sales of its games by bringing its characters into different types of media.

No loss leaders

Nintendo announced in late April plans to roll out a new gaming platform, code named NX, in Japan and overseas in March 2017. That will surely dent year-end sales, as gamers put off purchases until the new system debuts. That is a departure from the strategy formulated by Hiroshi Yamauchi, the former Nintendo president who was succeeded by Iwata, who turned the company into a global leader in games. Kimishima, has his reasons: It will take that long for many of the titles to be available for the new gadget.

To gain new users, console makers typically take a loss on the machines themselves, counting on software to make money. Kimishima, however, will not sell Nintendo’s new machine at a loss.

Nintendo will phase out production of its Wii U console by March 2018. Since it hit the market in 2012, the device has had a tough time. In terms of unit sales, it lags far behind rival Sony’s PlayStation 4. This makes outside game developers reluctant to work with Nintendo and appeared to give Sony an insurmountable lead. Seen in this light, Kimishima’s decision seems reasonable.

In 1992, Yamauchi, then Nintendo’s president, purchased a personal stake in the Seattle Mariners. The company’s U.S. unit was based in the state of Washington, and he was asked to help keep the team from being sold off and moved to another city. Up to now, Nintendo has not made use of the high-profile baseball team to promote its products. Nintendo is expected to use some of the cash gained from the selloff of its interest in the Mariners to make films featuring its video game characters.

Confidence question

Nintendo shares have seesawed around 16,000 yen in Tokyo since the beginning of the year. The lack of direction can be explained largely by the news of the end of production for the Wii U, and the lack of details on the NX. Market players are concerned. What if Nintendo becomes just another company? What if its game developers lose their creative spark?

Mia Nagasaka, an analyst with Morgan Stanley MUFG Securities, has set a price target of 18,000 yen for Nintendo. In a report released in mid-May, Nagasaka said uncertainty over the company’s short-term earnings remains. But she added that Nintendo is in a phase where the share price can be supported by hopes for a new approach, such as its recent titles for smartphone apps.

To send its stock higher, Nintendo will need to demonstrate a combination of prudence and inspiration realized in concrete results.

First seen and Source: Nikkei Asian Review