Innovation

Nintendo's Game Designer Unfazed by Profit Drop


Nintendo's hot streak has cooled. Sales of its Wii video-game console dropped nearly 50% in the company's first half, which ended on Sept. 30. Fiscal second-quarter profits skidded 52%. And on Oct. 29 the Japanese company slashed its sales forecasts for the remainder of its fiscal year, saying it will sell 23% fewer consoles and 18% fewer units of game software than it had earlier predicted.

The stall puts Nintendo's chief innovator and legendary game designer, Shigeru Miyamoto, 56, in a tough spot. The Kyoto-based company hasn't released a must-have game since last year's Mario Kart Wii and Wii Fit, and a new machine to replace the Wii is at least a few years away. Miyamoto, though, is working at the same pace he always has: his.

Miyamoto is renowned in the gaming world—Mario Bros., Legend of Zelda, Donkey Kong, and Wii Fit, among others, all sprang from his imagination. Miyamoto rarely speaks to the public, which only bolsters his mystique among gamers. When he does open up, he's more likely to talk about how video games bring families and friends together than the company's game plan.

smart priority: consumers over investorsSo what is Miyamoto up to as investors push Nintendo stock toward 52-week lows? He's touring the U.S. to promote the brightest light on Nintendo's horizon: New Super Mario Bros. Wii, a ground-breaking addition to one of the company's most successful and long-running franchises, to be released on Nov. 15. He may seem unhurried, considering Nintendo's lackluster year. Then again, Miyamoto answers only to Nintendo President Satoru Iwata, 49, who shares his attitude. "Right now the mood is not one where people feel like they have to rush out to buy a Wii, so we need a little time for things to pick up," Iwata told analysts in a conference call on Oct. 30.

The company's slow-and-steady approach is no surprise to analysts. "Nintendo is generally insensitive to investors and sensitive to consumers," says Michael Pachter of Los Angeles-based Wedbush Morgan Securities. "You can't fault a company for that."

In a rare interview while in the U.S., before Nintendo reported its latest earnings, Miyamoto laughed when asked about the next big hit. "I don't think I can answer that question," he says. "I'm sure there are a number of people who are satisfied playing games on their Wii console, and I'm sure there are some people looking for a higher-end console experience beyond that at some point. But Nintendo—both as a hardware and software manufacturer—we're always in the process of research."

When it comes to game and equipment design, he says he always starts with the same question: "What can we do that really nobody else can?" It's the query that sparked the DSi's dual/touchscreen action, the Balance Board's super-accurate weight and mass measurements, and the Wii's revolutionary motion-sensing gameplay. The new Mario Bros. title returns the series to its 2D side-scrolling roots, adds a demo mode in which the computer shows struggling players how to beat troublesome levels, and for the first time in a Mario Bros. game lets up to four people play at once.

still the game leaderAlong with Wii Fit Plus, which is only an update to the original, and Wii Sports Resort, which has been out since July, New Super Mario Bros. Wii is the best shot the company has at beating the holiday competition—which it's doing handily. Even though the pace may be slowing now, Nintendo has sold 4.02 million Wiis this year, compared with Micosoft's (MSFT) 2.39 million Xbox 360s and 1.94 million Sony (SNE) PlayStation 3s, according to market trackers NPD Group. In fact, Nintendo's archrivals are set to copy the Wii's motion-control gameplay with Project Natal and the PS3 motion controller, respectively.

Miyamoto says their mimicry shows that Nintendo was right to gamble with the Wii. But he worries that a sameness will turn off gamers. "I don't necessarily think all the companies should move in the same direction," he says. "I would like to see each individual company take advantage of its own uniqueness and specialties."

For Miyamoto, that means coming up with a sequel to the Wii. Or does it? Updates such as the Wii MotionPlus accessory and Wii Fit Plus are proof that "there are still a lot of different opportunities and possibilities that haven't been exhausted yet on that console," he says. And it's clear he works by his own schedule. Miyamoto is notorious for scrapping or rebooting projects he thinks aren't up to snuff. Even the new Mario Bros. game ran late, nearly missing the upcoming holiday season because, as Miyamoto admits, "I got deeply involved rearranging elements and polishing it."

Although Nintendo investors may want a blockbuster, you can bet the company won't be introducing any new products until Miyamoto says so.
Joseph is an innovation and design writer for BusinessWeek.

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