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Originally published Sunday, June 30, 2013 at 8:02 PM

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Amid challenge from Sony, Microsoft, Nintendo opens to outsiders

Without a recent blockbuster and with slower sales of its latest Wii U, Nintendo looks to add to profit-generating game availability from outside developers and with casual games adapted from smartphones.

Bloomberg News

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TOKYO — At last month’s E3 show in Los Angeles, Sony and Microsoft made headlines by unveiling new-generation consoles, in stores by Christmas.

Nintendo’s news at the world’s biggest gaming show: its fifth software delay since October.

That’s a problem because games sell consoles, and Nintendo’s new $300 to $350 Wii U hasn’t exactly been flying off shelves. Between its November introduction and the end of March, Nintendo sold 3.45 million Wii U’s. That’s far below the company’s initial estimate of 5.5 million and about 40 percent behind the original Wii in the same time after its 2006 release, according to Citigroup.

The slow sales can be blamed in part on smartphones and tablet computers, which many casual players now use instead of consoles. But it also results from a lack of must-play titles from the company that created blockbusters like “Super Mario,” “Zelda” and “Donkey Kong.”

While Nintendo’s website lists 108 games as available for the Wii U in the U.S., there are 1,023 for the Wii. Through March, Nintendo had sold 13.4 million Wii U games, less than half the number for the Wii at the same point after its release, Citigroup says.

With just a few months until it’s no longer the newest console on the market, Nintendo is turning to a network of 1.8 million programmers, including part-time hobbyists, to try and revive its game pipeline. The company has formed an alliance with Unity Technologies, a San Francisco-based maker of software that lets game creators adapt titles to different machines.

“As digital business expands, there will be even more opportunities to do business with small, independent software developers,” Nintendo President Satoru Iwata said at the E3 show.

While Nintendo has more than tripled research and development spending over the past decade, that hasn’t spawned a new powerhouse title. Iwata has long pledged to maintain exclusivity for Nintendo consoles by never licensing flagship games to smartphones, but the Unity deal will likely make many phone-based games available for the Wii U.

“The change in stance creates the possibility of a blockbuster title,” said Tomoaki Kawasaki, an analyst at Iwai Cosmo Holdings in Tokyo. “Casual games played on mobile devices are gaining in importance, and game makers like Nintendo haven’t been able to offer something that can compete.”

Nintendo and its software makers haven’t had any titles that sold more than 10 million units annually since the year ended March 2011, according to Tokai Tokyo Financial Holdings.

Software is key

When Iwata announced the Wii U last year, he said strong software development would be critical to making the console a success and avoid the mistake it made with the 3DS handheld player in 2011. Within six months of that device’s release, Nintendo cut its price after lackluster sales resulting from a lack of titles.

In the first full financial year after the Wii U introduction, Citigroup expects Nintendo to sell 6 million of the consoles and 31.3 million games for it. That compares with 18.6 million Wii consoles and 120 million games for it in its first year, the investment bank said.

Though almost all Wii titles run on the Wii U, few customers will buy the new console just to play games that work just fine on its predecessor.

“We think Nintendo will find it hard to truly escape from weak demand without a big price cut,” Citigroup analyst Soichiro Fukuda said in a report this month.

More options

Working with Unity will help widen options for customers of the Wii U, and the company has no plans to cut prices, said Yasuhiro Minagawa, a spokesman for Nintendo in Kyoto.

A predicted surge in titles for the Wii U and 3DS handheld player underpinned the company’s bullish profit forecast for this year. Net income will rise to $550 million in the 12 months ending March from $710 million last financial year and a loss of $430 million a year earlier, it said in April.

Nintendo, with its U.S. headquarters in Redmond, said “Donkey Kong Country Returns 3D” and “Luigi’s Mansion: Dark Moon” helped increase software sales for the 3D. “Wii Fit U” and “Wii Party U” will both be released by the end of the year instead of the summer, the company said last month, the fifth U.S. software delay since October.

In addition to its own delays, Nintendo has struggled to get major studios to develop games for the Wii U amid lackluster sales. Electronic Arts, which produces “Madden NFL,” shows just four games available for the Wii U on its website, compared with 78 for the Wii.

Some doubts

Michael Pachter, an analyst at Wedbush Securities in Los Angeles, doubts whether the Unity partnership will be enough to reinvigorate the Wii U.

Pachter says people who aren’t passionate about gaming won’t rush out to buy a console simply to play “Angry Birds” and other diversions available on their smartphones.

“I’m not sure it will make a ton of difference,” he said. “If these moves merely increase the number of casual titles, I don’t see them driving console sales.”

Nintendo says it has been contacted by more than 1,000 developers since it unveiled plans to distribute Unity’s development kit and its own software to convert Web-based games to the Wii U. The company says it’s also considering free-to-play games like those available with smartphones and tablet computers.

The shift to mobile devices “is very tough on Nintendo,” which gets almost all its revenue from games, compared with less than 20 percent for Sony and Microsoft, said Masamitsu Ohki, a fund manager at Stats Investment Management, a hedge fund in Tokyo. “Nintendo can’t fail, because it has nothing else to earn profits.”

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