Wow, what a dramatic presentation. I guess with Microsoft and Sony having released their consoles and locked in for probably 7 or 8 years, Iwata thought it safe to spill the beans as there's no one to compete with what Nintendo are planning. If you have money, buy Nintendo shares, they'll absolutely skyrocket in the next 3-10 years.
Iwata knows Nintendo have limited resources, he's chosen to use those resources to just relentlessly trailblaze new ground for long term gain rather than consolidate what they already have. That has always been their strategy in a sense, they create a market with their first party games and hope third parties fill in the gaps and pay royalties in the process. Then they do the same with the next platform. Of course third parties are incompetent and failed to take advantage with the massive market Nintendo created with the Wii. But rather than fill the gaps themselves they continue to innovate.
They could have played it safe and released a profitable Wii 2 but they've taken the risk with the Wii U. It's not paid off yet, but it is a guinea pig really. They were likely hoping to leverage the success they had with the Wii and they got a bit complacent. It is overpriced for what it offers, but the reason is that Nintendo are all about dual screen and they were hoping to use the Wii as a trojan horse to get it into peoples homes.
But everything is starting to come together now and Nintendo have an ace that they've been waiting for years to be able to play and now they are going to be able to start using it. It is going to have costs, but they've decided they are prepared to pay those costs.
The biggest asset they have is that they make premium games and they have a premium library. Even today, the likes of Super Mario Bros 3 and Super Metroid are still good games. However the games have been tied to the console. They've started backwards compatibility with the Wii, but it's limited to only one generation back. It's costly to implement because of the pace of hardware and software development. It's also not convenient to have an ever expanding library of games taking up more space and suffering wear and tear. In that sense, backwards compatibility becomes a hindrance.
But games on a technical level are maturing and backwards compatibility will become easier to implement. And crucially network technology and speeds are maturing and becoming more ubiquitous. With Nintendo stepping out of the graphics race they are now in a position to aggressively start shifting towards digital. This means future platforms will be fully backwards compatible with all previous platforms and you will be able to take your library with you. Since Nintendo make so many premium games, the value of those games will hold up. You're not gonna want to lose them. Nintendo are great at getting new customers, but they've had a hard time keeping them. With each generation of hardware it's going to become easier for them now. Even if a person skips a generation, nostalgia can act as an incentive to bring them back since the library is still there.
Of course moving towards digital will also mean retailers are going to be taken out of the equation more and more. Nintendo will become the retailer and this will pretty much be a 20% software price cut. Nintendo are also taking advantage of this and will have a more dynamic pricing structure. The current business model is a legacy of the cartridges from the 80s. But now they can move to digital pricing which is better for smaller games and thus make it easier for Nintendo to offer a wide range of games rather than the game droughts they suffer.
This is all going to apply to the DS as well which will help their profitability there too. But the maturing technology is also going to allow convergence. The original DS was totally different to console hardware. But now the development environments and game engines are going to be more similar to those on the home console which will reduce costs.
The DS is also untouchable, particularly in Japan. Sony have failed in the handheld market. Microsoft won't bother since they have no chance in Japan(and the west is still relatively weak for handheld development) and it's too difficult to compete with Pokemon/2D Mario/Animal Crossing etc. Any company releasing a dual screen handheld will also just be laughed at for being a blatant rip-off. And again, getting a competitive software library is almost impossible since any successful third party games would just be ported to the DS.
Nintendo can now finally start using this as leverage since both have two screens(or you can at least split the gamepad screen). The latest portable games playable on the home console expanding its library. Playing 2 player competitive, one on the DS, one on the gamepad gives added value to the console. They can do this with one copy of the game and game sharing if they want. Any big hits can be more easily made into a big brother or little brother version to suit the platform but retain key elements(they can already do this with the Wii U but they haven't taken advantage yet, particularly 3rd parties). Full games that play directly on both won't be done probably(unless maybe there's microtransactions or something) but you could get DS games having console exclusive features and vice versa to give incentive to those with one platform to get the other.
There are sacrifices. Customers buying a new console and being forced to buy new games because their old library being obsolete is no longer possible. But the lower risk of losing customers is what they've decided to prioritise. Cash cows like old games being ported(such as SNES games that were ported to the GBA) are no longer possible. But that concept has been made redundant in a sense with the concept of remakes that really came to prominence with Dragon Quest remakes on the Playstation and more recently with the likes of Final Fantasy on the DS and now Windwaker HD. Forward compatible peripeherals might reduce spending there(but a greater diversity of peripherals could make up for that and peripherals having more lasting value might increase the take up of gimmick controllers in future)
The closed policies were from the old days where games were sold for the same high uniform price. But Nintendo have decided that Blue Ocean and digital is where it's at and have decided to go for maximum sales to maximise profit rather than trying to squeeze out every penny they can. In essence, they are shifting to more open policies.
They are looking at maximising exposure to do this. They want as many people as possible to play as many of their games as possible. So yeah, they let you keep your old library. They offer cheaper games to allow you build a bigger library. They give discounts for buying more games. They give discounts for recommending a game to your friend and him buying it. These things directly cost them money, but overall if they lead to higher sales they lead to more revenue overall.
This open approach also goes into how they are looking to put things on smartphones and how they are going to license their characters. I'd guess TV shows are likely. Maybe they could team up with Disney or something, a Pixar made Zelda would be the obvious kind of thing for them to aim for. They could get a lot of mainstream exposure if they take this seriously.
Then there's the third pillar. Global Weight loss market is expected to reach £220billion by 2017. Then there's all the other health related markets. A QOL platform could become one of the biggest products in the world.
People talk about Silicon Valley, but Silicon Valley can't compete with Nintendo. Yeah there's startups and bright ideas. But what does it lead to? A nice app? A nifty piece of hardware? Nintendo aren't releasing a gimmick. They're releasing a platform. Crucially, they will be innovating with both software and hardware. It's easy to copy Apple since they just use a standard touchscreen. But competing with Nintendo's QOL will be like competing with the Wii. And if Nintendo release highly polished software that takes them a year or two to develop it's unlikely that startups will match them in six months. And if there's multiple good pieces of software even harder. And even if you succeed, marketing a knock off usually leads to failure. That's if you can even get past the hardware barrier.
I also saw Stumpokapows massive paragraph about all the health options and it made my head hurt to read it. Yeah you could do that and search for all the options that you don't even know are there. Or you got Donkey Kong Weightlifting, Princess Peach Jogging, Walking Your Nintendog, QOL Fit and whatever else they have all on one platform. Which one would your average consumer go for? And that's the thing, many existing products are all kind of niche in a sense. Nintendo are going for the mass market. They don't need the hardcore product. It doesn't have to be best of breed. But if it does the job and it's more fun then it can succeed. Remember, this will all be backed up by hundreds of millions in marketing. Nintendo are going big time. No one can compete with this. It just depends on if it's good. It just depends on whether they can find the killer app. Wii Fit had a $40M marketing for its US launch. This will be much bigger.
Then you get this third pillar also being digital and benefiting the two gaming platforms. All with the same account. Going into the health niche means they can then look to licensing and marketing partnerships with sports teams and the likes of Nike.
Another point, with the Wii they went wireless so all of the peripherals benefit from backwards and forwards compatibility. Further adding value to their new hardware. In fact if Nintendo have their way Silicon Valley startups and Nike will be the ones developing their products for the QOL. The possibilities in all of this are just massive.
People have criticised Nintendo for not integrating with the world of the internet. But in a sense, there was no point. This past decade has been a time of massive innovation and whatever they did would have become obsolete and their efforts mostly gone to waste. However now everything is maturing and everything is converging so now is the time to invest in their network. And now is the time to try and get a touchscreen into the home and hope it becomes the hub of home entertainment. Internet browsing or watching films using a PS4 or Xbone controller isn't that great. But a gamepad touchscreen is perfect for it. And when it integrates with your console, handheld and your QOL device no tablet can compete. And no console without a touchscreen can compete.
Nintendo have done the hard work of trailblazing once with the Wii and again with the Wii U. There's so much differentiation it's ridiculous. And the fact that third parties failed to take advantage means the potential was untapped and remains untapped. If Nintendo think that new innovative hardware doesn't offer enough they can look at tapping the existing hardware for new ideas and consolidating what they already have. And with controllers being forwards compatible they could release the Wii Next at sub $200 without a gamepad(maybe just a Wiimote) for existing owners making it affordable for the casuals and younger gamers.
They messed up by launching their most expensive ever system with a relatively unspectacular 2D Mario game, and a year later their biggest game was another Mario game supported by a bunch of B grade releases like Luigi, Pikmin and a Wind Waker remake. But now that big games are going to start coming out and likely better marketing we should see where the Wii U really stands and how easy or difficult things will be for Nintendo going forward.