Wouldn't a third party Nintendo be a shell of its former self?
I would think they would take in less revenue because you're eliminating their digital platform, any money they make from console sales and a cut of third party games that are on their platform (lol I know) and adding a % of profits they'd have to fork over to Microsoft and Sony.
Would their profits increase without a significant downsizing?
Pretty much.
For 3DS and Wii U, on average they've published just under 1 title a month on each device. If they were to go third party, there's no way in hell they'd be putting out ~24 games a year.