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Problems mounting for troubled Wii U

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(Credit: Kevork Djansezian/Getty Images)

Nintendo has seen its share of rough patches over the years, but the past 12 months have been a doozy.

After revolutionizing the video game industry with the Wii, the company's follow-up console has consistently failed to connect with core gamers, casual gamers and, perhaps most worrying of all, game creators themselves.

The bad news reached a crescendo Thursday afternoon, when word came out that leading game publisher Electronic Arts had exactly zero games in development for the new system. That’s a nightmare scenario for Nintendo; the last time EA pulled its support of a console in this fashion, it was for Sega’s doomed Dreamcast back in 1999.

Even worse, sales of the system in April were a dismal 37,000 units -- the lowest level since its launch.

Is the Wii U a disaster? It might still be too early to write it off, but there's certainly plenty of cause for concern. And pulling out of the nosedive is going to take a magical touch as the company contends with trouble on nearly every front.

Low Sales

Boosted by the loosening of purse strings that accompanies the holiday shopping season, the Wii U did just fine its first month on store shelves. But when January rolled around, things went south -- fast.

In the first month of 2013, Nintendo sold just 57,000 hardware units. In February, it sold 66,000. March sold just 68,000. Cut that in half for April’s figures and the Wii U decline goes from worrying to disastrous, especially when compared to the Wii.

In its first five months, the Wii U has sold over 1.1 million units in North America, compared to 2.5 million Wiis. The tie ratio of the system (the number of games sold per hardware unit) was 2.2 versus the 3.0 the Wii boasted, according to Edward Williams of BMO Capital Markets.

To put those numbers in perspective, in the first three months of 2013 -- without holiday sales to boost it -- the eight-year-old Xbox 360 sold 844,000 hardware units, 75 percent of the Wii U's life to date numbers.

Diminishing Support

While exclusive games tend to drive hardware sales (you want to play New Super Mario Bros. U, you buy a Wii U), game systems need games from third-party publishers to truly thrive. And those publishing partners are making no bones about backing away from Nintendo these days.

EA is clearly leading the exodus. Earlier this month, EA announced that they would not be making a version of this year's Madden for the Wii U -- the first time the game hasn't appeared on Nintendo's current home platform since 1991. The company's Frostbite 3 graphics engine, which powers high-profile games like Battlefield 4, doesn’t run on the Wii U.

Other companies are following suit. After seeing the state of Wii U sales, Ubisoft made a last minute decision to make the gorgeous Rayman Legends a multiplatform game, rather than a Wii U-exclusive, delaying the title for almost seven months. And Activision has remained quiet about whether or not Call of Duty: Ghosts, the next game in their massive shooter franchise, would appear on the console.

At least Sega is still on board, however. The company announced on Friday plans to bring Sonic the Hedgehog exclusively to the 3DS and Wii U in a three-game deal.

Lack of Software

If third-party support is crucial, a healthy lineup of first party games is critical. Post-launch, though, Nintendo hasn't done a good job offering much to Wii U owners.

Few first-party titles -- the company’s real bread and butter -- followed in the wake of the Wii U’s holiday launch. LEGO City Undercover hit shelves in March, but fans have mostly been starved of hot new titles. For many, that means the system is sitting gathering dust only months after launch.

"The Wii U faces many significant hurdles to its long term success," says Wedbush analyst Michael Pachter. "Although Nintendo has mentioned many high-profile Wii U software releases [for this fiscal year], those games are unlikely to generate significant sales if the Wii U installed base does not increase significantly. In addition, with Nintendo’s history of delaying games in the interest of quality, many of these titles may be released well after interest has subsided in the console. ... We would not be shocked to learn a year from now that the [2014 fiscal year] decline exceeded [this year's] 60 percent."

User Confusion

People scoffed when they heard the name Wii, but quickly accepted it as part of their vocabulary. Wii U, though, is still somewhat baffling. Is it an upgrade? Is it an add-on? Is it a standalone new system? (It is, by the way.)

Even Nintendo president Satoru Iwata agrees that the company screwed up the messaging of the system right off the bat.

“Some have the misunderstanding that Wii U is just Wii with a pad for games, and others even consider Wii U GamePad as a peripheral device connectable to Wii. We feel deeply responsible for not having tried hard enough to have consumers understand the product,” he told investors in April.

The name is an obvious disaster, but it's too late to change it. So Nintendo is taking somewhat desperate steps to clear up the confusion in an attempt to boost sales.

A recent Wii system update included a message for the 100 million owners of that system, which read (in part): "Wii U is the all-new home console from Nintendo. It's not just an upgrade -- it's an entirely new system that will change the way you and your family experience games and entertainment."

Solutions?

So how can Nintendo turn things around? The first step is already being worked on: Bring out the power franchises.

Over the remainder of 2013, Wii U owners will have a wide selection of big games to choose from. Among the expected titles are a new Pikmin game, a Super Mario game, the latest installment in the Mario Kart franchise and a high-definition version of The Legend of Zelda: The Wind Waker.

A price cut would be nice as well -- especially with new consoles from Microsoft and Sony hitting streets later this year. Nintendo, however, has been quick to say this isn't coming.

Still, price cut denials don't always mean much in the gaming world. Nintendo recently updated its sales estimates for its next fiscal year, saying it expects to sell 9 million Wii Us. While the company indicated the big jump would come with the release of big games, such a leap has renewed speculation about an upcoming price reduction. At this point, anything the company can do to get more consoles off shelves and into homes, the better.

No one's ready to give up on the Wii U yet, and the entire industry (other than Microsoft and Sony) hopes the company can pull a miracle out of its pocket and right the ship. But it's not going to be smooth sailing for some time.

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