What to Expect from Nintendo's NX

A new report in the Wall Street Journal  provides some information about Nintendo's upcoming NX console, citing "people familiar with the development plans." Nintedo is apparently starting to distribute developer kits, a sure sign that the actual release of a console is not all that far away -- possibly as early as summer 2016. In a perhaps not-coincidental move, Nintendo has opened up applications for a new Nintendo Developer program, which is aiming to streamline the process of making games for Nintendo platforms.

According to the WSJ report, the NX will combine both a mobile platform and a home console -- you'll be able to detach a portable unit and play away from home. Supposedly, according to those unnamed people, Nintendo will be putting "industry-leading" chips in the NX console, a distinct change from the power of the Wii U and the 3DS, both far behind the latest generation of consoles and (for that matter) mobile devices.

This news has, as you might expect, caused excitement among Nintendo fans. It certainly makes sense for Nintendo to aim for a new console in 2016, as there's really no hope for the Wii U at this point to start selling in large numbers. The only thing that might even cause that would be a major price drop, at which point Nintendo would be selling it at a loss. And without a large library of software to sell for it, and minimal third-party support, it doesn't seem likely that Nintendo would make enough from software sales to cover the losses on a reduced-price Wii U.

The NX may also replace the 3DS line, which is also underperforming -- again, with no real prospect of a significant boost in sales, as mobile phones become better game-playing devices every day. All that's missing on mobile phones is Nintendo IP -- which we'll be getting later this year, courtesy of Nintendo's partnership with DeNA. In the face of that, expecting people to buy 3DS units would not be wise.

But is the NX, as a dual home/portable console with "industry-leading" chips really a good prospect for Nintendo? I think there are some major hurdles for Nintendo to overcome here, as their strategic maneuvering room is getting smaller on all sides.

Look back in the early days of consoles, and you'll see relatively low-cost devices that were optimized for graphics and sound, producing much better quality graphics, animation and sound than most personal computers could. These consoles were also very easy to operate -- you just plugged in a cartridge and turned on the power, and in moments you could start playing. This was the era that saw Nintendo dominate the game industry, with the lion's share of the game revenues in 1990 going to Nintendo, or to publishers making Nintendo games.

Zooming ahead to today, the picture is very different. The two leading consoles (the PS4 and Xbox One) are essentially PCs with about mid-range graphics these days. Playing a new game is no longer "easy"; you have to install it, and probably some patches, a process that can take hours in some cases. Also, now being online is crucial to successful games, both because of multiplayer modes and because it means you can share your playing with an ever-growing audience of people who enjoy watching games being played. PC games are generating amazing amounts of revenue, particularly free-to-play games like League of Legends. And mobile games are now raking in more revenue than console games, reaching an enormous and diverse audience that spans the globe.

Where does Nintendo fit into this? There are a few major problems for Nintendo in this world. First, Nintendo has traditionally been very poor at anything having to do with online connectivity or social media. Perhaps the partnership with DeNA will help, but the company is more than a decade behind Sony and Microsoft when it comes to offering online services. Can they catch up with the NX? Somewhat, perhaps, but getting to parity with the competition would be a miracle.

Second is third-party support. At this point, Nintendo has lost all of the major third-party publishers (EA, Activision, Ubisoft, TakeTwo) -- and even their mainstay Japanese publishers like Sega and Konami and Capcom are dialing way back on any kind of console development. Will a new Nintendo console get back some of these lost publishers? It's going to be very difficult. They all have great places to investment development resources, and working with a new platform (with perhaps a major learning curve) is expensive in resource that can be profitably applied elsewhere. Nintendo will have to be incredibly persuasive, or spend heavily from its cash supply, to convince them otherwise. It will be hard to convince third parties that a new Nintendo console will be a huge success, after the debacle of the Wii U (the worst-selling console in Nintendo's history by far).

Finally, there's the issue of power. Nintendo has kept away from trying to match the power levels of recent Sony and Microsoft consoles, preferring to focus on gameplay and interesting (and inexpensive) hardware features that offer the possibility of different gameplay. This succeeded brilliantly with the Wii; its lack of power allowed it to be much less expensive than its rivals, and the motion control wand was easy to understand and use, leading to a much broader audience. The Wii U added a lot of cost with the gamepad, but without adding much horsepower -- enough to generate HD graphics, but it was basically equivalent to an Xbox 360 or a PS3 in graphics punch. Yet it wasn't much cheaper than a PS4 or an Xbox One, which both have far superior graphics.

These days good quality graphics chips, powerful CPUs and high-quality screens are all around us. But you can't create your own chips and expect to be price-performance competitive with mobile chips that are being produced in the hundreds of millions. Or PC chips that are produced in the tens of millions to hundreds of millions. Nintendo can certainly have industry-leading graphics if it wants to -- but then the hardware is going to be expensive, at least as costly as the PS4/Xbox One or more so, if Nintendo wants to at least break even on the hardware (and they like to make at least a small profit on the hardware). Or, Nintendo can choose to be less expensive than the console competition -- but then the hardware will once again be less powerful. Add in to this the rumored fact that the NX will have a portable component, which means (at a minimum) a device with a screen that will add substantially to the cost -- or it will be a noticeably poorer screen than what you already have on your mobile phone.

Nintendo will have to choose whether to be a console industry leader in graphics, which means it will be the highest-price console, or to come in equal to or less than other consoles, which means it won't have the room to be much better than them in the graphics department. This also comes at a time when more and more people are playing games on phones and tablets and PCs, with a vast array of very compelling free-to-play titles to choose from. And don't forget the Apple TV, which at $149 offers a very powerful, easy-to-use gaming device that will have all the marketing muscle of iOS and Apple behind it.

What will Nintendo do with the NX? It will be very interesting to see what choices the company makes, but it's not easy to see a winning strategy in the current marketplace.