Gamers Lose If Nintendo's Next Console Bombs

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Product Displays Inside The Nintendo Game Front Showroom
Akio Kon/Bloomberg via Getty ImagesNintendo's video-game character Mario stands at the Nintendo Game Front showroom in Tokyo.
Nintendo (NTDOY) isn't giving up in the realm of video game consoles, at least not yet. Earlier this month it announced that it's working on a new system -- code-named Nintendo NX -- that it promises will raise the bar.

There weren't a lot of details about the new dedicated console platform beyond Nintendo executives saying that it will surprise the market with its innovative ways. The buzz is starting to build. At least one retailer in Australia turned heads by starting to take preorders on the system months if not years before it hits the market.

There will be a lot riding on Nintendo's new system, and that also holds true for owners of rival consoles.

Three's a Crowd

The iconic gaming company is in a massive funk. It has posted five consecutive years of declining sales since peaking in fiscal 2009, and it's now generating less than a third of the revenue it did in its prime.

The once ridiculously profitable company has posted losses in two of the past three years, and it's easy to see how it got here. Nintendo's initial success with the Wii didn't carry over to the Wii U. It also remains dominant in the handheld category, but that market has shifted away from the Nintendo DS and 3DS in favor of mobile apps that folks can play on their smartphones.

There's little that Nintendo can do to combat the mobile revolution beyond its announcement earlier this month that it is teaming up with a developer to make its characters and games available for smartphones and tablets. It's a big fish in a shrinking pond when it comes to portable gaming devices. However, it's a different matter entirely when it comes to the Wii U in the realm of consoles.

Sony's (SNE) PlayStation 4 and Microsoft's (MSFT) Xbox One are thriving. Sony has sold more than 20 million PS4 systems since its launch just ahead of the 2013 holiday shopping season. Microsoft isn't faring as well, but at least it's holding up better than the Wii U, which seemingly had the advantage of hitting the market a year before pricier PS4 and Xbox One consoles hit the market.

That, in a nutshell, is Nintendo's problem: The market has historically only supported two major consoles. It was the PS3 on the outside looking in when the Xbox 360 and Wii were the hot systems, and for the past few years it's been Nintendo as the forgotten bronze medalist.

NX Marks the Spot

Consumers smitten by Sony and Microsoft boxes may not care about the fate of Nintendo at this point, but they will pay the price if Nintendo fails and ultimately follows Sega in bowing out of the hardware market.

Die-hard gamers will point to the superior specs of Sony and Microsoft systems, but they may not realize the important role that Nintendo has played in keeping prices honest. Sony's PS3 was initially a flop because it hit the market at $599, but that was largely because the head-turning Wii was available at $250 when it was introduced in 2006.

Microsoft and Sony initiated steep price cuts after a year on the market in response to Nintendo's hot-selling platform at a much lower price point. Wii's success kept pricing low, and it probably played a part in Sony's superior PS4 hitting the market two years ago at a price point that was $200 less than the original PS3. If the Nintendo NX flops, it will be just Sony and Microsoft duking it out for gamers, and that will make a price war less likely.

There doesn't seem to be an aggressive price cut for the PS4 on the horizon, and that's the case because the system is a hit and Nintendo's Wii U is on the brink of becoming obsolete. So, yes, even big PS4 and Xbox One fans had better cheer on a recovery for Nintendo when the next generation of gaming consoles rolls around. They can set aside bragging rights for the sake of cheaper systems, and at the end of the day that's how consumers win the game.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. Check out our free report on one great stock to buy for 2015 and beyond.
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