Nintendo Switch 2: Avoiding the Fate of Wii U

The gaming industry is abuzz with concerns about Switch 2, fueled by the notion that Nintendo often follows a hit with a miss. However, this analysis oversimplifies the company's history. Nintendo's handheld business has consistently been robust, with fluctuating numbers that don't necessarily indicate failure. In contrast, its home console sales have been in decline for decades, with the Wii being an anomaly. The Switch, as a hybrid console, defies traditional categorization. Its portability is a key selling point, making the sales of Nintendo's handhelds a more relevant indicator of its potential. The industry and gamer behavior have undergone significant changes since the Wii U era, making Nintendo's confirmation of backwards compatibility for Switch 2 crucial. Backwards compatibility has become essential in the modern gaming landscape, where gamers are happy to play titles that are ten years old or more. The digital and live service aspects of modern games also play a significant role, with audiences wanting to carry over their game libraries, DLC, and in-game progress to the next generation. This shift in behavior poses a challenge, as seen with the PlayStation 5, where convincing players to upgrade is becoming increasingly difficult. Nintendo has an engaged and active audience, with 127 million annual playing users, a number that has consistently risen. However, backwards compatibility also has its downsides, particularly in terms of new game sales. Many third-party developers who supported the Switch from the beginning benefited from the lack of backwards compatibility, which had a positive impact on new game sales. With Switch 2, the competition for attention will be fiercer, and Nintendo faces challenges, including lengthening development schedules and a lack of Wii U games to port over. The company is expanding its internal development resources and partnering with third-party teams to create games based on their IP. Nintendo doesn't need to sell 150 million units of Switch 2 to succeed, and its digital business, although still relatively fledgling, is growing. The company is experimenting with online offerings, which could increase recurrent consumer spending. While it's too early to make a judgment call on Switch 2, backwards compatibility and a commitment to digital developments are reasons to be optimistic about Nintendo's financial future.