The true crisis for Nintendo lies in how Apple has successfully disrupted their business model with iOS downloads. Nintendo true business isn't really video games, but manufacturing cartridges. That's where the real money comes in. Apple has now completely demolished that model with 99c downloads. And how can you compete against that? How low can you drive the price on a cartridge game and still turn a profit?
I've long felt that Nintendo's greatest strength is its legacy, and the Virtual Console should be the heart of their strategy. But that would require them to sell VC games for 99cents or less, on all formats. This is a bit of a problem, as we have seen how everyone within six degrees of Kevin Bacon wants their cut. The original developers, the original publishers, the original console owners – everyone wants a cut. And Nintendo wants the biggest cut of all. The end result are VC titles that sell for outrageous amounts, leaving the door wide open for iOS and Android to drive a truck through.
I honestly don't know how Nintendo gets out of this fix. The 3DS is a disaster of a handheld; it's not even a noble failure like the Sega Saturn (an immensely better console now that we have all those amazing Japanese games). If I were in charge, I would get rid of the 3D display entirely, get rid of the analog thumb-thing, fix the two screens, get the price under $90, and open up the complete Virtual Console and Ware libraries immediately. Oh, and all downloads are 99c or less. Fat chance on that.
But I don't think even that could help at this point. You still have the problem of selling expensive cartridges, and the rising development costs ensure that prices cannot come down anytime soon. If you could bring carts down to, say, $15, maybe you would have a fighting chance. Maybe. You would still have to deliver the kind of games that would justify that high price in the face of the iPod.
And while I'm at it (before security has me thrown out), I would immediately kill that stupid Wii U tablet and recommit to the Wii Remote, and fulfill all those promises that NIntendo made back in 2005. Unfortunately, they've neglected the Wii's expanded audience for so long, they may be lost for good. Ah, but what do I know? I'm the one guy who thought Wii Music was genius.
Anyway, there's no question at this point that Nintendo is the victim of the very thing - Disruptive Innovation - that they championed in 2006. It's a nasty situation and things are only going to get worse.