Wii U won't make it to Christmas, so what's next?

The Wii U is on the way out, according to Japan's leading business newspaper (and recently proud owners of Britain's venerable Financial Times), the Nihon Keizai Shimbun. It's a story about the details, of course; the dogs on the street know that the Wii U, still drastically underperforming even the GameCube, is on the way out. What's interesting about the Nikkei's story is that it claims that Nintendo is tapering off production of the console already, with production of some components of the console by third-party manufacturers already suspended, and remaining inventory likely to run dry some time this year. The Nikkei report highlights how unusual it is for a console manufacturer to start the process of shutting down production in this way before even announcing its next-generation system, and it's not wrong; even the GameCube, Nintendo's previous worst performer, didn't suffer this particular indignity.

Nintendo responded to the Nikkei's story with a statement which has been widely reported as a denial, but isn't; it was a "we didn't say that", which isn't the same thing at all. That their response is so careful about not outright denying anything is interesting in itself; Nintendo has a sulky, deeply adversarial relationship with the Nikkei, and has rarely let the truth get in the way of a good denial of a Nikkei story in the past. The newspaper for its part seems to have pretty good sources within Nintendo and regularly gets wind of major developments ahead of time, which might explain why Nintendo hates it so much; it had early details of the 3D screen of the company's Nintendo DS successor, and of the firm's partnership to make smartphone games. On both occasions Nintendo vehemently denied the stories, only to announce the same details within a matter of weeks. The lack of the same vehemence in this instance suggests that the Nikkei is on to something, and perhaps that Nintendo thinks this week, with Miitomo floating high in the download charts, is a good one to bury a little bad news.

"In the console's most successful market, though, it's disappeared from the shelves despite outstanding consumer demand - an extremely unusual and irregular situation for a console at this late stage in its lifespan"

Here's a little extra context for you, which makes the Nikkei's story both even more plausible, and more unusual. In Japan, the only market where the Wii U has been performing reasonably strongly, the console's sales nose-dived early this year and have hit rock bottom in recent weeks - trailing along at a few thousand units a week, an absolutely miserable rate. The problem isn't demand, though - the console has been supply-constrained for six weeks. It hasn't been in stock consistently at major electronics retailers or at online stores like Amazon for weeks, although there are plenty of third-party sellers on Amazon happy to take advantage of the shortage by gouging you for as much as $200 over the console's normal retail price.

It's a different story overseas, of course - the Wii U is genuinely flatlining in other territories, and I've heard of no supply constraints anywhere outside Japan. In the console's most successful market, though, it's disappeared from the shelves despite outstanding consumer demand - an extremely unusual and irregular situation for a console at this late stage in its lifespan.

What does it mean? To me, it suggests that Nintendo is being hyper-cautious about inventory of the console. Taking a "better safe than sorry" approach, it is severely limiting the number of Wii U consoles it puts into the channel in order to avoid leaving retailers and distributors with large amounts of unwanted stock on their hands should demand for the Wii U plummet abruptly. The Nikkei article, although it didn't mention the current shortages, did suggest that part of the company's reason for tapering off manufacturing is an attempt to avoid such inventory problems.

Why, though, would Nintendo be anticipating a major drop in demand for the Wii U in the near future? There are still games in development for the console, though it's almost certain that the biggest title on the slate, Zelda, will appear on the NX as well. All the same, in Japan at least, games like Splatoon and Mario Maker were still doing pretty well and appeared to have the stamina to sustain console sales at a decent level for some time. Could it be that Nintendo anticipates something else happening soon that would make the public suddenly decide not to bother with the Wii U after all? If so, the only thing I can imagine that would have that effect is the unveiling of the NX.

The timing makes sense, in many regards. If the NX is unveiled in the next month or so, it will be after Miitomo is already on the market around the world - which gives Nintendo some breathing room for its mobile ambitions, and allows it to turn back to consoles without being accused of losing focus. Assuming Miitomo and the network functionality it uses are also part of the NX experience, that would also feed into the console announcement. Announced soon, the system would presumably be ready to show off in some form, with software, at E3 - though we don't know if Nintendo even considers E3 to be terribly relevant any more, some form of digital announcement broadcast seems very likely. With Wii U production tapering, the company would be able to move smoothly to promoting the new system, avoiding the spectre of large amounts of Wii U hardware left in the channel and cluttering up its financials; and of course, an announcement in the imminent future would also make that much-rumoured late 2016 launch possible. (I reckon the Nikkei's report shortens the odds on a 2016 NX launch from about 6/1 to about 3/1, for what it's worth; still not the most likely scenario, but getting there.)

"Either Nintendo is going to announce and bring a console to market in the space of about six months, or it's going to completely bow out of the home console market for an entire holiday season, for the first time in decades"

Would the announcement of the NX really kill interest in the Wii U so dramatically that Nintendo needs to manage its inventory in such a miserly way? Perhaps so. Bear in mind that the Wii U is still a very expensive console - most consoles are far cheaper (and thus opened up to new markets) by the time their replacements are announced. The NX price point is likely to be within spitting distance of what you buy a Wii U for today, so it will instantly cannibalise a lot of interest in its older sibling. That's probably the most likely reason that Nintendo is concerned for Wii U demand in the wake of an NX announcement - but there are other possibilities. It may, for example, transpire that NX is backwards compatible with Wii U games, in which case the most basic raison d'être of the current console will evaporate when it is announced - though that would also mean the NX is doubling down on the Wii U's dual-screen approach to games, which would be interesting and gutsy on the firm's part.

Whatever the rationale at Nintendo may be (and of course, we shouldn't discount the possibility that they've just royally messed up their supply chain somehow - though this seems vanishingly unlikely), we'll find out sooner rather than later. It's now very clear that the Wii U isn't going to make it to Christmas, which means we're getting one of two equally dramatic things happening - either Nintendo is going to announce and bring a console to market in the space of about six months, or it's going to completely bow out of the home console market for an entire holiday season, for the first time in decades. We'll almost certainly know which of those remarkable new chapters in Nintendo's history is going to be written within a matter of weeks.