When do you sound the alarm for a system's viability on the market? I remember the painful slog through the summer and fall of 2007, when the PlayStation 3 hit a miserably low 20,000 systems per week and finally began its crawl to respectability with a price reduction to $400 in November of that year. The Nintendo 3DS had a very rough start in 2011, but Nintendo moved public sentiment substantially with a severe price cut for new buyers and free games to assuage any bitter early adopters. Sony's PlayStation Vita fizzled quickly after launch, and barely crossed 1.3 million systems by its first anniversary. Sony appears to think it will still be useful as an expensive accessory for the PlayStation 4, but that strategy seems dubious to me. Today the Wii U appears to be in crisis, and each month's U.S. retail sales figures show little improvement. According to a GamesIndustry.biz report, Nintendo's newest console sold a mere 66,000 units in February 2013. On a per-week basis, that shows that sales grew 45 percent, which in any other circumstance might seem to show that the scalper return theory I discussed a couple of weeks back was right. But sales typically increase from January to February, and month-to-month growth of 45 percent for the Wii U looks paltry compared to the over 60 percent increase that both the PS3 or Nintendo 3DS experienced. I still believe my sources on this issue of excessive returns, but I cannot deny that the evidence is anything but crystal clear. But this isn't just about hardware. As I wrote back in January, Nintendo has not followed through on its promise to avoid gaps in a system's release schedule. At that time, I expected two more games to have released by now, and one of them didn't make it: Ubisoft's Rayman Legends, which is now a cross-platform release scheduled for later this year. That's not just a disappointment for Wii U fans (my own children love the demo) but a coldly calculated bit of business, an assessment that releasing the game on the Wii U alone wouldn't be as profitable as releasing it on several platforms later. And, I should add, this isn't just about the United States. In the UK, the Wii U continues to struggle to move software. According to reports by retail trade periodical MCV UK, citing retail tracking firm Chart-Track, the Wii U accounted for only 1.4 percent of all software units sold in February 2013, down from 1.8 percent in January. To put that in rough numbers, that means that approximately 60,000 units of Wii U software have been sold in the UK during the first two months of 2013. During the same period, nearly 80,000 units of PlayStation Vita software have been sold and over 300,000 units of software for the original Wii. And the UK data gives us one more angle on what's going on with Wii U software: the average selling price (ASP) for Wii U software dropped from over £36 (US$54) to just over £31 (US$47). Are retailers reacting to waning consumer interest by cutting prices or are consumers unhappy with the slim offerings and only buying lower-priced software? Perhaps there's another explanation, but I don't believe price-erosion like that is healthy for a new system. The data we have is grim, and it is quite unlike anything we've seen before. But allow me to point out that there is still hope, just as there was for the PlayStation 3 and the 3DS.

Play to Your Strengths, Develop New Ones

The first bit of hope that I'd point to is that Nintendo still has a strong presence in American homes. In particular, I asked NPD Group analyst Liam Callahan about the history of Just Dance in the U.S. and found that the Wii is still holding a commanding share of that franchise's unit sales. As the figure below shows, not only is the Wii accounting for 73 percent of Just Dance 4 sales since the title launched, but the Wii U version has sold comparably to the PlayStation 3 version despite the Wii U having a 1 million system install base compared to the nearly 24 million system base for the PlayStation 3. In fact, if we combine the Wii and Wii U shares we see that Nintendo's share of this perennial top seller has dropped from 78 percent to 76 percent between Just Dance 3 and Just Dance 4. This is one of Nintendo's strengths, and it shows that there is still a large base of active Wii users. They need to evangelize to those users as soon as possible that the Wii U is a natural upgrade path for them. Not only will they be able to carry over many Wii titles, but there is a strong probability that these users own or have owned Mario Kart Wii or the Wii iteration of New Super Mario Bros. With a sequel to the latter already out and a Mario Kart destined to appear eventually on the Wii U, now is the time to sell them on a Wii U. The second very interesting data point that came out of February's sales was Nintendo's comment that its Nintendo 3DS title Fire Emblem Awakening, which was reportedly undersupplied to retailers, sold 63,000 units digitally. That's better than one digital copy for every two physical copies, an astounding result especially for a company like Nintendo which has been reluctant to enter the purely digital market. That suggests to me that Nintendo could be much more aggressive with its digital sales than it has been so far. Were it to push the Wii U as a digital-first platform, I think it could show improved sales to third-parties, especially those who may have felt burned by their early efforts on the platform. At this point, 10,000 or even 20,000 digital units of their Wii U software might mean the difference between profit and loss on a port. Unfortunately, running a digital shop is not Nintendo's strength, but it needs to become one and soon. They've not got Activision titles on their eShop, for example, which means that traditionally successful Wii titles like Wipeout 3 can't be purchased digitally for the Wii U yet. And I do wonder what might have happened with Rayman Legends if Nintendo had offered more pleasing profit sharing terms with Ubisoft. Priced right online and tightly tied in with its acclaimed demo, a strong digital release might have been just the solution to avoid the embarrassing delay announcement. These are just my ideas, based on what data is available to me. Nintendo has a tremendous amount of data about its Wii U business, and in just over a month it will release its fiscal year results. At that time, I hope they'll have come up with some plan for the Wii U that builds on the company's many strengths but also presents a believable strategy for how they're going to adapt to the new market realities. If Iwata's message in a month is just more of the same, well, you can begin to put me more in the Wii U alarmist column than I was previously.