Game Drain

When Flappy Bird, a mobile game made by amateur designer Dong Nguyen, became an Internet sensation recently, you could almost hear Nintendo executives groan. First there was the rumor that the Vietnamese programmer had taken the game down under pressure from the 125-year-old Japanese gaming firm over possible copyright infringement. (Nintendo told TIME that was not the case.) Then there was the fact that, seemingly overnight and despite being free, Flappy Bird was reportedly generating $50,000 a day in ad revenue. Worse, the entire episode was a stark reminder of how much gaming has changed in the few years since Nintendo dominated with its best-selling Wii.

Now Nintendo, which created characters such as Mario, Pokémon and Zelda, must learn from the Flappy Birds and Candy Crush Sagas of the world if it is to survive, analysts say. The company’s Wii follow-up, the Wii U, has been a dud, revenue is down, and even its 3DS handheld isn’t selling as well as hoped. Trouble is, smartphone games are hooking millions of players who no longer feel the need to tote around a dedicated gaming device. “It’s very hard to compete for the casual customer when they have an alternative platform they already own,” explains Morningstar analyst Liang Feng.

Solutions will be tough to come by. Nintendo president Satoru Iwata said he will halve his salary, and the company will develop new products aimed at promoting healthy lifestyles. But Iwata said the firm has no plans to release full games for mobile devices, Sony’s Playstation 4 or Microsoft’s Xbox One, which many analysts see as the quickest path to profit. Iwata says the company does best when it marries original games with hardware it makes itself. “They think that their hardware is as compelling as Apple hardware,” says Michael Pachter, an analyst at Wedbush Securities. “But they’re not Apple.”