Secondly, going third party would lead to a huge decline in the quantity and quality of their games.
The best way to demonstrate this is by looking at the closest analogue to this situation by summoning the ghost of Christmas past: Sega. Back when it was in the hardware business Sega had a roster of games such as Sonic, the Virtua series, and their racing games which could be relied upon to produce decent sales. However, they were also able to produce a regular supply of niche titles including Ecco The Dolphin, Gunstar Heroes, Comix Zone, Seaman, and so on.
These niche titles would have produced little (if any) profit but Sega were able to make these games due to their position as a hardware manufacturer. The main purpose of these games would have been to expand the library of games available on their consoles and thus encourage more people to buy the consoles, as well as make their consoles look more enticing to third party publishers to bring their games to them.
Another example of this is Shenmue. Although the gigantic cost of the games was one of the contributing factors to Sega’s downfall, they would never have even been made in the first place if Sega was not in the business of making hardware.
This also applies to the current console makers. Would Microsoft pump fortunes into making and marketing Kinect and Halo, or paying for Gears Of War and certain downloadable content exclusivity, if they didn’t make the Xbox line? Sony similarly spends huge sums on Gran Turismo and Uncharted for modest sales relative to their cost, and The Last Guardian would have been cancelled long ago if all that mattered were its profit margin.
So let’s imagine a scenario around 2006 where Nintendo exited all hardware production after the GameCube and Game Boy Advance to go third party. Firstly, all franchises which don’t have decent sales would be scrapped, meaning no Advance Wars, Sin And Punishment, Kid Icarus, or Fire Emblem (until Awakening the series had never been a big seller worldwide). Also, the biggest-selling single format game of the year so far, Luigi’s Mansion 2, would likely not exist given the lukewarm sales and reception of the first entry.
Secondly, there’d be no need to produce niche/experimental games to grow a console library, meaning no Xenoblade, Ouendan, Rhythm Heaven, or Pullblox. Plus, hardware showcases such as Wii Sports and Nintendogs would not exist.
Finally, there’d be no partnerships with publishers/developers to produce exclusive games, meaning no Professor Layton, The Last Story, Lego City Undercover, The Wonderful 101, and Bayonetta 2 – which Sega cancelled and was unsuccessfully pitched to various publishers before being picked up by Nintendo.
Bringing us to the modern day, that would mean a third party Nintendo would only be producing games for a select handful of franchises – namely Mario, Pokémon, and Zelda – whose quality would suffer due to requiring extra resources to make the games for multiple formats as well as reduced development times to meet budgets and deadlines.
I think you can guess which current games company this scenario most resembles. After Sega went third party we initially got sequels for Panzer Dragoon, Jet Set Radio, and Space Channel 5 but as they sold poorly those franchises have been sidelined. These days Sega is most widely known for the Aliens: Colonial Marines mess and 15 years of mediocre to middling Sonic games.
