By Fortune Editors
November 1, 2012

By Don Reisinger, contributor

On November 18, Nintendo will launch the Wii U, a device it is calling the first next-generation console. The Wii U will come with a controller, called the GamePad, that has a 6.2-inch LCD touchscreen. The GamePad will act as a second screen for console play and will allow users to continue playing a game when the TV is occupied. Nintendo is also offering a new feature, called TVii, that will allow users to manage their television-based entertainment from the device.

None of this would have been possible without the company’s last console, the Wii.

Nowadays, Nintendo (NTDOY) is a vital part of the video game industry. But just a decade ago, that really wasn’t the case. The company was still popular, and its famed franchises, like “Super Mario,” were huge around the world, but its hardware division was in a state of disarray. Its console at the time, the GameCube, was supposed to compete against the Sony (SNE) PlayStation 2 and Microsoft’s (MSFT) Xbox. Instead, consumers largely ignored it. It was clear Nintendo needed a fix.

That fix came in the form of its Wii. When it was first introduced at the E3 Gaming Expo in 2005, the console was laughed at. Many observers thought that the name, Wii, was a joke. Still others weren’t convinced that the console’s motion gaming would be anything more than a gimmick.

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But then the Wii launched in November 2006. Preorders quickly sold out, and lines started forming at game stores in the hopes of catching the precious few units available for early birds. After that supply was exhausted, Nintendo had trouble keeping up with demand. Each week, folks would rush to game stores to wait in line and see if they could get their hands on the few units available.

The Wii’s success was shocking. And it was anything but fleeting. In the Wii’s first four months of availability, worldwide sales topped nearly 6 million units. In the 12-month period between April 2007 and March 2008, Nintendo sold 18 million units. A year later, its annual sales hit 26 million units.

The Wii had done what many thought was impossible — attract new consumers to gaming. The console catered to the so-called “casual gamer” who wasn’t willing to invest dozens of hours in an adventure game. Instead, those folks wanted to play fun titles at parties, or sit down for an hour at a time to play through a few “Mario” levels.

The Wii’s software library reflected that shift. While the Xbox 360 and PlayStation 3 delivered “hardcore” titles, featuring high-end graphics and adult gameplay, the Wii’s lineup was dominated by party games and kid-focused titles. It was rare to find games ported to the Wii from the Xbox 360 and PlayStation 3 that catered to an adult audience.

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It wasn’t a bad deal for Nintendo. Earlier this year, Nintendo announced that it had sold 827 million software units since the Wii launched. To put that into perspective, as of March 2007, months after the Wii launched, GameCube had only tallied 206 million software unit sales. Back in July, Nintendo announced that it had sold nearly 97 million Wii units since the device’s launch. That figure is more than the sales of the Nintendo Entertainment System — the company’s first console — and the GameCube predecessor, Nintendo 64, combined.

Now the company is in trouble. Nintendo revealed in April that its annual sales for the period ended March 31 had plummeted 36% year-over-year to land at $8.2 billion. Last year’s net profit of $978 million turned into a $541 million loss in 2012. Wii sales also fell off a cliff. During the 12-month period ended March 31, Nintendo sold just 9.8 million Wiis worldwide. Its sales in the prior year had reached 15 million units.

So, what happened? The company has also been hit hard by the Wii’s limitations. Its lack of HD is becoming an increasingly troublesome issue in a world where HDTVs have become the norm. And because the Wii’s internal components are not as powerful as those in the Xbox 360 and PlayStation 3, game makers are limited in what they can give Wii owners. Seeing the writing on the wall, Nintendo is preparing to launch the Wii U in weeks. But whether it’ll be able to achieve the same level of success as its predecessor remains to be seen.

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