Frankly I think their reliance on partnerships and outsourcing(specifically their method of outsourcing) is not a winning strategy for several reasons, and recent failures such as Metroid Prime 4 and missing their hardware goals, not even counting their software drought issues over the years, are major examples of why.
We know that Nintendo does not really buy studios, they like to operate on a contract/per project basis because it is a more fiscally conservative option to creating software. They are following a common business model of paying by the drink(i.e. by need, by project), rather than by the seat(continuous cost). They operate in this fashion in both their contract studio business model, and through general outsourcing. In many ways this is smart business, you can staff up as needed for demand and staff down when demand drops off. However creating video games is not just building widgets, it's not a standardized product that has variable demand. It's a highly creative product, that requires skilled and specialized resources, and as a platform holder the demand for more software from Nintendo never really goes away. To me this creates a few problems:
- Of their contract studios, many seem unable or unwilling to appropriately increase staffing. Many of Nintendo's partners are very small studios, likely relying on outsourcing themselves to complete projects for Nintendo, or pulling resources from EPD or other Nintendo partners(Namco Bandai for example). This creates problems both in the quality of software, and the ability to complete it on time(see numerous delayed software since the beginning of the WiiU era). Notably it's Monolith, a wholly owned studio, that has truly thrived over the last decade, and yet it is still significantly smaller than Rare was at their peak under Nintendo. Where is the Monolith of US, Europe, etc.?
- Goes without saying that there is a loss of control involved here, and increasing difficulty in managing software pipelines. Normally with outsourcing and worldwide production in video games, we've seen publishers set up permanent studios around the world in addition to utilizing contract work. This seems to provide the degree of control needed, along with a more 24 hour workforce enjoyed by many industries. Comparatively Nintendo is not setting up or buying new studios anywhere, but rather just increasing their reliance on partners and contract studios. We have recently seen a new problem emerge with the cancellation of Metroid Prime 4. Nintendo has been increasingly relying on Namco Bandai as a supplementary workforce for their software, most notably Smash. However with Prime we've heard that the game was handed off to Namco, who then split development between several different studios. This is not an uncommon practice, many big pubs do it, however they usually own the studios doing the work whereas Nintendo did not, and was operating in a supervisory role. Lo and behold the game was not developed up to their standards, and had to be canned. Oops.
- Another issue is that Nintendo is at the whim of contract studios as to whether they can work on what Nintendo needs. Depending on the contract, these studios are free to work on something else. This is particularly problematic when it comes to studios like Namco Bandai and Platinum Games who very much have other priorities and goals that may or may not including putting Nintendo first in line. Look at what happened with Monster Games.
- As previously mentioned developing games requires very specialized staff, however Japan is noted as being a in big shortage resources right now. This hits Nintendo particularly hard because they make most of their games in Japan, and other than EPD or Monolith it's unlikely that any of their studios or outsourcing partners have any clout to draw in new or existing developers in comparison to the big Japanese publishers. While not entirely related to the question at hand, the fact that Nintendo has never really replaced Rare(a large, largely autonomous, western developers) is probably one of the biggest problems they have right now. Ultimately concentrating almost all of their development resources in Japan seems foolish.
There's other issues I see, but this is the main stuff. Regardless of whether they purchase studios or just build new ones, or simply pay for more 3rd party support, their current penny pinching methods are only causing problems for them. It's particularly sad considering the game buying audience is incredibly voracious. Meanwhile in all of this Nintendo is also robbing Peter to pay Paul by having their studios do support work for EPD.