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I read somewhere about how this is an attempt by Nintendo to control "quality". I would almost believe that claim if there wasn't so much shovelware for the DS.
The Wii too. I wish that they'd bring back their "Seal of Quality" to try to curb that kind of practice. Always helped produce fantastic quality on the SNES until they killed it around the time of the Gamecube.
the "Seal of Quality" did nothing but force companies to license carts through nintendo
True, but that said I don't recall ever seeing any shitty shovelware games with the seal on it. It was a nice way to easily find the cream of the crop.
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All licensed games had that seal. It was nothing more than a marker that the standard licensing process, which is not particularly different from console to console, was followed.
Satoru Iwata gave a keynote at GDC in which he explained Nintendo's current philosophy and strategy around "garage developers".

It basically comes down to this: Nintendo wants to protect the traditional videogame market because it views it as a market of craftsmanship. By that they mean that when you invest in the development of a game, you price it accordingly, and that has led to the current market, which to some extent is healthy (certainly on Nintendo platforms).

Compare that to the App Store market where prices are low and, on other mobile platforms like Android, sometimes free, developers have less incentive to invest much as the expected return on investment is less stable. Sure, there are huge hits, but the long tail of the market is full of low-cost, low-investment stuff. Or as you called it, "shovelware".

I for one see Iwata's point of view and although it differs substantially from Apple's, I think both companies serve different markets, with different goals and ideals, and both can exist. That's why Reggie says they're not currently interested in serving that market. It's a different market.

I think keeping shovelware out is a fair concept, but they should give interested parties more freedom to play around with their platform and make demos. As it stands many of the rules for being a Nintendo developer are arbitrary and it keeps out talented folks. For example you must have an office and you can't work out of your home. That alone could be enough to drive a startup into working on the iOS instead of the 3DS.

I'd like to see Nintendo have some sort of arrangement for hobbyists to poke at the platform and make neat stuff, and for Nintendo to partner with them to publish a quality title if something of quality is present. This is similar to how Argonaut and Nintendo started working together and how Nintendo came to produce Star Fox.

I don't think keeping shovelware out is a valid explanation for this blanket rule. Apple's ToS have quite a few provisions that could be used to exclude a large amount of shovelware from the app store, but they tend to be rather lax on enforcement unless it competes directly with their business interests. Thus you get 50 fart apps and only a couple of web browsers. Nintendo could easily adapt similar ToS, strictly enforce them and keep out the shovelware. Their decision to exclude this possibility entirely indicates something else is at work in their thinking. If you look at the controversy surrounding Bob's Game (http://en.wikipedia.org/wiki/Bob%27s_Game), it seems pretty obvious that their issues with the "garage developer" have little to do with keeping out mediocre titles. I would suggest that the blanket rule has more to do with their long term business interests--keeping prices up and preventing competition with their own first party games.
Hobbyist developers to Nintendo: "We don't care, we're going to develop for your platforms whether you want us to or not."

"Also, in doing so, you're going to force us to completely reverse-engineer your protections and enable trivial piracy."

(Granted, this would almost certainly happen whether hobbyists were welcomed or not -- but by shunning them, they give the actual people with skills reasons to look for weaknesses. Nintendo consoles are all trivially piratable, even the latest and greatest games, and were almost instantly after each console's release. The only one that has stayed intact is the DSi (probably because there's no worthwhile DSi-exclusive software))

Yup. The homebrew scene is often the one that does all the hard work and the pirates reap the rewards of the broken security systems (Notice how the security system of the PS3 wasn't broken until well after the Other OS feature was removed and the community wanted it back).
For a console maker it's a good policy. Not only will it keep "fart apps" away it also is a good incentive for game publishers to invest in a game rather than turn it out asap at the lowest cost possible.
But game publishers don't do this, and haven't for years. What they do is precisely to "turn it out asap at the lowest cost possible".
I should have phrased it better.

They do that but still spend resources on actually developing proper product.

They don't look for a "rockstar developer" and turnout a awesome app/game with a budget of $1,000.

It's crazy as a strategy. A good metaphor is that Nintendo use to target Games more towards kids even though aging gamers who were loyal for decades were pissed about that direction. But it seemed like a smart strategy because are the next batch of hardcore games.

Nintendo is effectively saying fuck you to 'kids' Indie devs, and only dealing with 'hardcores' Mature gaming shops. It's dumb because all the up and comers are going to cut their teeth on Android/iOS and not switch because of their invested time in developing their skills.

Le sigh, Nintendo, le sigh.

Now that the iPad 2 is being heralded as the successor to consoles, Gruber's going after them in addition to his regular Android sniping? ;)
In other words: "Nintendo continues long, slow death march to irrelevance."
Irrelevance?

They really did something new with the Wii controls, landed a huge hit and Sony/Microsoft are only recently getting back with similar controls (Kinect, Move). I think they deserve a point here.

The Wii is still the best selling console and the DS the best selling handheld(by far!). Perhaps it's irrelevant from a HN pov, but certainly not from a familiy/kids/recreational gaming pov.

And the major games from Nintendo itself (Mario Galaxy, Zelda....) are rock solid, high quality games.

I can't really disagree with your points there, because they are not irrelevant yet, certainly not to consumers. If you are a producer of third party software, they are rapidly becoming irrelevant despite the huge install base. Perhaps they can continue to succeed once they've lost all third party support (other than the shovelware), but that's not a bet I would make as an investor. If it weren't for their success in the handheld market, they probably would have folded in the early 00s, and now they have very fierce competition in the handheld market.
There's nothing to indicate that 3rd party developers aren't happy and profitable. With as large an audience as Nintendo's it seems unlikely that studios with the capital to enter that market would walk away. While I totally relate to the indie dev perspective (being an indie dev who'd love to make something for the DS), their Hollywood high barriers to entry do protect consoles from some of the ridiculousness that goes on in the mobile app stores. That said, consoles are definitely missing out on many small and wonderful things that are handcrafted by small teams.
I dunno, the 3DS looks pretty interesting...
Based on recent trends, you've at least got the "long" and "slow" parts correct. Some may even say their march hasn't even begun!
I put the beginning of the march at the end of the NES era, when third party developers that were disgusted with Nintendo's greedy, hamfisted approach to licensing fled in droves to Genesis/Megadrive and PC-Engine. Sales held up reasonably well with the competition through the SNES era, but plummeted dramatically once Sony got in the game (due to Nintendo's greedy, hamfisted approach to partnerships). Handheld sales kept them alive during the dismal N64 and GameCube years, and they did quite well with the Wii (although software sales have plummeted). Once again though, Nintendo's greedy, ham fisted approach to working with developers is probably going to hurt them.

If you look at the big picture, you will find that Nintendo has been in decline for a long time, and that their questionable business practices will hurt them in the long run. Let's all come back in ten more years and see if I'm right.

Re: Consoles Microsoft already allows indie programmers on the Xbox 360 for $99/year: http://create.msdn.com/en-US/ (warning, Silverlight on that page)

They can charge up to $5 for their games, and they get stuck in a ghetto that's kind of hard to find on XBL, but it's out there.

The PS3 is much more locked down - the linux alternative was removed.

There are also a whole lot of "Homebrew" scene's out there - some have turned out impressive stuff. If the console can either load homebrew with no other work (as the Dreamcast was) or can have modified bootloaders that allow 3rd party code to run (as the original Xbox and PSP were), then you have a good chance at getting decent stuff ported.

In the past Sony released a special PS1 that you could develop games on called Yaroze. It started the careers of a few hobbyists and a game for it, Devil Dice, ended up getting a retail release (http://en.wikipedia.org/wiki/Devil_Dice).

The Japan only Bandai Wonderswan had a homebrew system as well, named Wonder Witch. "Judgement Silversword" was published at retail for the Wonderswan but produced originally via this homebrew system and it is considered to be one of the best games for the platform.