OSAKA -- Last year's 10 best-selling video games in Japan were made for Nintendo gaming platforms, with the top five selling over 2 million each. But the company must change its failing profit model if it hopes to make a full-fledged comeback.

"This is a historic achievement in Japan's gaming history," Nintendo President Satoru Iwata has said. Yet many of 2014's releases were sequels to previous hits, and some claim safe, big-name games were chosen in order to secure a profit.

The industry titan also is eager to turn profits for its gaming consoles. Its Wii U is no longer selling at a loss, but only because the company booked valuation losses last fiscal year and is now unwinding cheap inventories.

Nintendo likely will book an operating profit for the first time in four years this fiscal year, but the figure is seen at a disappointing 20 billion yen ($163 million). The company lost 46.2 billion yen last year.

Sales likely will fall 4% to 550 billion yen, but its profitability is taking an even greater hit. In fiscal 2001, when it raked in about the same amount in sales, Nintendo booked a roughly 120 billion yen profit.

Its earning power has declined in part due to higher costs. Nintendo spent 71.7 billion yen on research and development last fiscal year, about four times as much as in fiscal 2001. The company opened a 19 billion yen research facility last June, moving over 1,000 staffers there, but has yet to find a use for the now-vacant spaces at its headquarters.

The rise in R&D costs is inevitable, especially as gaming consoles grow more complex. The bigger issue is that Nintendo's profit model no longer works. The company used to sell its newest consoles for cheap, even risking a loss. It boosted sales of the new devices by offering popular games created by itself and other game developers.

It hit the jackpot in fiscal 2008, with a 555.3 billion yen operating profit on the success of the Nintendo DS and Wii. But because these devices were so well designed, consumers were in no rush to replace them, says a company official.

The Wii U proved unpopular among game developers because it was played on both a traditional TV screen as well as a smaller display on the controller itself. Due to a lack of attractive games, the new platform has yet to reach 10% of its predecessor's sales volume at just 9.2 million units.

Hopes for a comeback

The market for smartphone games is expanding quickly as well, overtaking the console game market at 650 billion yen.

But Nintendo's 1.9 trillion yen market capitalization remains unparalleled among gaming companies. It has recovered from failures in the past, such as the Nintendo GameCube, and market players have strong hopes for another comeback.

"We hope to return to a profit level that befits the Nintendo name in fiscal 2016," Iwata said. "The market expects us to make 100 billion yen in operating profit."

The company is rumored to be releasing a new console that fiscal year. It remains to be seen whether it can devise a new profit model by then.