Nintendo of America president Reggie Fils-Aime isn’t worried. Yes, sales of the Wii have tapered off. Yes, analysts doubt that its successor, the game machine/tablet Wii U , will sell as well as the original. Yes, Facebook, mobile, and Xbox Kinect have poached Nintendo’s audience of fitness-minded moms and kids.

But Fils-Aime has faith. “To buy into a console, consumers need a very clear, understandable, and persuasive reason,” he explains. “We believe that’s games.”

If he’s wrong, Nintendo could be in trouble. If he’s right, well, Nintendo may still be in trouble. Building a game console that only plays games is becoming a risky proposition. When the Wii U hits on November 18, it will include a controller with a touch-enabled screen, camera, and NFC. The controller is at the heart of the Wii’s makeover, with its screen giving more game-play options (navigate a dungeon on TV while following a map on the controller) or allowing for a two-screen experience (stream Netflix on TV while playing a game on the controller).

In other words, the Wii U is still predominantly a game machine. That makes its competition everything from Xbox and PlayStation to upstarts like Ouya, an Android-based, Yves Behar-designed console that Kickstarted $8 million. There are app stores for every device you own and companies creating HTML5 games that use browsers as the platform. If people want to play games, there’s no shortage of ways to do so. That’s why, on the heels of Nintendo’s first dip into the red in 21 years, the Wii U’s release won’t just determine the fate of one of the most successful gaming companies ever. It will also shed light on whether traditional consoles have a future in an era of multifunction devices.

From a cultural standpoint, games have never been bigger. Nielsen found that half of all American households have a console, and the amount of time spent playing games has increased 7% since last year (due mostly to mobile and tablet games). But the current crop of consoles is aging rapidly: Xbox 360 is seven years old; Wii and PlayStation 3 are six. As a result, hardware sales are down 15% over the past year, and software isn’t faring much better. Even factoring in projected Wii U sales, NPD analyst Anita Frazier expects physical video-game-industry revenue to be around $14.5 billion for 2012. That would be 15% lower than 2011. Meanwhile, two of the biggest movements in games–the rise of social and mobile gaming–were pioneered not by the establishment but by outsiders like Apple, Facebook, and Zynga.

Nonetheless, Nintendo is pushing ahead with its usual MO: create a console with broad appeal, and then lean on franchises like Zelda and Mario. What gamers desire, according to Fils-Aime, is games, and games alone. “When you talk to players and understand what they want,” he says, “it can only be delivered through a dedicated gaming device.”

Sony and Microsoft aren’t so sure. In June, Sony acquired cloud-based gaming company Gaikai for $380 million; three months prior, Microsoft revealed that Xbox Live Gold members use the service for an average of 84 hours per month, with entertainment-app usage more than doubling year-over-year.