Should Nintendo just change their business strategy? Sony pays all the time to get third party games, why don't Nintendo just start paying some publishers to release their games on Switch 2? They easily have the cash for it. And if it leads to more ambitious third party games on Switch 2 why not? I'm not saying Nintendo should pay for every single AAA game that Japanese studios make but if they identify games like Elden Ring, Street Fighter VI as good games to have on Switch 2, just pay the publishers and get the games.
Nintendo has even paid in the past and still got burned by large Japanese third party publishers. The 3DS and WiiU had multiple examples. The WiiU was stillborn and the 3DS almost failed due to software droughts due to third parties canceling games that were to release during time frames that Nintendo intentionally left open for third party software to shine. The only time Nintendo paid was for Monster Hunter to be 3DS exclusive and that was a special situation that probably won’t repeat again.*
Nintendo created the Switch for two reasons: 1) have hardware that accommodates any play schedule and style and 2) more importantly, it let Nintendo consolidate their software pipeline so they could provide enough software themselves to prevent droughts. No more risks of droughts if a third party suddenly and unilaterally cancels its WiiU/3DS project and moves it to PS4.
Further, the large Japanese third parties are no longer able to supply enough software to sustain sales momentum for hardware. That is the story behind the PS5 doing poor software sales in Japan; there isn’t enough compelling software for that market to keep providing that software eco system with momentum.
Nintendo used to think that the natural state of the market was for them to provide some key titles to give a system sales momentum then step back and let the third parties shine in the second half of the system’s life cycle while their internal teams pivot to the next system. That was pretty much how it worked with the NES, SNES, Game Boy phase 1 and phase 2. That broke down when PlayStation entered the market and provided better business incentives. The Japanese third parties decided to all in with PlayStation and ignore Nintendo except for low budget niche projects. Nintendo had been trying to return the market to the SNES days with first lower cost with more power in the Cube, and an expanded audience with the Wii. They ended up with a bomb in the Cube and a qualified success in the Wii (and a ton of cash and knowledge of where the market was going). They thought they had it back on the success of the Wii and DS! The DS even got some gems from large Japanese third party publishers!
But no, despite the fact that the PS3 business disaster caused many of the large third party publishers to go bankrupt and/or consolidate, they mostly came running when SIE promised riches overseas with the PS4. SIE claimed that the Japanese market was dying anyway so go west. They learned the wrong lesson from the success of Dark Souls.
After having the Wii lose sales momentum for what should have been the second half of its life as well as almost having two stillborn consoles due to third parties abruptly moving to PS4, Nintendo said never again and consolidated their software pipeline so they don’t have droughts anymore regardless of third party publishing decisions.
Nintendo wants the third parties and will do a lot for them such as marketing, deals on blank media, localization, etc. But they don’t need them and won’t pay for the entire cost of a project. If they did that, they would be a charity rather than a business. They’d also be suckers.
*The PSP was mostly a failed system by 2008. Games weren’t selling because players had figured out the games were mostly low budget imitations of PS2/3 games done by C teams. The system was also cracked open so wide that it was a big-time piracy/emulation box. The exception with Monster Hunter. The Monster Hunter games kept the PSP afloat in the 2009-2011 time frame. Nintendo saw an opportunity to destroy SIE’s handheld line by paying to make Monster Hunter 3DS exclusive. It worked.