Reading articles like this from Bloomberg news, you’d think that Nintendo was in a death spiral. Their investors are abandoning them, their hardware business is failing and they’re simply an empty shell of the juggernaut that they once were. According to that article and many others, including the opinions of some fairly powerful folks in the video game industry, Nintendo and others need to fully embrace the smartphone/social media future or they will be doomed to failure.
So, let’s look at this in a logical fashion, shall we? What would Nintendo’s best move be looking to the future, and how can they get there having learned the lessons of the past.
So, we can all agree that the last generation as been Nintendo’s, in terms of money generated. Nintendo has always been a company that is about making money, this generation they were the only company to release hardware that actually made a profit on day one. Being only a video game company, they couldn’t afford to loose all kinds of money selling hardware at a loss while their HDTV sales and Windows licenses covered it. After 4 generations of declining hardware sales, they bucked a trend to more powerful and more expensive, and hit on a bigger market than was expected. All of a sudden we saw Moms buying Wii Fit, and retirement homes holding Wii bowling tournaments. It was completely unprecedented, and made them all kinds of money.
The problem is, that kind of growth is completely unsustainable in this industry. The attach rate on those consoles was terrible, as after picking up Wii Fit or Wii Sports Resort they ignored it, coming back to it for parties or the occasional use. It was an appliance, not a portal for entertainment. We can all remember the disastrous E3 when us big fans decried the complete lack of games for us, Nintendo had lost its way and was focussing on the dreaded ‘casuals’. Fair or not, we felt that Nintendo had lost it’s way a bit, and that they had forgotten the people that had carried it through the dark GameCube days. And to be fair to Nintendo, I don’t think they really knew what to do. They had tried a grand experiment, and it had worked better than they had ever hoped it would. Now they were being noticed by investors and big money and they became bigger than Sony, this company that only made video games.
The problem is, when you’re noticed by investors, all of a sudden you need growth. It’s not good enough that you’re posting spectacular profits and still making money, you need to be making more money than you did before. You need to keep growing, and keep growing, and keep growing. In order to do this, they needed more people to buy their consoles, to grow their user base. They did this to the detriment of games that their big fans would really love, and I think that hurt them. They make a large amount of money from first party games, even if they’re often times a motivational tool to purchase the lucrative hardware. So, now that the Wii is in decline (as is to be expected in the waning phases of the hardware generation) and their new big thing hasn’t completely exploded off the shelves (Which isn’t a big surprise given a high price point and no big new first party titles) then the investors become worried that Nintendo is not the unstoppable juggernaut that they were, the stock takes a huge dip and everyone starts freaking out.
Simply put, the video game industry itself and especially hardware makers that follow a 5-7 year release cycle aren’t going to be in a constant state of growth. The industry has grown a great deal, and has now expanded into other areas, such as smartphone gaming and social network gaming. These are becoming quite lucrative while incredibly competitive at the same time. So the fact that Nintendo hasn’t thrown it’s considerable weight and cash reserves into buying companies or producing iPhone games is seen as a massive failure to investors. Problem is, Nintendo isn’t an investor-focussed company. They’re in it to make money, but they’re also in it to make fun experiences that people love. They have said flat out that they aren’t looking to dominate in the online arena. Nintendo is not out to crush the industry under it’s boot heel and rise to an unstoppable behemoth that eclipses everything. It simply isn’t their way.
Now, does that mean they couldn’t make a Facebook game or release a Pokemon game for iOS or Android? Of course not, they could very easily do that, and it would likely make them a large degree of money. However, they very much like having control over their products, and encouraging Nintendo fans to play Nintendo games on Nintendo hardware. Does this sound like any other company you know? In the same breath, analysts will praise Apple for creating their own ecosystem and fans of their brand while decrying Nintendo’s attempts to do the same. Apple did that through careful control over their products and a hell of a marketing team. Nintendo is doing the same, and it’s worked. They have legions of devoted fans, for some very good reasons. I would personally argue that the Wii/DS era was a bit of a blip, an incredible bit of luck that took place because of some very careful planning and calculated risks.
Let’s ask a few easy questions: So, can lightning strike a 3rd and 4th time? Perhaps, this holiday season and the next should give us a bit of an indication. Is the industry in for some majour changes over the next 5-10 years? Absolutely, even the COO of EA doesn’t really know what’s going to happen. We know social media is important and that smartphones are getting more powerful as they get more popular. How that will effect traditional vs new ‘game industry’ remains to be seen in the years to follow.
But as a bottom line, let me say this. If you think for even a second that a sluggish start for the 3DS and Nintendo’s refusal to put Mario on the iPhone will kill the company, you’re wrong.
