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The Massive Nintendo Paradigm Shift

The Massive Nintendo Paradigm Shift

Mon 11 Nov 2013 9:22pm GMT / 4:22pm EST / 1:22pm PST
BusinessHardwarePublishing

Nintendo hasn't changed much, but the industry has changed massively - so we need to change our views on Nintendo

Nintendo's latest earnings report left many observers worried about the company and its prospects, Yes, Nintendo made a small profit of $6 million this time, compared to losing $282 million in the same quarter last year. That's a significant turnaround. What's worrisome is that the Wii U has yet to show a sustained turnaround (sales have jumped since the price cut, but it's only been a few weeks) and 3DS hardware sales showed a decline from last year. These indicators are interesting, but miss the larger picture that puts Nintendo's current status in the proper perspective.

Let's step back in time to the 1980s, when Nintendo first began to make an impact on the video game industry. From the industry low point in 1985 of about $100 million in retail sales ($213 million in inflation-adjusted dollars) following the crash of 1983, Nintendo led the industry to billions of dollars in annual sales. By 1990, retail sales were at about $5 billion (close to $9 billion adjusted for inflation) - and Nintendo represented 90 percent of those sales.

Think about that for a minute. In 1990, Nintendo was the game industry. Sure, there were some PC games being sold, and some quarters being spent in arcades. Any company that aspired to be a major player in the games business, though, had to build their strategy with Nintendo in mind. Either you built products that worked with Nintendo, or you were competing directly against Nintendo. Consumers who thought about games at all mostly associated them with Nintendo and the company's iconic characters.

"Here's the change that many long-time gamers and even industry executives haven't really internalized: Whatever Nintendo does just doesn't affect the whole industry anymore"

Today, most people in the industry (as well as most consumers) remember this at a visceral level. Many people had a Nintendo game as their very first gaming experience, and Nintendo was the dominant gaming brand of their formative years. Even for older executives, their early careers were dominated by Nintendo, and their memories of the industry at that time are heavily influenced by Nintendo's actions, their products and their marketing.

The picture in 2013 is completely different. The Gartner Group projects total worldwide revenue for games at $93 billion for all of 2013. Nintendo is projecting its revenue for the current fiscal year (which ends in March, but we'll throw in the first quarter for free) at 920 billion yen, or about $9.3 billion dollars. In other words, Nintendo this year represents about 10 percent of the game industry.

That's a stunning change - from 90 percent of the industry to 10 percent in 23 years. And it's not that Nintendo shrank; in fact, the company revenues in 2013 are twice what they were in 1990. The industry, however, has grown about 20-fold in that same time period. This is a remarkable achievement both for Nintendo and the game industry, one that's rarely seen in any industry, much less a tech-based one. Typically early leading companies in a field will either continue to be significant leaders, or they will be acquired, or go out of business. Nintendo's done none of those things - it's just continued to do well, some years better than others, but it's been steady. The industry has grown tremendously around it.

Here's the change that many long-time gamers and even industry executives haven't really internalized: Whatever Nintendo does just doesn't affect the whole industry anymore. It's only 10 percent of the total business, and there are billion-dollar companies making games that aren't even sold in the same geographic areas as Nintendo, much less in the same market segments. Other companies, for the most part, don't base their investment decisions or strategies around Nintendo's actions. Sure, some publishers (a very small number) do at least consider creating products for Nintendo hardware, but even for most of them that's not anywhere near the majority of their business. Total Nintendo-based revenue for Capcom or Ubisoft or Konami does not come anywhere near a majority of the company's income.

Yet we still worry about Nintendo, and that the sales of its hardware aren't going to be leading the pack. We shouldn't worry about the competitive picture, because Nintendo doesn't. The company is rightly concerned with making a profit, and doing that by making good games. Nintendo is back to profitability, and while it may not be the immense profitability of the Wii in its heyday, that's still a good thing. Will the Wii U become a solid seller? Maybe, maybe not... but Nintendo has had consoles before that never sold particularly well (*cough* GameCube *cough*). If the Wii U doesn't generate the sales Nintendo expects in a couple of years, the company will create some new hardware to replace it.

"When Nintendo stops making games that are fun, that's the time to get worried about the company. That time is not now, nor is it any time soon"

In the meantime, Nintendo is profitable and has $10 billion in cash to see it through any possible transitions it needs to make. Do mobile games affect its business? Yes, indeed. Does that mean Nintendo can't sell handheld gaming devices anymore? The 3DS line has sold tens of millions of units so far. Those are respectable enough numbers that many third-party publishers are building games for the platform.

Does the Wii U compare in graphics or CPU horsepower to the PS4 or the Xbox One? Not hardly, but that doesn't matter. Nintendo's really working on a very different level than Sony and Microsoft, selling the experiences to kids (and those gamers who remember the fun they had with Nintendo as kids). Sony and Microsoft are really targeting older gamers, and pushing the wide variety of media capabilities of their platforms. Deeply immersive experiences await Xbox One and PS4 players, as well as some really cool technology and useful features for all sorts of lifestyles.

Meanwhile, Nintendo just keeps focusing on games that are fun, which goes all the way back to its founding as a playing card company. Nintendo's always made things for people to have fun with, including toys and games and playing cards. That's the company legacy, and even though that mostly revolves around technology these days the goal is still to help people have fun. We would all do well to remember that when we think about Nintendo and its place in the game industry.

Nintendo's got a strong lineup of fun games coming for the Wii U, with Super Mario 3D World about to come out, and Donkey Kong Country: Tropical Freeze and Mario Kart 8 and Super Smash Bros. coming out next year. The 3DS has an even more jampacked release schedule of titles, but we're all too busy playing Pokemon X and Y right now to notice these: The Legend of Zelda: A Link Between Worlds, Mario Party: Island Tour, Monster Hunter 4, and Super Smash Bros., among many others.

When Nintendo stops making games that are fun, that's the time to get worried about the company. That time is not now, nor is it any time soon.

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15 Comments

Rick Lopez
Illustrator, Graphic Designer

1,269 942 0.7
Well they sure shook the industry with the Wii and DS and that wasnt long ago. So now there new product isnt performing as well. But still it doesnt mean its a bad product and they have alot of financial leg room to figure things out and get back on top.

Posted:11 months ago

#1

Nicholas Pantazis
Senior Editor

1,020 1,467 1.4
Popular Comment
Parts of this article have some serious merit, but I don't agree with all of it. The industry still very much follows Nintendo, even when they are down. Second screen gaming exists because of the DS, and Sony is pushing the Vita for off-TV play because of the Wii U. Kinect and Move wouldn't exist at all without Nintendo. Apple spent their entire first two years of the App Store's existence comparing their devices to the Nintendo DS, and it certainly influenced game design for many iOS developers (many of the best games on iOS are in fact DS ports).

So yes, they're down, and we shouldn't worry, but that doesn't mean we should ignore them either. Let's not forget that Nintendo shaped the development of last generation considerably. They created Miis which created avatars. Motion controls which created new interfaces. An entire genre in fitness games. Revitalized local play. These aren't actions that should be brushed off because Nintendo is in a "down generation." As the article points out, they were down for the Gamecube as well, but came right back at it for the Wii.

Posted:11 months ago

#2

Paul Jace
Merchandiser

935 1,410 1.5
While Nintendo have no doubt been very innovative in the past I don't think many companies want to actually follow what they're doing these days with the Wii U. I think that the real reason Microsoft started the Smart Glass initiative and Sony started touting about using the Vita as a second screen is so that Nintendo would have one less bullet point to brag about. This is no different then when Sony added motion sensing to their PS3 controllers just because the Wii controllers were motion sensing and Sony didn't want Nintendo to say their system could do something that theirs couldn't. Same thing with Kinect and Move, although in that case they were both trying to steal a significant part of Nintendo's marketshare. But right now the Wii U doesn't have much marketshare to take and although both their versions of second screen gaming are kind of half-assed they still have that covered for people who are into that .

I do agree that Nintendo isn't in as much trouble as people constantly say they are in. Some people want them to get out of the console business and some people want them to start making games for other devices such as phones and tablets. But the thing with Nintendo is that regardless of how their consoles do, if worse came to worse they could always stop making consoles and focus strictly on their handhelds. The revenue they make from that would keep them going seemingly forever, regardless of how the rest of the mobile/tablet/social sectors are doing. But they still have this second holiday season to get thru before people start throwing them in front of the bus again.

Posted:11 months ago

#3

Jim Webb
Executive Editor/Community Director

2,270 2,439 1.1
Popular Comment
They have multiple billion dollar IP's and a knack for creating fun and enjoyable experiences. That's a recipe for longevity that every other upstart company joining the industry would kill for and one that older, bigger companies look upon with absolute envy.

Telling Nintendo to do anything other than what they do is both asking them to become something they are not and frankly just plain ignorant.

Posted:11 months ago

#4

Robert Ilott
Build & CM Engineer

25 49 2.0
Today, most people in the industry (as well as most consumers) remember this at a visceral level. Many people had a Nintendo game as their very first gaming experience, and Nintendo was the dominant gaming brand of their formative years.
I suspect this may have been true in America and Japan, but I think Europe was a different playground. The early years of Spectrum to Amiga (and all the other home computers - Amstrad, C64, Atari ST etc) were definitely more profound than Nintendo were. What I can't argue with though is the sales figures - they are what they are.

Posted:11 months ago

#5

Ralph Tricoche
Studying MA

31 66 2.1
Popular Comment
Dismiss Nintendo at your own peril.
When everything else fades to dust. We'll all be going back home. Games are meant to be fun, and Nintendo has that signed, sealed and delivered.

I'll let you in on a little secret. Sony, in many ways is what Nintendo might be if it ever decided to enter the "adult gamer market" as many put it.
And in many ways Sony wants you to know this. Think about it for a moment and you'll see the philosophies of each company don't deviate that much from each other. What do they say about imitation? and I say this with the deepest respect for all the players in the game.
When the dust settles, Nintendo will still be here and if for any reason they decide to call it quits. Then I would say its time, at least for this gamer, to leave as well.

Posted:11 months ago

#6

Robert Ilott
Build & CM Engineer

25 49 2.0
Today, most people in the industry (as well as most consumers) remember this at a visceral level. Many people had a Nintendo game as their very first gaming experience, and Nintendo was the dominant gaming brand of their formative years.
I suspect this may have been true in America and Japan, but I think Europe was a different playground. The early years of Spectrum to Amiga (and all the other home computers - Amstrad, C64, Atari ST etc) were definitely more profound than Nintendo were. What I can't argue with though is the sales figures - they are what they are.

Posted:11 months ago

#7

Quincy Ward
Studying Computer Science

14 22 1.6
Excellent Article

Posted:11 months ago

#8

Jamie Read
Junior 3D Artist

127 64 0.5
Great article. Being a lifetime Nintendo fan at heart, it's nice to read a piece that shares the same views that I have had for a long time. I completely agree with the comments Nicholas added too.

Posted:11 months ago

#9

Steve Goldman
Journalist.

81 92 1.1
Nintendo is just fine

Edited 1 times. Last edit by Steve Goldman on 13th November 2013 1:10am

Posted:11 months ago

#10

Adam Campbell
Associate Producer

1,178 967 0.8
Parts of this article have some serious merit, but I don't agree with all of it. The industry still very much follows Nintendo, even when they are down. Second screen gaming exists because of the DS, and Sony is pushing the Vita for off-TV play because of the Wii U. Kinect and Move wouldn't exist at all without Nintendo. Apple spent their entire first two years of the App Store's existence comparing their devices to the Nintendo DS, and it certainly influenced game design for many iOS developers (many of the best games on iOS are in fact DS ports).

So yes, they're down, and we shouldn't worry, but that doesn't mean we should ignore them either. Let's not forget that Nintendo shaped the development of last generation considerably. They created Miis which created avatars. Motion controls which created new interfaces. An entire genre in fitness games. Revitalized local play. These aren't actions that should be brushed off because Nintendo is in a "down generation." As the article points out, they were down for the Gamecube as well, but came right back at it for the Wii.
This is why I find myself with strong support for Nintendo's products and innovation. Not every approach they have taken has been perfect but their influence is quite clear to see throughout the generations.

Posted:11 months ago

#11

Richard Vaught
Studying B.A. in Game Design

21 36 1.7
I think you summed it up nicely there at the end. While everyone else is trying to corner markets, maneuvering against the competition, and counting unit sales as if they were the holy grail of all that is, Nintendo is still making fun games. I have a Wii U. The only thing holding it back is the lack of games. The console itself is brilliant for kids and families, the games that are out for it are FUN, and most importantly (as a parent) I can let my kids play most of the games out for it without feeling bad.

So they don't pander to the slavering gore hounds, ultra-violent, F-bombing, 'go make me a samich', crowd... Maybe other people should be taking notes.....Other companies will rise like meteors and make great waves in the industry before crashing, burning, and sinking into oblivion. Nintendo will watch it all with an amused smile while they continue on relatively undisturbed. That is what the long outlook does for you; It makes you stable, and Nintendo is the grand-daddy of long term outlooks. (And like most kids, you should listen to your elders... you might learn something.)

Posted:11 months ago

#12

Richard Vaught
Studying B.A. in Game Design

21 36 1.7
Agreed. Unlike the others, Nintendo can shrug off the losses for a long, long time. Fortunately for them, though, they never stay in the red for too long. IMHO they are about the only truly innovative hardware manufacturers out there for the gaming world. Everyone else tries to copy them. Most accessories saw their (mainstream) initial forms on a Nintendo console(Motion controls, balance boards, etc). Most innovative playing styles saw their debut on Nintendo as well (touch screen, Dual Screen, head-to-head, handheld-to-console, etc). Who cares if they don't make all the money, they are the company that all the other ones want to be like, which is why they all copy Nintendo at every turn.

Posted:11 months ago

#13

Robin Clarke
Producer

321 748 2.3
This article seems to assume that America = The World.

This wistful nostalgia US journalists have for the era when Nintendo (legally dubiously) held a monopoly on home console software publishing just looks weird to people who grew up with a diverse range of platforms to chose from.

Let's not even start on the wrong-headed assumption that Nintendo's games have ever been aimed at kids.

Posted:11 months ago

#14

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