Nintendo Needs a Magic Mushroom, and Mobile May Be It
Last Friday, the President of Nintendo admitted that his company can learn from the great success of smart devices and the growing market for mobile gaming.
After three years of hemorrhaging money, Nintendo is facing a lot of pressure to pull itself out of dire straits and adapt to the current gaming market, which is shifting to mobile and smart devices (mobile gaming is the fastest growing segment of the video gaming market). Even the President of Nintendo, Satoru Iwata, admitted at last week's press conference that he needs to "think about a new business structure." However, Iwata was careful to note that his company, which has been a dominant player in the video game industry for nearly 30 years, will not rush into any quick solutions.
"Given the expansion of smart devices, we are naturally studying how smart devices can be used to grow the game-player business. It's not as simple as enabling Mario to move on a smartphone," he said.
Only a few months ago, Iwata firmly stated that he believed migrating the Nintendo business model to mobile-only would threaten the long-term survival of the company. In a June 2013 interview with The Wall Street Journal, Iwata said, "If we think 20 years down the line, we may look back at the decision not to supply Nintendo games to smartphones and think that is the reason why the company is still here."
Now, with financial woes pressing upon the company, a compromise may be in order. As Iwata told the press, "We must take a skeptical approach whether we can still simply make game players, offer them in the same way as in the past for 20,000 yen or 30,000 yen ($192 or $287) and sell titles for a couple of thousand yen each."
One of Nintendo's greatest assets is its catalog of games: Franchises like Mario, Zelda, and Pokemon have always been top-selling and exclusive assets for the company. In fact, many say the Wii U has failed because these games have not yet been introduced to the system. Of those top franchises, only one has seen a game released: New Super Mario Bros. U is the system's best-selling game (excluding Nintendo Land, which was sold bundled with the system) with 2.15 million copies sold.
Because of Nintendo's stable of lucrative franchises, Ashli Dotto, Co-Founder of the mobile app tool company Joppar.com, believes that any reinvention will have to first start with games.
According to her, Nintendo needs to start by releasing a handful of retro titles exclusively to one app store "to see what works." Based on app store reception, she says, those games should then be expanded across multiple platforms, to Sony's (NYSE:SNE) Playstation 4 and to Microsoft's (NASDAQ:MSFT) Xbox One.
(That would be quite a controversial move, as Nintendo's exclusive games bring all their revenue back to Nintendo, whereas cross-platform games share revenue amongst the different platforms.)
From there, Dotto says that Nintendo ought to remake and release all their major titles on both Apple's (NASDAQ:AAPL) App Store and Google's (NASDAQ:GOOG) Play Store. She also thinks the company should launch its games on the future Apple TV, if it is ever released. Rumors about Apple making an all-in-one smart TV have been circulating for years.
Dotto foresees the future of monetization at Nintendo looking more like the market for apps. She told us the following:
All of this will be monetized by charging a premium, something like $9-$20 in the App Store for current titles, like Mario Kart; $4.99 for old titles like the original Super Mario Bros., subscriptions for multi-player capability and updates, in-app purchases for new characters, bonus levels, etc. And they will charge for special hardware that they may even sell in the Apple Store and [places like] GameStop (NYSE:GME).
Another analyst, Amir Anvarzadeh of Singapore's BGC Partners, supports Dotto's opinion, and draws attention to the possibility that transitioning Nintendo games to smartphones and tablets could bring gamers back to Nintendo's own machines, so that the company would not have to stop making consoles. As he told Bloomberg in a January 20 interview, "Nintendo has a treasure trove of highly recognized characters. They could make billions in carefully devising a strategy that could exploits its strength in content without the price destruction that would come for abandoning its hardware."
However, some analysts, like Michael Pachter of Wedbush Securities, are calling for Nintendo's complete withdrawal from the hardware market. As he put it bluntly to Bloomberg, "Nintendo's console side is broken. They're not even an also-ran there, they just don't matter." He believes that Nintendo should sell its games not only for phones and tablets, but for the Xbox and the Playstation as well.
Given what Iwata said during his press conference, Nintendo's actual game plan may prove much more conservative. Despite his willingness to study "how smart devices can be used to grow the game-player business," Iwata seemed more interested in the less extreme options posed by Dotto and Anvarzadeh.
This may seem like stubbornness on the part of Iwata, but in reality, losing console exclusivity would nullify the major competitive advantage that Nintendo has developed with its best-selling franchises over the last three decades. Despite Nintendo's current sales predicament, the company's $170 handheld, the Nintendo 3DS, was the top-selling video game system in 2013, selling 11.5 million units. Game sales in 2013 for the system increased by 45% over 2012. Giving up on exclusive distribution of best-selling games like Zelda: Link Between Worlds and Pokemon X/Y would deprive Nintendo of a significant amount of revenue. Maintaining a presence in hardware while leveraging the popularity of app-gaming to bring gamers back to Nintendo may turn out to be a strong next move for the company.
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