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The State of the Industry: The Fall of Nintendo

The Fall of NintendoNintendo’s business and financial ideology was shaped by the video game crash of 83’. In a time of copycat consoles and next to no level of quality control on the games produced. Nintendo’s had the unique business model of making their game cartridges proprietary, forcing third party developers pay a licence fee to get their games on the NES console. A practise that has become commonplace in today’s industry with the likes of Sony and Microsoft recouping most of their investment in new consoles through the licencing deals they can negotiate. Consoles generally selling at a loses for most manufactures, so a good relationship with third party developers is essential and this is what Nintendo have failed to do. Not only did they ensure a high level of quality control for third party games they also took the majority of development in house. Nintendo took the approach of carrying out the development themselves that way they could have more creative control and retain all of the profits. This strategy during the NES and SNES days helped Nintendo rise to the top and dominate the console market. Super Mario, The Legend of Zelda, Star Fox, etc. have all helped Nintendo to sell consoles and garnered critical acclaim from critics and gamers alike.

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“Nintendo have relied on countless revisions of the Mario games to help boost console sales, but how long can this tend continue?”

However Nintendo’s policies where formed in an era when the video game industry was in its infancy and companies were viewed a kin to toy manufactures. Nintendo having a long and successful history in the toy manufacturing business prior to their switch to the video game industry. The problem they face now is that the video game industry has moved on from its kid orientated origins and matured alongside its aging gamers. Gamers who want something a little more than Mario in a cat suit, a game like The Last of Us dealing with adult subject matter raking in a host of awards over the last year. It is a sign of the times that as far as the console market is concerned games are generally aimed towards an adult audience. Nintendo over the last decade has managed to sell record amount of devices with their Wii console hitting the 100 million mark. In spite of this sizeable market lead many AAA titles that are ported over to the console failed to sell anywhere near those numbers expected for such a popular console. A fact that has led publishing giant EA to become increasingly hesitant to publish any of its titles to Nintendo’s latest WiiU console. Former EA CEO John Riccitiello stating in March of last year, that no future titles were in the works for the WiiU platform.

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 “Nintendo’s flagging console sales saw a sharp increase with the launch of the Wii, its successor the WiiU has come nowhere close in comparison.”

This is the fundamental root of Nintendo’s problems is that despite the falling out between the company and major publishers like EA they ultimately seem unconcerned. Nintendo long ago became the kingpins of the video game industry and it’s a state of mind that they haven’t lost even in the face of their impending failure. Nintendo’s failure is not something that can be predicted by diving into the future but instead taking a look back at the past and a company in a similar situation Nintendo is in today. Sega were Nintendo biggest rivals with the two consistently going head to head with their console platforms throughout the 80’s and 90’s. Like Nintendo they often favoured first party development over licencing deals with third party companies, relying on iconic video game characters like Sonic The Hedgehog to sell their consoles. The 1998 release of the revolutionary but ultimately poorly selling Dreamcast is the device that spelled an end to Sega’s days as a console manufacturer. Sega announcing its intention to become solely a video game publisher only three years later, this has allowed them to remain reasonable profitable within the video game industry. Even going as far as to swallow their pride and negotiate an exclusivity deal for the Sonic franchise with their old rivals Nintendo.

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 “Nintendo might take heed for their former rivals Sega. Whose consoles failure to gain a sizable percentage forced the company out of the console market for good.”

Pride is something that would be a bitter pill for the Nintendo executives to swallow if they ever came to approach Sony or Microsoft about licencing Mario to rival platforms. It is also the fact that despite poor sales for their WiiU console they have managed to retain a decent share of the handheld market in the face of stiff competition from mobile devices. Since the launch of the GameBoy back in 1989, Nintendo have managed to rack up impressive unit sales in that sector of the market. The games developed for the handheld market are generally of a more casual nature and aimed at a younger audience. Something that Nintendo excels at with franchises like Pokémon, Animal Crossing, Kirby, etc. Many analysts have stated that one way for Nintendo to re-establish itself in the industry would be to port many of its handheld titles over to mobile platforms. The latest version of their handheld devices the Nintendo 3DS and 2DS have sold over 42 million units combined, double that of their preceding device. Although something has be said for the fact that there are over 250 million iPhones and over 1 billion Android devices. Just looking at the numbers it might seem like an obvious move for Nintendo to port its games to mobile, but it is unlikely Nintendo will want to enter into a market where they would have to relinquish a certain level of control. More importantly they would have to share in the profits with Apple and Goggle, one reason why Nintendo are so guarded over they own IP’s.

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 “Nintendo have hinted that they are doing some research into smart phone technology, but seeing any of their games on iPhone or Android will be a long way off yet.”

Nintendo is somewhat stuck at a crossroad with it obvious to see that their latest console is a failure but on the other hand they seen positive sales of handheld titles. The latest games in the Pokémon franchise accumulating over 11 million in sales in the last 12 months. Boosts to profits like these will only help Nintendo in a small way with its general loss of market share in the console sector not looking good on their financial reports. Should Nintendo follow Sega’s path and give up on the manufacturing side of things and primary focus on software development. That question will become clearer based on the sales of Nintendo’s next console; the company cannot afford to have another console launch fail to generate sales. Another WiiU would surely spell the end for Nintendo’s console days. However many would have said the same around the time of the GameCube, that like the WiiU lost Nintendo a sizeable share of the market. However they were able to bounce back with the highly successful Wii console so a lot rides on the success of their next console launch. In essence Nintendo needs to remove itself form its self-imposed ideology formed in the early 80’s and join the rest of its competitors in the 21st Century.

By Colm O’Sullivan

Posted in The State of the Industry and tagged , , , , , , , , , , , .

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