Nintendo stalls in a changing world
Nintendo, the world’s largest video games company behind the popular Wii games console and the Super Mario Bros and Pokémon brands, has announced a 45 billion yen ($562 million) annual operating loss. This represents a 36.2% drop in revenue and its first loss for nearly 30 years but Nintendo’s CEO Satoru Iwata has dismissed the situation as a blip caused by a strong yen and weak European and American economies. I believe this view is ill-informed and is symptomatic of Nintendo’s slow reaction to fundamental changes in the video gaming world.
Historically the video gaming industry has revolved around the console. In this market Nintendo dominated by ensuring its hardware was the most innovative and sophisticated on the market. Up until recently it has lead the video gaming industry with technological firsts which include the Game Boy, the first portable gaming system, the Nintendo 64, the first 3D consult and the more recently the Wii, which featured the first wireless controller. In this market each video gaming company tightly controlled their hardware and software which meant Super Mario Brothers has only been available for Nintendo and Sonic the Hedgehog has only ever available from Sega. Unfortunately for Nintendo, new technology has emerged from unexpected sources that have changed all this – the tablet and the smartphone.
The popularity of the tablet and the smartphone together with their multi-functional uses, sophisticated graphics, easy-to-use controls and portability of the devices has encouraged game developers like Rovio and Zynga to release their games directly on to these platforms, allowing them to bypass the console manufacturers and sell to a bigger market. Gamers have embraced being able to download games directly to their device, play other gamers online and the greater variety now available.
These changes have been coming for some time and other console manufacturers like Sony and Microsoft have not been as affected as badly as Nintendo, as they have both allowed online gaming and games to be downloaded for a number of years. In an effort to compete with Sony and Microsoft, Nintendo has revealed that its latest console, the Wii U, an updated version of the Wii set for release in the fourth quarter of this year, will allow users to download games directly from Nintendo’s website, though I don’t think this will be enough.
Nintendo needs to accept the changes in the industry and undergo a strategic rethink. It needs to match Microsoft and launch its own version of their online gaming platform Xbox Live, which was launched as far back as 2002 and has been a phenomenal success for Microsoft with over 40 million members to date. It also needs to release control of its games so that they can be played on non-Nintendo devices, which will dramatically increase sales of its software and allow it to reverse its decline.