So a funny thing happened the other day … I went for a walk. Now, by this point you can imagine why. My wife loves taking walks, but currently I walk for a living at my retail gig, so to me a leisurely stroll is anything but enjoyable after nine hours on my feet. However, on this day I’d heard that around our local lake Dratinis are prevalent, and daddy needs a new Dragonite. This is the power of Pokemon Go. It makes you do things that you wouldn’t otherwise do, while at the same time making money for it’s makers. Its a fascinating study of capitalism and could mark both the rise and fall of Nintendo as we know it.
Nintendo has been struggling
One of my fellow writers touched on this the other day, but I’d like to be more explicit.
This chart should give you the gist. Nintendo had a startling rise about the time the Wii and DS came out, and then there was a massive drop in revenue. This shows the stuttering sales of the Wii U (released Nov. 2012), and a more recent report shows Nintendo only recovered, profitability wise, by 2015. That means from 2011 to 2015 Nintendo didn’t turn a profit. Moreover, what profits they’ve been making have been meager at best. Now it’s hard to compare Nintendo to their competition as both Microsoft and Sony are massive conglomerates who don’t look at their consoles as primarily for gaming. Their strategy is similar to Apple’s; they want to create an ecosystem around your life. Microsoft wants you using their phone/PC/xbox/zune/etc. To them xbox doesn’t have to be profitable for it to be a success. For Nintendo however, the upcoming NX has to be a success. The NX has felt for a long time like a make or break moment for the company … until now.
Why Consoles Don’t Matter Anymore
For many hardcore gamers, consoles are the only way to game (excluding PC which is far superior), but both PC and console gamers have missed out on what is happening on the business side of things: mobile gaming. Electric Arts (EA) is a juggernaut in the gaming industry and looking at their Q1 2016 earnings several lessons can be learned.
- Free-to-Play/Freemium games are a major sector of money that Nintendo has been missing out on.
- DLC drives revenue.
- Exclusively mobile gaming makes up a large segment of revenue, (larger than what EA makes on full game downloads, i.e. that copy of Mass Effect 3 you downloaded off their site, or that disc you bough from Best Buy).
I’ve been saying it for years now, but now I have actual statistics to back it up: Nintendo needs to be a mobile first company. After all, Nintendo basically invented mobile gaming, and it’s always what they’ve done best.
Why Pokemon Go just saved Nintendo
The entire time I’ve been writing and researching this article I’ve had my iPhone 6 open waiting for the odd pidgey and rattata to pop up (gotta get me a better Pidgeot). I never do that. I hate mobile games. Most lack the game mechanics and gameplay interface to keep me interested. But in the time it took me to write this paragraph Nintendo made $5,555 (five minutes at $1.6 million a day) via people buying Pokeballs. This game added $8 billion to Nintendo’s market cap. It’s still only worth $28 billion. This means a number of things: It’s investors vote of confidence in Nintendo’s nascent mobile strategy, and that the NX isn’t under as much pressure. The reason the NX isn’t under so much pressure? Because hardware is not the future of gaming. Nintendo is the only primary game developer that still makes hardware. SEGA got out of that business over a decade ago. So sure, Nintendo can keep throwing money at the NX, but let me posit another idea. Nintendo should make a phone instead.
So, lets look at this comparison of the iPhone 6, iPhone 6s Plus, and Nintendo Wii U:
So performance wise, the Wii U is right between the two models. This is partially because the Wii U is underpowered and four years old, but the point stands: current mobile phone are more powerful than anything Nintendo has produced thus far. Moreover, that means they could, theoretically, run every game Nintendo has ever produced. As CPU and GPU makers are focusing more and more on making their products smaller and more energy efficient, we are seeing mobile processors shrink the gap in performance between them and their larger siblings.
Nintendo is better equipped than their competition
Nintendo has always, even to their detriment, focused on being innovative and creative in developing their games. That’s how they continuously get us to play the same games with the same stories, (Zelda anyone?), because they focus on gameplay over everything else. I mean, Pokemon Go wasn’t even made by Nintendo and it’s already the most innovative freemium game ever made (except for the fact that it’s just a stripped down version on Ingress), and the mobile gaming market is in dire need of innovation.
Currently when I look at the free games there’s basically two models: the Candy Crushes and the Clash of Clanses. Every game rips off these two models and it makes it very hard to take them seriously because even they can hardly cover the veneer of cynical greed within them. It’s so bad that South Park did an episode on it years ago and it’s still relevant. The closest to innovation I’ve seen had been Square Enix porting their old titles to iOS and Android. In speaking of that, lets look at Square Enix.
Oh the illustrious makers of Final Fantasy. Back around the late 90s (when a certain black and white game came out), Square was the king of RPGs. Now they can hardly crank out a good Final Fantasy game to save their lives. However, as their sales of new titles declines, their profits are going up thanks to mobile. Even just by Nintendo porting titles over to mobile they’d make money hand over fist (judging by the litany of horrendous emulators and ROMs). That’s before you even begin considering the new titles that Nintendo could cook up to innovate the freemium market.
Mobile is dangerous, however
EA is already starting to see profits from mobile level off. I personally think it’s because people have caught on to the freemium model and want none of it, but there you go. In addition, I’m seeing the same cracks form in Pokemon Go. In order to keep catching Pokemon you have to have pokeballs, which you can only earn by going to a Pokestop … which at most you’ll get five balls. You can use five balls just by trying to catch an obstinate rattata. That means, regardless of how often you visit a pokestop, you’re going to have to spend money on this game just to play it. There is a balance to good gameplay and greed, and that’s a very fine line to ride. I have confidence that Nintendo can do it, it’s just that they have to try.