Nintendo
a fundamental analysis
Part 2
By Manuel Maurício
April 09, 2021
Last week, I made an introduction to Nintendo. I talked about the cyclicality of the console business, the plans to dampen that cyclicality by extending the life cycle of the Switch , the shift to digital sales, the opportunity to expand into mobile, and the current efforts to further monetize its incredible IP.
But Nintendo’s culture is so peculiar that without understanding it, investors won’t be able to figure out if the company will finally break from its its boom-and-bust model.
There is a certain way of Nintendo doing things that can’t be found on its financial documents alone. To understand Nintendo one has to know its history, how gamers see the company, and how the management sees the gaming industry.
Nintendo’s is all about two things: brand preservation, and the gaming experience. Whatever the document I read coming from the company, this idea is always there. It’s a fine balance between two apparently conflicting ideas: the willingness to preserve an immaculate image through constant innovation.
Take for instance other famous gaming franchises like GTA or World of Warcraft. You’ll notice that the IP (Intellectual Property) is squeezed by launching new games or expansions every few years with just slight modifications to the previous one. Yes, the stories change, but there’s nothing radically new in a lot of those incremental sequels or spinoffs.
Nintendo doesn’t do this. Nintendo will only work on a new game when it has a new, somewhat radical, idea. And this philosophy doesn’t apply to the software only. Most of the times, Nintendo’s new games are only possible with a breakthrough in hardware as well (think Wii Sports or the new Mario Kart Live: Home Circuit).
There’s another strong trend in the gaming world of creating and playing games similar to social platforms. Think Fortnite or Roblox. They’re virtual worlds that are “always there” and the studios just keep improving them. On top of this, they’re agnostic to the platform where they’re played.
Nintendo doesn’t do this. Shifting from developing new concrete ideas with a beginning and an end to keep adding or making slight improvements to something like a social platform would need a massive change in the company’s culture.
Nintendo prides itself of its ability to create new ways of playing. Just look at this picture…
… or this video…
Nintendo has always striven to come up with new, fun ways to interact with its games, and that’s unlikely to change. Even with their mobile games, this is true.
There are rules as to how mobile games should be designed to increase monetization, and Nintendo has tried to break them. Just think that Mario kart for mobile didn’t even have a landscape mode when it launched.
An example of what Nintendo can do well on the mobile front is Pokemon Go. Although Pokemon isn’t Nintendo, the company supposedly owns a big chunk of it. Pokemon Go was a huge success. It was revolutionary. No one had ever mixed the real world with a game before.
But the pursuit for something unique has also led to great failures. After the WiiU failure, Nintendo pointed mobile as an important part of its future, but with the recent success of the Switch, it seems that its efforts on the mobile side have cooled off.
“We strive for the utmost quality rather than simply increasing the amount of exposure to our characters.”
Conclusion
I started this write-up talking about getting to know Nintendo’s culture. So far, I think I’m beginning to get it. These guys are all about keeping the brand intact and doing things the Nintendo way.
“Our mission is to bring smiles to as many people as possible, all over the world”.
They’re not exactly looking to maximize revenue or profits. They’re on another level. They’re on a quest to create and maintain a multi-generational legacy. I admire that. I really do. It’s a truly unique company.
Just so you get a sense of how careful Nintendo is about its brand (but not its shareholders), the management once told its co-developers to adjust the mobile games (monetized through in-game sales) so that the players wouldn’t spend too much on their games. It’s easy to understand why many investors don’t like Nintendo.
To conclude, the great thing about Nintendo – its creativity and symbiosis between software and hardware – also hinders its ability to create a steady revenue stream.
There is a strong argument in favor of Nintendo which is the fact that the management is finally shifting its model to incremental improvements of the Switch. This will likely allow for more focus and recurring sales, but will Nintendo really be able to pull it off?
Nintendo’s way is so different from what I’m used to that I’m still not able to answer that question. But I won’t be forgetting it. In fact, this is such a unique story that I’m genuinely interested in finding out how it will develop.
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