Nintendo’s Beliefs Versus Steam-Style Economics

This varies a bit from my normal stories about travel, but I found this subject to have extremely interesting implications, and a very, very complex series of problems. Nintendo, which originally saved the videogame industry, is now finding itself in a position of being financially crippled by their recent business decisions.

Recently, there have been multiple stories levelled at Nintendo’s current financial performance, and it has been far from optimistic. Due to some manner of over-sight or over-zealousness in sales predictions, sales targets for WiiU’s had to be chopped around 70%, from the posh neighborhood of 9 million units sold to the “slums” of 2.8 million, with an expected loss of around 25 billion Yen ($240 million, €177 million), as said in this 18 Jan. Bloomberg.com article. Satoru Iwata, Nintendo’s CEO, has also come out to say that Nintendo is “thinking about a new business structure,” likely in light of multiple years of losses, and combined with their currently underwhelming 3DS and WiiU sales.

How Nintendo has gotten to this point, however, is not from any one source, but a result of years worth of controversial hardware choices, technical limitations compared to other consoles, their attitude or approach to certain demographics of gamers, among a few other, less direct conflicts with opposing markets.

Whether this means a branching of Nintendo services past their own systems and integrating those of mobile systems is still entirely unknown. I personally doubt they will ever entertain the option of placing their first-party titles upon other consoles, they would have to be at borderline bankruptcy for that to even be an option. Even then, there may be a super consolidation to the hand-held industry, as Nintendo’s Gameboy legacy still holds strong to this day. There may be a conflict with pricing, as extremely few mobile users will likely be willing to pay current costs of 3DS games in their mobile stores, when most games rarely go past the 5€ mark, nevermind 30-40€+. They are looking into their options in the mobile markets, with Iwata going on to say:

“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 smart phone.”

I’m entertaining the idea of a Nintendo phone, perhaps, or a modified 3DS with cellular functionality. If folding screens is set to be the “future” of mobile phones, why not one screen that simulates two for games, but has a normal, single-pane screen for regular use (call me, Reggie)?

The Wii entered Nintendo into an interesting position because it was such a vastly unique design and approach. They avoided hi-definition, introduced the Wiimote, had extremely limited internet accessibility, and typically catered to a far more casual fan-base than that of prior generations. The Wii was a universal system, for young and old alike, yet alienated all but the most devoted of hardcore Nintendo fans. This catering to the massive casual demographic has been a trend no major publisher has been exempt from. They have all, in some degree, tried to get their hands on the millions upon millions of potential buyers that may like to kill a few minutes on the TV with an easy, fun little experience before going off to do something else. Nintendo knocked it out of the park with the Wii, but also giving it a sort of negative connotation amongst hardcore fans as a sort of “kiddy console,” as a result. To the tune of over 100 million units sold, Nintendo didn’t really mind some disagreement to their practices.

However, the casual market is just that, casual, so to maintain sales past the initial purchase may prove far harder, especially if they are satisfied with merely playing on the game included with the console (in this case, WiiSports). Nintendo made an astounding level of sales, but with limited future potential, as many of these consumers may have no real interest in games, there is largely no longevity to the investment into the casual market past the initial purchase. The Candy Crush generation of gamers have little desire for high costs, high commitment from their gaming.With the WiiU, Nintendo changed some aspects, like high-definition, better internet service, multimedia integration, a larger emphasis on core gamers and multi-platform titles from large studios, but to the casual audience, they already owned a Wii, they already had the games they have interest in playing, so why would they invest in yet another console that seems almost exactly the same? Same-ish name, with a bigger controller. To hardcore gamers (the long-term, repeat investors), many did not return to Nintendo due to the previous slight with the Wii, possibly partly due to yet another new control scheme, a lack of strong release titles, slow development of the most anticipated titles, and Nintendo’s slight against them by largely catering franchises and new releases to the casual audiences.

In addition, this family-friendly approach turned away scores of gamers who crave the profanity and violence that other platforms are too happy to provide. Some notable exceptions exist, like No More Heroes, House of the Dead, Manhunt 2, and Silent Hill: Shattered Memories for example, but many of those series existed on other platforms, and thus provided little incentive to this large audience looking for violence. Or of the few ports that Nintendo released from other consoles, like Dead Rising or Call of Duty, were typically heavily censored or limited due to the differences in hardware specifications between the Wii and the likes of the Xbox 360 or Playstation 3. Not that this is exactly a negative against Nintendo, per se, but a slightly disturbing predilection of the modern gaming generation, perhaps. Past that, simply mature titles were largely absent. Not violent for the sake of being violent, more mature games (like Heavy Rain, Mass Effect, or even Braid (a game suitable for children, but has storytelling depth) to name some examples) were just in extremely short supply. For people looking for more than fun, there was little draw. Not to say there’s a problem at all with games made for amusement, but there are many, many gamers looking for more than that.

Personally, Nintendo’s pricing has always been a thing of fascination and frustration to me. The earliest I can recall the situation was with Pokémon. Red and Blue, the first incarnations of the series in the US, maintained a high price point even with the release of the next iterations: Gold and Silver. When the Gameboy Advance came out, the big, first-party titles like any Mario game or a Pokémon title would maintain high price points years after release (I remember buying a copy of Super Mario World Advance used for something to the tune of around $27 (20€ or so) maybe 2-3 years after it was released. There were certain Gamecube titles that eventually had this same sort of occurrence. Perhaps due to the rarity of some titles (Eternal Darkness or Metal Gear Solid: Twin Snakes are two I always hunted for, and never saw less than $30 (22€) and became extremely hard to locate in any game stores, online was usually even worse). Part of this has to do with the nature of the used game market, which is a fickle, unpredictable, and temperamental beast. There were rare titles on other systems, of course, but they were usually niche titles with limited releases (most Atlus titles stand out to me, here). Nintendo’s distinction is that this extended to their first-party games, not just niche games. Super Smash Brothers Melee on the Gamecube remained $40-50 (29-36€) until into the Wii age, when, I believe, it sunk to the $30 (22€) mark and stuck. A quick Amazon search shows it’s now being sold new for $119 (87€) and used for as low as $49 (36€). This is just because it’s gone into the hell that is the used game marketplace.

[Small aside: This hell I mention is that any game with a niche quality, or rarity, or distinction will cost a king’s ransom to purchase online or in retailers after it leaves regular display, yet inevitably can and will be found at yard sales or flea markets for a tenth of what formal retailers ask. The way I have always experienced it is that the instant you shell out for it, you find it extremely cheap somewhere else, or if you hold off on purchasing it new, it disappears from stores and into the hands of the Esoteric Order of the Used Game Magi, where they deem it worth more than it originally released for; if you want it, see the first point, rinse and repeat. Except for emulation, which is another argument altogether]

Enter the Wii, and these same practices kept up. Years after release, Kirby games, Mario games, Super Smash Brothers, and others stayed at the $40-50 range, while platforms like Steam and other digital services like Playstation Network, Xbox Live, with retailers like Gamestop, Target, and Best Buy cultivated a sort of culture of discounts and sales. A first-party game in the US typically begins at about $60 (44€), and I know it’s even worse in other markets. Give it maybe two to three months (especially if the game under-sells or it’s close to Christmas), and it is easy to see the price already sink to $40-45 (29-33€), and with some of Steam’s sales, new titles can sometimes get cuts as low as 40-50% for a day. It lends to a sort of expectation of depreciation. When in 4-6 months, the cost can be nearly halved at retail, and after 8-10 months, an inevitable “Game of the Year” edition comes out with included DLC that usually ends up costing just about as much as the game originally did, all for less than original retail value. Economically, it’s nuts. Pay anywhere from $60 at retail, then maybe $40-50 for DLC, then a few months later, all of it comes out in one package for $50? Who, when they do the maths, really sees that as a good system? An article I read recently discusses this sort of market, and how some see it as an insult to the fervent fans, whilst being a disincentive for more casual players to invest. It’s controversial, as launch sales for many games are still ridiculously high on both Steam and, in this case, Good Old Games. It makes the publishers happy of course, but ultimately it is the most ardent of fans that get screwed, paying top dollar for something rendered moot by a sale or special edition. It’s truly disposable income. If the players enjoy their time, then it had its worth by some degrees, but only in spirit. Economically, it’s a pure negative.

Enter Nintendo. Their frustratingly persistent high costs go entirely against this sort of system, where you know that Mario game will stay expensive; Super Smash Brothers will stay high. In a weird way, they keep their value for years. You pay more, but you can almost always be assured that the value will remain, and that unless the game proves to be terrible, it will stay valuable. Not to mention DLC has never been Nintendo’s strong suit (changing somewhat with the WiiU), so later special editions are far more rare. It just clashes so strongly against an entire market of gamers expecting deals and exorbitant depreciation for most titles. It works both for and against themselves and their consumers. A sort of double-think, in a way, as people get greater economic value from their purchase with Nintendo, but they see that every other system utilizes huge sales, and they see themselves screwed out of yet more money. If they also are in the passionate class that will pay for full-retail and all subsequent DLC, a total catch-22. Nintendo sort of exists in its own state, alongside the other market, yet is part of the same industry. Like a communist sitting in a board meeting with capitalists (not to imply Nintendo is communist, of course. They totally love money, too). Whether there is fault on other side to be placed, it’s hard to say. Nintendo’s policy is far more classic, old school, whilst the systems like Steam are more modern, rapid-exchange, rapid-deprecation type of markets. Separate sides of the same street, really. But it is still a problem that Nintendo has actively faced.*

Additionally, online functionality has always been Nintendo’s weak point. They’ve had interconnectivity, but it was never optimized or utilized well. You had the awful transfer cables for the Gameboys, I think most commonly used for Pokémon, but never really progressed past that for some time. The Wii’s online presence was almost a joke compared to the breadth and quality of Xbox Live or the Playstation Network. Online interactions were limited, connections typically poor, few games supported the feature, and if they did, the amount of people at a time was quite small. Their method of user accounts were “friend codes,” which were 12-digit codes needed to be entered for anyone you wished to play with. A frustrating and time-consuming affair for anyone involved. With the WiiU and 3DS, they have improved the system substantially from before, it is far more robust, though player counts are still quite low (5 people on WiiU, 7 on 3DS) compared to other systems (up to 64 players per server on Battlefield 4 on both XboxOne and Playstation 4, for example). It’s almost as if they’re trying to do now what Microsoft and Sony did with their last consoles. Nintendo is seemingly playing catch-up, and is suffering as a result. Their mobile system, however, seems more robust, and seems more well-supported (and successful) than those of Sony’s PSP series (and Microsoft doesn’t have a hand-held console). StreetPass, for example, allows communication, active or passive, amongst 3DSes for trading ingame items or content for free. SpotPass attempts to give a persistent, background wifi connection to a respective device, allowing for updates and services to be available at any time. Compared to how the Wii was, it’s a vast improvement. It’s not to say the 3DS didn’t provide other problems for Nintendo.

3DS was Nintendo’s jump on the 3D bandwagon, along with the rest of the entertainment industry (Playstation incorporated it, films incorporated it, TVs incorporated it, etc.). Problem was, it killed the battery life of the 3DS, can only be used at a very specific angle, and in 2011, stories came out stating Nintendo warned that the 3D projections may injure the developing eyes of a child. More articles have come out possibly refuting these claims, but even if it were an erroneous rumour, that threat may be on the minds of millions upon millions of parents considering buying one of these units. If something would be a deal-breaker, permanent retinal damage may be a big one. Economically, the sales for the 3DS were so poor at launch, they chopped the price from $250 to $170, Iwata took a 50% pay cut, and other directors took pay cuts around 20-30%.

*[Personal Note – An Optional Read: I personally reside in the frugal discount camp, but not extremely so. $60 is an unthinkable amount of money to spend for a game that I know will go down to $40 in a couple of months, and even less with special sales. If I like the developer, or the game really seems worth it, sure, I’ll pay more. It just isn’t important enough to pay and play a game at release, when most games have become shorter, or avenues for DLC additions. The only thing I risk is spoilers. A part of it is partly due to my lessened obsession with videogames as I’ve grown older, and seen the industries change in ways I’ve found distasteful. I still play plenty of games when I can, and read up on the industry whenever I can (I am writing an article about minute aspects of videogame socio-economics), but to think of paying the costs they the industry themselves effectively admit as highly disposable and arbitrary (“$60 games? Because money, that’s why.”), is unconscionable to me. I want a game to have enough value for me to buy it, either by pure economic reasons or by the content the game provides to my interests. This may imply I’d be more for the Nintendo system of pricing, but I am admittedly under the sway of the Steam sort of mindset: I really don’t want to pay that much for a game, period. I readily admit it’s somewhat contradictory. I care about the value a game presents, yet I’m reluctant to pay for something with a higher cost yet constant economic value. There is far more to it than mere economics, of course. If a game means more to you in its contents or meaning, there may be no limit to what one may pay. I paid about $50 for Silent Hill back when it was still in stores, and I don’t regret it for an instant it’s still a favourite, and that was during a time when $50 was a fortune to me. Yet, if I was presented with the same situation now? A game for $50? You know, I’d probably pass it up and hope for a better deal.]

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