Monday, January 26, 2009

The Nintendo playbook

We're all still scrambling to explain the runaway success of the Nintendo Wii. More than two years after its release, you can't find one on store shelves unless you're very lucky. Nintendo has sold every unit it's shipped, and has made a profit on each one. The "hardcore" among us have looked at the barren release schedule and wondered where the software was, while nearly every game that's come out has been a massive hit. The Wii has captured the imagination of millions of people who didn't consider themselves gamers at all.

Why are we so surprised? All this has happened before.

Nintendo's playbook hasn't changed since the launch of the Nintendo Entertainment System, the game console that in the 1980s grabbed 90% of the market and whose name became synonymous with video games in the minds of parents everywhere. In the book Game Over: How Nintendo Zapped an American Industry, Captured Your Dollars, and Enslaved Your Children, published in 1993, author David Sheff laid out in meticulous detail Nintendo's rise to dominance. Sheff interviewed major players like Hiroshi Yamauchi, Minoru Arakawa, Shigeru Miyamoto, Howard Lincoln, and many other names I remember coming across in Next Generation magazine.

See if you can tell whether the keys to the success of the NES were any different from those that have vaulted the Wii to the top of the industry.

Nintendo emphasized profitability.

What system do you think the speaker is talking about here?
"The Nintendo way of adapting technology is not to look for the state of the art but to utilize mature technology that can be mass-produced cheaply," says [the speaker]. He sought to make something smaller, thinner, and lighter than anything ever seen -- something that was also fun. (28)

Not the Wii, obviously. But it's not the NES, either. That's Gunpei Yokoi talking about his handheld Game & Watch system. Even before the Famicom, Nintendo's M.O. was to utilize pre-existing technology and to streamline its production. Money was to be made not just on software, but on hardware. Compare this to Microsoft and Sony, each of which sold their latest consoles at a loss (in Sony's case, as much as $260 per unit as recently as last spring).

Nintendo constricted supply to create demand.

Not that Reggie Fils-Aimes will admit to this, but it's eerie how the supply and demand curve for the Wii matches that of the NES. Hardware shortages both real and artificial plagued the NES, which resulted in sustained demand over multiple holiday seasons. The NES launched in the United States in 1985. Four years later, retailers still couldn't stock enough:

Before Christmas 1989, Peter Main was threatened with bodily harm and lawsuits by company managers and presidents who blamed him for single-handedly destroying their business. The only stores that had Nintendo products at Christmas that year were retailers that had sufficient cash reserves to allow them to begin hording systems and games that summer. (203)

This is equivalent to the Wii still being hard to find for Christmas of 2010. But considering that units were still hard to come by this past season, that's not so far off.

Nintendo treated software the same way.

...Nintendo did not fill all of the retailers' orders, and it kept half or more of its library of games inactive. In 1988, for instance, it sold 33 million cartridges, but market surveys showed it could have sold 45 million. That year retailers had requested 110 million cartridges, or nearly 2.5 times the indicated demand. (194)

Hands up if you attempted, fruitlessly, to find a copy of Wii Fit last spring. Obviously demand was high. But perceived demand was even higher when consumers went to one store after another, only to be told that the game was sold out.

Nintendo kept third-party publishers on a tight leash.

Most analysts blamed the great video-game crash of 1983 on a flooded market. The story of Atari bulldozing millions of E.T. the Extraterrestrial cartridges has become the quintessential cautionary tale, the "Bloody Mary" of the industry. As a result, Nintendo placed draconian controls on third-party publishers. All games had to be approved by a team of Nintendo employees. Game cartridges required a specific chip, patented by and only available from Nintendo itself, in order to even work in the NES. Most interesting to me, third-parties were permitted to release only 5 different games in a year.

Some companies skirted the rules. Konami created a second imprint called Ultra, which allowed the company to release 10 games in a year. Acclaim bought LJN, but kept the two brands separate for the same reason. An Atari brand called Tengen went so far as to hack the lock-out chip and release games without Nintendo's authorization.

As far as I know, we're not quite there yet with third-party Wii software, but the next time you wonder where all the new games are for the Wii, this is probably why. Nintendo doesn't need to let any old company release games for them, not when they can dribble out their own sure-thing properties every six months to a year, and even rely on occasional unexpected grand slams like Carnival Games.

Knowing all this, it's no surprise that the Wii is such a hit. It wasn't a result of Nintendo's still impressive cachet. This is a company that never lucked its way into success. The Wii is just a bit of history repeating.

Game Over: How Nintendo Zapped an American Industry, Captured Your Dollars, and Enslaved Your Children seems to be out of print, although my local library stocked several copies.


Anonymous said...

It's a fantastic book, I own two copies (different editions).

Mitch Krpata said...

The title makes it seem like it's going to be Rising Sun-style paranoia, but yeah, it's a great read. Very well researched.

Sparky said...

I'm not sure I get that last bit. There's no shortage of games for the Wii at all, especially not third party games. It's just that the greatest abundance of Wii games comes in the form of minigame collections, kid's games, and IP knockoffs, i.e. games the hardcore crowd generally isn't interested in playing. The Wii release schedule has plenty in it, just not much that we want to play.

Unknown said...

It makes me wonder though, if their success was or is to be found by repeating what they've already done before, then why was the Gamecube such a flop last gen? The quality titles were still there, but the reputation surrounding the console and the company itself (who hasn't really changed since last gen - save maybe for the casual focus) was in a word, poor. Everybody made Nintendo's console the scapegoat and it was a kids' console according to the haters out there. Arguably, the Wii could be considered the exact same thing yet it's loved by everyone?

It's weird how it has turned out and while I'm sure there are many ways to explain the various things that come up in this discussion, it's still interesting to ponder.

pulrangs said...

@Steven O'Dell

There are probably many other factors, but I have read/heard over time that there were two hardware issues with the GameCube that helped sap third party support.
The discs were smaller than normal, and they spun in reverse of the normal direction. Producing the discs apparently cost enough extra money that many publishers didn't want to spend the money to do so.

Anonymous said...

Reinforcing Sparky's contention is the recent IGN article on Winter, the lost Wii game...the impression I've been getting is that Nintendo will publish just about anything that people make for the Wii, it's just that publishers still aren't sure what's going to sell, and aren't willing to take a chance on big-budget, high-risk properties. This makes it seem like there are fewer releases, when actually, I'm pretty sure there have been more Wii games released than Xbox 360 ones despite the former's younger age. It's just that so few of those releases are notable ones.

Nintendo is sort of implementing a similar policy to their "Seal of Quality" by picking and choosing who they want to give certain technologies -- like online functionality and Mii support -- to, but they certainly don't seem to be discouraging anyone from making software without that stuff.

Mitch Krpata said...

I wish I knew where even to look to find an actual list of all the games available for each system, so we could compare. Wikipedia has something like it, but cross-referencing is difficult. You guys are probably right that I have this impression of there being no games for the Wii at all, but of course every system has its share of shovelware.

Anonymous said...

Do you think other parts of that history will repeat as well? The NES created millions of gamers, but Nintendo was unable to retain a lot of those customers through each new console. A lot of gamers who had loved the NES found themselves looking for something different and found it on the PC or the PlayStation.

I don't mean to be predicting that a Waterloo awaits Nintendo. The company made a killing with the Wii, but it's not easy to reproduce this kind of phenomenon.

Anonymous said...

I assume you've read some of Sean Malstrom's articles? He's been doing a lot of interesting Nintendo business analysis, among other things frequently pointing out Wii/NES similarities. If you haven't, one place to start is Drowning in the Blue Ocean. Another good one is Birdmen and the Casual Fallacy, though that's less directly related to what you're talking about here.

Michael said...

The "hardcore" among us have looked at the barren release schedule and wondered where the software was, while nearly every game that's come out has been a massive hit.

Is this really the case because the impression I get is that if your game isn't published by Nintendo it's not selling. A notable, although understandable, exception being Guitar Hero.

puzzles sudoku said...

Actually, I'm not surprised that the Nintendo Wii is so successful. It's a great family console with wonderful games.