Nintendo's Difficult Year

By Keza MacDonald on at

Nintendo hasn’t been ahead of its gaming-hardware rivals in terms of either innovation or sales for the last few years, but the games industry pays attention - even when it’s not leading the pack. It is the most consistent, long-standing company in a very volatile business, able to weather change, failure and unexpected success with equal sobriety. At the beginning of 2016, Nintendo was a total mystery; following company president Satoru Iwata’s passing in July 2015, it felt like the doors had slammed closed. There was a new console on the horizon, but the company was saying nothing about it. The release schedule ahead was conspicuously devoid of big games. The goofy, open tone of the Iwata-era Nintendo Directs was significantly toned down.

Behind the scenes, Nintendo was obviously adjusting to new leadership and, potentially, some new strategy from current president Tatsumi Kimishima. From the outside, though, it looked like nothing much was happening. Nintendo brought nothing to E3 except Zelda: Breath of the Wild (which, amusingly, nonetheless managed to steal the show by itself). Few games were released for either Wii U or 3DS in 2016, and Paper Mario, Starfox, Metroid Prime: Federation Force and Fire Emblem Fates could only generously be regarded as “big”. It’s essentially been a rest year, before the company embarks upon major new console launch next March with the Nintendo Switch.

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Nintendo’s half-year financial report this week showed the company in good health and profitable overall, but also reinforced what anybody who’s been paying attention has known for a good few years: sales of the Nintendo 3DS have long since dropped off, whereas sales for the Wii U never really picked up in the first place. Nintendo’s money at the moment is coming from its bonds, partnerships and assets (and the sale of its stake in the Seattle Mariners baseball team), but it’s weathered a rough operating loss (that is, the money a company makes from actually making and selling things). Nintendo has made a 5.9bn yen loss from selling games, consoles and Amiibo in the last six months.

This is not a surprise, given that Nintendo has barely released anything this year. Eyebrows have been raised at the fact that Nintendo’s digital sales are down, where digital sales are an ever-increasing proportion of pretty much every game company’s sales - but given that last year saw lots of Mario Kart and Smash Bros DLC and this year saw… nothing, that’s not indicative of a worrying trend.

Nintendo also made significant money from its partnerships - companies that it co-owns or receives royalties from. Pokémon Go was one of the biggest things that happened this year, quickly becoming one of the most popular mobile games ever, but because Nintendo doesn't own its developer, Niantic, it did not benefit from its world-spanning success to the extent that you might expect. Or to the extent that ill-informed stock-market traders expected when they caused Nintendo’s share price to double in the early days of Pokémon Go’s success, only to send it plummeting again when the company released a polite statement pointing out that it hadn’t made the game.

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Pokemon Go did cause a 19% uplift in sales of 2DS/3DS Pokemon, though, according to the report. 3DS sales overall were also up on last year in America and Europe. This is likely to pay off for Nintendo when Pokémon Sun and Moon come out, too. Kimishima states in his presentation that Nintendo has been in a position to spend 2016 capitalising on the large numbers of people who already own a 3DS, focussing especially on children and families, rather than selling many more of them - despite the Switch’s imminent arrival, there may be life in it yet.

Smartphone game Super Mario Run was an interesting, unexpected announcement in 2016. There is quite a lot of interesting information about Nintendo’s mobile strategy in the president’s presentation that accompanied this week’s half-year financial results. Kimishima reiterated Nintendo’s goals for mobile gaming, in business-ese: “we would like to utilise smart devices as a platform to reach the maximum number of consumers with our IP. Of course, we also expect the smart device business to be profitable on its own, while generating synergy with our dedicated video game systems to maximise the potential of Nintendo’s overall business strategies.”

By the end of March next year, there will be Nintendo mobile games based on Animal Crossing, Fire Emblem and Super Mario. 20 million people have signed up to be notified when Super Mario Run releases through the App Store in December, the presentation states, and it’ll hit 150 countries instead of the previously-announced 100.

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There was no evidence in the numbers that Nintendo’s first mobile game, Miitomo, which the company says has now reached 15 million users, has had much of an impact on the year. Kimishima said that it had “not been impactful from a profit perspective”, but that it had proved a useful first foray into this unfamiliar market. It’s getting a big update soon though, so the experiment is not over.

It was only a week ago that Nintendo came out of the shadows with a new console, the Switch. A hybrid home-console and handheld built around social gaming and portability, the Switch bears so much of what looks like Satoru Iwata’s design philosophy. It’s been very well-received, so far, but we won’t learn more until January 2017, after Nintendo’s rest-year is over.

The Wii U, we can now definitively say, is Nintendo’s least successful home console ever. It’s sold 13.36 million in total and Nintendo is only shipping another 0.8 million of them before next March, the report says. That puts it 8 million behind even the Gamecube, and it's even more galling when compared to the Wii/DS era sales.

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Nintendo is a company with vast assets, however - it has around $5bn in the bank in cash alone, and around twice that in assets - and is able to weather such misfires. It is not in need of “saving”, and the Switch doesn’t have to be a Wii-level mega-success to turn things around. Nintendo is so financially sensible as a company - in line with Japanese business tradition - that it has traditionally made decent money on even its less popular consoles. But nobody’s made much out of the Wii U. Two misfires in a row, though, would be an enormous blow to both investor and player confidence.

This makes 2017 a very important year for Nintendo. The half-year financial results estimate 2 million sales for Switch before the end of March. Nintendo is by no stretch of the imagination a company in dire straits, and the Switch doesn’t have to “save” it by doing spectacularly well. But it would certainly help to restore faith in Nintendo’s ability to innovate and invent new markets for itself in the ever-increasingly crowded world of consumer tech. And it would help to restore some excitement among players, too.

All images and data: Nintendo Co.