July 3, 2022

Is Nintendo banking on its rivals collapsing? (And what happens if they do?)

“Default? The two sweetest words in the English language! De-FAULT! De-FAULT! De-FAULT!” – Homer Simpson

Okay, here’s a question.

Nintendo isn’t really moving very fast. If anything, compared to Sony and Microsoft, one could argue that the pace at Nintendo is positively glacial. Whilst games like Super Mario 3D World hit the bestsellers lists and ensure the Wii U has its first genuine moment at the top of the gaming charts with any real success, and the Nintendo 3DS continues to sell blistering sales records across the globe, internally at least Nintendo are hesitating to run down the roads travelled by Sony and Microsoft – it doesn’t want to pay for exclusivity any longer. It doesn’t want to push microtransactions. And it doesn’t want to push things like season passes.

Nintendo is, however, making a profit. So what does that say about their long-term aims and goals, really? I’ll tell you my analysis;

Nintendo is banking an awful lot on Sony and/or Microsoft leaving the market.

Actually, to consider where Nintendo is coming from, you need to consider where Sony and Microsoft currently are; and in both cases, despite hugely successful launches and plenty of good press, the stories underneath it all are sadly less than pleasant. In Sony’s case – as it has been for years – it’s all a question of money.

Sony have several financial issues; it’s technology hasn’t made money in a decade, or so we’re told. It made money last year, primarily through the sale of assets and property which naturally have value, but this years profits have been revised down after crushing losses – losing $2.2 billion in a day. Whilst Sony are hoping for an overall annual profit, analysis suggests Sony may have to consider accepting that it may not hit those returns. And to couple off these awful happenings, Sony’s credit rating has been downgraded to “Junk”, which means borrowing any money will be expensive and tricky. Add to this that Sony never made a penny on the PlayStation 3, and threw billions away on pushing Blu-ray as the default HD media format (only to be continually outsold by the ailing DVD), and Sony’s issues become easier to pin down.

Blu-ray, I believe, was Sony putting pride before the fall – it didn’t want to lose another media format war, but was ill-prepared for the consequences of securing victory. Likewise, it had to spend a lot to make the PlayStation 3 as popular as it ended up; considering where Sony began, that was not a cheap or an easy journey back. It cost them money in buying exclusives, it cost them money in fixing the PSN Hacking scandal, it cost them money in making the PS-Plus service such an incredible subscription service, giving away hundreds of dollars of free games every month, all of which costs them money – having to buy the licensing arrangements to offer them for free, compensating the companies who made them for not getting any sales for the duration of those offers. You don’t have to be looking very hard to understand Sony’s major issue; it spent a lot to curry favour. And now, it’s not quite sure how to stop doing that. It’s not sure if it can. It’s not sure if it can go back any longer. If it continues to spend, spend, spend – there will be nothing left to spend. Sony’s biggest danger right now is simply that it will, at some point, run out of cash. As hard as that is to accept, it’s a danger that Sony must be acutely aware of.

Microsoft’s issues are comparatively similar but also tangentially different; the XBox division has NEVER made a profit – with those losses being cleverly hidden.

Couple this with the promise of a new Microsoft CEO; and the one most people are watching with interest is if Stephen Elop, ex-Nokia CEO, gets the job. Mr. Elop hasn’t exactly minced his words when it comes to the XBox division – he believes the brand should be cut loose. This may not be down to the dishonest manner in which these losses have been covered up however; Elop may simply have a company strategy that doesn’t quite match up with the future of the XBox. And if you think one man cannot dictate the future of a games console; consider the fact that it only took one man to pull the plug on the Dreamcast (and he now works at EA. Which has never surprised me. Man, I must be jaded…).

Of course, cutting it off could mean one of two things; the first is that it is hung out to survive on its own, without those losses being swallowed by other divisions or revenue streams. In this case, the XBox One would be left to live and/or die on its own monetary strengths and/or weaknesses. And if there was no more money, it would be left to die out on its own accord. This would be rather messy and perhaps even cruel, when you consider that the division has obviously been losing a lot of money for a long time – some may argue the end is inevitable if left to survive alone. On the other hand – some would perhaps argue that had this been the way it worked to start with, the XBox One would likely not even be on the market now. The division would have ceased to operate years ago.

The second would be selling the whole division off as a going concern; a (dys)functional business seeking new ownership. But this is fraught with peril too; who, let’s be honest, will want to buy a gaming division which has historically made no profit at all? There’s a point at which someone would turn around and need to ask the question. How much would it be valued at? How much could it sell for? What of its debts – will they be inherited, or paid off? There are many questions to be asked. And with so much water already passed under the bridge, no doubt any prospective buyer will want a full structural examination of the whole thing before they even consider an offer – because ultimately, why buy something when you know already that it’s leaking money? And a potential buyer would also have to likely renegotiate a fair few business deals, or end up losing or cutting off internal studios. It would be a very bloody affair.

Either way – the XBox division is not out of the woods yet. Whoever comes in, they will no longer be able to turn a blind eye to the XBox. And that puts it in a precarious position.

Considering the position its rivals inhabit, Nintendo’s confidence that it can outlive them seems rather well-placed.

Because there’s a logical inevitability in what Nintendo believes – or appears to believe. That in the long-run, it will win. Sony and Microsoft will spend themselves into an early grave, and the only one left at the end of it will be Nintendo. And to Nintendo, that’s worth slower sales, or a smaller market share in the short-term. Because ultimately it is seeing a bleak future for its rivals; self-destruction on a grandiose scale. The death of not one, but two huge gaming giants unwilling or perhaps unable to grasp the basic principles of business and marketing. And when they fall, the only one left in the main market will be Nintendo. Then Nintendo doesn’t have to spend anything on exclusives. Or pay for third-parties. Because there will be only one console left standing.

In effect, Nintendo seems to believe that it can win not by out-performing its rivals, but by default; simply, by doing the one thing they cannot. Make money.

Some of you may find that difficult to stomach so just bear with me, because I don’t for a second believe this would be very good for the market either. The basic logic of what Nintendo seems to be aiming for is sound; it really is. Because it’s absolutely right that a company that makes money reliably will have a longer lifespan than one which constantly struggles to balance its own books. The problem Nintendo has is not one of its rivals collapsing; it’s how the market would react to them folding.

EA for example; can you see that company having enough humility to reconsider its working operation with Nintendo? Or will they – as I envision – simply end up on PC, pushing their Origin service as hard as they possibly can? UbiSoft have similarly burned a lot of bridges with Nintendo this year; bridges that UbiSoft may not be able or willing to rebuild. Capcom’s historic relationship with Nintendo is also one of extremely frosty encounters. There’s no doubt that Capcom do their very best work when under the umbrella of Nintendo; but similarly, they struggle to make money there. Their other console offerings are of much lower quality, but more profitable overall. What does that tell you? And what of others? Bethesda have kind of made it clear they couldn’t and wouldn’t work with Nintendo. I can’t see CD Projekt doing so (although that said, I’d rather like to see what they could do with the Wii U hardware!).

Even if Nintendo is right, and Sony and Microsoft suffer and wither away, the question has to be asked; what are Nintendo doing to ensure that these publishers, and developers across the board, would then come to their shores? Nintendo isn’t building any sort of space for them right now to inhabit; there’s no long-term planning permission to consider the idea of an influx of potential refugees. And that brings about a serious problem, and ultimately one that does go right to the very heart of Nintendo as a company; what is it doing for the INDUSTRY?

That, I believe, is fundamentally it’s biggest issue right now. Not sales numbers. Not reputation. Not even the appearance of standing still. Nintendo’s enduring problem is simply that in recent years, it hasn’t been able to maintain a working relationship with the worlds strongest publishers, or developers. Indies of course will love Nintendo; the lack of overheads is a massive boon. But EA, UbiSoft, Capcom et al have survived a long time suckling the lifes blood from Sony and Microsoft; it has not been a symbiotic relationship, it has been a parasitic one. They have taken – and in some cases, even then their games haven’t made any money. What happens when that money dries up? They would have to change their entire business model in order to be compatible with Nintendo. Nintendo is very unlikely to feed them in the same way. Even with market dominance, the question remains as to whether these publishers would make any money at all without extensive cuts. Cuts that would only serve to punish us, as consumers, with less content than we’ve perhaps been accustomed to in the past.

Nintendo may of course be completely right not to offer such services; heck knows that it can’t be doing Sony or Microsoft any good in the long run. But ultimately, a lot of this is clearly compensating for much deeper ailments. Most publishers struggle to make money on their big games. Games are exceedingly expensive to make, produce and market now. More emphasis on the marketing; often marketing budgets can be twice the cost of making the game in the first place! Advertising space is at a premium, and TV time is more expensive the larger the audience share you aim for. Nintendo makes money because, well, it has some of the biggest brands in the market. Mario has been around for decades. Mario is bigger than most other brands. Also, Zelda. Pokémon. Metroid. But the same is not true for others – as timeless as Nintendo’s successes are, many others rise and fall in a spectacular bright, but short-lived, half-life. And Nintendo may have to accept somehow that the house of Mario isn’t the default method of business in the world today, no matter how it feels about it.

It’s why Nintendo look so unappealing; you get brilliant flashes of light – and no doubt in the coming months, there’ll be even more with Mario Kart 8, Bayonetta 2, Smash Bros. and other titles in the works. But fundamentally, this is all Nintendo do and work towards; their own ends, their own titles, their own desires. And that has worked for them – let’s not delude ourselves here, it has obviously gotten Nintendo where it is today, and made them a global company with cash reserves that most in the industry would be rather envious of. It’s worked. We can’t deny that, and must accept that it is this internal strength that ensures Nintendo’s continued survival in the face of vocal opponents like Pachter, continuing to insist on its demise in the face of all facts and numbers suggesting the opposite being true.

But if it were to end up being the only machine on the market, Nintendo may end up finding that it cannot assume the same positions of Sony and Microsoft; no matter how long it has been on the market, no matter its financial stability, the simple truth is that it simply isn’t preparing for the eventuality, it just… waits. It simply assumes it is coming, and isn’t taking any steps to make the transition tolerable or simpler – precautions that could entice business towards its doors before disaster even strikes. It isn’t setting up shelter, or making its grounds more tempting for those seeking a valid alternative away from a potential market apocalypse – creating homes for genres and licenses that would strengthen its cause and lend a sympathetic ear. It’s not adjusting anything, it’s not stockpiling anything and if anything, the money it is expending right now is to vastly expand – or even overextend – its own studio base; creating more in-house Nintendo games than ever before. It appears to be gearing to ensure its own continued survival; rather than ensuring the survival of others. And that could most certainly be considered selfish; cruel, even.

It’s just… going to stand there. And smugly watch as things unfold. And that will, for so many – both as consumers, as developers and as publishers – be unforgivable. Nintendo saw it coming. And did nothing for those who would suffer most in the aftermath.

And its an image Nintendo must seek to change; an image it must be seen to be changing. The consequences for them not doing so would be catastrophic. If this potential market collapse does happen, it will be ill-equipped to deal with the harsh realities of an entire industry seeking a new home on its land. If it doesn’t happen, the possibility is that Nintendo will spend years being seen as a company that only serves its own self-interest; a company that simply seems to have no interest in others, or what others are doing.

Either way, Nintendo are only hurting themselves right now. Even if the long-term goal seems reasonable enough…


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3 thoughts on “Is Nintendo banking on its rivals collapsing? (And what happens if they do?)

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