HONG KONG – Nintendo has a new strategy. Now, what is it?
For years, young gamers have increasingly put aside their Wii wands for smartphones and tablets. For years, console maker Nintendo has stuck to those wands and to the strategy that made it one of the world’s top game makers — selling consoles and handhelds linked to games featuring the mustachioed plumber Mario and the perpetually endangered Princess Zelda. They and other Nintendo characters inhabit a closed world that requires anyone who wants to play a Nintendo game to have a Nintendo machine.
With the growing popularity of free mobile games, that stance has proved costly. The company lost ¥59.3 billion (S$660 million) over the three fiscal years that ended in March 2014. Sales have decreased for five years in a row and in the latest year were down 70 per cent from their peak in 2009; the steep decline in the yen helped Nintendo to a profit of ¥41.8 billion in the latest fiscal year. Today the machines have “virtually zero” value, Mr Atul Goyal, an analyst in Singapore with Jefferies, told Bloomberg.
So now Nintendo is working on games that people can play on mobile devices, with no Nintendo hardware required. President Satoru Iwata has also gotten into the toy business; on May 7, he announced that Nintendo would work with Comcast NBC Universal’s Universal Studios theme parks to create attractions based on its characters. More changes are likely to come, including possible movie deals, Macquarie analyst David Gibson wrote in a report published on Friday (May 8).
If it all sounds a bit like the US company that built a theme-parks to video-games empire on the back of a mouse, it is. As it tries to capitalise on its trove of popular characters, Nintendo “can become something like Disney”, says Mr Gerhard Fasol, chief executive officer of Eurotechnology Japan, a Tokyo consultancy. “They are basically creating a Disney-like ecosystem.”
Nintendo’s first big step outside its comfort zone was its move into the toy business last year, with the debut of Amiibo figurines, based on Nintendo characters, that can interact with games. The strategy is similar to that of rival Activision Blizzard, which has Skylanders, and to Disney Infinity toys that are based on characters from Disney’s Pixar, Marvel, and Walt Disney movies.
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The more important change came in March, with the announcement that Nintendo would work with DeNA, a social media and game company based in Tokyo, to create games for mobile devices. The two have said they will have five titles by March 2017. The partnership gives Nintendo access to a growing market of mobile games that should top US$45 billion by 2018, Bloomberg Intelligence analyst Jitendra Waral wrote in a report published yesterday.
While Nintendo’s modest step into toys didn’t do much to reassure investors—its stock price fell 10 per cent last year, as Japan’s benchmark Topix index rose 8 per cent—the company’s new strategy is a hit. The Tokyo-traded shares reached a 52-week high today of ¥22,220, a level they haven’t reached since early in 2011. Nintendo sounds pretty optimistic. It forecast today that operating income would double to ¥50 billion in the current fiscal year, although it’s worth noting that Nintendo has a history of over-exuberance when it comes to predicting its financial performance.
All the excitement is coming before Nintendo has proved it can succeed at this. Its first mobile game will be out by year-end, DeNA said, with “key talent” from both companies already working on it. It’s still unclear which characters the games will include. Macquarie’s Mr Gibson notes that the producer of the popular Mario Kart game is among that talent lineup. While dribbling out some details of the DeNA plan, Nintendo isn’t saying much about its theme park dreams. “This sort of endeavour to actively use Nintendo IP has been progressing,” Mr Iwata said, in a statement.