THE STATE OF NINTENDO
Nintendo is likely the most classic and well known game company in the entire world. They’ve made nostalgic fun games that have captivated hundreds of millions of people across multiple generations. The Switch alone has sold well over a hundred million units, and they’ve even had a movie come out about one of their biggest IPs: Mario. But, behind all these layers, the sad reality is that Nintendo has actually been undergoing a massive recession.
Now, it’s not like they’re about to go bankrupt or something but they have been losing ground for over 15 years now. Way back in 2009, for example, Nintendo was pulling in over $17 billion in revenue. Over the next decade, this would drop nearly 80% all the way down to $3.6 billion.
Since then, they have been staging a pretty strong recovery with the Switch and their mobile games, but even with that, Nintendo has only been able recover to a little over $10 billion in revenue and that’s not even accounting for inflation. If we throw inflation into the mix, we’ll see that Nintendo is only pulling in about half of what they were back in 2009. And that’s just the revenue side of things.
If we look at the stock side of things, we’ll see that Nintendo is struggling to surpass their 2007 high and again, that’s not even accounting for inflation. And what’s worse is that to make the Switch work, Nintendo had to basically cannablize their entire business and bet it all.
So, now they’re less diversified and more volatile than ever. And this becomes especially dangerous given that we’re approaching the end of the Switch’s lifecycle with it already being out for nearly 7 years. Given that the Switch is still selling quite well, it seems that Nintendo is willing to keep it around for an extra year or two.
But sooner or later, Nintendo will have release a new console which as we’ve seen in the past is often hit or miss. So, join me as we take a closer look at what happened to Nintendo and their struggle to recapture their former glory.
THE FALL BEGINS
Taking a look back, we can’t talk about the legacy and success of Nintendo without mentioning the NES and SNES. Compared to modern console sales, these systems didn’t actually sell all that well coming at 61 million units and 49 million units respectively. But, their impact on the gaming industry was much larger than just these numbers.
These consoles are what really put Nintendo on the global map, introducing franchises like Mario and Zelda to the entire world. Nintendo had a much different approach back then as well. It was all about pushing the boundaries in terms of power, performance, and innovation. The Nintendo 64, for example, basically redefined the entire gaming industry with its revolutionary experimentation with 3D graphics.
Fun fact, Nintendo was even experimenting with VR way back in 1995 with the launch of the Nintendo Virtual Boy. And all of that was just the console side of Nintendo. Nintendo was also making substantial progress on the handheld side of things with the Gameboy and later the DS. But, moving into the 2000s, Nintendo would flip all of this on its head.
Instead of continuing to push the boundaries with performance and graphics, Nintendo decided to experiment with their first gimmick: motion controls. It turns out that motion controls are actually an extremely heated topic and much of the core gaming community hates then with a passion, and when you hear them out, it’s not surprising why.
For starters, motion controls are inherently less reliable than buttons, and this makes a big difference when it comes to more intense games. And second of all, people play video games to relax and chill out, not stand up and move all over the place. But while the Wii and it’s motion controls didn’t appeal to hardcore gamers per se, you know who it did appeal to?
Basically everyone else and I don’t mean that in a metaphorical sense. This is probably the only console in history that grandparents bought not as a Christmas present but as a console for themselves. The idea was that games like Wii Fit and Dance Dance Revolution were a fun way to stay fit and active for any age group. And as for younger kids, well, being able to swing a Wii remote as a golf club or a baseball bat or a tennis racket was a lot cooler than just pressing buttons.
And all of this led to the Wii becoming Nintendo’s best selling home console of all time selling just over 100 million units. Motion controls weren’t the only gimmick that Nintendo was experimenting with though. After producing single screen handheld devices for over a decade, for some reason, Nintendo would decide to make the DS a dual screen system.
This functionality was basically never useful in any game but that didn’t really matter because it gave the DS a cool factor that helped it become the most successful handheld of all time, selling over 150 million units. This concurrent explosion of the Wii and DS made the late 2000s a magical time period for Nintendo but it also led to a rather faulty line of reasoning.
The idea that Nintendo needed some sort of gimmick to maximize sales and reach as many people as possible. The reality was that this was never what made Nintendo successful in the first place, but nonetheless, Nintendo would end up doubling down on gimmicks and they would find out the hard way that this wouldn’t always end well.
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GIMMICKS FALL FLAT
Nintendo’s next big gimmick was of course 3D with the 3DS. Around the time that the 3DS launched, 3D TVs were gaining a bunch of steam due to Avatar. Avatar had shown that 3D could be done a tasteful cinematic way that enhanced the user experience, and given that Avatar would go on to be the biggest box office hit of all time, it’s no wonder why TV makers and eventually Nintendo also wanted a piece of the pie.
But as you would guess, their implementation of 3D was nothing like Avatar’s implementation. Nintendo’s implementation of 3D wasn’t an artistic choice, it was an eye catching feature to sell consoles which it did somewhat do. The 3DS only sold about half as well as the DS but that still added up to a solid 75 million units. The same, however, could not be said about the Wii U.
The Wii U’s gimmick was that you could play console games on a handheld device. The catch was that you could only be like 15 feet away from the console so it wasn’t actually all that useful, but then again, that never stopped the DS, Wii, or 3DS. Something that did stop the Wii U though was terrible marketing.
For starters, they decided to name the console the Wii U and the design looked almost identical to a Wii, atleast to the average person. The main controller that you were supposed to use to control the Wii U other than the GamePad was also just regular old Wii remotes.
So, it was natural that many people thought that the Wii U was just a pro version of the Wii as opposed to a next gen console, leading to really poor sales amongst casual buyers. As for the core gaming community, these guys knew that the Wii U was a new console but it didn’t appeal them all that much. Again, it seemed like Nintendo was just putting all of their eggs in the gimmick basket instead of really pushing forward the industry in terms of perfomance.
So, much of the core gaming audience preferred to just get an Xbox One or a PS4. And all of this was only made worse by positive feedback loops. You see, the better a console sells, the more game developers that get on board, and the more games that come out, the better the console sells. However, this works the other way too.
The worse a console sells, the fewer game developers that get on board, and the fewer games that come out, the worse the console sells eventually leading to a deep dark abyss in terms of sales which is precisely what happened to the Wii U. The Wii U would end up being Nintendo’s worst selling console of all time only selling 13.5 million units.
For perspective, that’s only about an 1/8th of the Wii. Honestly, this was quite a shame because despite the Wii U’s flaws and shortcomings, it was actually a super underrated console with a bunch of solid first party games like Super Mario 3D World, Mario Kart 8, and Splatoon. In fact, a lot of these games would just get ported to the Switch and end up selling really well.
So, the Wii U definitely had a some hidden gems but in terms of sales and financials, it was nothing but a failure. And given that the 3DS and 2DS were also starting to wind down in terms sales, Nintendo needed a new hero product: enter the Switch.
BETTING IT ALL
By the late 2010s, Nintendo’s financials were looking more depressing than ever with revenue being down nearly 80%. And that’s why in 2017, Nintendo would make an unprecedented move. The move to combine their waning handheld business with their waning console business. The idea was obviously that these businesses might be able to accomplish more together but it also meant that Nintendo was risking it all on just one console: the Switch.
To be honest, the Switch didn’t solve any fundamental issue with the Wii U. Being a hybrid console, it was not even comparable to the Playstation or Xbox in terms of performance. And Nintendo was still very much betting on a gimmick to sell the Switch. The gimmick that you could take the Switch on the go.
In that sense, the Switch was really just a better version of the Wii U. It even had a bunch of the same games but where the Switch really made a difference was marketing. The name of the console itself was indicative of what the console was all about. It was about switching between handheld mode and console mode.
The Switch also had new controllers, a new console design, and a brand new generation of kids to market to. And it turns out that this face lift is all the Wii U needed in order to go from being Nintendo’s worst selling console to being almost their best selling console. The Switch currently stands at a 132 million units sold meaning that they may even be able to take the crown for the best selling console of all time, but that title is rather misleading because the Switch isn’t directly comparable to any other console on that list because it’s a handheld and a console.
The Wii and the DS sold a combined 255 million units, so from that perspective, the Switch is only doing about half as well and that’s why Nintendo’s financials are also only doing half as well. They basically cashed in on both their handheld audience and their console audience to make the Switch a success. Maybe that’s not such a bad thing though.
Thanks to the rise of smartphones, selling a separate handheld gaming device is harder than ever. So, combining handheld and console and developing games separately for smartphones may have actually been a good long term move from Nintendo. Speaking of mobile games, while Nintendo’s mobile games are extremely popular clocking in at 738 million total downloads, it seems that their mobile revenue has been on a decline for 4 years now, not even benefitting from pandemic.
And given that Nintendo themselves have admitted that their mobile games aren’t meant to be massive revenue drivers, it doesn’t seem like mobile gaming is the new era Nintendo either. All of this makes it very unlikely that Nintendo will ever revisit that peak that they set way back in the late 2000s, but maybe that’s not such a bad thing. While revenue isn’t doing better than ever,
Nintendo has figured out how to make similar levels of profit by doubling their margins from 17% to 35%. So while they may not be as ubiquitous as they once were, they are as profitable as they once were. Whether this success continues on into the future is of course very dependent on how their next console performs. But seeing Nintendo experiment with new avenues like mobile gaming and even movies, it seems that Nintendo is open to adapting and evolving but only time will tell.
