Nintendo's plan B is proving a success. While their latest generation of consoles hasn't been able to sell as many units as their predecessors, over at the Big N they know they have to come up with something to consolidate the profits they're currently savouring. But they won't try to achieve this in a singular manner, but by exploring at least five different avenues.
Background
On January 30th, 2014, the recently deceased CEO of Nintendo, Satoru Iwata, announced a big change in the direction of the company to their investors. Their losses, though small, were creating a hostile environment within the company that their video game division couldn't manage to ease. The board of directors gave in to the voices from within and outside the company that demanded a more varied use of the company's coveted licenses like Mario, Pokémon and The Legend of Zelda; names that are of high value themselves and which were overprotected, or so the critics thought.
Indeed, only on occasion had external companies laid their hands on a Nintendo character, and it always happened under the tightest of controls, with the commissioned studios closely monitored to make sure that the IP in question was well treated and to ensure the quality of the end results.
But since Nintendo's plan B was launched, this period in its history seems to be over. It's not written in any public document nor is it easy to decipher the roadmap of such a secretive and isolated company, an organisation able to reveal an agreement that the entire video game industry was waiting for without any leaks or rumours. Only the statements that Iwata made in previous meetings and interviews give some clues as to the direction that Nintendo is now taking. Together with, of course, the official announcements.
And with all those little bits of information we can see that they have a strategic plan in which we can find at least five basic areas. These are what marks the future of Nintendo outside of their own traditional video game space.
1) Amiibo, merchandising and licenses
One of the current fastest-growing sources of money for Nintendo is the revenue they generate by selling Amiibo figures. The NFC statues go beyond toys and plushies, because they are directly fused with software - they both feed from each other.
The numbers are huge - nearly 15 million Amiibos were sold in just over half a year (more than four and a half million in the last quarter), this despite a continued lack of stock for some models, figures so popular that their prices increase tenfold when they're later sold via online auction houses.
Nintendo were overwhelmed by the success, and their Spanish division told us that "they cannot produce more because each figurine is hand-painted". The company has found a solution that will allow them to generate even more money and that should be even more profitable: Amiibo card packs. Starting this summer there will be packs containing Animal Crossing Amiibo cards on sale at newsagent's all around the world (they will cost £3.49 a pack). They have already planned 400 of them as a way of extending the collection exponentially for all those who don't want to miss even one.
This is at the heart of what Iwata defined as the "active" use of their licenses. It's been a little over a year since we've seen them involved with official golf tournaments, toys, vehicles and clothing; always through agreements with other renowned companies like Mattel, Hasbro, Mercedes, Enjoy Caddy or McDonalds. Iwata meant it when he said he would "increase exposure for Nintendo characters so that they appear in media unrelated to videogames."
They made the step forward, but they still seemed worried, hesitant, as statements like this suggested: "Licensing to Mario digitally means that there is the possibility of seeing him on stamps or wallpapers for mobile phones, and I will not reject that type of business [...]. But what we allow will depend on the issue, the customer and the conditions".
2) Mobile games and online platforms
This is, without a doubt, the most important and controversial move made by the company since it settled in the field of video games. So much so that it has caused radically different responses between detractors and defenders of the model: a group of players on the former side and industry colleagues and investors on the latter.
They delivered this huge blow in March of this year, when they announced their business agreement with the company DeNA (which involved an exchange of shareholding), which would bring at least five titles to high quality mobile phones, all of them original. Its aim was to create a stable infrastructure and to attract millions of players to spend through micro-transactions, a successful financial model with huge potential.
It was announced in March but there were already clues emerging in January 2014. Back then, Iwata announced Nintendo's first move into the mobile space, but he only confirmed some apps featuring their characters, not actual games. It's now known that they were already in negotiations with experts regarding the move to mobile. When asked about how he would spend the money accumulated during the Wii and DS era to stay afloat, the Japanese CEO said: "In areas where we are not good [...] There is no plan to acquire companies that are not in the entertainment industry. But we are not limited to the business of video games."
It's a company building around electronic entertainment, namely mobile phones and servers. This agreement is not just about selling games, but it's also about creating a complete infrastructure to connect all its services and platforms through user accounts. Club Nintendo will close down in September and their new console, Project NX, will launch in the wake of this new interconnected infrastructure, so it certainly won't take us long to find out what's next.
3) QoL
QoL stands for Quality of Life, a platform conceived by Nintendo to offer health and sports services linked to entertainment. It was introduced more than a year and a half ago, but they said there wouldn't be more information until the end of 2016 and they're being true to their word. It's known it will be related to hardware, and it's thought it'll be "non-wearable" so that the user feels free and not encumbered by any object or device. Their intention is for this hardware to be used everyday, so it could well be entertaining.
There have been some hints and examples of what we might be getting, things that might, for example, gauge of the quality and quantity of our sleep, but little else.
Nintendo has offered no estimate of what value they might get out of this area, but what does seem clear is their intention to go for an audience that already has products as diverse as Wii Fit and Brain Training at home. Indeed, the platform holders were the ones who opened the door to consoles (both home and handheld, via the Wii and DS respectively) to a huge number of casual players, the same ones who later left in favour of phones and tablets. Getting them back is a matter of offering something different and more exciting, Nintendo says.
4) Low-cost games and licenses to third parties
These two moves are more conventional, at least when considering traditional gaming. Low-cost games and the increase in the number of licenses handed to third-parties, either to work on a Nintendo franchise or to use one of their characters.
It went relatively unnoticed at the time but it could have a big impact, because in one of his last speeches, Iwata also talked about a line of low-cost games that would be useful in giving a new boost in sales to more traditional software. He outlined two roads: the reissue of old titles that had been successful, and the adaptation of successful mobile games for consoles.
We have already seen several examples of both, such as the arrival of Wii titles for Nintendo DS and on Wii U's eShop, or the adaptation of the mobile phenomenon, Puzzle & Dragons. But there has been no data to suggest that this is a particularly large source of income for Nintendo beyond the remakes of The Legend of Zelda. That said, of course, their profitability is much higher than its other products.
Their other decision is proving a lot more successful. It's much less demanding to loan out their characters to other companies so that they also make a profit out of them. Perhaps it was selling more than 25 million copies of Mario & Sonic at the Olympic Games, developed by SEGA, that opened their eyes to the fact that other studios may as well have very different ideas that the public will welcome. It is true that their collaboration with other companies in the industry is historic, but Nintendo's plan B requires them to go even further. Iwata said:
"This does not mean that we will give our rights to anyone, and I do not consider any scenario in which we yield Mario's rights to another company so that they make a video game. We have granted permission for others to use Mario as a character, but always for Nintendo platforms. We believe it is acceptable as long as it is exclusive to our consoles."
And thus there are the cases of Tekken Tag Tournament for Wii U, Monster Hunter 4 Ultimate, Hyrule Warriors or the more recent Skylanders Superchargers. Activision has pushed the limit, or perhaps they have crossed a new line, because they've taken Donkey Kong and Bowser to their own land. But not Mario, and not to other platforms.
5) Amusement parks
It's an extension of the licensing division, but it's so shocking that it may well become a leg of the company itself soon enough. Last spring, Nintendo came to an agreement with Universal to bring their characters and franchises to roller coasters and restaurants. It's not known how it will work, whether they will only be used for attractions, or in themed areas (as the latest rumours suggest).
The only official information about the move came when they originally announced the agreement, that reads:
"Universal theme parks offer incredibly popular, innovative themed family entertainment experiences based on compelling stories and characters - using powerful storytelling and innovative technology. Nintendo has created remarkable and imaginative worlds filled with captivating stories and beloved characters. Now, for the first time, those stories and characters will be brought to life in entirely new ways - only at Universal theme parks. "
This is a step forward in the continued construction of an identity, and in the implementation of the brand in the collective imagination of children and families. Only giant entertainment companies have had the strength to assemble infrastructures of this caliber and keep them afloat. With this, Nintendo follows in the footsteps of Disney and Warner.
Is the brand and its franchises strong enough? Each of these five strategies will have a role in the final answer.