Nintendo turns back to toys to fix its broken business

There seems to have been two main reactions to Nintendo’s recent annual loss of $456m. The most prominent is that these huge losses suggest Nintendo’s time is up.

‘Nintendo is over,’ was what one prominent business journalist said on Twitter.

It’s not true. For all its financial miscalculations, Nintendo’s main software brands remain robust. Pokmon X and Y sold 12.26m units alone, making it one of the best-selling boxed products of the year across all platforms, while the Mario franchise sold around 15m games over the last financial year. These numbers alone point to a company that remains popular despite the failure of its latest console.

The other reaction is just as inaccurate: the idea that Nintendo has such deep pockets that it can afford to make these financial losses. No company can afford to report numbers like this, and if it carries on in this wayit will run out of its cash reserves within the next five to ten years.

The suggestions on how Nintendo can turn around its business have been numerous, and we’re not about to make any here. Yes, launching a new blockbuster IP or console are probably the best options, but Nintendo’s problems are immediate and you cannot comfortably turn around a new killer product in the modern games industry in 12 months.

The same applies to cutting the price of Wii U. Retailers told MCV last week that Wii U’s price is simply too high, and it’s hard to disagree. But cutting the price is not a certain fix, and with the company hemorrhaging money it would take a brave CEO to take such action. Nintendo’s immediate problem is short-term: How does it turn its current losses into a profit using the tools and hardware it has already developed?

For all its financial miscalculations, Nintendo’s
main software brands remain robust. Pokmon
X and Y sold 12.26m units alone, making it one
of the best-selling boxed products of the year
across all platforms, while the Mario franchise
sold around 15m games over the last financial
year. These numbers alone point to a company
that remains popular despite the failure of its
latest console.

The platform holder has talked about ramping up the licensing of its big brands and pushing into emerging markets. And we can expect a few more small games, re-releases and remakes to hit the market too. GBA and DS games are being ported to Wii U, and the firm has announced a new Pokmon remake to launch this Q4 on 3DS.

Yet the biggest bet Nintendo appears to be making is by following Skylanders and Disney Infinity into the toys-to-life genre.

The NFC Featured Platform or Nintendo Figurine Platform (NFP) is for both Wii U and 3DS. The latter will require its own piece of hardware, and Nintendo is developing toys and multiple games.

What is especially unique about NFP is that it is not classed as an accessory product of a certain software title but as a platform itself,” Nintendo CEO Satoru Iwata said in a briefing. The figurines are going to work with multiple software titles to be released in the future, and we are aiming to develop more software compatible with the figurines.

Nintendo has a lot of well-known character IP that has originated in video games. This is why I believe a brand-new type of platform will be born when the character IP becomes compatible with NFP. At E3, we will announce which titles are compatible with NFP, display NFP products and disclose specific information about NFP, which will be launched during this year-end sales season.”

The announcement does seem at odds with Nintendo’s strategy of targeting areas that are new and without competition. The firm is moving into a sector currently dominated by the entertainment giants Disney and Activision.

Yet as a short-term financial solution, it is potentially smart. The toys-to-life genre is currently more popular than ever, and last year the market grew substantially. In the UK, more than half a million toys-to-life games were sold over the last nine months alone, while Skylanders is now a $1bn IP.

Nintendo has advantages, too. Wii U already contains NFC technology built-in and it has a number of strong character brands, namely Super Mario.

Over the years we’ve seen the emergence of gaming IPs like Moshi Monsters, Skylanders and Minecraft. But despite this our research has shown that Mario is still the most popular console gaming brand with children,” says Ian Douthwaite, CEO of youth research agency and games development studio Dubit.

A recent project we completed with youth marketing agency FullBottle Group asked over 5,000 children to name the games they’d played most recently, with Mario games coming out on top, above FIFA, Lego, Minecraft and Skylanders. Mario games came out on top again when we asked the children to name their favourite console game of all time, once again beating Minecraft and Skylanders.”

Dubit believes Nintendo’s efforts in this sector could be a success, although questions the strength of its IP outside of Mario.

The idea that Nintendo has such deep
pockets that it can afford to make these
financial losses. No company can afford
to report numbers like this, and if it
carries on in this wayit will soon run
out of its cash reserves.

We looked into the toys-to-life market a year ago, just before Disney launched Infinity,” added Douthwaite.

Then 19 per cent of the children expecting to buy Infinity were Skylanders players, meaning that 81 per cent were new to this type of game and there was space in the market. Although Disney Infinity and the forthcoming Marvel and Star Wars characters make the market more crowded than ever we’re sure the strength of Mario and Nintendo’s other key IPs will ensure their latest project is a success. What will be interesting is the performance of characters outside of Mario games – we’d be surprised if Kirby and Starfox were as popular as the portly plumber.”

Yet the true success of this project may not come down to the strength of brands, but the quality of the software and Nintendo’s commitment to the space.

The firm experimented with a toys-to-life Pokmon title last year called Pokmon Rumble U. The game had a modest roll-out and was not promoted, so it is hard to draw conclusions from its launch. Yet the biggest concern was the quality of the game– it scored just a 49 on Metacritic.

NFP is potentially lucrative for Nintendo and can help relieve its short-term financial pain. Yet Skylanders and Disney Infinity are good games, and Nintendo must invest in the development of NFP products (not to mention the marketing) in order to win over a demanding audience.

We will know more at E3.