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Nintendo (Japan)

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Nintendo invented the phenomenon of home computer games, but has seen its original lead overturned by more aggressive competitors. For better or worse, it brought us the delights of Pokemon, the Super Mario Bros and other digitized characters who, during the 1980s and 1990s, managed to break out into broader popular culture. But more recently, Nintendo's one-time dominance has been undermined by new competitors. Long-time rival Sega fell by the wayside, but the company's hold over the home console sector was stolen by Sony in 2000, and further weakened by Microsoft's Xbox. Those twin rivals now dominate the market. Nintendo also faced competition in the handheld market, a segment in which it had enjoyed a virtual monopoly since the late 1990s. The company bounced back in 2006, delivering a stunning return to form with its Wii console, which reclaimed mastery of the sector through innovative technology and software designed to appeal to a broad family audience. However, Nintendo had appeared woefully unable to come up with a new device to succeed that now ageing device. A new console, the Nintendo Switch, finally launched in Spring 2017, and after a slow start, managed to win over a sizeable audience by the end of that year.

Advertising

Click here for agency account assignments for Nintendo from Adbrands.net. Ad Age estimated global measured advertising expenditure of $327m in 2014. Nintendo declared advertising expenses of Y72.6bn ($655m) for the year to March 2018.

Competitors

Nintendo's main rivals are Sony and Microsoft. See Information Technology Sector index for other companies

Brands & Activities

Caught off-guard at first by the success of Sony and Microsoft's gaming products, Nintendo invested heavily in research and development, the fruits of which began to appear in 2004, with a series of new products which demonstrated a renewed inventiveness and an emphasis on "all-access gaming", targeting all age groups from kids to seniors. Financial performance improved dramatically as a result. The Wii console, with its innovative gyroscopic controller, showed that Nintendo still had a trick or two to teach the market. Sales were spectacular, soaring past both rival consoles. However that wave began to recede in 2009, demonstrating the urgent need for Nintendo to find a new angle if it is to maintain its independence. The lack of a strong successor to Wii has begun to create serious financial problems since 2012.

Nintendo develops, markets and distributes interactive computer games software and hardware. The traditional core of the portfolio is its home gaming consoles. The first new home console since 2001 was launched in November 2006. Named the Nintendo Wii, its biggest selling-point was a controller pad with built-in motion sensors which allowed it to be swung in the air like a sports club or a weapon. This led to a few problems following launch, with many players accidentally injuring themselves or bystanders as a result of over-zealous use. However the novelty value proved a huge hit with gamers. By January 2007, research estimates suggested that the Wii had captured a 68% share of new console sales in Japan and 45% in the US, far exceeding the new Xbox 360 and PS3 consoles. By August 2007, the Wii had overtaken Microsoft's Xbox 360 in cumulative sales to become the top-selling "next generation" console.

A major step forward was provided by the launch of Wii Fit in early 2008, which gave sales a significant additional lift by appealing to a completely new demographic of adults and even seniors. During the year ending 2009, the company sold just under another 26m Wii units, bringing the total at that point to more than 50m. That figure was more than twice the total sales of the Nintendo GameCube, the Wii's predecessor, which sold around 22m units between launch in 2001 and its termination in 2007. It also far exceeded Sony's rival PS3 console. Yet sales began to slow during the following year, slipping to 20.5m units in the 12 months to March 2010, to 15.1m in the year to 2011, and then plunging to just 9.8m for 2012. Total cumulative sales by March 2016 were 101.6m units.

Nintendo launched a long-anticipated successor to the Wii console towards the end of 2012. However it was not a completely new project, but a reinvention of the existing system under the name Wii U. The new device offered a larger, tablet-style controller with its own integrated hi-def touch-screen display. (According to one reviewer, "it looks like an iPad had a baby with the Nintendo DS"). This could be used in conjunction with a television, like the original Wii, or be used as a motion-sensitive handheld console in its own right. However, consumer response to the upgraded device was tepid at best, with sales volumes of under 500,000 units in the six months to Sept 2013, compared to a full year target of 9m consoles. Sales eventually reached 2.7m units by the end of March 2014, but that was still less than a third of launch target. A total 12.8m units had been sold by March 2016.

A brand new device has been pencilled in for launch in March 2017 under the name Nintendo Switch. The new system allows users to switch seamlessly between portable gaming and big screen play on a home TV. After a slow start, it proved itself to be a significant hit with the company's traditional supports.

Despite the success of Wii, Nintendo's most popular products are still its handheld devices. The original Gameboy was introduced in 1989, and was followed in 2001 by the Gameboy Advance, with a larger screen. The flip-top format Gameboy Advance SP was launched in 2002 and a smaller version, the Gameboy Advance Micro, launched at the end of 2005. Until recently, the Gameboy had few rivals as the world's most popular gaming device. Its first direct challenger came in 2003, with the launch of Nokia's N-Gage mobile gaming phone. More serious competition was provided by Sony which announced plans for its own handheld device, the Sony PSP.

As a result, Nintendo unveiled a significant upgrade of its Gameboy concept with the Nintendo DS, which offers two screens as well as wireless communication and even voice recognition software. Launched in North America and Japan in time for Christmas 2004, the DS device was a consistent high seller, with sales still rising more than four years after its launch. Performance was enhanced by a concerted move beyond the traditional audience for gaming devices, with software designed to appeal to the broadest possible market. The Brain Training series of puzzles played an important role in attracting older adult users, and that appeal was emphasised by a marketing campaign featuring celebrities quite far removed from the gaming sector. Perhaps the most significant of these to-date was actress Nicole Kidman, who loaned her star power to the Brain Age software series. As a result, the DS reported its best-ever sales in the year ending 2009, shifting 31.2m units (more than twice as many as Sony's PSP handheld).

An upgraded version, the DSi, with additional features including two cameras and an integral music player, was launched in Spring 2009, followed by the 3DS which offered 3D gaming without the need for glasses in Spring 2011. However, the 3DS was a significant flop, with sales well below target. The original Gameboy sold a combined total of almost 120m units before it was discontinued. The DS topped 154m, but the 3DS had managed less than half that by March 2016, just under 59m units. Sales of Nintendo's dedicated handheld gaming devices have been decimated by the spread of smartphones, and their increasingly sophisticated games, many of them - not least Angry Birds - strongly reminiscent of Nintendo's own designs. The DS family is further bolstered by an additional service, Nintendo Wi-Fi Connection which allows users to play against other owners via a proprietary wireless network. Rumours began to emerge in 2016 that the group might be working on a new handheld device, code-named the MH.

Key to Nintendo's success to-date has been its software, produced either inhouse or under license by third party designers. The group has sold well over 2bn games across its various formats since 1985, including 17 of the 25 best-selling games of all time. The top sellers tend to fall within the group's four main franchises: Donkey Kong, Zelda, Super Mario and Pokemon. More recent hits have included Nintendogs, a big seller on the DS, shifting almost 24m units, and the Brain Age series of puzzles for both adults and children. For years, the company strongly resisted any temptation to produce versions of its own games for other platforms, not least for smartphones. However the gradual erosion of its position forced a change of strategy in 2015, and a partnership with Japanese software developer DeNA to co-develop titles for mobile gaming. The first release, social networking app Miitomo, was unveiled in Spring 2016, with downloads topping 1m in the first week. Nintendo also agreed to license its characters to Universal Parks & Resorts for a series of immersive rides. However, the biggest success came with the release of Pokemon Go in 2016, an "augmented reality" smartphone app in which players must seek out Pokemon motifs in real world locations. There were only limited financial benefits to Nintendo from that game, which was developed by third-party company Niantic. However, at the end of the year, Nintendo's own Super Mario Run game for iPhone proved to be a spectacular success with more than 40m downloads in its first four days.

Historically, Nintendo's greatest strength has been its mastery of the important pre-teen gaming market. Nintendo's world has strong similarities to that of Walt Disney. The company's games can be relied on to be fun, entertaining, but above all non-threatening. While Sony and Microsoft both went in pursuit of a teenage male market for whom brutal violence is a major selling point, Nintendo's world is more likely to feature cuddly animals and challenging but comparatively uncomplicated gameplay. As a result, Nintendo reaches twice the potential market - girls as well as boys - but the most important benefit is in cost. The sophisticated movie-real games expected by teenage players can now cost between $5m and $10m to develop. The younger market is a little less demanding, with the result that software can be produced more quickly and cheaply.

Nintendo has a growing presence in China through affiliated company iQue, which markets Nintendo models under license, as well as its own range of handheld route planners. Until 2016, the group also held a majority stake in US baseball team the Seattle Mariners. It sold its shares that summer for $661m.

Financials

The phenomenal success of Wii gave its best financial results to-date for the year ending March 2009, although growth had slowed dramatically. The company's revenues had hovered around the Y500bn-Y560bn mark for the whole of the first half of the 2000s before rocketing with the popularity of Wii. Doubling in 2007 and soaring by a further 75% in 2008, revenues peaked in 2009 at Y1,839bn. Since then, however, there has been steady decline exacerbated by the lack of any breakthrough new device.

For the year to March 2017, revenues fell to Y489.1bn ($4.5bn), the lowest level since 2003. The group reported annual losses in ye 2012 - its first annual deficit for more than 30 years - and then again for ye 2014, before returning to the black in ye 2015. For ye 2016, though, net attributable profit plunged by more than 60% to Y16.5bn ($137m), partly as a result of foreign exchange losses. There was a significant recovery in ye 2017 to Y102.6bn ($950m).

The effects of the Switch console were plain to see in results for the year to 2018, with revenues more than doubling to Y1,056bn ($9.5bn), while earnings rose by more than a third to Y139.6bn ($1.26bn).

Hardware accounted for around 53% of revenues in ye 2016, with most of the rest from software. There is still a small contribution from playing cards, mainly within Japan. Previously the group's biggest territory, the US fell back behind Japan in 2013, contributing 31% of revenues, against 33% from the domestic market.

Management

Nintendo president Satoru Iwata died suddenly in 2015 at the age of just 55. He was eventually succeeded by Tatsumi Kimishima, formerly chairman & CEO of Nintendo of America. Kimishima stepped down in 2018 in favour of Shuntaro Furukawa, previously head of corporate planning. He is ably supported by joint senior managing directors Genyo Takeda and Shigeru Miyamoto, overseeing hardware and software respectively. The latter is arguably the most influential figure in the company, also the company's chief creative officer, the guiding force behind all Nintendo consoles and games, and the original inventor of Mario, Donkey Kong and Zelda.

Hiroshi Yamauchi, grandson of the company's original founder, was responsible for building the business from the 1950s until 2000. He was no longer involved in the day-to-day management of the company by 2010, but retained a shareholding of around 10%. As a result of Nintendo's soaring share price in the later 2000s, he was for a while Japan's richest man, with a fortune in excess of $8bn. That figure had slumped to around $2.7bn by the time he died in 2013 at the age of 85.

Background

Nintendo did more than any other business to create the video games industry, and successfully rode the crest of the wave for more than 20 years. In fact the company started life more than a century ago as a manufacturer of Japanese playing cards. In 1889 Fusajiro Yamauchi set up a company to publish traditional Hanafuda flower cards, and from 1902 he also began printing Western-style playing cards. Designed for export, they also became popular in Japan, and the company enjoyed modest success throughout the first half of the century. In 1950, control of the business passed to Hiroshi Yamauchi, grandson of the founder, who was to oversee all of the company's development over the next 50 years. He incorporated the business as The Nintendo Playing Card Company, and later scored a huge success with sets of laminated cards featuring Walt Disney characters.

During the 1960s, the company moved into games and toys, and began introducing electronic technology into its toys during the 1970s. Towards the end of that decade the company formed a partnership with Mitsubishi Electric to develop video games for amusement arcades as well as home use. Its first handheld product, introduced in 1980, was Game & Watch, a small portable game similar in design to the later Gameboy, utilizing liquid crystal displays developed by Sharp. The same year the company established a subsidiary to market its products in North America. In 1981, the company's fortunes were substantially boosted by its creation of the enormously popular Donkey Kong arcade game.

As arcade video games soared in popularity during the first half of the decade, the company doubled its efforts to produce an equivalent version for home use. This finally arrived in 1985 with the launch of the original Nintendo Entertainment System (NES) home video unit. It was a huge hit not only in Japan, but also in the all-important US market. By far the most popular of the games supplied with the NES system was one which featured intrepid adventurers Mario and Luigi, better known as the Super Mario Brothers, conceived by inhouse designer Shigeru Miyamoto. By 1987 the NES had become the best-selling toy in the country, and Nintendo was firmly established as the pioneer in home entertainment gaming. Meanwhile Super Mario was elevated to near-iconic status in kids' culture, rivalling or even surpassing Mickey Mouse and Bugs Bunny in popularity. Miyamoto built on Mario's success with a series of follow-up games, a home video version of Donkey Kong and another character series, The Legend of Zelda. A handheld version of the NES was introduced in 1989 under the name Gameboy.

Taking advantages of the huge leaps in technology, the company introduced the successor to the NES in 1991, the Super NES, which was the first 16-bit gaming console. Up until that point the company had completely dominated the industry with around 90% share. But during the 1990s, several competitors emerged. Although Atari and 3DO came and went, another Japanese rival, Sega, proved a more worthwhile challenger. Yet despite strong competition from the latter's Sonic the Hedgehog games, Nintendo kept a firm hold on the #1 position by skilfully exploiting its three main character franchises. The Super Mario Bros reappeared in a series of ever more advanced games (and even a live-action Hollywood movie), supported by various Donkey Kong and Legend of Zelda games.

In 1996, the Nintendo 64 was the first 64-bit games console, promising even faster speed, stunning graphics and more complicated games. That same year, the company introduced a new game franchise, which was to have unprecedented breakthrough potential. First launched as a game for the Gameboy, Pokemon quickly turned into a worldwide phenomenon, spinning off a huge variety of licensed merchandise including trading cards, TV shows, books, comics and other products. An enormous hit in Japan in 1996, Pokemon fever arrived in the US and other Western markets in 1998 via a TV cartoon series licensed from the game. Thousands of other Pokemon-branded products followed, eventually overshadowing the actual video game where the brand originated.

However the group was also facing a daunting new competitor in the shape of electronics giant Sony, which had taken its first steps into the market in 1996 with the launch of the Playstation. With more advanced technology and a firm understanding of the demands of a slightly older (and wealthier) gameplaying market, Sony gradually whittled away Nintendo's lead. The launch of Playstation 2 completed that process, pushing Nintendo firmly into second place in the sector.

In 2001, the group introduced an improved version of the Gameboy handheld, but also the GameCube, its most advanced home console. Although initial sales were brisk, performance plummeted a year later as a result of the launch of Sony's Playstation 2 and Microsoft's Xbox. The GameCube had sold less than 10m units by early 2003, well below the original target of 14m. (By comparison, Sony shipped more than 50m Playstation 2 consoles in the same period). As a result, Nintendo's share of the global console market slipped to around 15%, level pegging with Microsoft's Xbox and trailing far behind Sony's 70% share. Later that year, Nintendo announced it would temporarily halt production of the GameCube in order to clear unsold inventory, and reduced the price in the US market from $149 to just $99.

Nintendo president Satoru Iwata died suddenly in 2015 at the age of just 55. He was eventually succeeded by Tatsumi Kimishima, formerly chairman & CEO of Nintendo of America. Kimishima stepped down in 2018 in favour of Shuntaro Furukawa, previously head of corporate planning.

Last full revision 24th May 2016

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