Satoru Iwata, President of Nintendo, used his presentation at the most recent financial results briefing to outline the company’s short, medium and longer term strategy for growth.
The presentation centred on two areas:
- How Nintendo intends to support the current games business and particularly the Wii U games console
- The announcement of a new ‘Quality of Life’ hardware and software business, separate from the games division
Nintendo Maintains Software + Hardware + Innovation Strategy
While many commentators have asked for Nintendo to shift its games on to smart devices, with the promise of short-term revenues, the company has decided to stick to its core strategy of combining unique software with unique hardware to engage new and existing consumers. It strongly feels that this will maintain its value proposition and give the company the best opportunity for long-term growth.
Nintendo, similar to Apple, Google and perhaps even Valve, follows its own product development path and is reticent to follow market trends where it can only make a marginal impact. A short-term, or marginal impact is not aligned to its long-term strategic goals where it seeks to make relatively big bets around innovation, which increases risk but offers significant rewards.
But Company Embraces Smart Devices With More Investment
Even though at its core Nintendo product strategy has not changed, Iwata outlined his multi-screen vision for Nintendo especially in relation to smart devices and the company’s device-straddling Nintendo Network online platform. As IHS outlined in previous research notes, games console companies should be using smart devices as engagement, consumer acquisition and education tools. Exposure on highly penetrated and used smartphones and tablets represents a path to recruitment for proprietary hardware, software and services.
Wii U Improvements Appear ‘Bitty’ But Everything Helps
Nintendo has admitted that the Wii U is in a terrible position, but has ruled out a short-term fix of lowering the price (though discounts at retail are rife) which would drag on its bottom line yet further. Iwata outlined a number of strategies to pump life into the latest home console from Nintendo:
- Improve the responsiveness and UX of the Wii U firmware and allow for shortcuts to TV content functionality and last used game. This is a welcome improvement, as today’s smart device consumer expects a responsive and slick UX from connected devices, which neither the Wii U or 3DS delivers.
- Concentrate content, functionality and services strategy on the unique proposition of the Wii U GamePad. Nintendo has failed to educate the consumer about the unique offer of the GamePad but is preparing a number of solutions to improve this. This includes tasking Miyamoto with building standalone games that utilise the GamePad more significantly, adding more uses for the built-in NFC functionality and also announcing that DS games will be coming to the GamePad touch screen.
All these improvements are welcome for a platform struggling in the market, but appear ‘bitty’ or piecemeal and less than comprehensive. There was no mention of significant further investment in marketing to actually tell consumers what the Wii U is, and to make it clear it is different to the Wii.
More Fundamental Games-Related Growth Opportunities
Aside from support for the Wii U platform, Iwata also outlined core strategies to extend the Nintendo games business and make more from its games-related assets. Rather than looking to cut costs, Nintendo is seeking ways to drive more revenue from under-exploited opportunities across its current activities. This means the following:
- A more aggressive approach to emerging sales territories. Out of the three major console manufacturers there is no doubt that Nintendo has the least developed distribution infrastructure in emerging markets. To grow the business and become more relevant to these consumers, Nintendo is examining ways to use a developed smart device engagement strategy in combination with proprietary hardware and software priced and built for emerging markets. Nintendo has already tested this approach in China with the iQue player, so it has some expertise to leverage here.
- A more aggressive approach to licensing Nintendo IP outside of games: Historically, Nintendo has taken a back seat to licensing compared to the most aggressive games companies – Mind Candy with Moshi Monsters and Rovio with Angry Birds are top of mind when examining the most active games companies in licensing. This could provide a good long-term stream of revenue – toy makers will be rubbing their hands in anticipation of access to the Nintendo IP catalogue – but there are risks involved in de-valuing IP with over exposure. Licensing will also be important in reaching new audiences in emerging markets.
Nintendo Seeks to Carve Out New Lifestyle Products Market; A Big Bet But Underpinned With Experience
The biggest news to come from Iwata’s presentation was the announcement that Nintendo is looking to diversify into a new adjacent ‘lifestyle’ market, which it hopes to create with a new line of non-games related hardware, software and services. The strategy will be centred on the idea of ‘Quality of Life’ or QOL and is an extension of the company’s work in bringing new software categories to the games console market through lifestyle titles such as Wii Fit and Brain Training. Indeed, the company made a number of experimental inroads into other bits of software related to education, workplace training and doctor-patient communications with the DS, but did not pick up the batten with the 3DS. Nintendo is seeking to bring its specifically non-wearable QOL hardware and software products to the market at a time when most of the CE industry is fixated on wearable devices and technology.
This news is confirmation of Nintendo’s ongoing strategy of big bets on its own unique products, where it can make a significant mark with innovation and deliver potentially great financial upside and long-term growth. This higher risk approach does not always work out – see the Wii U for details – but IHS believes that this dependence on innovation and individuality is core to the company staying relevant beyond the short-term and protecting Nintendo’s brand value.
Nintendo: Lots to Do and Expensive Investments to Make
What is clear from these announcements is that Nintendo has a tremendous amount of work to do. These new initiatives are unlikely to provide an immediate or significant financial turnaround, but they will consume research and development budgets in quick time. Investment in R&D are likely to increase as a result and how the company prioritises its internal budgets across all these activities represents a major executive challenge that will need to be overcome.
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