Nintendo hopes to cash in on Pokemon Go phenom
Gaming company has struggled but hopes latest success signals rebound
The first Pokémon game was released in 1996 on Game Boy, beginning Nintendo Co. Ltd.’s run as the exclusive platform for a bestselling, multi-billion-dollar series and its reign as the dominant force in gaming hardware.
But the Japan-based company in recent years has steadily lost ground as new platforms and developers saturated the market and took advantage of smartphones, rather than dedicated gaming consoles, to reach more consumers. Now, as a video game company that has struggled to create innovative hardware, Nintendo finds itself associated with the runaway hit Pokémon Go that uses those same smartphones.
Pokémon Go has collected more than 15 million players since its launch a week ago, but it has transcended the realm of video games to become a cultural phenomenon that has also breathed new life into Nintendo.
The game’s release on July 8 has since sent Nintendo’s stock in Tokyo up 86 per cent to US$339.01, adding more than US$17 billion to the company’s market capitalization in the process.
But now that Pokémon Go has become the biggest mobile game in the U.S. ever and spurred a massive vote of confidence in Nintendo from the market, the company will have to live up to heightened investor expectations in the long run and that may not be sustainable based on one game alone. To keep its new-found momentum alive, Nintendo will likely have to dip into its back catalogue and adapt franchises such as Super Mario Bros. and Zelda for smartphones, which have become a major gaming platform.
Michael Pachter, a video game analyst at Wedbush Securities Inc., said one of the most obvious barriers to the future success of Pokémon Go is that the game requires people to physically move, which could eventually be a demotivating factor for those who want to play while waiting in line or sitting on the subway.
“It is a fad,” he said. “I don’t think it’s a fad that’s going to fade to zero. I think it’s a fad that’s going to fade from ridiculously successful to very successful in the next three to four months.”
Regardless of the game’s longterm potential, Pachter said the biggest concern for Nintendo investors is confusing the success of Pokémon Go with the potential upside it could bring to the company.
Pokémon Go was designed by Google spinout Niantic Inc. but is co-owned by Nintendo, which also has a 33 per cent stake in The Pokémon Co.
Because the profits are split with Niantic and Pokémon Co., not to mention the cuts iTunes and Google take on downloads, just an estimated 10 to 18 per cent is left for Nintendo, according to analysts.
Video game research company SuperData Research Inc. put Pokémon Go’s revenue at US$14 million during its first four days, which is impressive for a free mobile game that relies on in-game purchases, but that means Nintendo only took in somewhere between US$1.4 million and US$2.52 million.
Macquarie Research predicts Pokémon Go is on track to be the world’s first US$4-billion per year mobile game. Even if Nintendo brings in between US$400 million and US$720 million for the game, it’s still a long way from the company’s recent US$9-billion gain in market cap.
At the very least, however, the affiliation with Pokémon Go is good for Nintendo’s image as an innovator at a time when it has been struggling to produce its own trailblazing game hardware.
“I think it’s a valuable legacy to game companies to understand that if you really do a nice pairing between a style of game or technology coupled with the right game brand, it can have a massive impact,” said Jason Della Rocca, a veteran game developer and co-founder of Execution Labs, a Montreal-based incubator and accelerator for mobile games.
Over the years, Nintendo has had its ups and downs launching new products and its stock has followed suit, leading some industry experts to call on the company to get out of the hardware business entirely.
For example, the Game Boy released in 1989 was a huge success while the 1995 Virtual Boy was such a commercial failure that is was discontinued after less than a year. The Nintendo DS, which was launched in 2004 and became the second best-selling game console of all time, didn’t significantly move the needle for investors.
But the motion-sensing Wii console that arrived in November 2006 rejuvenated company earnings by targeting new markets instead of enticing gamers from competitors.
“They went after an audience that nobody else had,” said Mia Consalvo, a professor at Montreal’s Concordia University who focuses on video game culture. “(Nintendo said), ‘We’re going to go after people who don’t play games or people who used to play games and then stopped, we’re going to make this more of a family centric, party-centric activity.’”
At the height of Wii’s popularity in November 2007, Nintendo’s share price reached a peak of US$858.98, but it has since declined due to falling sales and the poor performance of the Wii U console.
Nintendo has experimented with some of its platforms, but Consalvo said the company resisted moving to mobile until recently because it was concerned with the prospect of creating low-quality games.
“Now you see Nintendo diving into mobile games, but in a very polished and smooth way,” she said.
“They’re not doing it slapdash quick on the cheap; it’s a real, careful investment.”