Nintendo Snapshot - 2019/11/24
Current Topics and Visualize Nintendo Switch Platform & App Gaming Strategy. GPS #2
Greeting from James.
In this newsletter, I list some short-term and on-going topics of Nintendo. In addition, I visualize Nintendo Switch platform and Nintendo’s app gaming strategy by using diagram discussed in previous post.
Short-term topics
Nintendo Switch family pipeline is weak even though the tempo of new game announcement is well-known. Games will eventually be announced.
Details of China launch and how will that translate into profit contribution if any. One likely scenario is that it has very limited games at launch due to regulation that market thinks the console will not gain any traction in this generation. Marketing a console in China is tough. The system won’t scale without 2P software, grey market and some kind of growth hacking. It really depends on Tencent’s execution and takes time. I also did an intellect exercise on China launch.
Nintendo Switch Lite does not gain traction even though initial result looks ok. Holiday season is the real test.
Mario Kart Tour multiplayer beta/release (while market now pays less attention to each app).
Reception of subscription services added to Animal Crossing Pocket Camp. What’s the implication on monetization of their app gaming and games / services on console?
Nintendo Tokyo, Nintendo Merchandise on Amazon, USJ Super Nintendo World next year…
On-going topics
Nintendo Switch family is peaking (what’s your platform strategy)
Development in China
App gaming strategy (Nintendo calls it smart-device or mobile)
Next generation consoles from competing gaming platforms (PS5 and Project Scarlett)
Game streaming in near term and cloud gaming in longer term (xCould, Stadia and probably something Amazon)
Bundled service monetized by subscription (XBOX Game Pass and PS Now)
IP business
Nintendo Switch Platform & App Gaming Strategy
Nothing new in the diagram above. The most attractive item for me is subscription as monetization method in console gaming and app gaming. Maybe the monetization method has got the green light in Nintendo app gaming space. However, among those 1P games or service in console gaming, it seems only Nintendo Switch Online has adopted subscription (as it’s a service). Some Nintendo games generate tail revenue from user by offering payable DLC but it seems non of them is recurring revenue stream.
Nintendo currently has six apps. In my opinion, only Fire Emblem Heroes has found product-market-fit. It’s nice to see they’re willing to implement subscription as a monetization method. That said, after seeing content / service being monetized by subscription in Mario Kart Tour and Animal Crossing Pocket Camp, I guess both probably have hard time conversion and retention. The beauty of app gaming is that it has large installed base of devices and established digital distribution. For a company with IP and brand recognition like Nintendo, its the conversion funnel of each app starts with large number of downloads in their category. However, gameplay determines on-ongoing acquisition / retention of users and content & service offered determine the conversion and retention of paying users. Company can implement various monetization methods on an app and operate on an on-going basis but that doesn’t mean the app can be financially sustainable.
It seems Nintendo is still experimenting app gaming business. Thus, I place zero incremental value on each app released going forward. New game mode on Mario Kart Tour and new monetization initiatives on Animal Crossing Pocket Camp (ACPC) are more like source of disappointments.
Some thoughts on Nintendo’s app gaming:
I don’t have idea about their app pipeline. However, the concept of pipeline like 2-3 new apps per year only serves investors’ modeling purpose. Steady output only works for companies internalizes key value creation process. As Nintendo uses external partners, I see steady output as result of friction in communication / execution in the partnerships and loss of scalability (when Nintendo manages too many partners and too much in each project because it feels the need to protect its IP or brand).
I feel the tension between Nintendo and its partner in Mario Kart Tour from time to market of product and service, gameplay and monetization. I won’t be surprised if this app will struggle even if it adds a multiplayer mode.
It’s nice to see Nintendo to implement new monetization to existing app but the subscription service of ACPC probably shows that they still don’t get the product-market-fit in the app gaming space.
Lack of reporting on app gaming sums up poor execution / operation in this business segment.
The result is that Nintendo is a company with 90% revenue contribution comes from Nintendo Switch platform (six months ended September 30, 2019) and probably will be in status for the next few years. Peaking of Nintendo Switch family stays as key story of Nintendo for next few years until the company reveals the platform strategy and the market buys into it.
Cheers,
James