Nintendo's Mobile Games Arrive in a Few Months, but They May Not Be What You Expect

Has Nintendo worked out what it actually wants to do?

"I don't like the term 'Free-To-Play.' It's a disingenuous way of putting it to consumers. A more accurate term would be 'Free-To-Start,'" Nintendo president Satoru Iwata said yesterday in an interview with Time. He was attacking the most popular business model in mobile gaming today: free to download, pay for in-game items.

But this time is different. In the past Nintendo criticized mobile games and stood by its own platforms; now it will make and sell mobile games itself.

On March 17, Nintendo and the Japanese games company DeNA announced a partnership to release mobile games by the end of 2015. DeNA is one of Japan's top ten mobile game operators and has unusual experience in building social gaming platforms. Nintendo is swapping a 1.24% stake in itself for a 10% stake in DeNA; the shares exchanged are worth about 1.13 billion yuan.

Whether Nintendo would make mobile games has long been a big question. Iwata stood firmly in the anti-mobile camp, but mobile gaming was surging ahead and even eating into the territory of traditional console games, and the company's shareholders grew restless. They feared the mobile wave would leave Nintendo stranded on the beach.

In early 2014, one of Nintendo's major shareholders, Seth Fischer, founder of Oasis Management, even wrote Iwata an open letter demanding that he adapt to changes in consumer habits and behavior, and develop games for both consoles and phones, as traditional Japanese game giants such as Bandai Namco, SEGA and Square Enix (SE) do.

The mobile game industry has grown at breakneck speed alongside the smartphone wave the iPhone set off, and video games have never been so easy to get. Newzoo predicts the global mobile game market will reach US$40.9 billion in 2017.

So why has Nintendo not reached out to a wider audience, as SE and SEGA did by making phone games early on? Why does it insist on developing games only for its own platforms, and on making hardware, taking on Apple and Samsung in a field where it clearly cannot win?

To answer that, we have to start with what kind of company Nintendo is.

When We Talk About Nintendo, What Are We Talking About?

Among all the companies that make money from video games, Nintendo is an anomaly.

Talk about console giants and you cannot get around Nintendo, Sony and Microsoft. Bandai, SNK, SEGA and others once made console hardware too, but that chapter closed long ago; some of them came close to bankruptcy, and some were merged into other companies.

Talk about game developers and you cannot avoid Nintendo, EA, Activision Blizzard and Ubisoft. Sony and Microsoft also have in-house studios, but most were acquired, and the big titles they can show off amount to little more than Uncharted, God of War, Age of Empires and Halo.

So when we talk about the games industry as a whole, hardware and software together, the name Nintendo stands squarely in the way, a mark of its unique position in the business.

No other games company has ever held hardware and software firmly in one hand and turned that technical advantage into an unmatched experience of play. Each Nintendo hardware upgrade gives players new ways to control a game, and each game released with a new device digs deep into what that device can do.

When home consoles were new, for example, manufacturers did not know how they should be controlled, so they simply shrank the arcade joystick onto a small controller. But manufacturing was not yet good enough for such a tiny joystick to survive long, heavy use. So on the Famicom Nintendo adopted the directional pad, which was both more precise and more durable. It is hard to imagine a Mario who jumped by joystick tempting players to attempt, again and again, hard feats such as speedruns and no-death runs.

Or take this: 20 years ago, game consoles could already handle 3D graphics, but no one was sure how players should steer a character moving freely through 3D space. The trident-shaped controller Nintendo built for the Nintendo 64 solved the problem neatly: the directional pad handled horizontal movement and the stick controlled the camera, and both shaped how later 3D games were controlled. Super Mario 64, the first major 3D title made for it, was a huge success as a result and is regarded as one of the most influential games in history.

WarioWare: Touched! on the NDS and Wii Sports on the Wii are two more classics that show Nintendo's skill at fusing software and hardware. The NDS used a touchscreen for play four years before the iPhone, the pioneer of the smartphone era.

For Nintendo, then, gameplay is tightly bound to what the machine can do. SE can port its role-playing masterpiece Final Fantasy to phones and cash in on nostalgia, because what players want is the story. For Nintendo, though, a touchscreen would only ruin the feel of control that players know from Mario.

And for a company that has always pursued perfection, losing this distinctive blend of software and hardware is unacceptable.

Unlike Sony and Microsoft, Nintendo's Wealth Is Not Its Machines

Many people know Nintendo has struggled in recent years and sometimes even sells games at a loss, but almost no one questions its standing as the most successful games company. Over more than 30 years, its integrated hardware-and-software play has given birth to world-famous characters such as Mario the plumber, Pikachu the electric mouse and Link in his green cap.

On Wikipedia's list of best-selling video game franchises, Nintendo's own Mario and Pokémon hold the top two spots, with nearly 800 million copies sold between them, not counting pirated copies, which are hard to estimate. Third-place Tetris, at 170 million copies, also owes its sales mainly to Nintendo.

Then there is a string of other Nintendo-exclusive franchises: The Legend of Zelda, Donkey Kong, Brain Age, Kirby, Metroid, Nintendogs and more. Characters with such wide and deep reach are Nintendo's most important wealth.

People are conservative creatures of habit in the culture they consume, which is why film adaptations and sequels have become so common in recent years. Look at how much money Disney has made from Marvel lately and you will see the latent value of an established character.

Everyone knows Mickey Mouse and Donald Duck, and everyone knows Mario. These characters are embedded in the culture of our time and carry enormous commercial value. Amiibo, the figurines spun off from Nintendo's games, for example, may end up rescuing its 2015 earnings.

These rubber figurines, US$12.99 each, are well made and can exchange data with the Wii U console over NFC, linking the virtual character a player raises in a game to a physical toy. The idea did not originate with Nintendo, but its version sells best.

That is the pull of classic characters. With more than a hundred Pokémon to draw on, this money can keep flowing for quite a while.

Phone or Handheld: That Is the Question

Nintendo was doing reasonably well, but no one expected mobile games to take off the way they did.

When Steve Jobs first unveiled the iPhone in 2007, few people could have guessed how hard it would hit the games industry. As smartphone sales climbed, handheld console sales fell, and traditional console game makers turned to making mobile games.

Apple's and Nintendo's figures over the past few years show that smartphones have hurt Nintendo to a real degree, in both hardware and software.

Some will say Nintendo's poor showing was caused by the strategic missteps of the Wii U and by the cyclical swings of the console market. But one point is key: people's energy is limited, and what game makers are ultimately chasing is a bigger share of consumers' spare time.

Nintendo's mistake was overestimating how much players crave gameplay. Most players just want something to pass the time, and if mobile games are more convenient, they do not mind giving up their handhelds.

Nor is it only mobile games. A smartphone's other apps also compete hard for users' spare time. We don't just want games; we also want to browse the web, scroll Weibo, check WeChat Moments and shop on Taobao.

This is a contest not only between console games and mobile games, but between heavy and light entertainment. And consumers are easier to satisfy than you think.

Complacency in Hardware

Against smartphones, Nintendo not only misjudged what consumers want; it also fell far behind in hardware.

Among today's big three console makers, and throughout the turbulent history of consoles, Nintendo has never competed mainly on hardware performance. This stems, more or less, from the philosophy of Gunpei Yokoi, designer of its first-generation consoles: "lateral thinking with withered technology."

In other words, rather than chasing the most advanced technology, Nintendo uses mature technology to build cheap, durable gaming devices. It held to this philosophy for 30 years and beat other console makers with it, but now its rivals are phone makers.

In 2004, before the iPhone, the gap between the NDS and the smartphones of the day was small, and its screen and battery life still met users' needs. A decade later, the gap between the 3DS and the iPhone 6 is almost unbearable.

Today's phones are lighter and thinner, while Nintendo's handhelds still look like bricks. On battery life, the 3DS has actually gone backward.

The screen is worse still. Even a smartphone costing 2,000 yuan now reaches about 450 PPI, while the 3DS's upper screen manages just over 230 PPI, and that figure is halved again when glasses-free 3D is switched on. It is also an old resistive touchscreen with no multi-touch. The iPhone had multi-touch in its very first generation, and no phone has used such outdated technology for four years, yet Nintendo still does.

For eyes spoiled by thin, light, sharp phones, looking at the 3DS screen is torture. Nintendo today no longer practices "lateral thinking with withered technology" but "optimistic thinking with outdated technology."

Trapped by the Physical Cartridge Sales Model

Nintendo's way of selling games may lag even further behind than its hardware. Setting aside the old story of how Sony exploited Nintendo's stubborn attachment to the royalty model, let's look at how it sells games now.

Physical stores are still Nintendo's main sales channel. Nintendo opened its online store, the Nintendo eShop, only in 2011. By comparison, Microsoft launched Xbox Live Marketplace (now the Xbox Games Store) with the Xbox 360 back in 2005, and Sony's PlayStation Store went live in 2006.

Nintendo was not only slow and late; the eShop is also the most troubled of the three services. Never mind the unstable connection and frequent dropouts: tying purchases to the device rather than to an account is bizarre enough.

It means that if players lose their handheld, every game they bought from the online store vanishes with it. Nothing shows Nintendo's anti-internet thinking more plainly.

Tying purchases to an account is standard practice among internet companies, and Sony, Microsoft and Apple all follow it; binding virtual goods to a physical object only inconveniences consumers. Worse, since Nintendo's profits come mainly from games rather than devices, the practice only discourages people from buying games.

Then there is the price of games sold online. iPhone games are all distributed online, but Nintendo, besides its own online channel, also has to protect the interests of the middlemen who resell its games. Whether a game is a physical cartridge or a download code, the more hands it passes through, the higher its price.

Major 3DS titles on the eShop, for example, usually cost US$39.99, while physical copies in retail stores are often about US$10 cheaper because they are frequently discounted. Nintendo's inflated online prices protect retailers but put consumers off buying digital versions.

Mobile games today, by contrast, are all distributed online, and only the platform takes a cut; Apple's App Store, for example, splits revenue 70-30 with developers. Without middlemen skimming off their share, game prices can be pushed very low, sales rise, and consumers get a real bargain.

So although Nintendo has an online distribution channel in the eShop, it gets none of the advantages digital distribution should bring, consumers do not get the rights they should have there, and it is in no position to compete with today's phone app stores.

What Kind of Company Is Nintendo's Partner DeNA?

In the end Nintendo did decide to make mobile games, but the partner it found, DeNA, is a cause for some worry. DeNA began as an e-commerce company and in 2009 moved from browser games into mobile games.

DeNA barely makes the top ten among Japan's mobile game companies, and has developed no decent games of its own. It has bought well-known properties from other fields, such as Transformers and Slam Dunk, and repackaged them as freemium games.

DeNA does, however, have some strength in cross-platform back-end services, including database management and porting between platforms. In 2011 it launched the social gaming platform Mobage, which gives third-party games a way onto the service. This is probably what Nintendo values most.

In yesterday's interview, Iwata also voiced doubts about the model of free downloads that then lure you into paying, and said Nintendo would explore new business models with DeNA. What that new model will be, we do not yet know.

Nintendo Goes Its Own Way, As Ever

The press conference announcing the Nintendo-DeNA deal also had its oddities. Iwata first stated firmly that Nintendo's characters would come to mobile platforms, but then made clear they would not arrive as ports.

Because the devices are controlled differently, he stressed, Nintendo would develop game types better suited to phones. Judging by DeNA's usual approach, that is likely to mean freemium card games. Players hoping for Mario Kart or Pokémon on their phones will be disappointed.

Finally, Iwata said Nintendo has not abandoned console games; in fact it has "a stronger passion and vision for the dedicated game business than before," and its aim in making mobile games is "to better encourage players to engage with its console games."

It seems Nintendo still has not committed itself to mobile games. It picked DeNA only for its strength in platforms, and working with a weaker partner also makes it easier for Nintendo to carry out its own plans.

Nintendo says it will make mobile games, but in fact it is still stubbornly going its own way, and we are not optimistic about where that road ends.

Timing, terrain and people: Nintendo has lost its advantage on all three. Users prefer convenient games, and other forms of entertainment have replaced the fun of heavy games. Nintendo is complacent about hardware performance and lacks the confidence that comes from serious hardware R&D. Its online distribution has progressed slowly, and third-party game makers have turned to mobile and other platforms.

Nintendo, hesitant, wants to turn smartphones into an advertisement for its own hardware. But the plan contradicts itself: if the mobile games are too good, people will not buy handhelds; if they are not good, how can they advertise anything? Playing hard to get is charming between lovers, but in corporate decision-making it can be fatal.

Graphics: Wang Shiyun

Cover images: latimes, pichost