Links:

I believe it is an exciting time to be a Nintendo shareholder.  There is a lot of uncertainty about future cash flows, but Nintendo is a company that has been around for a while.  I want to focus on some new products that Nintendo has currently released and will be releasing.

Nintendo Switch

Nintendo released information on their new console the “Nintendo Switch” on  Oct 20, 2016, which was code-named the “NX.”  The Switch is a basically a tablet that can also act as a home console, so gamers can play it in their living rooms or take it on the go.  About 2 years ago, then president/CEO Satoru Iwata mentioned during the Q&A sessions that the console and handheld divisions were in the process of merging.  This makes sense now, because the Switch is a console hybrid.

My primary concern is the disappearance of cash flows generated from their handheld console through development fees.  If you view historical sales information from Nintendo, it is easy to conclude that they are a handheld video game company first and a home console company second.  Their handhelds tend to sell better on average than their home consoles overtime.  The concern is what happens to the extra cash flows Nintendo receives from development fees for allowing developers to publish on their handhelds.  Hopefully they can somehow get the mobile gaming crowd to adopt the Switch, so they don’t lose out on these development fees too much (while also paying a competitor such as Apple).

I haven’t looked much into the patents that are related to the Switch, but my hope is that it can somehow connect to a phone to receive internet capabilities. Modern phones can tether and basically become a network, so it would be great if the Nintendo Switch took advantage of this.

NES Classic Edition 

Nintendo released a remake of the NES bundled with 30 retro games for 60 US dollars.  There are very strong intellectual properties released on the this console, such as Final Fantasy, Castlevania, and Megaman (just to name a few).

The NES classic edition is selling incredibly well!  Bids on eBay are reaching around 200 US dollars as of writing.  This is good news and hopefully Nintendo releases similiar products.  This might be a more effective way for Nintendo to leverage their classic intellectual properties, instead of through the virtual console network (Nintendo’s online marketplace where gamers can buy classics on the Wii U).

Pokemon GO:  Fumble or no? 

It is certain that Nintendo did not optimize on the Pokemon GO craze, in regards to maximizing profits.  I believe they optimized poorly for a couple of reasons.

The first problem was the launch.  Nintendo is known for releasing some of the highest quality video games, in terms of graphics, sounds, and good design (no day one patch – the game runs fine at launch).  Pokemon GO was very buggy, where users had problems creating accounts and even running the game consistently over long play sessions.  Hopefully this hasn’t tarnished the Pokemon GO brand, say if Nintendo decides to launch another Pokemon GO game featuring other Pokemon (this might be a better approach, instead of releasing all of the Pokemon IP in one app through updates – launches definitely create buzz) in the future .

The game didn’t have the incentives right either.  Miyamoto once said video games are all about incentives.  Why should a user pick up a game?  Why should a user want to continuously commit their free time playing Pokemon GO?  The primary incentive is to capture Pokemon in an augmented reality, which is truly innovative.  However, what do users do when they have captured all Pokemon?  They have been releasing new updates to incentivize users to play the game daily, which is good.

My final comment is the most important.  They delayed the Pokemon GO plus wristband, which retails for $35 (bids are upwards of $100 on eBay currently).  This was a device that would allow users to better play Pokemon GO and made the game more enjoyable.  Originally, the wristband was going to be released towards the end of July.  Instead it was launched in September, missing a prime opportunity to sell when Pokemon GO was incredibly buzzy and popular.  The Pokemon GO wristband is a good way for Nintendo to extract more profits, instead of the profit-sharing agreement with Niantic and the app stores.

Useful links:

Switch patents

http://www.polygon.com/2016/10/24/13379434/nintendo-switch-secret-projector

Nintendo IR Statements (financial information and Q&A)

https://www.nintendo.co.jp/ir/en/

Nintendo’s stake in Pokemon GO

http://www.wsj.com/articles/pokemon-go-fueled-nintendo-just-keeps-going-1468302369