Nintendo Case solution

POWER PLAY(A): NINTENDO IN 8-BIT VIDEO GAMES

CASE ANALYSIS ANALYSIS

Evolution o !o"# Vi$#o G%"# S&'t#": Timelines: A brief journey of the industry of video games over the period with a stress on the life cycle of  Nintendo and its competitors can be summaries as follows; follows;

Ti"#lin#

D#'i*tion

1966

Creation of a ball and paddle game named Odyssey that could be played on a ! set by "anders Associates# a $%" military systems consulting firm

19&'

(oundation of Atari Corporation# Corporation# their most common arcade coin)op game ga me  being a able tennis video game ga me called *ong% he arcade business b usiness was high during the 19&+s

19&, 1 9& 2

 Nintedo ac-uired ac- uired license lic ense to manufacture ma nufacture and sell .agnavo/ .a gnavo/0s 0s home video game system in apan 3ushnell introduced home pong at toy industry show to target the home mar4et

19&6

(airchild) $%" electronics company introduced 1st video game system capable of handling multiple games

19&&

 Nintendo entered e ntered home ho me video game system syste m in japan under license lice nse from $" elevision manufacturer .agnavo/

19&&)51

 Nintendo teamed te amed with .itsubishi to launch various v arious coin)op coin )op games li4e *ong# *on g# ame and 7atch and 8on4ey ong

19&5

:ntry into home video game system by CA# National semiconductors# eneral
19&9

Chun4s of Atari engineers left Atari to set up individual house# Activision ma4ing !C" compatible video game%

19&9)5'


1 95 +

Nintendo established a $" subsidiary# Nintendo of America >NOA?

1951

 NOA sales was propelled propell ed to @1++ @1+ + million% :/tra revenue rev enue came ca me from licensing lice nsing the game to Coleco and of the characters for use in )shirt# cereals pac4 etc% At the same time# there were issues of numerous copyright infringement suits as the games were easily imitable

195'

 =ome video game industry captured 1& of $" homes# ho mes# retail sales hit @,  billion

 195,)52

Baunch of (amicon in apan by Nintendo% (amicon was priced at @1++# which was below mar4et price# which was @'++)@,2+% his helped Nintendo undercut competition

1952

$%"% home video game collapsed due to low -uality software% Atari collapsed collapsed due to over built inventory% 7arner sold off Atari0s hardware division under the name Atari Corporation% Coin)up business was sold# as Atari ames# to  Namco%

1956

$" Baunch of (amicon under the name Nintendo entertainment system >N:"?%  NOA targeted electronics electron ics retailers and offered to stoc4 for fo r free# with the retailers having having to pay for only what they had managed to sell after 9+ days

1952)5&

 Nintendo launched new games) "uper .ario 3rothers# he Begend of elda and .etroid

1955

 Nintendo had h ad 2+ licensees# lic ensees# the 6 major majo r licensees being Namco# N amco# =udson# =ud son# aito# onami# Capcom# 3andai% hese licensees paid '+ royalty to Nintendo%  Nintendo also a lso started a magaDine# called Nintendo power# p ower# for N:" users% u sers%
1959

ival0s started complaining that Nintendo is monopoliDing the mar4et as their contract renewal had no changes although the industry was still in its growing  phase% Computer Co mputer games gam es had proved p roved to be a limited limite d business# bringing in total of only @'2+ million)Nintendo launched ame 3oy# priced at @1++ with special compact game cartridges from @'+ to @'2% Atari filed suit against NOA# charging that NOA0s e/clusivity clause amounted to unfair restraint of trade% :c4art started investigation investigation on Nintendo for allegations that Nintendo unfairly reduced competition competition

3y 199+

1& million units of (amicon were sold# ac-uiring 92 of apanese home video game mar4et% Nintendo launched family computer communication networ4 system in 1955% NOA had also ac-uired 9+ share of $" home video game

1991

A total of 1,++++ households joined the networ4 and subscribed to services li4e stoc4)bro4erage services# home shopping# on)line ban4ing% here were 1++ license for the N:"# only 1+ of software development remained in)house at Nintendo%

1991

A lot of legal suits were under way during this period% Atari games was found to have obtained the Nintendo security code illegally and was ordered to stop selling of N:" compatible cartridges%
199'

Atari field suit against aga inst NOA0s NOA0s e/clusivity clause amounting amoun ting to restraint of trade which was decided in NOAEs favor in .ay .a y 199'% he (C dropped all a ll investigations against Nintendo in 8ecember 199'

B%+,oun$ B%+,oun$ o Nint#n$o:

 Nintendo# a company based in yoto apan had monopoliDed the industry of home video games in 195+s and 199+s% hey have become a household name covering almost 92 share of the apanese 5)bit home video game mar4et by 199+% N:"? " ystem>N:"? is what laid the foundation for  Nintendo to become a leader in the industry% After the N:"0s N:"0s release# Nintendo developed and launched the bestselling ame 3oy%

 Handling internal internal and external external environments: environments:  Internal Environment:

 Nintendo was able to control its power on the industry by 4eeping most of their in)house information within% Although they subcontracted manufacturing of its game systems to others# the final assembly alone too4 place in the company0s facilities% facilities% his allowed little lea4age of the company0s trade secrets and hence allowed them to maintain differentiability%
 External Environment:

A company must adapt to each pressure and conform to the standards in order to sustain in the mar4et% Nintendo has always been a driving force in many of these areas# area s# although they still face  pressure in the legal# economic# and technological fronts of the industry% industry%  I.

Legal aspects:

!ideo !ideo games are not publicly broadcasted li4e !# !# but are still a digital media% here are legal aspects that handle the content of the games and so Nintendo needs to be very careful as to which games they approve and which not% Certain violent or other se/ually intended games are not allowed since they may affect the young 4ids which are the main mar4et for video games% .oreover# they need to deal with copyright issues and patenting since there are hac4ers available who are spending a lot on decoding the security codes of Nintendo and launching pirated games into the mar4et% hese unlicensed mar4ets can0t eat away a lot of Nintendo0s profit and so they need to ta4e care of them legally%  II. 

Economic:

 Nintendo is based in apan and thus operates using the apanese Gen Gen as its its primary currency% "ince Nintendo is also present in the $" mar4et and is dependent on e/porting e /porting to e/ternal countries# they are vulnerable to the fluctuation and changes in the e/change e /change rate of the Gen% Gen%  III.

Technological: Technological:

 Nintendo has always placed innovation as its prime driving force to lead the mar4et% And since newer technologies are never going to stay new for long# they need to 4eep reinvesting in s4illsets to build more comple/ games using upcoming technologies techno logies before their competitors to maintain their control over the mar4et%

Mono*ol& 't%t#,i#'

 I.

Reducing Bargaining Bargaining powers of of suppliers

 Nintendo outsourced most if it products from chips to console c onsole to controllers% he main game  based chips were licensed% Not only did they have a wired frame which would not let any other cartridge run on its consoles% hey issued licenses to others consisting of 6 major companies who had to succumb to the demands of Nintendo% he demands included) a% iving iving a royalty of of about '+to '+to Nintendo Nintendo of a cartrid cartridge ge selling selling for @,+ that that is after after they already paid the manufacturing costs of around @5% A minimum cap of around 1++++ units were also made mandatory in A*AN%  b% Nintendo *ower? wherein it made sure that there was no counterfeit and even ensured a public apology from one of its suppliers who started selling unauthoriDed chips% c% he only place which which it did not have a monopoly monopoly was was a bit bit coin video video games games into which which it made strides into hardware% d% he licenses licenses also also had to go through through Nintendo0 Nintendo0ss approval approval before before the game game could could be released% Bimited N:" titles to 2 a year%
 II.

Reducing bargaining bargaining power of of buyers

 Nintendo being the mar4et leader made sure it ma/imiDed it profits% a%
 III.

Mitigating Treat Treat of new entrants

a% he :A sports producer rip rip =aw4ins who was was a visionary who saw that personal computers would be used for entertainment was subdued by the sheer volume of the sales

of Nintendo% :ven though he made @'2+ million dollars he gave up the idea and went in for licensing for Nintendo% =ence this was a way w ay Nintendo managed to increase its monopoly leverage%  he siDe of the distribution networ4s# the siDe of the gaming mar4et# and the cost associated with entering that mar4et has 4ept new entrants out% :ven if new entrants have come in# Nintendo is in a cushioned place% "o there is low threat from new entrants as  Nintendo has been able to capture -uite most of the mar4et and it will soon reach a maturity% And with increase in loyal customers it can further reduce the threat of new entrants%

 I!.  I!.

"ubstitutes

a% "ince this is a technology intensive gaming gaming system which was in itself itself a substitute substitute to the the traditional games it currently has no substitutes% =owever the video ga me industry is also a source of entertainment% "o even if the Nintendo games are the best in mar4et# there are other available sources of o f entertainment that can act as substitutes li4e !# .anual games# theatre etc% 3ut being low cost products p roducts in the mar4et gives them that leverage to 4eep away threats from substitutes%

!.

#omp #ompeetit tition fro from R Riivalr valryy

a% Atari was instrumental instrumental in propelling the ustice 8epartment of the $" in filing filing a suit against Nintendo for using unfair trade practices for monopoliDing the mar4et%  b% Although Nintendo is a mar4et leader in the home video games they target mostly mostly the younger customers and they have strict policies for family games without violence and other mature content% "o they have a threat if other rivals go into those category and capture the other demographic of higher age customers%