Nintendo Switch Is the Future of Consoles

Nintendo finally unveiled their new console, the Nintendo Switch, and just as the rumors said, the system is indeed a handheld and console hybrid. While everyone is talking about the games or possibilities of the system, not much has been said about why Nintendo is making a hybrid in the first place. Analysts and the gaming public don’t seem to understand the new system and why Nintendo went this route. Today, we are going to answer that question and why this system is in fact a window into the future of video games.

TVs are Dead

Like it not, TVs are a dying breed. In 2013, Business Insider wrote that TV is having its worst year ever. The article notes that subscriptions are declining across the board and fewer people are watching TV. Cable TV ratings were in free fall, and even major sporting events saw a decline in viewership. As the article states, “Nearly 5 million cable TV subscribers have gone elsewhere in the last five years. The number of cable TV-only subscribers remaining could sink below 40 million later this year, according to this data from ISI Group, an equity research firm (at right).”

From Business Insider

In 2016, The Motley Fool stated that Americans are moving away from the TV. According to the site, “traditional TV viewing among Americans aged 18 to 24 has consistently declined over the last five years. Viewership time fell 10% year over year in the first quarter of 2016, and it’s down by almost 40% compared to the first quarter of 2011.” The article further notes that people age 13 to 24 are more attached to Youtube, Netflix and social media than they are traditional TV. People are using streaming services over using their TV.

People are moving away from traditional television and moving towards social media. As the Motley Fool noted, the biggest demographic shift are young adults. Before long, the older generation will reach their mortal ropes and the social media generation will become the older generation having grown up. Microsoft is making a similar shift. With the launch of the original XBox in the early 2000s, a Microsoft representative stated, “Microsoft has recognized that owning a significant piece of real estate in the living room is key to them being a winner in digital entertainment” It’s no surprise that now analysts are abuzz with Microsoft leaving the market. Of course, moving a lot of their games to Windows 10 doesn’t quell those concerns.

Even with the US election cycle, we saw the rise of new media personalities. People like Mike Cernovich, author of Gorilla Mindset, were receiving million of impressions a month through Twitter. In October alone, Mike Cernovich reached over 25 million people. In fact, Twitter was the big winner of the 2016 election according to USAToday. Over 75 million political tweets were sent through the social media site despite the site lagging behind other social media giants such as Facebook. In the 2016 election, Twitter was a favor destination to discuss the conclusion of a heated election.

What this indicates is that the change is not something that is just around the corner. It is here now. The old media, which is tied to TVs, is fading away. New media, social media, is everywhere. The old media will lose relevance and new faces like Mike Cernovich will, as he often states, build their own media empire. The election is indicative of a macro trend. People are leaving the TV for the social media. Social media is formless. It can be almost anywhere it wants. Heck, if you so chose, your 3DS could be a social media device. It is but one example of TVs, and those organizations tied to them, falling into obscurity.

Of course, this poses a significant risk to any console gaming company. Your customers may just leave you as their attention is drawn elsewhere. I think Nintendo may have been aware of that.

Different Play Environments

What is Nintendo’s strategy? Why is Nintendo making a hybrid? Unfortunately, Iwata passed before he could unveil the entire strategy, and Kimishima, the current president, doesn’t seem open to the idea of laying Nintendo to bear like his predecessor was. At best we can only take the information we have now and try and see if we can find the underlying meaning to what Iwata was conveying.

In an investor Q&A, Iwata stated:

“Your question also included the “current notion of thinking about home consoles and handheld devices.” When it comes to how dedicated game systems are being played, the situations have become rather different, especially between Japan and overseas. Since we are always thinking about how to create a new platform that will be accepted by as many people around the world as possible, we would like to offer to them “a dedicated video game platform with a brand new concept” by taking into consideration various factors, including the playing environments that differ by country. This is all that I can confirm today.”

First, we can consider play environment is quite literal; it means the place where you play video games. Anyone who has kept up with the sales of video game consoles knows that there is a stark difference between Japan and the Western world. Look at these sales:

https://www.nintendo.co.jp/ir/library/historical_data/pdf/consolidated_sales_e1606.pdf

With both of Nintendo’s handheld systems, Japan makes a significant portion of total sales, but for home consoles, Japan makes a minuscule portion of sales. With the DS, Japan still made up a fifth of total sales (21 percent). While that may not seem like a lot, Japan has a population of 127 million. This also means that approximately 1 in 4 people owned a Nintendo DS in Japan. That’s a significant impact. At the same time, when Americans were trampling over little old ladies at the chance to get a Wii, the system performed only modestly in Japan selling 12.75 million and making up 12 percent of total Wii sales.  

Here are the sales of all of Nintendo’s home consoles. Japan’s share of total hardware sales have declined significantly since the N64. This decline is partly due to Nintendo struggling compared to Sony’s Playstation and Playstation 2. Nevertheless, the Wii was Nintendo’s best selling home console, yet in Japan it was a runner-up to the NES and SNES.

This generation, the split between the Japanese market and the western market is as wide as the Pacific that separates them. The 3DS sold the best in Japan with Japanese sales comprising 36 percent of total sales. The Wii U sold the best in the US with US sales comprising 40 percent of total sales. From Nintendo’s standpoint, this makes it very difficult to sell two systems. As I discussed in The NX Will Have How Many Games!?, one of the biggest struggles Nintendo had was making games for two systems which typically lead to making two of the same game (i.e. two Mario Kart games, two Super Smash Bros games). People complain about Nintendo just being a Mario machine, but can you blame them when they need to make 6-8 Mario games in order to sell two systems?

Based on all of this, there is clearly a difference in the play environment. In 2014, the console market experienced its lowest point in 24 years. In an article by Eurogamer.net investigating the Japanese gaming market, they note that gamers are moving. As one commenter stated, “We’ve shifted from a console-dominated market to a mobile-dominated market.” With more and more young people moving toward mobile devices, the same may be true about the US. The okay enviornments are different, but they one day converge.

The War for Attention

When Microsoft entered the market, it was a war for the living room. One of the major values of the systems were multimedia capabilities. While Nintendo changed directions with the Wii, Microsoft and Sony were waging a war of HD-DVDs and Blu-Ray. The old console war was one over your TV and your living room. But with the living room falling apart, the concept of consoles is becoming a dinosaur.

In his final presentation to investors before his untimely death, Iwata stated:

“Right now, the game business is undergoing significant change. The spread of the Internet and social media has dramatically changed the lifestyles of people all over the world, and Nintendo is adjusting its strategic endeavors in line with the new market dynamics.”

Nintendo was well aware that people were changing. While Nintendo specifically mentioned the internet and social media, you can include mobile devices as well. It is a big reason Nintendo wants to put their IPs on mobile devices. In the DeNA presentation, Iwata stated, “Of course, the challenge of asking our consumers to purchase dedicated video game hardware has become harder now that smart devices have widely spread”

With all of this in mind, here is a question for you reader: Why did Nintendo talk about expanding their IPs, mobile games and the NX (now the Nintendo Switch) all in the same meeting? It is because these three elements are key to an overall strategy: capturing attention. The threat to Nintendo is that people’s attention has moved away from the TV. What the internet, mobile devices and social media do is they pull people away from TVs. Consider Mike Cernovich. He is playing a war of attention. He is active on social media, has his own website, all of which helps to sell his books. The mainstream media can’t beat him because they are too tied to TVs. Mike isn’t, so he can capture the minds of millions with 140 characters. He becomes the media.

Nintendo, rightfully so, is not defining themselves as a “console manufacturer” or even a “video game company.” (Even though this is still their biggest product). Nintendo is seeing itself as an entertainment company. Nintendo is not tying themselves to one product or service. This is why the new Nintendo will be at Universal Studios. Nintendo is trying to capture the hearts and minds of consumers. As Iwata stated, “Now that smart devices have grown to become the window for so many people to personally connect with society, it would be a waste not to use these devices.” Nintendo’s entire strategy should be seen as capturing your mind. Capturing your attention.

The Console Market

In this article, I talked about a lot of different topics. What does all of this mean for gaming as a whole? The fact is the console market you knew in the early 2000s or even as recently as 2012 is dead and it’s never, ever coming back. The truth is that TVs are a thing of the past. Computing is no longer a large box that sits at a desk. Your computer is everywhere. You are always connected to the world 24/7. This is why Nintendo is jumping into mobile. They are not in the market to make that sweet mobile cash as the analysts seem to think. Nintendo is there because they know you are there, and Nintendo wants you to think about Nintendo. They want you to be a Nintendo customer no matter what.

This is a new age of video games, and we are never going back to the old way. Don’t believe me? Consider the new media vs old media. In a 2015 article, Fox News was exclaimed to have the oldest viewers with an average age of 68. Despite the article claiming CNN had the youngest, their viewers have an average age of 59; not the spring chickens you thought they were. If the average age of your viewers is “dying,” then what does that say about the future of your market? Likewise, the younger generation is moving away from TVs.

That is why the Nintendo Switch is moving away from TV. Yes, the system does attach to the TV, and Nintendo has referred to the system as a home console. However, Nintendo strategy is clear. Much like the DS becoming the “third pillar”, the Nintendo Switch is the future of Nintendo’s handhelds. The facade will fade when the 3DS is out of the picture. Microsoft sees a similar trend as well. Windows is declining as desktop PCs are cannibalized by mobile computing. Microsoft is leaving consoles to defend against a new threat. Both companies are responding to the macro trends in different ways. But the fact remains the market is changing forever.

Closing

Overall, this article is dedicated to Nintendo’s strategy and what they are doing in the video game market. Nonetheless, it’s clear the market is making a big shift. From Nintendo’s perspective, making two consoles is no longer going to work. Moreover, TVs, the lifeline of console gaming, is declining. People’s lives are consumed by mobile devices, the internet and social media. The old model doesn’t work. Nintendo Switch is the company adapting to the changing market. This is not the first time the market has changed. As I noted in Why the Dreamcast Died, Sega declined because it didn’t adapt to the changing times. Arcades were on the downswing yet Sega was tied to arcades. Now, companies that are tied to TVs will die. Nintendo is saying sayonara to TVs, and the company is going in a different direction. While the Switch connects to a TV, it is not bound by it. Companies who are tied will die.

Before, the market was about capturing the living room. Now, consoles will be about capturing attention. When you understand this, you can predict the winners and the losers of the new console market.