One-Upping the Competition: How Nintendo Built Its Cultural Hegemony

An academic analysis of Nintendo and why they’re awesome.

This is an academic paper I wrote for Professor Kenneth Pyle’s ‘The Emergence of Postwar Japan’ class at the University of Washington. It explores capitalism, technology, and history to understand how Nintendo came to power and maintain its cultural dominance in the gaming space. The paper was a lot of fun writing, and I thought someone else might enjoy reading it. Oh and by the way, I just got to write about Nintendo for school.

One-Upping the Competition:
How Nintendo Built Its Cultural Hegemony

Love them or hate them, play them or watch them, video games have permeated the world. Whether on mobile phones on the bus ride to work, movie adaptations during the summer blockbuster season, or e-sports taking timeslots on cable TV[1], games in some form or another pervade our lives and are daily unavoidable. Regardless of one’s opinion, the industry’s astronomical rise to the mainstream in such a short time warrants close consideration. Like most entertainment, the video game industry is merciless, and in its short history has witnessed the rise and fall of countless companies, mascots, and personalities. One company, however, has traversed this precarious minefield of unforgiving investors and volatile consumer bases where so many others have failed. Nintendo dominates the competition and is ubiquitous with gaming in ways no other company can dream of. Nintendo plays with power.

This, however, raises a key question: how has Nintendo created an international cultural hegemony that withstands multifarious economic crises and technological advancements in one of the most unforgiving industries in the world where others have failed? Why can’t other companies match this success? Both internal resolutions and external circumstances have attributed to Nintendo’s continued dominance in the technical industry. Its readiness to capitalize on market trends and adapt its product lines is an obvious advantage in a fast-paced industry. Management and business practices inherent to Nintendo, such as its willingness to invest in foreign markets and its own innovation and readiness to seek help from foreign firms to improve their products[2] are imperative to understanding its success. Finally, one cannot discredit outside factors such as the nature of the industry Nintendo finds itself in, as well as the opportunistic and providential period in which Nintendo transitioned into the video game industry.

Nintendo’s storied history spans more than 127 years, back to 1889. It found success in the mid-70s with its Color TV-Game console series, a modified, system of Magnavox’s Odyssey hardware[3]. But the world’s universal adoption of its systems and the guileless adoration of its characters such as Mario and Pikachu can be traced back to 1979 with the birth of Nintendo’s oldest mascot and its entry into the electronic games space, with the release Mr. Game and Watch and the Game and Watch handheld video game series, which eventually numbered 47 different games. Creation of a recognizable IP was key to its eventual success, as was the strategy to increase product portfolios rather than focus solely on hit games as their predecessors had[4], to “sustain consumer interest and loyalty”[5]. By 1979, Atari had already established the North American video game industry with its Atari VCS (later Atari 2600) home video game console and taken over arcades with its Asteroids cabinet, and fellow Japanese company Taito had released its worldwide arcade hit, Space Invaders, a year prior. Entry into the nascent video game industry seemed like a natural evolution for a company known for its high-tech entertainment and prone to capitalizing on various business enterprises.

This capitalization on the market and adaptation to its current state is a primary reason Nintendo has been so successful over the last four decades, and one can suggest many business decisions as key to its success. In 1983, Nintendo released its first home game console, the Family Computer, or Famicom. Recognizing the vacuum left in the North American video game market following the video game crash of 1983, Nintendo released the system on American shores in time for the 1985 holiday season and encountered little to no competition, an outstanding example of the Blue Ocean strategy by W. Chan Kim, a strategy that involves finding markets where there is little to no competition[6]. To appeal to an audience fed up with television games, Nintendo sold the system not as a video game console, but as an electronic toy that could also play video games. The inclusion of the Zapper gun for games like Duck Hunt, and R.O.B. the Robotic Operating Buddy for Gyromite and Stack-Up were key marketing strategies designed to rebrand their console as something new, despite being a “simply novelty item with little use beyond these games”[7]. Nintendo proved the success of the Blue Ocean strategy once more in 2006 with the release of the Wii video game console. “Nintendo differentiated Wii from other video game platforms through its innovative motion sensor controller” and “targeted casual game players by simplifying the game play”[8], thereby reinvigorating an industry growing stale and inaugurating fans beyond the stereotypical demographic of boys and young men. The recently released Nintendo Switch arrives amidst cries of the inevitable death of the dedicated game console in a world characterized by pervasive smart phone phone usage and quick pick-up-and-play mobile games. Nintendo adapts and innovates by creating a console that blurs the lines between home game systems and mobile platforms by allowing the Switch to be played both docked and on the go.

Of course, mentioning Nintendo’s staggering successes without also commenting on its failures is deceptive, and would also blunt how acute its technological, financial, and business achievements are. After the success of its sophomore effort—the Super Nintendo Entertainment System—the Kyoto-headquartered company experienced one of its first major failures in the form of the Virtual Boy. The system and its blaring red, head-mounted virtual reality display (again attempting to capitalize on a changing market and innovative, new technologies) was a disaster. Instead of pushing a product without marketplace appeal, however, Nintendo quickly discontinued the system and cut its losses less than a year after units were first shipped. In more recent memory, the Wii U experienced unexpected low consumer adoption after its highly successful predecessor, the Wii, sold over 100 million units. Indeed, the Blue Ocean strategy requires a constantly dynamic strategy, one that cannot wait around for success. Recognition that the Wii U had a limited window of success was already being discussed only a year after its initial launch, when Sony and Microsoft were prepping their new product variants[9]. Again, rather than forge ahead with an unwanted product or bow to naysayers saying gamers wanted a more traditional gaming experience without gimmicks, it halted production less than five years after its introduction and released the Switch. Failures such as the Virtual Boy provide “far more fertile ground for evaluating cultural shifts than a similar ‘successful’ console”[10], something Nintendo is obviously aware of and uses to its advantage. Both examples are obvious business practice any astute company would follow. Yet, when compared to the failures of other industry leaders, Nintendo not only adapts to failure better, but excels following setbacks. Atari dominated the industry as the first hegemon in the 70s and early 80s before the North American video game crash due partly to its own business practices, but it was never able to recover and today is only a shell of its former self. There is evidence that a primary failure of Atari was the amount of “shovelware” of poor arcade ports on its platforms, something Nintendo combatted with “single-homing software development”[11]. This required titles to be released solely for Nintendo’s systems, thereby maintaining consistent quality and forcing consumers to buy into its product ecosystem. Sega experienced consecutive difficulties in the 90s following its successful Genesis console, from its Sega CD add-on to the Dreamcast, culminating in its exit from home game hardware altogether. Rival companies’ failures demonstrate how exceptional Nintendo’s resolve to overcome adversity is and how they are the outlier.

One can scrutinize not only fellow video game companies, but also other Japanese companies as testimony to its unique success. Nintendo is a Japanese company first and foremost, and much of its business culture coincides with other Japanese companies like Sony, Toyota, and Mitsubishi. The Japanese economic bubble in the early 90s affected every Japanese company, resulting in the Lost Decade, the closure of many financial institutions, and stagnant economic growth which persists to this day. Couple this with the 1997 Asian financial crisis and the 2008 financial crisis, and it’s a small wonder a company focusing on luxury goods has remained relatively unfazed. Multiple business decisions have made Nintendo, while not completely immune, at least protected from these crises. First, Nintendo has never been a part of a zaibatsu or keiretsu[12], the distinctive conglomerates and cartels characteristic of Japan’s economic success in the Meiji and post-war periods respectively. Marie Anchordoguy, in her book Reprogramming Japan, shows that firms such as Nintendo “are generally less embedded in communitarian norms” thus “less negatively impacted by communitarian arrangements”[13].This lack of interdependence has granted freedom both financially and creatively, not tying Nintendo to the fate of other companies and financial institutions. Second, the branding of its IPs, the bifurcation of its operations into multiple platforms (i.e. home console and portable console markets), and the division of its marketing between different demographics[14], provides Nintendo capital during hardships. Third, by the mid-80s Nintendo had an international presence and brand awareness on a global scale; if the Japanese economy falters, it can rely on the NA and EU markets, with the inverse also holding true. And last, the company has historically created industry standards and practices as preventive measures against known causes of other companies’ failures. Though its standards are exacting, the firm is viewed as paternalistic and some developers liken it to a dictatorship where “you’re going to have to obey the rules of the family… obviously Japanese”[15]. One of the primary reasons for Atari’s collapse was the amount of poor quality games released for its systems due to lax licensing and publishing, an obstacle Nintendo overcame by creating stringent publishing and pricing regulations for its own consoles, a practice both loved and despised by retailers and developers who had to pay half the manufacturing costs in advance and pay additional royalties once the game sold”[16]. Despised or not, the practice worked to create a near monopoly on the industry. These have all contributed in some form or another to resilience.

Recognizing the circumstances and approaches of Nintendo, which combined provide it with extremely modular and adaptive business strategies, one can observe how certain characteristics of the game industry make it receptive to such strategies. In fact, the very nature of the young industry, in many ways, is unique and provides Nintendo with an uncharted domain where the rules have not been written. First, the industry is iterative and console generations come in cycles, providing a company with the opportunity to prepare for upcoming hardware. Nintendo recognizes this. Thus, a company can consciously decide whether it wants to compete directly with other console manufacturers by releasing a console during the typical cycle, or it can deviate and release its own hardware halfway through the competition’s hardware lifespan. Nintendo has practiced the latter since the release of the Wii U, its release date coming a whole year before its primary competitors, the Xbox One and PlayStation 4. The Switch, too, has been released mid-cycle. More than 25 years ago, Nintendo was practicing the same policy by selling an underpowered system (NES) against competitors (Sega and NEC) with more powerful hardware during the holiday season, to have an advantage and less competition the next season[17]. Not only does this remove Nintendo from direct competition, it makes it more likely consumers will buy their product in addition to competitor hardware they already own, since the purchase is made on an “off-year”. Second, like the computer and mobile phone industries, the game industry is subject to installed user bases. Nintendo’s track record of customer retention is exceptional, “crucial for the success of any business”[18]. Once someone becomes familiar with a game platform or invests in the stories and characters of a first-party IP, and a “consistent consumer experience across all channels”[19], they are likely to continue buying that company’s products. Nintendo’s history is old by industry standards, and it has been able to build up this user base across generations. By committing to consistent development and production, Nintendo “adds momentum to product adoption and dispels the market apprehension that exists during the market launch and generational switch of standards”[20]. And lastly, the game industry is a much more personal one than similar creative industries like print or movies. Distribution platforms such as Steam (store.steampowered.com) and GOG (gog.com) provide the end user with greater access to both publisher and developer, allowing for business to respond to consumer demands more quickly and for new technologies to “emerge out of general societal desires when producers attempt to project these widespread hopes onto material goods”[21]. This holds especially true now that online connectivity allows for post-launch patching of a game.

Still, even with careful study of its history and practices, some successes and failures by Nintendo remain difficult—or even impossible—to explain without bestowing a certain singular quality on the company that confounds practical scrutiny. Indeed, there is certainly something special about the company, and the notion cannot be rejected in its entirety. Its intellectual properties are world-renowned and appeal to a broad audience. Individuals like the creator of Mario and Zelda, Shigeru Miyamoto, are synonymous with the company, and one could argue Nintendo would not exist in its current form without his creative prowess. Indeed, Miyamoto is singular and his vision on how to make games is disparate from nearly any other game designer in the industry, something noted in Wesley and Barczak’s Innovation and Marketing in the Video Game Industry:

He had no idea of the complexity of computer programming or the limitations imposed by the primitive hardware that was available at the time. Instead, he had a vision in his mind of what the ideal game would look like, a vision driven by his artistic and musical talent, his broad exposure to classical literature, his childhood fantasies…. Experienced developers, on the other hand, only knew the craft as it already existed.[22]

Similarly, former President and CEO Satoru Iwata was an uncommon individual able to straddle both the creative and business duties of his position, and raised Nintendo from 135th to 1st in the Brand Japan annual survey that ranks companies based on consumer perceptions[23]. Personalities are imperative to a company’s success, even outside the game industry: Jeff Bezos, Bill Gates, and Steve Jobs were all key in the growth of their enterprises. Omitting a couple exceptions like John Carmack, Gabe Newell, and Richard Garriott, few personalities in the game industry have reached the renown or recognition as Nintendo’s employees. It will be interesting to see how new CEO Tatsumi Kimishima handles the position following the untimely death of Iwata in 2015, and if the success of Nintendo will continue after its most notable personalities retire or pass away.

So, why can’t other game companies (or companies in other industries) match the continued success of Nintendo? As discussed, some circumstances afforded the company are, in fact, unique: its privileged status as one of the progenitors of the industry, the appeal of its IPs, and the personalities of its most visible employees. There are, however, ways in which other companies can use Nintendo’s practices to match its success: adaptability to the market, self-sustainability with various product lines, an international presence to offset potential domestic crises, and avoiding direct competition. If followed, these procedures could very well assist in continued sustainability for any company, similar to the long-term dominance of Nintendo.

With the initial sales number of its Switch console, Nintendo could very well be back on track to dominating the living room once more after the disappointing results of the Wii U. As discussed, this failure-success pattern is nothing new to Nintendo, and indeed, it thrives in immediate post-failure situations. With this ability to adapt to failure, its business and branding on an international level, the unique nature of the video game industry, and its own personality flair, the future of the House that Mario Built looks bright. Playing to its strengths, Nintendo will continue to rewrite what it means to be successful in the gaming space.

 

Works Cited

 

[1]Poladian, Charles. “‘ELeague’ eSports On TBS Debuts May 24 with Three-Hour ‘Counter-Strike: Global Offensive’ Broadcasts.” International Business Times. January 28, 2016. Accessed May 28, 2017. http://www.ibtimes.com/eleague-esports-tbs-debuts-may-24-three-hour-counter-strike-global-offensive-2284861.
[2] Anchordoguy, Marie. Reprogramming Japan: The High Tech Crisis under Communitarian Capitalism. Cornell Studies in Political Economy. Ithaca, N.Y.: Cornell University Press, 2005. p. 166.
[3]Kohler, Chris. Power-Up: How Japanese Video Games Gave the World an Extra Life. Indianapolis, Ind.: BradyGames, 2004. p. 30.
[4]Dunham, Andrea. Unique Value: The Secret of All Great Business Strategies. New York: Toronto: New York: Macmillan Pub.; Maxwell Macmillan Canada; Maxwell Macmillan International, 1993. p. 45.
[5] Ibid, p. 47.
[6]Anup Jayaram. “Gamely Playing the Success Card. (Company Overview).” Business World, 2011, Business World, April 11, 2011. p. 2.
[7] Boyer, Steven. “A Virtual Failure: Evaluating the Success of Nintendo’s Virtual Boy.” Velvet Light Trap 64 (2009): 23-33. p. 25.
[8] Inoue, and Tsujimoto. “New Market Development of Platform Ecosystems: A Case Study of the Nintendo Wii.” Technological Forecasting & Social Change, 2017, Technological Forecasting & Social Change. p. 13.
[9] Svend Hollensen. “The Blue Ocean That Disappeared – the Case of Nintendo Wii.” Journal of Business Strategy 34, no. 5 (2013): 25-35. p.33.
[10] Boyer, Steven, “A Virtual Failure, p. 24.
[11] Maruyama, Masayoshi, and Kenichi Ohkita. “Platform Strategy of Video Game Software in Japan, 1984-1994: Theory and Evidence.” Managerial and Decision Economics 32, no. 2 (2011): 105-18. p. 107.
[12]
Anchordoguy, Reprogramming Japan, p. 164.
[13] Ibid, p. 30
[14] Horton, Cleveland. “Nintendo Adopts Dual Strategy.” Advertising Age 61, no. 37 (1990): 40.
[15] Donovan, Tristan. Replay: The History of Video Games. East Sussex, England: Yellow Ant, 2010. p. 169.
[16] Wesley, David T. A., and Barczak, Gloria. Innovation and Marketing in the Video Game Industry: Avoiding the Performance Trap. Farnham [Surrey, England]: Gower, 2010. p. 46.
[17] Fitzgerald, Kate. “Nintendo Cools Off. (Nintendo of America Inc.).” Advertising Age 61, no. 51 (1990): 20.
[18]Murray, Brian H. Defending the Brand: Aggressive Strategies for Protecting Your Brand in the Online Arena. New York: American Management Association, 2004. p.76.
[19] Ibid, p. 76.
[20] Shintaku, Junjiro, and ASABA, Shigeru. “Intergenerational Competitive Strategies for Industry Standards.” Annals of Business Administrative Science 13, no. 1 (2014): 47-66. p.64.
[21] Boyer, Steven, “A Virtual Failure, p. 31.
[22] Wesley and Barczak, Innovation and Marketing, p. 22.
[23] Aaker, David, and Akutsu, Satoshi. “Nintendo: Japan’s Brand Story of the Decade. (Viewpoint).” Marketing News 44, no. 13 (2010): 12.

 

Author: Feetme Media

Writings, ramblings, and other misguided attempts at communication.

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