Incredible OP @Phantom Thief and really great discussion that stemed afterwards.
Phil Spencer recently said that "the next big game is going to start small" and he will probably be right. Publishers need to experiment in the AA space and can't only take huge AAA gambles. The market moves too fast for that.
Sony and Nintendo. Nintendo while they do bring a lot of new players, and are quite honestly doing amazing (maybe even better than ever), really haven grown their install base from their previous peaks. If anything, combining Wii and DS (as the Switch is supposed to be both a handheld and a console), shows theyve shrunk quite a bit.
Im not sure theyll ever bite the PC or Mobile bullet fully though.
The only reason why Nintendo were able to achieve those sales was because they stumbled upon what was essentially mobile gaming a good 4-5 years before Apple did. Once the iPhone solidified itself as an essential, all-purpose device that also happens to play touchscreen games, there was nothing Nintendo could do to retain their expanded DS audience other than make a smartphone of their own.
If we exclude the unsustainable peak of DS/Wii, Nintendo should be able to sell more Switches than any of their other console-handheld combos.
Sony and Nintendo. Nintendo while they do bring a lot of new players, and are quite honestly doing amazing (maybe even better than ever), really haven grown their install base from their previous peaks. If anything, combining Wii and DS (as the Switch is supposed to be both a handheld and a console), shows theyve shrunk quite a bit.
Im not sure theyll ever bite the PC or Mobile bullet fully though.
You can't just add NDS + Wii hardware sales to determine the total "Nintendo install base" during the NDS/Wii generation, given how many people owned both a NDS and a Wii.
The same applies to N64 + GBC, GBA + GCN, 3DS + Wii U, etc...
Let's not forget that two DSs and a Wii would run you about the same as just one SWOLED. Given Nintendo's fiscal reports, they're doing just fine with a single platform.
The obvious solution I always felt was to have only one console... leave PlayStation to make the console for everyone, it is the most efficient use of silicon and gives the best performance per dollar.
Then put Gamepass on each one, with a library agreed by Msft and Sony. So the Xbox fans are catered to if they want to continue on console. Otherwise I think in the longterm it makes sense for Msft to buy Steam.
Issues like crossbuy, crossplay and console wars would no longer be an issue, the multiplayer bases would be united for every game. All production would be streamlined and make even better use of economies of scale and instead of Sony spreading themselves thin looking at PC, mobile, cloud and all sorts of nonsense..... they could really focus on getting consoles to every possible market and implementing regional pricing to make premium gaming more accessible.
How does this fix anything about the situation? Most of what you suggest boils down to consolidating the same stagnant market under your console maker of choice. The one thing that could expand the audience (getting cheaper hardware and software to developing markets) is a strategy Sony could already adopt right now but choose not to, preferring to focus on cloud and mobile instead.
You can't just add NDS + Wii hardware sales to determine the total "Nintendo install base" during the NDS/Wii generation, given how many people owned both a NDS and a Wii.
The same applies to N64 + GBC, GBA + GCN, 3DS + Wii U, etc...
My take:
The real issue behind the "AAA decline" is that it is foolish to keep pursuing cutting edge graphics. Game development costs keep increasing, while the user base does not increase with it. It's not a sustainable business model. I believe this is what Iwata was actually warning about: the unsustainability of these high budget, cutting edge graphics games.
Here is how the big 3 have responded to this reality: Nintendo - They intentionally decided not to upgrade their hardware with the Wii, and have stayed behind the power levels of PS and MS consoles ever since. This move has helped their bottom line a whole lot. They posted record profits during the Wii/DS era, and they are posting similar profits again during the Switch era. Sure the Wii U was a huge flop for them, but it wasn't software development costs that did them in, so much as the console was really not popular at all. Assuming that Nintendo goes with a lower powered hybrid system for the foreseeable future, then they really do not have to worry about rising development costs any time soon. It should be obvious that a lot of their best selling games do not have development costs anywhere near the revenue that they return, i.e. Mario Party, Animal Crossing, Pokemon, Ring Fit Adventure, 2D Mario, etc....
Microsoft - I do believe that Microsoft is aware of this problem as well, and their long term solution is essentially Gamepass. The common wisdom among companies that stream video is that you pay a lot up front, but then make back your money over time. I believe this is essentially what Microsoft is doing. If you look at what happened to Netflix, they made a lot of subscription money when they first started streaming, but after a short while Hollywood pulled most of their best movies off of Netflix. However, Netflix got big enough by this point that they could start making their own content. Now they make a ton of content, but most of it is not really big budget stuff. I suspect this is more what the future of Gamepass will look like. Eventually there will be a lot of content, but it will not be big budget stuff. Or if there is AAA content from third parties, then it will be several years old and past the point where they can make money from it from any other source. In the meantime, MS appears to be supporting the AAA route until Gamepass is sustainable on its own.
Sony - Of the big 3, they seem to be the company most supporting the AAA, big budget, cutting edge graphics model. I actually think this model is possibly driven more by large Western Third Party companies like EA, Activision, and Take Two, but Sony is very much embracing this model too. Even though they lost a lot of money on the PS3, they made a lot on the PS4, so I don't think they are too concerned right now. However, I also think they are going to get punished again with this model with the PS5 (although probably not as badly as the PS3). They are losing their Eastern market, and Microsoft is going to eat into their American market. So, PS5 is not going to do as well as PS4, and they are either going to lose money or maybe post small profits. I can see them questioning the sustainability of this model in about 5 years, but right now it is too soon since the success of the PS4 for them to really question what they are doing.
Third Party Companies - I believe they are all aware of the rising costs. However, for the largest publishers like EA, Activision, and Take Two, I think this is essentially their business model: make it difficult for smaller publishers to compete with cutting edge graphics and take over the market. And that is kind of what they've done in the past couple of decades with the sales charts being reliably dominated by games like CoD, FIFA, Madden, GTA, etc.... However, there are enough "smaller" players at this point that I think are worried about the sustainability of this model, that most other publishers may end up supporting some platform other than a traditional Playstation console. Japan is mostly heading toward the Switch, and I think even big Japanese publishers like Square-Enix and Capcom have to be questioning how to make their biggest franchises in a sustainable way. All other publishers have to either be favoring Switch or possibly Gamepass or mobile or some other avenue to get revenue without the massive costs. Essentially I think the issue of the traditional Playstation (or XBox without Gamepass) console is that it may lack a critical mass of games in the future. A console with a few really big, shiny releases (PS5) may not do as well as a platform like Switch or Gamepass or mobile, all of which simply have a lot more games available.
So, essentially I think this problem, and it's solutions are going to come to a head in a major way during the next few years. Customers will head more toward platforms with a large quantity of smaller and medium sized games, and that will make the big budget games even less sustainable. By the time we get to Generation 10 consoles (or equivalent), I think we will have seen the game development landscape change quite a bit away from the AAA model.
The issue with the above strategy is mobile is no longer, and really hasn’t been for awhile now, a safe avenue. Outside of major competition mobiles have been steadily rising in costs whether they be upfront or long term when supporting the game. It’s why companies like Capcom fail because they don’t understand the market or push out unviable products. It is why you are seeing companies just buy out mobile companies (King and Zynga).
The only reason why Nintendo were able to achieve those sales was because they stumbled upon what was essentially mobile gaming a good 4-5 years before Apple did. Once the iPhone solidified itself as an essential, all-purpose device that also happens to play touchscreen games, there was nothing Nintendo could do to retain their expanded DS audience other than make a smartphone of their own.
If we exclude the unsustainable peak of DS/Wii, Nintendo should be able to sell more Switches than any of their other console-handheld combos.
Good point but I wouldn’t call Wii/DS unsustainable. Let’s not forget that a lot of that “mobile game” audience is there with the Switch because some of the software is there. At least some of them came back for things like Brain Training, Fortnight (PS4 players were 60% of revenue but Switch was a decent minority per the discovery in the Epic vs. Apple court case), Ring Fit, Fitness Boxing, Just Dance etc.
That expanded audience is not something that came and went forever. It just left after the Wii because Nintendo was unable to make software for their tastes while launching the 3DS and WiiU. Third parties were not willing to do so except for Just Dance. If you provide the right software, that audience will spend their entertainment dollar/yen/euro/pound on it. Look at sales of Just Dance every year. It’s the same game every fall but it’s still very fun and simple and appeals to non-core gamers (and me because I like dancing and I like arcade games!).
Remember that the mass market views the Switch as the successor of the the 3DS, DS and Wii. Most people are unaware that the WiiU even happened because it was such a colossal failure.
Perhaps the Wii/DS was unsustainable in 2011 because Nintendo was unable to provide the right software and third parties did not want to do so except for Just Dance. It’s not unsustainable in concept as long as you can provide the right software. 2011 Nintendo was unable to supply “core” software, expanded audience software, and launch two new machines simultaneously. However, with Nintendo consolidating their development lines, they were able to provide Ring Fit for the expanded audience and third parties followed with things like Fitness Boxing. Nintendo tried (and maybe failed) with Labo but it led the way for Brain Training to come back.
We should also think about how Nintendo focusing on one piece of hardware completely changed the competition with Sony. In the NES and SNES, Nintendo put out software to heat up the market and the third parties would make more software to take advantage of the momentum. How many 2d platformers and top down action adventures were on the NES? That pattern didn’t work with the N64 because Sony provided a better development environment for the third parties. Now, the Switch had one first party release a month up until COVID hit. They were able to provide enough software in case the third parties did not bite.
Meanwhile, Sony never got enough game out there to heat up the market for third parties in the wake of the disaster of the PS3. They got third person cinematic games and sports games and battle royales but never heated up their environment for the arcade and expanded audience titles. None of those are popular with Japanese gamers.
It's unsustainable because there was no way for Nintendo to retain, let alone build on the 250+ million systems they sold in the 7th gen aside from radically reinventing their approach to hardware.
Could the drop from DS and Wii have been softer? Yeah, absolutely. As you said, Nintendo didn't do themselves any favors with the kind of software they were putting out. I also believe that conceptually, the 3DS and Wii U were pretty much an antithesis to what made their predecessors succeed.
But at the same time, as soon as an ultra-portable device that let you browse the web, stay in touch with your friends, use a bunch of apps and play some pretty advanced games (and in the portrait mode pioneered by the DS) came along, a huge chunk of Nintendo's expanded audience were just not coming back, no matter how much quality 'blue ocean' software there might have been on more worthy successors to the DS and Wii.
Nintendo either had to make their own iPhone (lol) or come up with another form factor that casuals would feel compelled to buy alongside a smartphone. As of today, nobody, Apple included, have successfully commercialized the next big thing for consumer electronics. The Switch is the closest thing to a new type of gaming device and has been extremely successful for Nintendo, but even that is capped at 200 M by the most optimistic predictions.
It's unsustainable because there was no way for Nintendo to retain, let alone build on the 250+ million systems they sold in the 7th gen aside from radically reinventing their approach to hardware.
Could the drop from DS and Wii have been softer? Yeah, absolutely. As you said, Nintendo didn't do themselves any favors with the kind of software they were putting out. I also believe that conceptually, the 3DS and Wii U were pretty much an antithesis to what made their predecessors succeed.
But at the same time, as soon as an ultra-portable device that let you browse the web, stay in touch with your friends, use a bunch of apps and play some pretty advanced games (and in the portrait mode pioneered by the DS) came along, a huge chunk of Nintendo's expanded audience were just not coming back, no matter how much quality 'blue ocean' software there might have been on more worthy successors to the DS and Wii.
Nintendo either had to make their own iPhone (lol) or come up with another form factor that casuals would feel compelled to buy alongside a smartphone. As of today, nobody, Apple included, have successfully commercialized the next big thing for consumer electronics. The Switch is the closest thing to a new type of gaming device and has been extremely successful for Nintendo, but even that is capped at 200 M by the most optimistic predictions.
I misunderstood what you meant by “sustainable.” I thought you meant that there are no customers to be made in the expanded audience anymore because phones. That is not true and the sales of Animal Crossing, Ring Fit, Just Dance, Momotaro, Fitness Boxing, Brain Age, Mario Party, etc. shows that there is still lots of money to be made in the expanded market. There are still many non-core gamers who want good software to entertain them and are happy to pay for a toy that entertains them. There always will be.
It seems that you meant that it’s not probable that the Switch or a future Nintendo machine will have the same market environment as the mid to late 2000’s. I agree that it’s not likely that the Switch will move as many units of hardware as the Wii+DS. While the software is there to serve some of the expanded market, it’ll never be a super-cheap impulse buy like the DS (and 3DS was after the price cut). It still needs to have multiple pieces of attractive software for the customer to think through buying one. You won’t see them in convenience stores anytime soon.
However, Nintendo does not need to sell as many hardware units to grow the market. They only need to sell to as many or more customers and recapture the cultural zeitgeist (anecdotally I’d say that they have done the latter. I have no sources either way about the former.)
AAA third parties should probably start cultivating fan-bases and goodwill among the 100 million or so Nintendo gamer's that show up most generations rather than turning a blind eye and pretending the potential growth for such an audience does not exist.
Fantastic and truly insightful analysis! Opened my eyes to a lot of things regarding the console market I hadn't considered before. Plus, a very enjoyable read. Thanks for taking the time to do this. This is exactly the kind of content I'm here for.
The Wii/DS was never a sustainable market once the massive market disruptive that was the IPhone came into existence. So there was always going to be decline with the next devices. With more people into gaming, thanks to mobile and PC, Nintendo just needs the software diversity they are known for to appeal every so often to certain groups. Eventually Switch+Success should outsell Wii+DS if they count it like the Gameboy line.
As for reversing the trend well I hinted at it above. AAA publishers need diversity both in their target audiences, platform offerings, and budgets. However, that goes entirely against their ethos of the biggest and prettiest; AAA or bust mentality. The current model is essentially a mobile model designed to whale 13-35 young males though the following:
-multiple editions (goty, gold, platinum, etc.)
-pre-order bonuses
-on disk dlc
-collector’s edition for every new ip
-microtransactions in full priced games (gacha, loot boxes, p2w)
-trying to introduce nft and bitcoin as the next wave
-paid unlockables, cheats, Easter eggs
-price increases especially in Europe
They have give up plying wide now they wanna play tall.
The jury is still out on that question. While the PS5 seems to have had a solid worldwide hardware sales launch window, the software hasn't been all perfect. For example, the most recent Call of Duty had weak sales. It's too early to know if it's a trend. Madden, FIFA, and NBA2k seem to still sell well and their whales continue to be whales so that's good for Sony's business. I argue that we are still in the launch period with the PS5 because it's not yet widely available and the non-sports/MTX software that many of the customers are buying the hardware for are still years away. PS5's fate is still unanswered long-term.
I don't think that the PS4's successful business cycle is applicable to the PS5's. The PS4 had competitors who messed up, with only the 3DS half-correcting and had ample software due to a consolidated development environment (they abandoned the Vita to get more software on the PS4). The PS5 also has longer development times and costs than the PS4 so we will see how that plays out. It also has competitors who are either red hot (Switch) or showing signs of improvement from their previous generation (Microsoft).
The Wii/DS was never a sustainable market once the massive market disruptive that was the IPhone came into existence. So there was always going to be decline with the next devices. With more people into gaming, thanks to mobile and PC, Nintendo just needs the software diversity they are known for to appeal every so often to certain groups. Eventually Switch+Success should outsell Wii+DS if they count it like the Gameboy line.
As for reversing the trend well I hinted at it above. AAA publishers need diversity both in their target audiences, platform offerings, and budgets. However, that goes entirely against their ethos of the biggest and prettiest; AAA or bust mentality. The current model is essentially a mobile model designed to whale 13-35 young males though the following:
-multiple editions (goty, gold, platinum, etc.)
-pre-order bonuses
-on disk dlc
-collector’s edition for every new ip
-microtransactions in full priced games (gacha, loot boxes, p2w)
-trying to introduce nft and bitcoin as the next wave
-paid unlockables, cheats, Easter eggs
-price increases especially in Europe
They have give up plying wide now they wanna play tall.
The Wii/Ds was not sustainable because Nintendo go back to Gamecube and N64 route in later years. Nintendo stop to produce for former gamers and expanded public and try to convert this public into 3d Nintendo hard fans, and have the droughts because of handle four pipeline´s systems and bad localization ( Pandora Tower, Last Story, Disaster, Xenoblade, Game of giants, etc). 3DS and Wiiu beyond the names don´t have the same audience. The smartphone works likewise on PC, the dedicated videogame has some confluence, but the main driver is Nintendo's own strategy shifted.
About AAA, the whale's focus on males 15-35 is on point, good explanation.
The Wii/Ds was not sustainable because Nintendo go back to Gamecube and N64 route in later years. Nintendo stop to produce for former gamers and expanded public and try to convert this public into 3d Nintendo hard fans, and have the droughts because of handle four pipeline´s systems and bad localization ( Pandora Tower, Last Story, Disaster, Xenoblade, Game of giants, etc). 3DS and Wiiu beyond the names don´t have the same audience. The smartphone works likewise on PC, the dedicated videogame has some confluence, but the main driver is Nintendo's own strategy shifted.
About AAA, the whale's focus on males 15-35 is on point, good explanation.
3DS and Wii U both got new Nintendogs, Brain Training, Wii Fit, Wii Party, etc within a year from their respective launches. Nintendo clearly wanted fans of those games to migrate from NDS/Wii to 3DS/Wii U ASAP.
The problem was, the audience that bought a NDS/Wii to play those games moved on to mobile F2P gaming
They have a solution. Multiplatform GAAS (let's call it diversification). How it's delivered (natively or streamed) probably doesn't matter that much to them. Xbox has Minecraft and Nintendo has Mario. They are use them to cast as wide a net. PC and mobile are growth spots as you say and that is where they both are investing along with amusement, media and/or services.
PlayStation on the other hand is doubling down on what built their industry leading position and are still finding success in that approach.
Why the consoles haven't seen growth despite more people moving up the fiscal food chain globally has to do with competition in my opinion. PC is starting to be included in the reindeer games and more affordable F2P games make themselves available on ubiquitous smartphones, saving people in lower income areas the trouble of buying a 2 trick pony box that will be outdated in 7 years. Not to mention all of the things on the periphery like cheap dime a dozen retro consoles and emulators and social media network games.
Speaking of those boxes. The prices are moving them up from a device "of the people" to a device for hobbyists. Because not only do you have to buy the device but in order to enjoy all that advancements they sell them to you on you need a lot more money besides.
Is there a hard ceiling? I don't think so but it would have to take a peace treaty to stop the current one track mind arms race going on.
I just want to say thank you to everyone who has taken the time to share and post their thoughts in this thread. There has been some excellent discussion going here, and some of the spots are really well articulated and backed up with immense amounts of data as well; this is the quality and kind of discussion that I think will set this community apart from others.
I have not been able to get to responding to many people who posted since yesterday, for which I apologize. I have read every post, I have thoughts in response to most of them, and I do hope to respond to some of the ones that caught my eye and that I couldn't get to some time soon.
3DS and Wii U both got new Nintendogs, Brain Training, Wii Fit, Wii Party, etc within a year from their respective launches. Nintendo clearly wanted fans of those games to migrate from NDS/Wii to 3DS/Wii U ASAP.
The problem was, the audience that bought a NDS/Wii to play those games moved on to mobile F2P gaming
I think it's not as simple as the forum narrative of "the expanded audience moved onto phones forever the end." They remained out there, just disinterested in the WiiU and 3DS software and hardware. The mobile software and the console expanded audience software aren't really interchangeable. Local multiplayer and the controller ensures that at the very minimum.
Console expanded audience software tends to have tactile arcade gameplay like Mario Party, Ring Fit, Fitness Boxing, Just Dance, Taiko no Tatsujin while the mobile phone games tend to be PC-like adventures outside of the puzzle games. (correct me if I'm wrong as I'm not an expert on what's popular in the iPhone app store and don't know how to source that kind of data) The 3D feature (gimmick?) of the 3DS did not appeal to the expanded audience and it drove up the cost of the hardware beyond a DS-level impulse buy. Core gamers/teenagers kept paying attention to the 3DS as the price came down and the software library of Street Fighter, Dead or Alive, 3D Mario, Atlus RPG's, Monster Hunter, and Luigi's Mansion drew them back in. However, you don't really get that kind of second chance with the expanded market. They need a steady stream of software that suits their tastes or they quickly slide back into disinterest.
Further, the expanded market software on the 3DS was almost completely copied and pasted from the DS. Look at Nintendogs 3DS vs. DS. Pretty close to the same gameplay but with prettier graphics. No new hooks for the expanded audience. Nintendogs 3DS and the other expanded audience games were on a system that the expanded market ignored because of the initial price and never looked at again. It was also treated as an afterthought compared the core titles like Super Mario 3D Land and Street Fighter IV that showed off the glassless 3D effect. Just compare how New Super Mario Bros. was presented vs. NSMB2. The first one was marketed as the return of 2D Mario and sold 30 million to both the core and expanded market while the second was treated as a second class piece of software that is only notable for its extra coin collection mode. That coin collection mode is only for hardcore 2D platform fans who have the time to replay the levels over and over to find the collectables. Most players just want to get to the end of the level.
The WiiU was dead on arrival for reasons that spawn multiple essays. Most of the general public doesn't even know it existed. Nintendo also treated the little bit of expanded market software on it as an afterthought, like with the 3DS. They just did not have the development capacity to get software out to heat up the expanded audience software library for the third parties.
Some of that expanded audience has come back to the Switch for Just Dance, momotaro, Brain Age, Ring Fit, and Fitness Boxing, etc. I don't think they just disappeared forever into some sort of pit. They were there, just disinterested. Maybe it took some time for the developers to figure out how to design expanded audience games like Ring Fit that couldn't be done on phones (and lucked into Just Dance not translating to phones). The Switch is also playing up local multiplayer like in the new Kirby game that can't be done on phones. Look again at Just Dance, Momotaro, Smash Brothers, Mario Tennis, Mario Golf, Luigi's Mansion, Mario Kart for that local multiplayer that can't be done on phones.
I think it's not as simple as the forum narrative of "the expanded audience moved onto phones forever the end." They remained out there, just disinterested in the WiiU and 3DS software and hardware. The mobile software and the console expanded audience software aren't really interchangeable. Local multiplayer and the controller ensures that at the very minimum.
Console expanded audience software tends to have tactile arcade gameplay like Mario Party, Ring Fit, Fitness Boxing, Just Dance, Taiko no Tatsujin while the mobile phone games tend to be PC-like adventures outside of the puzzle games. (correct me if I'm wrong as I'm not an expert on what's popular in the iPhone app store and don't know how to source that kind of data) The 3D feature (gimmick?) of the 3DS did not appeal to the expanded audience and it drove up the cost of the hardware beyond a DS-level impulse buy. Core gamers/teenagers kept paying attention to the 3DS as the price came down and the software library of Street Fighter, Dead or Alive, 3D Mario, Atlus RPG's, Monster Hunter, and Luigi's Mansion drew them back in. However, you don't really get that kind of second chance with the expanded market. They need a steady stream of software that suits their tastes or they quickly slide back into disinterest.
Further, the expanded market software on the 3DS was almost completely copied and pasted from the DS. Look at Nintendogs 3DS vs. DS. Pretty close to the same gameplay but with prettier graphics. No new hooks for the expanded audience. Nintendogs 3DS and the other expanded audience games were on a system that the expanded market ignored because of the initial price and never looked at again. It was also treated as an afterthought compared the core titles like Super Mario 3D Land and Street Fighter IV that showed off the glassless 3D effect. Just compare how New Super Mario Bros. was presented vs. NSMB2. The first one was marketed as the return of 2D Mario and sold 30 million to both the core and expanded market while the second was treated as a second class piece of software that is only notable for its extra coin collection mode. That coin collection mode is only for hardcore 2D platform fans who have the time to replay the levels over and over to find the collectables. Most players just want to get to the end of the level.
The WiiU was dead on arrival for reasons that spawn multiple essays. Most of the general public doesn't even know it existed. Nintendo also treated the little bit of expanded market software on it as an afterthought, like with the 3DS. They just did not have the development capacity to get software out to heat up the expanded audience software library for the third parties.
Some of that expanded audience has come back to the Switch for Just Dance, momotaro, Brain Age, Ring Fit, and Fitness Boxing, etc. I don't think they just disappeared forever into some sort of pit. They were there, just disinterested. Maybe it took some time for the developers to figure out how to design expanded audience games like Ring Fit that couldn't be done on phones (and lucked into Just Dance not translating to phones). The Switch is also playing up local multiplayer like in the new Kirby game that can't be done on phones. Look again at Just Dance, Momotaro, Smash Brothers, Mario Tennis, Mario Golf, Luigi's Mansion, Mario Kart for that local multiplayer that can't be done on phones.
Arcade games and couch-coop, Nintendo in 3ds and Wiiu fall in "dumbed down casual market" fallacy and produced all expandable audience games with this twisted logic, with fewer production values and, some cases, with B team when DS and Wii have or better budget and better teams. New Super Mario Bros. 2 and Wiuu Wii Sport is good example.
It was inevitable that the market would reach some sort of saturation in the three primary markets (US+Canada, Europe, & Japan). It couldn't remain a growth industry forever. Eventually, it would get mainstream enough to where every household willing and able to get a particular console during a particular generation would do so, and any further growth would come only as a function of population growth. The "AAA consoles," i.e., conventional consoles, which has been just PS & Xbox for the past several generations, has not seen any growth in the three primary markets and has remained relatively flat, with the variability in home console sales being almost entirely on Nintendo's end. This means that at this point, the only way for them to grow is for smaller markets to expand. If the console market can expand in places like Latin America and Asia (esp. China), then we might see total worldwide PS+Xbox sales per generation start to grow, but not before then.
I think it's not as simple as the forum narrative of "the expanded audience moved onto phones forever the end." They remained out there, just disinterested in the WiiU and 3DS software and hardware. The mobile software and the console expanded audience software aren't really interchangeable. Local multiplayer and the controller ensures that at the very minimum.
Console expanded audience software tends to have tactile arcade gameplay like Mario Party, Ring Fit, Fitness Boxing, Just Dance, Taiko no Tatsujin while the mobile phone games tend to be PC-like adventures outside of the puzzle games. (correct me if I'm wrong as I'm not an expert on what's popular in the iPhone app store and don't know how to source that kind of data) The 3D feature (gimmick?) of the 3DS did not appeal to the expanded audience and it drove up the cost of the hardware beyond a DS-level impulse buy. Core gamers/teenagers kept paying attention to the 3DS as the price came down and the software library of Street Fighter, Dead or Alive, 3D Mario, Atlus RPG's, Monster Hunter, and Luigi's Mansion drew them back in. However, you don't really get that kind of second chance with the expanded market. They need a steady stream of software that suits their tastes or they quickly slide back into disinterest.
Further, the expanded market software on the 3DS was almost completely copied and pasted from the DS. Look at Nintendogs 3DS vs. DS. Pretty close to the same gameplay but with prettier graphics. No new hooks for the expanded audience. Nintendogs 3DS and the other expanded audience games were on a system that the expanded market ignored because of the initial price and never looked at again. It was also treated as an afterthought compared the core titles like Super Mario 3D Land and Street Fighter IV that showed off the glassless 3D effect. Just compare how New Super Mario Bros. was presented vs. NSMB2. The first one was marketed as the return of 2D Mario and sold 30 million to both the core and expanded market while the second was treated as a second class piece of software that is only notable for its extra coin collection mode. That coin collection mode is only for hardcore 2D platform fans who have the time to replay the levels over and over to find the collectables. Most players just want to get to the end of the level.
The WiiU was dead on arrival for reasons that spawn multiple essays. Most of the general public doesn't even know it existed. Nintendo also treated the little bit of expanded market software on it as an afterthought, like with the 3DS. They just did not have the development capacity to get software out to heat up the expanded audience software library for the third parties.
Some of that expanded audience has come back to the Switch for Just Dance, momotaro, Brain Age, Ring Fit, and Fitness Boxing, etc. I don't think they just disappeared forever into some sort of pit. They were there, just disinterested. Maybe it took some time for the developers to figure out how to design expanded audience games like Ring Fit that couldn't be done on phones (and lucked into Just Dance not translating to phones). The Switch is also playing up local multiplayer like in the new Kirby game that can't be done on phones. Look again at Just Dance, Momotaro, Smash Brothers, Mario Tennis, Mario Golf, Luigi's Mansion, Mario Kart for that local multiplayer that can't be done on phones.
I’m just saying that there would have always been a contraction from the heights of Wii+DS to whatever the next machines were. Mobile absolutely siphoned away a chunk of that audience. Since at the time it wasn’t consider mainstream to play games literally anywhere by everyone. The iPhone slowly changed that but not for several years to come. Probably didn’t help that the WiiU was just not a desirable product and the 3DS tripped out the gate.
However now that gaming is essentially ubiquitous and sorta accepted all over due mobile, pc to a degree; all Nintendo has to do is continue making software for various demographic groups. We’ve seen it with the games you’ve mentioned already. If the software is appealing enough on attractive hardware then we can see some growth, especially in emerging markets.
PS4 has already shipped more sw than PS2 did with far smaller hw base so tie ratio has gone massively up. Digital probably plays big part here as it's easy to pick a lot more cheap games.
Nintendo overall userbase was probably 180 million max.
DS in particular a lot of people would have bought multiple consoles, and there would be huge cross Wii/DS ownership, surely something like 60-70% of Wii owners.
On the other hand during PS2 times you didn't have massively popular F2P titles that give you zero traditional sw sales but are played by tens of millions of people like PS4 has had ( like Fortnite, Apex, Warzone etc).
Traditional consoles are no longer the only "main" way to play games, just like arcades before them. PC is a viable platform and thanks to advancements in the mobile space, your phone can now play AAA games.
Microsoft as a company has moved away the traditional mindset that their products must be monogenous hardware and software and have gone completely to being an open platform where Office can be on Apple and Xbox is no longer held down by consoles.
Game Pass, xcloud, and PC are Microsoft's answers to a stagnant console market. The games are the same, the hardware to play them has evolved.
For all of the narrative spouted about the "failure" of Nintendogs + Cats, people often forget that this game actually sold almost 6 million copies WW. Sure, it wasn't the 20 million+ selling cultural phenomenon that the original DS game was, but that's still nothing to sneeze at.
Sorry, this is gonna be a long one, but it didn't feel like it needed a separate thread.
So @Zenitora brought something up in the MC thread that I feel is relevant to this topic. One of the major concerns and considerations around this subject is that, without some kind of way to address this stagnation, many companies, even the AAA kind, are prime for further consolidation, stock acquisitions and outright takeovers.
Major South Korean MMO publisher Nexon just went ahead with a cumulative $874 million stock purchase of Konami, Bandai Namco, Sega Sammy and (less relevant to this discussion) Hasbro last year. (all 3 of these video game companies just underwent significant to major restructuring, as well, and I'll get back to that) They insist that they are making this purchase because these companies are "undervalued" and are not interested in takeover or becoming an activist investor. We'll see.
Tencent has been on the prowl for a while now but really ramped up their investments starting 2 years ago. Here's everything they have stake in as of now:
Epic Games - 48% - since 2012
Activision Blizzard - 5% - since 2013
Ubisoft - 5% - since 2018
Paradox Interactive - 5% - since 2016
PlatinumGames - undisclosed figure - since 2020
Marvelous - 20% - since 2020 (this makes Tencent the largest single shareholder in Marvelous)
Kadokawa - 6.86% - since 2021 (Kadokawa is the parent company of both From Software and Spike Chunsoft)
Playtonic - undisclosed minority stake - since 2021
Turtle Rock Studios - full acquisition - since 2021
Klei Entertainment - full acquisition - since 2021
NetEase has also come in and started throwing their money around, buying up Grasshopper from GungHo, getting a seat on Bungie's board with a minority stake and holding a minority share of Quantic Dream. In addition, they opened a whole studio in Japan focused on AAA console and PC development and signed a contract with for Sega creative head Nagoshi and one of the Yakuza producers.
When coupled with the premise of this thread, it has me moderately concerned. Tencent seems to want a piece of this industry pie (among others, as the Kadokawa investment shows) and is going about it by making sure it has a significant piece of a lot of it, with no indication that it's slowing down. That NetEase and Nexon have joined in shouldn't be a terribly big surprise.
And despite claims to the contrary, I don't think all of these are benign investments done because of their faith in the current business model. Instead, I think we're looking at a potential situation where these larger companies within the game industry are getting their hooks into these companies early, particularly the ones invested in "AAA", so that when that stagnation turns into something worse, these investments give these companies first-mover advantage for acquisition.
In other words, if the industry can't turn itself around before things go sour, someone is ready to either turn it around for them or reap the benefits of stock ownership from further acquisitions, consolidations and takeovers by larger firms, and the investments give me an impression that they think that a turnaround in their business models isn't going to happen.
----------
At least in theory. As I mentioned before, 3 of the biggest names in gaming in Japan have just underwent significant restructuring.
Konami Digital Entertainment has seemingly shuffled its management at the start of 2021 and gives the impression that they see their investment in mobile gaming to be a bust, as the mobile-focused management has allegedly been removed in favour of names more relevant to console gaming. In addition, the production units have been dissolved and melded into one larger unit (this probably had to be done because of the employee exodus that happened back in 2015 or so leaving the teams too thin individually to make console games). It's unlikely that they're looking to (or are likely capable of) returning to "AAA" game development at this point, so I guess we can consider this change at Konami to be "the Momotaro effect" and they'll focus efforts on smaller games with bigger returns.
Bandai Namco underwent restructuring where its VP was promoted to president (with the president now chairman of the board) and the Network Entertainment Unit (which contains all its video game subsidiaries) was merged with the Toy & Hobby division to create a larger Entertainment Unit. (the anime side of the business also saw some big re-shuffling, too). This will undoubtedly lead to many overall changes in management to that side of the business. Harada might have a new boss to answer to, for example.
Sega Sammy has had the most activity here and is the one where the impetus of the restructure was on things going rather poorly for them. Any and all of Sega's COVID-related gaming profits for 2020 got flushed down the can by their arcade amusement centres and resorts. First, their president VERY abruptly "resigned" for "personal reasons" (which is such blatantly obvious code for getting forced out of your job) at the end of July 2020, after 6 years there. In November 2020, they made the call to assist 650 employees with voluntary retirement and the executive team took a universal 30% pay cut with no bonuses issued, while Sega sold majority share in its arcade amusement centres. Then, in January 2021, they restructured their entire corporation to fully separate Sega and Sammy into individual and whole subsidiaries with their own distinct management teams that report to the board of directors, meant for oversight and efficiency. Missing from that board of directors, however, was Nagoshi, who was pushed out on the same day as the corporate restructuring, losing his seat on the board AND his position as Chief Creative Officer at Sega. Further management changes also likely came into effect.
These corporate restructures all signal different things.
For Konami, the signal is clear: the move away from console game development in 2015 was a huge boondoggle, but with "AAA" game development costs being the seeming motivation to evacuate console development in the first place and likely not having the skilled staff to re-enter that space anyways, Konami will likely fall squarely in the space between those extremes, which is proving a good space for them to be in.
For Bandai Namco, the motivation seems to be leveraging the Toy & Hobby division's expertise in their gaming division wherever possible, and vice versa. It's difficult to say what this was motivated by (my guess is a feeling of redundancy in management positions), but it doesn't immediately jump out as being motivated by displeasure at the management of the gaming division per se, but perhaps that it was operating with too narrow a scope. What it for sure signals is the need to operate more leanly and with a wider frame of reference and perspective.
For Sega, the signal is clear: the board of directors was NOT happy with the way Sega was being managed. Pushed out a president, management pay cut, trimmed Sega down by selling its ownership in arcade centres, 7% slash to its total workforce, removed the creative director who seemed to show an open disdain for anything outside of the "AAA" space and relied on a number of IPs so small that they could be counted on one hand... these are the hallmarks of a corporation who is unhappy with its current overall direction and willing to do what it takes to right the ship at all costs, including making Sega ripe for the picking for acquisition by ensuring it's wholly separate from all other business segments in the event that it can't while it's still worth something.
In any case, with the possible exception of Bandai Namco, these restructures tell me that something had to change, because the status quo that they were operating in could not stand in the long term. I also think these are just the first of many management shakeups to come, because everyone seems aware that something has to change.
Even on the Western publisher front, things aren't rosy. 2 of the biggest names in it are currently mired in scandal that has devalued at least one of these companies' stock price, one fought like hell to fend off a takeover attempt already (which was stopped by the Tencent share purchase, incidentally), one of them just grossly over-paid for a mobile game company for reasons that make very little sense, all of them are manufacturing growth with predatory monetization like the mobile space... and this is before discussing how the situation with short supply of "AAA" gaming hardware and graphics cards is going to have an impact on their bottom lines shortly. The next few years are going to be rough and it's going to mean something needs to change.
Sorry, this is gonna be a long one, but it didn't feel like it needed a separate thread.
So @Zenitora brought something up in the MC thread that I feel is relevant to this topic. One of the major concerns and considerations around this subject is that, without some kind of way to address this stagnation, many companies, even the AAA kind, are prime for further consolidation, stock acquisitions and outright takeovers.
Major South Korean MMO publisher Nexon just went ahead with a cumulative $874 million stock purchase of Konami, Bandai Namco, Sega Sammy and (less relevant to this discussion) Hasbro last year. (all 3 of these video game companies just underwent significant to major restructuring, as well, and I'll get back to that) They insist that they are making this purchase because these companies are "undervalued" and are not interested in takeover or becoming an activist investor. We'll see.
Tencent has been on the prowl for a while now but really ramped up their investments starting 2 years ago. Here's everything they have stake in as of now:
Epic Games - 48% - since 2012
Activision Blizzard - 5% - since 2013
Ubisoft - 5% - since 2018
Paradox Interactive - 5% - since 2016
PlatinumGames - undisclosed figure - since 2020
Marvelous - 20% - since 2020 (this makes Tencent the largest single shareholder in Marvelous)
Kadokawa - 6.86% - since 2021 (Kadokawa is the parent company of both From Software and Spike Chunsoft)
Playtonic - undisclosed minority stake - since 2021
Turtle Rock Studios - full acquisition - since 2021
Klei Entertainment - full acquisition - since 2021
NetEase has also come in and started throwing their money around, buying up Grasshopper from GungHo, getting a seat on Bungie's board with a minority stake and holding a minority share of Quantic Dream. In addition, they opened a whole studio in Japan focused on AAA console and PC development and signed a contract with for Sega creative head Nagoshi and one of the Yakuza producers.
When coupled with the premise of this thread, it has me moderately concerned. Tencent seems to want a piece of this industry pie (among others, as the Kadokawa investment shows) and is going about it by making sure it has a significant piece of a lot of it, with no indication that it's slowing down. That NetEase and Nexon have joined in shouldn't be a terribly big surprise.
And despite claims to the contrary, I don't think all of these are benign investments done because of their faith in the current business model. Instead, I think we're looking at a potential situation where these larger companies within the game industry, particularly the ones invested in "AAA", are getting their hooks into these companies early so that when that stagnation turns into something worse, these investments give these companies first-mover advantage for acquisition.
In other words, if the industry can't turn itself around before things go sour, someone is ready to either turn it around for them or reap the benefits of stock ownership from further acquisitions, consolidations and takeovers by larger firms, and the investments give me an impression that they think that a turnaround in their business models isn't going to happen.
----------
At least in theory. As I mentioned before, 3 of the biggest names in gaming in Japan have just underwent significant restructuring.
Konami Digital Entertainment has seemingly shuffled its management at the start of 2021 and gives the impression that they see their investment in mobile gaming to be a bust, as the mobile-focused management has allegedly been removed in favour of names more relevant to console gaming. In addition, the production units have been dissolved and melded into one larger unit (this probably had to be done because of the employee exodus that happened back in 2015 or so leaving the teams too thin individually to make console games). It's unlikely that they're looking to (or are likely capable of) returning to "AAA" game development at this point, so I guess we can consider this change at Konami to be "the Momotaro effect" and they'll focus efforts on smaller games with bigger returns.
Bandai Namco underwent restructuring where its VP was promoted to president (with the president now chairman of the board) and the Network Entertainment Unit (which contains all its video game subsidiaries) was merged with the Toy & Hobby division to create a larger Entertainment Unit. (the anime side of the business also saw some big re-shuffling, too). This will undoubtedly lead to many overall changes in management to that side of the business. Harada might have a new boss to answer to, for example.
Sega Sammy has had the most activity here and is the one where the impetus of the restructure was on things going rather poorly for them. Any and all of Sega's COVID-related gaming profits for 2020 got flushed down the can by their arcade amusement centres and resorts. First, their president VERY abruptly "resigned" for "personal reasons" (which is such blatantly obvious code for getting forced out of your job) at the end of July 2020, after 6 years there. In November 2020, they made the call to assist 650 employees with voluntary retirement and the executive team took a universal 30% pay cut with no bonuses issued, while Sega sold majority share in its arcade amusement centres. Then, in January 2021, they restructured their entire corporation to fully separate Sega and Sammy into individual and whole subsidiaries with their own distinct management teams that report to the board of directors, meant for oversight and efficiency. Missing from that board of directors, however, was Nagoshi, who was pushed out on the same day as the corporate restructuring, losing his seat on the board AND his position as Chief Creative Officer at Sega. Further management changes also likely came into effect.
These corporate restructures all signal different things.
For Konami, the signal is clear: the move away from console game development in 2015 was a huge boondoggle, but with "AAA" game development costs being the seeming motivation to evacuate console development in the first place and likely not having the skilled staff to re-enter that space anyways, Konami will likely fall squarely in the space between those extremes, which is proving a good space for them to be in.
For Bandai Namco, the motivation seems to be leveraging the Toy & Hobby division's expertise in their gaming division wherever possible, and vice versa. It's difficult to say what this was motivated by (my guess is a feeling of redundancy in management positions), but it doesn't immediately jump out as being motivated by displeasure at the management of the gaming division per se, but perhaps that it was operating with too narrow a scope. What it for sure signals is the need to operate more leanly and with a wider frame of reference and perspective.
For Sega, the signal is clear: the board of directors was NOT happy with the way Sega was being managed. Pushed out a president, management pay cut, trimmed Sega down by selling its ownership in arcade centres, 7% slash to its total workforce, removed the creative director who seemed to show an open disdain for anything outside of the "AAA" space and relied on a number of IPs so small that they could be counted on one hand... these are the hallmarks of a corporation who is unhappy with its current overall direction and willing to do what it takes to right the ship at all costs, including making Sega ripe for the picking for acquisition by ensuring it's wholly separate from all other business segments in the event that it can't while it's still worth something.
In any case, with the possible exception of Bandai Namco, these restructures tell me that something had to change, because the status quo that they were operating in could not stand in the long term. I also think these are just the first of many management shakeups to come, because everyone seems aware that something has to change.
Even on the Western publisher front, things aren't rosy. 2 of the biggest names in it are currently mired in scandal that has devalued at least one of these companies' stock price, one fought like hell to fend off a takeover attempt already (which was stopped by the Tencent share purchase, incidentally), one of them just grossly over-paid for a mobile game company for reasons that make very little sense, all of them are manufacturing growth with predatory monetization like the mobile space... and this is before discussing how the situation with short supply of "AAA" gaming hardware and graphics cards is going to have an impact on their bottom lines shortly. The next few years are going to be rough and it's going to mean something needs to change.
While there's a lot of negatives that one could follow from the above, let me bring up some possible positive future development: Isn't it possible that all this consolidation eventually leads to a common standard amongst video game consoles, similar to DVD or BluRay? Instead of assuming that those "outsider" companies steal away renowned, traditional game publishers to persue their own ecosystem, why not leverage that new status quo where the traditional "independent" 3rd-party publisher doesn't exist anymore and instead everybody can be equally hardware- and software maker, similar to the movie industry? Movies are made for all kinds of platforms (tvs, cinema, smartphones, tablets, DVDs, Bluray, streaming, etc.) and everybody can manufacture their own BluRay-player. When big 3rd-party publishers are no longer available for the traditional console business where Sony and MS provide a console and the rest gets to make games for them, it'd be beneficial for everyone to just agree on one hardware standard (that can still have individual comfort-features and designs) and then keep doing business; except without this impending fragmentation of game making ressources.
Well, that's my immediate thought anyway when I see these huge rumblings and shake ups in the industry, where "unknown" mega corporations seemingly at random buy up long-standing gaming companies.
The only reason why Nintendo were able to achieve those sales was because they stumbled upon what was essentially mobile gaming a good 4-5 years before Apple did. Once the iPhone solidified itself as an essential, all-purpose device that also happens to play touchscreen games, there was nothing Nintendo could do to retain their expanded DS audience other than make a smartphone of their own.
If we exclude the unsustainable peak of DS/Wii, Nintendo should be able to sell more Switches than any of their other console-handheld combos.
It´s a misconception. Mobile games are not the same thing remotely. Nintendo back to the roots, arcade couch games experience, using Blue Ocean Strategy and Disrpurive Strategy in the portable and stationary segment. When works they change the route for 3D Nintendo style ( Aonuma Zelda, Metroid Other M)and try to convert the former gamers and new gamers( the expandable market responsible for DS/Wii success) into Nintendo core gamers consumers. Because of this change and four pipelines of production Nintendo lose big chunks of this public.
While there's a lot of negatives that one could follow from the above, let me bring up some possible positive future development: Isn't it possible that all this consolidation eventually leads to a common standard amongst video game consoles, similar to DVD or BluRay? Instead of assuming that those "outsider" companies steal away renowned, traditional game publishers to persue their own ecosystem, why not leverage that new status quo where the traditional "independent" 3rd-party publisher doesn't exist anymore and instead everybody can be equally hardware- and software maker, similar to the movie industry? Movies are made for all kinds of platforms (tvs, cinema, smartphones, tablets, DVDs, Bluray, streaming, etc.) and everybody can manufacture their own BluRay-player. When big 3rd-party publishers are no longer available for the traditional console business where Sony and MS provide a console and the rest gets to make games for them, it'd be beneficial for everyone to just agree on one hardware standard (that can still have individual comfort-features and designs) and then keep doing business; except without this impending fragmentation of game making ressources.
Well, that's my immediate thought anyway when I see these huge rumblings and shake ups in the industry, where "unknown" mega corporations seemingly at random buy up long-standing gaming companies.
I don't think this will happen due to the rise of digital. Back was physical formats were necessary, it may have been feasible for a standardized console to be made if the necessary power players wanted it. Sony and Nintendo never did, and the 3DO which tried on its own flopped. Sony was offered to join the 3DO initiative and turned it down to have full control over PlayStation, which was a smart decision.
The gaming industry is moving away from physical hardware, so the idea of a standardized console is becoming outdated. You brought up DVD and BluRay, but those are outdated in favor of streaming services. There is no standard streaming service, with Netflix, Disney+, HBOMax, Hulu, etc. all competing. The physical standard is a relic of a bygone era.
If gaming follows the same path, you'll see competition in cloud streaming services when it becomes feasible, with the consoles surviving until that date occurs. Those who cannot create a cloud streaming service can make content for those who do. Sony Pictures, for example, has no streaming service so it is a free agent to make shows for whoever pays the most. The third parties who cannot make their own service can be paid by those who do.
While there's a lot of negatives that one could follow from the above, let me bring up some possible positive future development: Isn't it possible that all this consolidation eventually leads to a common standard amongst video game consoles, similar to DVD or BluRay? Instead of assuming that those "outsider" companies steal away renowned, traditional game publishers to persue their own ecosystem, why not leverage that new status quo where the traditional "independent" 3rd-party publisher doesn't exist anymore and instead everybody can be equally hardware- and software maker, similar to the movie industry? Movies are made for all kinds of platforms (tvs, cinema, smartphones, tablets, DVDs, Bluray, streaming, etc.) and everybody can manufacture their own BluRay-player. When big 3rd-party publishers are no longer available for the traditional console business where Sony and MS provide a console and the rest gets to make games for them, it'd be beneficial for everyone to just agree on one hardware standard (that can still have individual comfort-features and designs) and then keep doing business; except without this impending fragmentation of game making ressources.
Well, that's my immediate thought anyway when I see these huge rumblings and shake ups in the industry, where "unknown" mega corporations seemingly at random buy up long-standing gaming companies.
Closest we're ever gonna get to that is streaming services.
Make no mistake, subscription services ALA Game Pass are the future of this industry. The current course is simply too risky, too expensive, too lacking in genre/variety, and the audience is too small. Things MUST change.
Pretty much every publisher/developer outside of Nintendo has proven themselves either completely incapable or mortally unwilling to change the types of games they make and their target audience. They will continue making traditional games, aimed exclusively at the 10-25 year old male market, until the day they die. As such, subscription services are pretty much their only potential option for expanding their audience; as it removes much of the hardware barrier to entry, and greatly reduces risk, as the metrics for success change from volume to engagement.
Sorry, this is gonna be a long one, but it didn't feel like it needed a separate thread.
So @Zenitora brought something up in the MC thread that I feel is relevant to this topic. One of the major concerns and considerations around this subject is that, without some kind of way to address this stagnation, many companies, even the AAA kind, are prime for further consolidation, stock acquisitions and outright takeovers.
Major South Korean MMO publisher Nexon just went ahead with a cumulative $874 million stock purchase of Konami, Bandai Namco, Sega Sammy and (less relevant to this discussion) Hasbro last year. (all 3 of these video game companies just underwent significant to major restructuring, as well, and I'll get back to that) They insist that they are making this purchase because these companies are "undervalued" and are not interested in takeover or becoming an activist investor. We'll see.
Tencent has been on the prowl for a while now but really ramped up their investments starting 2 years ago. Here's everything they have stake in as of now:
Epic Games - 48% - since 2012
Activision Blizzard - 5% - since 2013
Ubisoft - 5% - since 2018
Paradox Interactive - 5% - since 2016
PlatinumGames - undisclosed figure - since 2020
Marvelous - 20% - since 2020 (this makes Tencent the largest single shareholder in Marvelous)
Kadokawa - 6.86% - since 2021 (Kadokawa is the parent company of both From Software and Spike Chunsoft)
Playtonic - undisclosed minority stake - since 2021
Turtle Rock Studios - full acquisition - since 2021
Klei Entertainment - full acquisition - since 2021
NetEase has also come in and started throwing their money around, buying up Grasshopper from GungHo, getting a seat on Bungie's board with a minority stake and holding a minority share of Quantic Dream. In addition, they opened a whole studio in Japan focused on AAA console and PC development and signed a contract with for Sega creative head Nagoshi and one of the Yakuza producers.
When coupled with the premise of this thread, it has me moderately concerned. Tencent seems to want a piece of this industry pie (among others, as the Kadokawa investment shows) and is going about it by making sure it has a significant piece of a lot of it, with no indication that it's slowing down. That NetEase and Nexon have joined in shouldn't be a terribly big surprise.
And despite claims to the contrary, I don't think all of these are benign investments done because of their faith in the current business model. Instead, I think we're looking at a potential situation where these larger companies within the game industry are getting their hooks into these companies early, particularly the ones invested in "AAA", so that when that stagnation turns into something worse, these investments give these companies first-mover advantage for acquisition.
In other words, if the industry can't turn itself around before things go sour, someone is ready to either turn it around for them or reap the benefits of stock ownership from further acquisitions, consolidations and takeovers by larger firms, and the investments give me an impression that they think that a turnaround in their business models isn't going to happen.
----------
At least in theory. As I mentioned before, 3 of the biggest names in gaming in Japan have just underwent significant restructuring.
Konami Digital Entertainment has seemingly shuffled its management at the start of 2021 and gives the impression that they see their investment in mobile gaming to be a bust, as the mobile-focused management has allegedly been removed in favour of names more relevant to console gaming. In addition, the production units have been dissolved and melded into one larger unit (this probably had to be done because of the employee exodus that happened back in 2015 or so leaving the teams too thin individually to make console games). It's unlikely that they're looking to (or are likely capable of) returning to "AAA" game development at this point, so I guess we can consider this change at Konami to be "the Momotaro effect" and they'll focus efforts on smaller games with bigger returns.
Bandai Namco underwent restructuring where its VP was promoted to president (with the president now chairman of the board) and the Network Entertainment Unit (which contains all its video game subsidiaries) was merged with the Toy & Hobby division to create a larger Entertainment Unit. (the anime side of the business also saw some big re-shuffling, too). This will undoubtedly lead to many overall changes in management to that side of the business. Harada might have a new boss to answer to, for example.
Sega Sammy has had the most activity here and is the one where the impetus of the restructure was on things going rather poorly for them. Any and all of Sega's COVID-related gaming profits for 2020 got flushed down the can by their arcade amusement centres and resorts. First, their president VERY abruptly "resigned" for "personal reasons" (which is such blatantly obvious code for getting forced out of your job) at the end of July 2020, after 6 years there. In November 2020, they made the call to assist 650 employees with voluntary retirement and the executive team took a universal 30% pay cut with no bonuses issued, while Sega sold majority share in its arcade amusement centres. Then, in January 2021, they restructured their entire corporation to fully separate Sega and Sammy into individual and whole subsidiaries with their own distinct management teams that report to the board of directors, meant for oversight and efficiency. Missing from that board of directors, however, was Nagoshi, who was pushed out on the same day as the corporate restructuring, losing his seat on the board AND his position as Chief Creative Officer at Sega. Further management changes also likely came into effect.
These corporate restructures all signal different things.
For Konami, the signal is clear: the move away from console game development in 2015 was a huge boondoggle, but with "AAA" game development costs being the seeming motivation to evacuate console development in the first place and likely not having the skilled staff to re-enter that space anyways, Konami will likely fall squarely in the space between those extremes, which is proving a good space for them to be in.
For Bandai Namco, the motivation seems to be leveraging the Toy & Hobby division's expertise in their gaming division wherever possible, and vice versa. It's difficult to say what this was motivated by (my guess is a feeling of redundancy in management positions), but it doesn't immediately jump out as being motivated by displeasure at the management of the gaming division per se, but perhaps that it was operating with too narrow a scope. What it for sure signals is the need to operate more leanly and with a wider frame of reference and perspective.
For Sega, the signal is clear: the board of directors was NOT happy with the way Sega was being managed. Pushed out a president, management pay cut, trimmed Sega down by selling its ownership in arcade centres, 7% slash to its total workforce, removed the creative director who seemed to show an open disdain for anything outside of the "AAA" space and relied on a number of IPs so small that they could be counted on one hand... these are the hallmarks of a corporation who is unhappy with its current overall direction and willing to do what it takes to right the ship at all costs, including making Sega ripe for the picking for acquisition by ensuring it's wholly separate from all other business segments in the event that it can't while it's still worth something.
In any case, with the possible exception of Bandai Namco, these restructures tell me that something had to change, because the status quo that they were operating in could not stand in the long term. I also think these are just the first of many management shakeups to come, because everyone seems aware that something has to change.
Even on the Western publisher front, things aren't rosy. 2 of the biggest names in it are currently mired in scandal that has devalued at least one of these companies' stock price, one fought like hell to fend off a takeover attempt already (which was stopped by the Tencent share purchase, incidentally), one of them just grossly over-paid for a mobile game company for reasons that make very little sense, all of them are manufacturing growth with predatory monetization like the mobile space... and this is before discussing how the situation with short supply of "AAA" gaming hardware and graphics cards is going to have an impact on their bottom lines shortly. The next few years are going to be rough and it's going to mean something needs to change.
I want to bump this thread as it’s more relevant than ever with developments throughout this year including Microsoft buying Bethesda and Activision, Sony buying Bungie, SIE going all in with turning GT7 into a GAAS, SIE announcing a Horizon GAAS, and Splatoon 3 selling crazy big numbers.
These ongoing developments should be viewed within the lens of a stagnant AAA customer pool.
I want to bump this thread as it’s more relevant than ever with developments throughout this year including Microsoft buying Bethesda and Activision, Sony buying Bungie, SIE going all in with turning GT7 into a GAAS, SIE announcing a Horizon GAAS, and Splatoon 3 selling crazy big numbers.
These ongoing developments should be viewed within the lens of a stagnant AAA customer pool.
Forgive me if the question I’m asking is dumb, but I’m not entirely sure how the bolded point fits into the conversation. Does it prove Nintendo’s success in creating a new and unique AAA IP within the last decade?
Forgive me if the question I’m asking is dumb, but I’m not entirely sure how the bolded point fits into the conversation. Does it prove Nintendo’s success in creating a new and unique AAA IP within the last decade?
Forgive me if the question I’m asking is dumb, but I’m not entirely sure how the bolded point fits into the conversation. Does it prove Nintendo’s success in creating a new and unique AAA IP within the last decade?
Good question. I meant that in the context of Nintendo games being outside of the AAA part of the gaming sector per the definitions of the OP. Splatoon 3 selling blockbuster hit numbers while the AAA titles except Elden Ring struggle in Japan at least. FIFA 23 has done well so far worldwide, though.
Nintendo is meticulous about controlling development costs even in games with very high production values. They have teams that share development tools, artists, engines, etc. such that none of their titles except Breath of the Wild are considered AAA in terms of their development costs compared to SIE, Activision, EA, Square-Enix, etc.
Good question. I meant that in the context of Nintendo games being outside of the AAA part of the gaming sector per the definitions of the OP. Splatoon 3 selling blockbuster hit numbers while the AAA titles except Elden Ring struggle in Japan at least. FIFA 23 has done well so far worldwide, though.
Nintendo is meticulous about controlling development costs even in games with very high production values. They have teams that share development tools, artists, engines, etc. such that none of their titles except Breath of the Wild are considered AAA in terms of their development costs compared to SIE, Activision, EA, Square-Enix, etc.
We actually don’t know how much Nintendo games cost to make. Even Breath of the Wild’s cost has never been confirmed. As far we know, SMO could be AAA.
We actually don’t know how much Nintendo games cost to make. Even Breath of the Wild’s cost has never been confirmed. As far we know, SMO could be AAA.
That implies a rough cost of $84 million (this is rough... retailer takes 30% of $60 for $42 a copy, multiplied by 2 million). We don't know exactly what Mr. Miyamoto meant when he said "break even" or how Nintendo accounts for its various internal development costs that are shared between teams. We also don't know how Nintendo accounts for marketing costs while third parties and SIE tend to include it in the budget of the game. We get the impression that Breath of the Wild was an extreme outlier. The limitations of Twilight Princess and Skyward Sword show that Nintendo was not willing to take the time (cost) before to create such a huge world with such complicated systems. Breath of the Wild also drew in help from many other Nintendo teams adding to the budget.
While a lot of Nintendo games have AAA - like production values, notice that they don't go for the extreme time and expense of photo-realistic art styles. Creating 4K art is crazy expensive itself. Cartoon art is cheaper to make because the artists don't need to spend as much time trying to get every little thread on a jacket right or animate a realistic face in a way that doesn't repulse an audience. They spend more time on polishing gameplay and level design.
That's why this thread separates Nintendo from "AAA." Nintendo does gameplay first rather than graphics first and tightly controls costs.
edit - math. Cost is approx. $84 million when I originally typed $8.4 million. Thank you @awng782
That implies a rough cost of $8.4 million (this is rough... retailer takes 30% of $60 for $42 a copy, multiplied by 2 million). We don't know exactly what Mr. Miyamoto meant when he said "break even" or how Nintendo accounts for its various internal development costs that are shared between teams. We also don't know how Nintendo accounts for marketing costs while third parties and SIE tend to include it in the budget of the game. Regardless, that's an order or magnitude less than AAA third party development.
That implies a rough cost of $84 million (this is rough... retailer takes 30% of $60 for $42 a copy, multiplied by 2 million). We don't know exactly what Mr. Miyamoto meant when he said "break even" or how Nintendo accounts for its various internal development costs that are shared between teams. We also don't know how Nintendo accounts for marketing costs while third parties and SIE tend to include it in the budget of the game. We get the impression that Breath of the Wild was an extreme outlier. The limitations of Twilight Princess and Skyward Sword show that Nintendo was not willing to take the time (cost) before to create such a huge world with such complicated systems. Breath of the Wild also drew in help from many other Nintendo teams adding to the budget.
While a lot of Nintendo games have AAA - like production values, notice that they don't go for the extreme time and expense of photo-realistic art styles. Creating 4K art is crazy expensive itself. Cartoon art is cheaper to make because the artists don't need to spend as much time trying to get every little thread on a jacket right or animate a realistic face in a way that doesn't repulse an audience. They spend more time on polishing gameplay and level design.
That's why this thread separates Nintendo from "AAA." Nintendo does gameplay first rather than graphics first and tightly controls costs.
edit - math. Cost is approx. $84 million when I originally typed $8.4 million. Thank you @awng782
Except that isn't true for either. Twilight Princess had the biggest world before Breath of the Wild, not including the Great Sea, with the main issue being it was a very empty world. Skyward Sword was meant to be more opened, but it was limited by the Wii itself. Breath of the Wild was the first time that Nintendo finally had the technology to make a true open world Zelda, something that they have been trying for since Wind Waker. It had nothing to do with budget or time given that both game had a long development cycle.
"While a lot of Nintendo games have AAA - like production values, notice that they don't go for the extreme time and expense of photo-realistic art styles."
As someone who went to art school for game, being more realistic doesn't mean more expensive. Same with making a game look like a cartoon means cheaper.
Also, 84 million for a game that took around six years to make is not that expensive. For reference, Halo 3 was around 100 million.
Except that isn't true for either. Twilight Princess had the biggest world before Breath of the Wild, not including the Great Sea, with the main issue being it was a very empty world. Skyward Sword was meant to be more opened, but it was limited by the Wii itself. Breath of the Wild was the first time that Nintendo finally had the technology to make a true open world Zelda, something that they have been trying for since Wind Waker. It had nothing to do with budget or time given that both game had a long development cycle.
"While a lot of Nintendo games have AAA - like production values, notice that they don't go for the extreme time and expense of photo-realistic art styles."
As someone who went to art school for game, being more realistic doesn't mean more expensive. Same with making a game look like a cartoon means cheaper.
Also, 84 million for a game that took around six years to make is not that expensive. For reference, Halo 3 was around 100 million.
Even with old numbers and nothing from XBox Series X (and two less consoles), the current generation is already halfway to the total of the previous generation. It’s clear we’re on a upswing for consoles here - PS5 will sell at least 80M and XBox Series will do at least 40M.
Your trend is flawed and only works when you ignore other consoles, and the rotation of different demographic arguments over the gens.
When you actually include the factors your missing you saw growth last gen compared to the gen before for AAA.
Xbox One 55M~ PS4 117M~, that is over 150M sold.
The AAA gaming space controlled more of this number last gen, than it did the gen before (360/PS3). AAA was not controlling 150M sales of consoles on the 360 and PS3. That's impossible when casuals were buying up to 30% or more of both consoles sales figures, and maybe another 10% that were unsure or put off by the consoles in the first coupe years and moved on elsewhere. There were also a large number for over half that gen of A and AA releases, the first explosion of the classic style or modern indie games, and small studios for a short time were able to find publishers easier than ever before and it was also becoming easy to self-publish on digital.
The fact is the AAA space grew, and this has been happening for years. It's still growing now, AAA gaming now has more control and share of software with the PS5 and Series compared to last gen, where AAA is an even bigger percentage of software relative to hardware sales so far.
There is no stagnation, the problem with the industry is poor work conditions and the unsustainability of costs and a growth in outsourcing and lack of tools to make gem development easier and cheaper. The price of an AAA 15 years ago is now only about one rank above a small studio making an ambitious project TODAY, and 3 ranks above an indie game that is a proper new release and not imitating a game off the SNES or 2600. If there was stagnation it would actually be a (short) benefit on this front but there's not. We are seeing AAA go out of control and it's taking more and more marketshare in software 4 gens in a row in large jumps.
In the past not every game was AAA, many where close, many were just good or used tech that made them seem like they had bigger productions, budgets, or graphical engines than they did. you could also produce a good looking and well-performing titles for much less even if you had a low budget. A low budget now will put you closer to a small studio digital release or a high budget indie than a AAA game which wasn't the case 15 years ago, or especially 20 years ago.
Even with old numbers and nothing from XBox Series X (and two less consoles), the current generation is already halfway to the total of the previous generation. It’s clear we’re on a upswing for consoles here - PS5 will sell at least 80M and XBox Series will do at least 40M.
Even with old numbers and nothing from XBox Series X (and two less consoles), the current generation is already halfway to the total of the previous generation. It’s clear we’re on a upswing for consoles here - PS5 will sell at least 80M and XBox Series will do at least 40M.
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