What? Nintendo is Evolving! The Company Finds Profit Again

What? Nintendo is Evolving! The Company Finds Profit Again

Nintendo finally finds profitability again. What is the company becoming in order to make that happen?

After a few years in the hole, Nintendo has dug its way to freedom! Yesterday, the company released its financial earnings report for the fiscal year ended on March 31, 2015. Total sales revenue came to 549.7 billion yen ($4.6 billion), within spitting distance of the company's January forecast of 550 billion. That's still trending downward for Nintendo from a high of 1.83 trillion yen ($15.4 billion) in the 2009, but more importantly, the company is reporting a profit again!

Nintendo's financial performance over the past few years.

Operating income was in the black for the first time in since 2011 at 24.7 billion yen ($207 million). Net income was up to 41.8 billion yen ($350 million), versus a net loss of 23.2 billion yen ($194 million) last year. Looks like Iwata gets to keep his job!

What changed? How is Nintendo evolving in its quest for profitability?

The 3DS is a Monster

First up, the new Nintendo 3DS and XL models helped a great deal. Total lifetime 3DS hardware sales are nearly up to 19 million units according to Iwata. The new 3DS model hit Japan first and for the fourth quarter of 2014, it kept Japanese hardware sales mostly stable and improved software sales a bit in that region. It's worth noting that the 3DS continues to absolutely dominate the Japanese sales charts. The problem Iwata has is shareholders want improvement, not stability. Nintendo's president plans to improve Japanese sales of the system by focusing on women.

"I believe that the key to revitalizing the Nintendo 3DS business in Japan is by intensifying its appeal to even more generations of female consumers," said Iwata in the financial results briefing, while showing a slide with titles like Girl's Mode 3 (Style Savvy in the West) and Rhythm Tengoku: The Best+. "This year, we are planning to release titles that offer high potential to appeal to female consumers, and we would like to further strengthen our approach to reach a female audience covering wider generations.

A breakdown for the numbers above and below.

In contrast, the new models, alongside The Legend of Zelda: Majora's Mask 3D and Monster Hunter 4U, pushed US and UK hardware and software sales way up in the first quarter of 2015. Iwata noted the new models have low stock in Western regions, showing that there's still momentum and life left in the platform there.

When it comes to 3DS software, Nintendo is relying on a mix of evergreen software like Mario Kart 7 (11.7 million units sold) and new titles like Super Smash Bros (6.75 million units sold) to keep the platform buoyant. For the current fiscal year, Nintendo is publishing Japanese hit Yokai Watch in US, in addition to releases like Xenoblade Chronicles 3D, Fire Emblem IF, and Animal Crossing: Happy Home Designer.

"In the overseas markets especially, many titles tend to become evergreen and sell consistently even long after their releases," said Iwata. "We aim to further expand the sales of Nintendo 3DS hardware by increasing its broad software lineup."

The Wii U: Better, But Still Behind

Wii U sales have improved due to the release of Mario Kart 8 (5.1 million units sold) and Super Smash Bros (3.65 million units), but the system wasn't doing too well in previous years. Nintendo is looking to keep consumers interested in those titles though extensive DLC releases, like the MK8 Animal Crossing DLC and the Mewtwo/Lucas characters for Smash. That alone is a big evolution for Nintendo, as the company has embraced the model of a retail/digital release backed up by further paid DLC used by other publishers. The company even recently announced that Splatoon will see a staggered release of its online content; the game will launch with 1 multiplayer mode and 5 maps, but more modes, maps, and character content will be added over the subsequent months.

"We are trying to motivate our consumers to continually play the games that they have purchased and are placing emphasis on the ability to keep a high replay value even after time has passed since their release by adding new functionalities via software updates or by digitally offering new add-on content such as new characters and new courses," explained Iwata. "This is an important effort for maintaining the performance and momentum of evergreen titles and further extending their lifespan."

There's still a number of Wii U games coming over the next fiscal year, including Xenoblade Chronicles X, Splatoon, Mario Maker, and the Shin Megami Tensei x Fire Emblem title. Nintendo is continuing to support user-generated content (UGC) in a big way, following the level editor in Super Smash Bros. Iwata believes that Mario Maker's focus on UGC will offer "tremendous possibilities".

Digital downloads have grown immensely for Nintendo, coming to 31.3 billion yen, an increase of 30 percent over the previous fiscal year.

Amiibo Printing That Money!

Nintendo's third pillar, the Amiibo lineup, has probably been one of the company's largest growth areas. Nintendo has shipped 10.5 million units worldwide, which 4.8 million of that being in 2015 alone. Most of those shipments have been to the US and Canada, which hold a 66 percent share worldwide. That said, the Amiibo rollout has seen a ton of problems, which were acknowledged by Iwata. Unfortunately, it sounds like fixes for those problems will be coming slowly.

"Our consumers have been inconvenienced by stock shortages on some of the figures in our amiibo lineup," admitted Iwata. "We have increased production for amiibo figures that have sold out very quickly after launch, that are indispensable to play a certain game and for which we have received strong demand from retailers and consumers. However, we are very sorry that we can't promise at what point we will likely be able to resolve the current situation because figures such as these require a considerable amount of time to produce, store shelf space is limited and it is difficult to precisely predict the exact amount of overall demand."

The idea of NFC-enhanced physical DLC is also expanding. The Yarn Yoshi Amiibos have a different format from their plastic counterparts, but function the same way. The Amiibo cards are also on the horizon with the upcoming release of Animal Crossing: Happy Home Designer.

Going Mobile

The next step in Nintendo's evolution is its partnership with DeNA to bring Nintendo IP to smartphones and tablets. Iwata restated that Nintendo won't be doing quick ports of older titles - *cough* Square Enix *cough* - and instead will be working to create new experiences specifically for mobile platforms. Trust me, Nintendo is all-in on this new business.

"Regarding the number of the titles, you may want to know that we will release approximately five titles by the end of the next fiscal year, which is the end of March 2017," said Iwata. "You may think it is a small number, but when we aim to make each title a hit, and because we want to thoroughly operate every one of them for a significant amount of time after their releases, this is not a small number at all and should demonstrate our serious commitment to the smart device business. We are aiming to make this one of the pillars of Nintendo's revenue structure."

That said, Iwata added that the company does not believe the dedicated game platform business is going away, Nintendo is merely hoping that more consumers "associate with Nintendo IP, become familiar with the charms of video games and, eventually, explore more premium experiences on our dedicated game systems." Mobile is the gateway drug. That's why Nintendo is also working with DeNA to provide a better, more modern account system. The new system will replace the old Club Nintendo logins, offering perks for users who play Nintendo games across multiple platforms.

New Horizons, New Evolutions

Finally, Nintendo is actively working hard to spread its IP into other markets. There's the rumored Legend of Zelda series on Netflix (still unconfirmed, by the way), but Nintendo has officially joined with Universal Parks & Resorts to feature its characters at theme parks.

"Based on this agreement, the two companies will jointly create attractive experiences by using the characters and the worlds of Nintendo games that people cannot enjoy anywhere else," announced Iwata. "We will announce the details, including the specific period, which IP and how it will be used, at which park and the scale of the attractions, at some later date. However, today I just wanted to confirm with you that this sort of endeavor to actively use Nintendo IP has been progressing."

Nintendo is striving to become something else, while still holding onto its spirit. It's beginning to lean into the same practices other major publishers and platform holders in the industry have been using, but it's attempting to do it in the Nintendo way. The company has been slow to change. It's been reticent to move beyond what it has been.

But the truth is this business is change or die.

I don't want Nintendo to ever go the way of Blockbuster Video or Borders Books. Hiroshi Yamauchi pivoted the business repeatedly back in in the 60s and 70s, and Iwata is poised to the do the same in a smarter, more measured way. With Iwata at the helm, I think we'll see a completely different Nintendo that still stays true to the spirit of its past. The question is what will Nintendo become? Will Charizard evolve into Mega Charizard X (superior!) or Mega Charizard Y?

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Mike Williams

Reviews Editor

M.H. Williams is new to the journalism game, but he's been a gamer since the NES first graced American shores. Third-person action-adventure games are his personal poison: Uncharted, Infamous, and Assassin's Creed just to name a few. If you see him around a convention, he's not hard to spot: Black guy, glasses, and a tie.

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