SlideShare a Scribd company logo
Power Play (a): Nintendo in
8-bit Video Games
Brief
• Started in 1966 by an engineer sanders ltd in us
• Initially hit but then took a hit from $3B to $100M
• Japanese co. entered in the industry
• Entry of many companies
Nintendo’s Timeline
1977- Began making a home video gaming system.
1983- Launched Famicom with hits like The Legend of Zelda and
Metroid.
1985- Super Mario Brothers.
1986- U.S launched (Famicom) under the name NES.
1990- Super Mario Brothers topped the sales with 40 million copies.
July 1990 to June 1991 (in trillions)
Company Nintendo Sony Nissan
Average stock
market values
2.406 2.212 2.032
nintendo
• Owned by yamauchi family
• Initially in playing cards
• Entered in video game business in 1977
• Became industry leader with 95% of share
• Introduced various characters
• Donkey kong
• Super Mario
• pokemon
• Compete with Competitors
• Attract developers
• Provide better specification
• Consumer attraction
• Focus on software
Hardware Cost
Porters force
Threat of
New Brands
COmpetition
Bargaining
power of
suppliers
Complementors Subtitutes
Bargaining
power of
customers
Industry
COMPLEMENTORS
• For cards – joined with Disney
• Video games
• Controllers
• Cartridges
• Memory card
Nintendo’s Strategy Towards supplier
• Distributed products through toy stores, mass
merchandiser, electronic retailers and other
outlet.
• Outsourcing.
• Worked with around 30 subcontractors.
• Specialized chips were sourced from electronic giant
Ricoh.
• Suppliers who made software for Nintendo were
restricted from moving another video game for
next two years.
Strategy Towards Substitutors
• Better products with superior graphics
• One or two hits per year
• Monopolizing the market.
• In order or increase market demand, Nintendo
did not fill all of the retailers demand
• It withdrew game from the market quickly as soon
as interest waned.
Nintendo capture of the profit
 The first six licenses paid royalties to Nintendo set at 20% of
the $30 price at which cartridges wholesaled. They also
absorbed Nintendo’s manufacturing cost.
 Nintendo’s strategy of releasing less cartridges than market
demand
 Nintendo’s demand that retailers do not carry competitor
products or discount Nintendo’s machines.
 Anti-competitive purpose of the development of the NES
security chip.
 Refusal to supply rental stores forcing them them to buy in
retail
• Fixing, controlling or maintaining
directly or indirectly the resale price at
which any dealer advertises or promote.
• Reducing the supply of products to any
dealer.
• Threatening retailers with cutting them off
if competitors were given shelf space.
• Nintendo intended retailers to place orders
take delivery and pay in quick succession
against the norms usually followed.
Nintendo’s relationship with the
retailers
Nintendo in Japan
• largest maker ofplaying cards
• Bowling alleys to shooting ranges with solar
technology
• Teamed up with mitsubishi - hand held Game & watch
• coin up donkey kong
• famicom - Cheaper, powerful graphics, feel of arcade
games
• 6 initial licensees - namco, hudson, Taito, capcom, konami,
bandai
• 50 licensees by 1988
• 20% loyalty + mfg cost +10000 orders advance
• hacker international - unauthorized games, ads in family
computer
• namco license renewal - market monopoly
licensing
Atari vs nintendo
• BOTH HAD THEIR OWN HOMEVIDEO GAME SYSTEMS: VCS FOR ATARI AND
NES FOR NINTENDO
• COMPATIBILITY OF BOTH SYSTEMS WITH GAMES
• NINTENDO’s FOCUS WAS TO COME UP WITH ONE OR TWO HIT GAMES
PER YEAR RATHER THAN SEVERAL MINOR SUCCESSES
• NINTENDO LICENSED COMPANIES TO DEVELOP GAMES FOR IT’s NES,
BUT ATARI ADOPTED COLECO GAMES TO THEIR PLATFORM
• NINTENDO CURBED THE SUPPLY WHILE ATARI CRUMBLED UNDER IT’s
OVERBUILT INVENTORY
Nintendo in the us
• Entered the us market in 1980 as NOA
• Jumped in the arcade game business
• Donkey-kong was a hit with a direct sales of $100 million
• Further revenues generated by licensing the game and its
characters (t-shirts, cereal packets)
• Nintendo entertainment system rolled out in 1986 after
favorable consumer response
Licensing in the us
• Minimum order of 30000
• 3 months waiting period after placing order with a two year
contract prohibiting titles for other game systems
• First American licensee was acclaim entertainment
• Electronic arts ventured in 1982
• Envisioned video games for personal computers
• But the computer games gave little business
• In 1990 ea signed up with Nintendo
• 100 licensees by 1991 with 450 titles
• Noa licensed game characters to businesses too (t-shirts, records, books)
Marketing and distribution
• Advertising budget was 2% of sales
• Promotion partners were pepsi, p&g and mcdonald’s
• Launched a magazine ‘Nintendo power’ in 1988 for
information about existing and new games.
• Set up consumer hot lines with game counselors
• Distribution network had toy stores, mass merchandisers, and department
stores
• Opened a robot controlled distribution center for shipping upto 600000
systems and games everyday in 1991
• Strict control on number of copies supplied was maintained. Supply
shortage was created for monopolizing
Position in the late 1980s
• More than 90% share of us home video game market by 1990
• 8 to 9 game cartridges sold for every NES
• In the age group of 8-15, 75% had video game systems.
NINTENDO in trouble
• Sued by Atari
• Slammed by us govt.
• Anti-competitive chip
• Artificially created shortage
• Developers dependence
• Practice of bundling software with hardware
• Threatening retailer
• Forced retailers to keep price above
What happened next?
• Ftc started investigation
• Cease & desist from
• Fixing/controlling resale price
• Forcing retailers
• Reduce supply intentionally
• Termination of dealers
Thanks!
Any questions?

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Nintendo

  • 1. Power Play (a): Nintendo in 8-bit Video Games
  • 2. Brief • Started in 1966 by an engineer sanders ltd in us • Initially hit but then took a hit from $3B to $100M • Japanese co. entered in the industry • Entry of many companies
  • 3. Nintendo’s Timeline 1977- Began making a home video gaming system. 1983- Launched Famicom with hits like The Legend of Zelda and Metroid. 1985- Super Mario Brothers. 1986- U.S launched (Famicom) under the name NES. 1990- Super Mario Brothers topped the sales with 40 million copies. July 1990 to June 1991 (in trillions) Company Nintendo Sony Nissan Average stock market values 2.406 2.212 2.032
  • 4. nintendo • Owned by yamauchi family • Initially in playing cards • Entered in video game business in 1977 • Became industry leader with 95% of share • Introduced various characters • Donkey kong • Super Mario • pokemon
  • 5. • Compete with Competitors • Attract developers • Provide better specification • Consumer attraction • Focus on software Hardware Cost
  • 6. Porters force Threat of New Brands COmpetition Bargaining power of suppliers Complementors Subtitutes Bargaining power of customers Industry
  • 7. COMPLEMENTORS • For cards – joined with Disney • Video games • Controllers • Cartridges • Memory card
  • 8. Nintendo’s Strategy Towards supplier • Distributed products through toy stores, mass merchandiser, electronic retailers and other outlet. • Outsourcing. • Worked with around 30 subcontractors. • Specialized chips were sourced from electronic giant Ricoh. • Suppliers who made software for Nintendo were restricted from moving another video game for next two years.
  • 9. Strategy Towards Substitutors • Better products with superior graphics • One or two hits per year • Monopolizing the market. • In order or increase market demand, Nintendo did not fill all of the retailers demand • It withdrew game from the market quickly as soon as interest waned.
  • 10. Nintendo capture of the profit  The first six licenses paid royalties to Nintendo set at 20% of the $30 price at which cartridges wholesaled. They also absorbed Nintendo’s manufacturing cost.  Nintendo’s strategy of releasing less cartridges than market demand  Nintendo’s demand that retailers do not carry competitor products or discount Nintendo’s machines.  Anti-competitive purpose of the development of the NES security chip.  Refusal to supply rental stores forcing them them to buy in retail
  • 11. • Fixing, controlling or maintaining directly or indirectly the resale price at which any dealer advertises or promote. • Reducing the supply of products to any dealer. • Threatening retailers with cutting them off if competitors were given shelf space. • Nintendo intended retailers to place orders take delivery and pay in quick succession against the norms usually followed. Nintendo’s relationship with the retailers
  • 12. Nintendo in Japan • largest maker ofplaying cards • Bowling alleys to shooting ranges with solar technology • Teamed up with mitsubishi - hand held Game & watch • coin up donkey kong • famicom - Cheaper, powerful graphics, feel of arcade games
  • 13. • 6 initial licensees - namco, hudson, Taito, capcom, konami, bandai • 50 licensees by 1988 • 20% loyalty + mfg cost +10000 orders advance • hacker international - unauthorized games, ads in family computer • namco license renewal - market monopoly licensing
  • 14. Atari vs nintendo • BOTH HAD THEIR OWN HOMEVIDEO GAME SYSTEMS: VCS FOR ATARI AND NES FOR NINTENDO • COMPATIBILITY OF BOTH SYSTEMS WITH GAMES • NINTENDO’s FOCUS WAS TO COME UP WITH ONE OR TWO HIT GAMES PER YEAR RATHER THAN SEVERAL MINOR SUCCESSES • NINTENDO LICENSED COMPANIES TO DEVELOP GAMES FOR IT’s NES, BUT ATARI ADOPTED COLECO GAMES TO THEIR PLATFORM • NINTENDO CURBED THE SUPPLY WHILE ATARI CRUMBLED UNDER IT’s OVERBUILT INVENTORY
  • 15. Nintendo in the us • Entered the us market in 1980 as NOA • Jumped in the arcade game business • Donkey-kong was a hit with a direct sales of $100 million • Further revenues generated by licensing the game and its characters (t-shirts, cereal packets) • Nintendo entertainment system rolled out in 1986 after favorable consumer response
  • 16. Licensing in the us • Minimum order of 30000 • 3 months waiting period after placing order with a two year contract prohibiting titles for other game systems • First American licensee was acclaim entertainment • Electronic arts ventured in 1982 • Envisioned video games for personal computers • But the computer games gave little business • In 1990 ea signed up with Nintendo • 100 licensees by 1991 with 450 titles • Noa licensed game characters to businesses too (t-shirts, records, books)
  • 17. Marketing and distribution • Advertising budget was 2% of sales • Promotion partners were pepsi, p&g and mcdonald’s • Launched a magazine ‘Nintendo power’ in 1988 for information about existing and new games. • Set up consumer hot lines with game counselors • Distribution network had toy stores, mass merchandisers, and department stores • Opened a robot controlled distribution center for shipping upto 600000 systems and games everyday in 1991 • Strict control on number of copies supplied was maintained. Supply shortage was created for monopolizing
  • 18. Position in the late 1980s • More than 90% share of us home video game market by 1990 • 8 to 9 game cartridges sold for every NES • In the age group of 8-15, 75% had video game systems.
  • 19. NINTENDO in trouble • Sued by Atari • Slammed by us govt. • Anti-competitive chip • Artificially created shortage • Developers dependence • Practice of bundling software with hardware • Threatening retailer • Forced retailers to keep price above
  • 20. What happened next? • Ftc started investigation • Cease & desist from • Fixing/controlling resale price • Forcing retailers • Reduce supply intentionally • Termination of dealers