Posted by: seanmalstrom | January 2, 2014

The actual reason why Nintendo will never go third party

Being the oldest of the console companies, Nintendo has a unique perspective on gaming. Most importantly, Nintendo knows its history. In large part, the history of gaming is the history of Nintendo.

The biggest change in video games from decades ago to today is that it took much less money and manpower to create a video game for the same retail price a video game costs today. Did you know that games like Ultima I and II costed $70 or more? Inflation aside, that is a premium price tag. Yet, it only took one person to make them. One can say, “Yes, Malstrom, but the video game market is larger than before. There is more volume.” This is true.

Let’s pretend video game software was Godiva chocolates. The chocolate maker would realize that while the chocolate market grew, the price to make the chocolates kept escalating. The value of the chocolates kept going in decline.

Nintendo has a very interesting observation about the computer revolution. The computer revolution is cheapening intellectual labor. We already know that it is cheapening intellectual property. A video game takes much more money and manpower to make than it did in the 1980s. The trend is for video games to take more money and manpower in the future.

A deteriorating value may be intrinsic to video games. Before people rush to declare certain games, certain consoles (Wii), to be ‘fads’, know that we still haven’t successfully proved that video games, in general, isn’t a fad. What if it is a half-century long fad? If it weren’t for millions and millions of dollars being pumped into video games, along with a rapidly growing market, video games may have died out by now.

But what happens if the market stops rapidly growing? What if population growth can no longer be relied upon? What if the macro-economic trends of prosperity turn into recession? Then we come to The Dilemma. Nintendo’s creation of the Wii was in large part a response to The Dilemma.

Nintendo sees its hardware side as creating value to the software. The hardware is to allow the software to remain interesting. The hardware is to fight the deterioration of video game value. In the past, this has been done with ‘faster processors’ and ‘better graphics’. But there are diminishing returns doing that. Nintendo is not trying to come up with ‘fads’. What Nintendo is trying to do is to keep the value of their video game software up. It is through their software where Nintendo makes its money.

Nintendo going third party would radically decrease the value of their software. Their software would also be stuck on the typical industry ‘faster processor’ and ‘better graphics’ which means the costs for making such software would go up and up and up where the returns would keep getting less.

While the criticism of Nintendo being cheap is accurate in many ways, understand that Disney is also very cheap. Nintendo’s strange hardware configurations isn’t so much of a desire to be ‘cheap’ as it is a desire to fight the deterioration of video game value. Today, the market is full of 99 cent games or free games. Gaming is available everywhere. On phones. On smart TVs. The macro-economics have turned into reverse. It is getting harder and harder to make video games.

The reason why the ‘Why doesn’t Nintendo go third party?’ people miss the boat is that none of them have noticed the declining value of video games. Nintendo sees hardware as a way to create value to their software. Without the hardware, the value would disappear and the software would not sell.

Nintendo should respond to the ‘Why doesn’t Nintendo go third party?’ people with saying, “Why doesn’t everyone go PC gaming then?” The answer, of course, is that hardware matters. The console hardware, which is inferior in all forms to PC gaming, creates value for the consoles games by providing a simplistic ‘plug and play’ box. If consoles hardware is creating value in software, then it follows to reason that console hardware can be altered to increase the value in software even further. This is the Nintendo perspective.


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