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Is Nintendo's third-party ecosystem really in danger?
Is Nintendo's third-party ecosystem really in danger? Exclusive
August 10, 2012 | By Christian Nutt

August 10, 2012 | By Christian Nutt
More: Console/PC, Smartphone/Tablet, Business/Marketing, Exclusive

I published an interview last week with Ngmoco’s Neil Young in which he predicted some dire-sounding things about Nintendo’s portable business model. In "the ecosystem that they've created, it's just really difficult to justify spending $30 on a game that is anything other than a Mario, a Zelda, a Pokemon. I think that ultimately their ecosystem starts to fall apart,” Young said.

This led to a lot of debate in the comments section of the story. I think it’s worth pulling back a bit, though.

The conversation started because I asked Young if he was in competition with Nintendo. This is a valid question -- if the smartphone and tablet are eating into the portable game space, as many suggest it is, Young’s take on it is worth hearing. After all, he’s the publisher of Rage of Bahamut, which is currently tearing up the top grossing charts for Android and iOS.

Real quick: The issue does not hinge on whether Ngmoco’s games are good enough to compete with Nintendo’s on quality -- Young himself addresses this, saying “You wouldn't want to go up against Zelda and Mario and Pokemon and Kirby every day of the week."

The issue is whether the mobile market is putting pressure on Nintendo, and if so where; Young’s hypothesis, as I understand it, is that outside of first-party games, there’s going to be a squeeze.

It goes like this: Thanks to competition from mobile games and the difficulty of competing with top-flight Nintendo titles, third-party publishers -- who make pretty average games for the system, by and large -- are going to see their games more readily fail at retail, and are going to back out of the market, leaving an ecosystem of Nintendo first-party releases and not much else.

Pulling Apart the Premise

There are many ways to look at this premise.

There is one basic issue: Publishers have to decide where to make investments. Major factors include market pressure, investor pressure, developer pressure, and institutional inertia. In the end, though, publishers have limited resources and have to try to make good (well, potentially lucrative) decisions about what to do with them.

When people complain about mobile games, they tend to criticize the form for being littered with games designed to waste time, games designed to trick people out of their money, and mediocre, simplistic titles. This is, if you think about it, more or less what the majority of the games for the original DS were like.

The DS was an exceptionally popular system with an overwhelmingly large number of great games, and so it’s easy to think back to those when appraising it. But go to a GameStop and look over the shelves and you will see a huge variety of dreck, just like there was on the Wii, which was much more often criticized for this problem. Japan is much the same. For example, Namco Bandai has already released one Tamagotchi licensed game for the 3DS so far this year, and there’s another slated for November.

These are the games that will certainly disappear: the no-name match-3 titles, the licensed games based on movies that nobody cares about, the Brain Age ripoffs and cooking titles.

The issue, as we all know, is that it costs a lot to make anything but the most rudimentary game for something like the 3DS, and if return on that investment isn’t assured, the publisher is hosed. What makes mobile attractive, as we all know, is the fact that there’s a large audience, a low barrier to entry, and a different release pattern that favors smaller initial investments -- with more resources coming later if the game becomes a hit.

As Young even discusses in the original interview, Ngmoco tested Rage of Bahamut and became confident it would be a hit once 2,000 players were let into the game, and the data started coming back.

"We definitively, absolutely, 100 percent knew that this thing was going to be a hit, which is one of the beautiful things about this business, having that visibility,” said Young. The team iterates on the game based on player behavior and response, and feeds the community what it wants. Success is, if not assured, certainly easier to capitalize on with a smaller team: the kind of team that might otherwise make a portable game for the 3DS.

Let’s take an example from earlier this year to see whether things are really shaking down this way. Someone with direct knowledge of its business told me that Konami Japan has shifted the majority of its resources to social mobile titles on the back of the success of its standout title, Dragon Collection, which attracted 6 million users earlier this year on the Gree mobile platform. On the record, the company’s social gaming segment has eclipsed its console game segment as a revenue driver.

Western publishers burst onto the 3DS with guns blazing and tons of titles -- but ran aground on initial weak sales and have not come back with the same commitment. They’ve significantly reduced their slates down to the sure bets and big IP. EA? All that’s announced for the 3DS right now is FIFA 13. At launch, it promised new IP.

I know of one major Western publisher that killed its entire 3DS lineup due to its launch failures; it has games again, now, but not nearly so many, as those resources went elsewhere. We all know the biggest Western publishers are mostly looking elsewhere with the bets they make, whether it’s mobile, social, or triple-A console and PC, depending on the publisher we’re discussing.

Let’s put it this way: there were five Call of Duty games for the original DS. There are zero for the 3DS. N-Space, developer of all of them, had to lay people off because publishers weren’t signing 3DS deals.

And let’s return to Konami. Now, there’s clearly been a shift in the Castlevania series toward the Western arm of the company (which makes some sense, as the IP is much more popular here than in Japan). Hardcore fans love the “IGA-vania” style pioneered by Koji Igarashi’s team in Tokyo. Why, then, is the 3DS title being developed in Spain, like Lords of Shadow was? The creative control issue is part of the story, but so is the Konami Japan part of the story. If the money were there, the Tokyo-based developers would be too. Castlevania is not where Konami Japan sees a need to spend money anymore.

And, of course, there’s Sony. Its president of Worldwide Studios, Shuhei Yoshida, recently admitted that it’s having a “more difficult time than we anticipated getting support from third-party publishers” for the PlayStation Vita. According to Yoshida, the report goes, mobile/social development is the reason. Now, the 3DS is an entirely different class than the Vita when it comes to both development costs and success, but the Vita can rightly be seen as the canary in the coal mine for the third-party publishing model.

Nintendo isn't Doomed, Of Course, But...

Let’s get back to the premise. It’s worth reminding the reader at this juncture that this is not a “Nintendo is doomed” story, because Nintendo isn’t doomed, and the 3DS is far from a failure. Japanese publishers will bring hardcore games to the system -- maybe the bulk of the country’s domestically-targeted hardcore game output, especially if the Vita continues to sink like a stone, and Monster Hunter continues to stick to the 3DS. I’ve heard these kinds of rumors more than once.

But will large publishers increasingly direct their software efforts elsewhere? Yes. Will the increased success of mobile games and platforms pull in their attentions? Yes. Is it currently easier to be successful with a smaller investment on mobile? Yes.

Ben Cousins, the head of Ngmoco’s Sweden studio, pointed out this quote to me on Twitter: "While the Nintendo 3DS has a certain degree of sales momentum in Japan, the momentum in the U.S. and Europe is currently weak.”

This comes from president Satoru Iwata, from Nintendo’s recent shareholder meeting. Iwata goes on to say that New Super Mario Bros. 2 and the 3DS XL will help turn things around, but it’s not a done deal as yet. It may never be a done deal. We just don’t know yet. If sales don’t pick up, the number of games will not, either.

Buried in that wall of text is a chart with an interesting if vague data point: smartphones are a more attractive game platform to U.S. consumers than the 3DS, according to Nintendo’s own data.

“In order for dedicated video game hardware to be needed continuously, it is necessary to provide games with fun elements unique to a certain video game system which cannot be realized on smartphone devices. We would like to introduce such games one after another,” Iwata went on to say.

This is the crux of the problem, and I think returns to the original premise nicely. It’s always been difficult for third parties to stand out on Nintendo platforms due to the quality of the company’s games, and also because the investments most publishers make in these games are slight, and top talent does not work on them. There are rarely if ever what you’d call triple-A DS games outside of Nintendo’s. If that’s what it takes to compete on the platform, companies are going to walk away.

I hesitate to point out once more what we all know: Western companies by and large couldn’t figure out how to make really great and successful games for the Wii, once more because top talent wasn’t (typically) involved, and the budgets and schedules sucked. And that was when the Wii was the top platform in the market, period -- before the social/mobile explosion that started in late 2008.

Nintendo always provokes an emotional response in readers that you just don’t get with Microsoft or Sony. It’s a mixed function of the company’s games being so emotionally affecting, so many of today’s adults having had their brains wired by the company in the 1980s and 1990s, and -- at least in my case -- that it’s a company that is top to bottom run by developers (Iwata started as a programmer at Kirby and Smash Bros. creator HAL Laboratory, after all.) So it’s hard to face facts sometimes. But things are definitely changing, and refusing to acknowledge it doesn’t make it any less true.

Is Nintendo going to die? No. Of course not. Is it going to be forced into the smartphone software business? Certainly not that either; Young doesn’t think so, and neither do I. And while momentum for the 3DS is slow, it’s no disaster as yet. So yes: there will be incredible games for the 3DS in the future. But will they be from third parties, particularly Western ones? Increasingly it seems less likely. And what knockdown effect that has on Nintendo’s business is far from clear.

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Matt Robb
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Sounds largely to me like Nintendo created a bubble of sorts by attracting so many "casual" gamers with the Wii and DS. Then as the cell phones started their aforementioned boom in late 2008, they sucked a large number of people out of that Nintendo bubble. Because of that seeming focus on the more casual market, the hardcore market shifted even more to the 360/PS3/PC during that same period (taking the 3rd party triple-A people with it) leaving Nintendo left with a loss on both ends.

The Mario/Zelda/Pokemon/Kirby/etc may have contributed to driving off other publishers, but they're also the only reason Nintendo is alive and (hopefully) thriving.

Merc Hoffner
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Doesn't this scare everyone? That the high end's costs grow every day and the low end's revenue shrinks every hour? Won't one, or both, fail at some point? Wasn't the middle a profitable enough scale? It was working until everyone started abandoning it. Wasn't it?

Matt Robb
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The cost thing is kind've ironic to me. I mean, the bulk of the cost problems on the high end have to do with audio/visual elements from what I understand. But if you look at Nintendo's art styles, I bet they get more bang for their buck that just about anyone else. The high end only costs as much as it does because devs and publishers think it must.

Low end revenue shrinkage is due to an oversaturated market. Low barrier of entry means a lot of entries. If you do manage to differentiate and capture market share, you do just fine.

So no, it doesn't scare me.

Russell Carroll
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I think the revenue numbers are the key.
Right now top developers (Rovio for example) are reporting revenue across mobile (iOS + Android) that doesn't come close to what Nintendo sees on the 3DS (for example the Angry Birds franchise earned $70 million Net for Rovio across all platforms and skus last year whereas Mario 3D Land alone, in 6 months had Net in excess of $100 million for Nintendo). That's just one game! Those numbers alone suggest why Nintendo won't abandon dedicated for the phone market.

Outside of Nintendo though the question isn't as clear, but there are some facts in the numbers.

There are a lot of developers on iOS/Android. Most of them are losing money as there are simply too many games and too many developers (87K+ at last count). There is no question there are break-out hits or that it is easier to publish to mobile than to a console. As well, the ceiling on an iOS downloadable title is much, much higher than for a digital title on the dedicated handhelds.

With larger developers, like Konami for example, who have marketing resources and brand loyalty, iOS is may be a better bet than the dedicated handheld market, but the equilibrium is certainly in flux, and at least for smaller developers, it may have already shifted back towards digital on dedicated handheld systems where, even if the numbers are smaller, due to the fact that there is dramatically less competition, the average game sees more unit sales (and at a higher price) than they do on iOS/Android.

It's worth nothing that over 500 titles are being released on iOS every day. Assuming 1/2 of them are games that is 1750 new game titles each and every week!
That glut of content is a problem that has grown into a real struggle for most of the developers I've spoken to. Getting more than a handful of downloads is a real challenge!
Being one of a couple of titles on the 3DS or PSN in any given week provides a better likelihood of recouping dev costs even if it doesn't have the possibility of making millions if you have a hit.

The market is in an interesting place, and is often the case, there is no one answer for everyone. A lot of what is best for you will be determined by your situation.

Bob Johnson
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This seems like the same article as before.

And yes the 3ds is and will be a 1st party machine but so was the DS. Nothing new.

Might want to rethink this notion that companies will walk away because they have to make great games on the 3ds. Is there any platform where companies can come in and put their worst talent on low budget games and make a fortune?

I just think, that for many of the types of games that are popular in the west, the DS and now the 3ds aren't ideal platforms for those games. And the dedicated handheld has never been a big core gamer platform in the west either afaik.

Rockstar tried with GTA on the DS. It was a critic's darling afaik. Fairly well done by all accounts, but it didn't sell.

That was 2009. That was the one game where a 3rd party went all out to make a great core game on the DS, but it still didn't do well.

so is the audience on dedicated handhelds just not there for those games? Did the audience just not want a cartoony-overhead GTA game? Would the game had done better if it was released much earlier in the DS lifecycle before core gamers had given up on the DS for those types of games? Or is this type of game just not for dedicated handhelds in the west?

So western 3rd parties perhaps need to adjust to the platform in order to be successful on the 3ds.

Yes there is a threat from smartphones and the iPad and Touch, but as long as Nintendo makes great games and differentiates their hardware enough then they will have an audience.

I don't think the 2 are mutually exclusive either. Everyone is eventually going to get a smartphone no matter what anyway because they need to communicate. Consumers were already buying fairly expensive cellphones before the iPHone came along. And they did play some games on them even.

I don't think that just because you have a smartphone that a 3ds would suddenly become undesirable.

Last let us not forget Nintendo's efforts in the digital storefront arena. The 3ds isn't just about carts. And there are inexpensive downloadable games on the system as well.

Merc Hoffner
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Multiple points here:

1) As I repeatedly say, what makes financial sense and what developers do are different things. The flocking away from one platform to another is not an indicator that one system is a better profit driver and the other one less. Not anymore anyway.

2) This is not a zero sum game - success of mobile does not necessarily equal failure or even necessarily reduction of handhelds - afterall, kids, who remain a very strong part of Nintendo's business, remain partially precluded from iOS - simply because they cannot own credit cards and can't all receive expensive smartphones and tablets.

3) Real world data for success levels on mobile platform is THIN on the ground. Revenue alone is an indicator of shockingly poor per unit performance, not to mention the disparity of success between top and 'bottom' sellers, or the sheer glut of products. iOS does not command the raw install numbers we see: between upgrades, multiple devices per account, non players and players who never pay, the active base is MUCH smaller.

4) Losing the chaff is no skin off Nintendo's nose - they hardly bolstered the system in sales, popularity, standing or competitiveness.

5) ABOVE ALL, contrary to popular belief, the NDS was NEVER supported in the West. For the first 5 years of its life the highest rater Western developed game on the platform was TONY HAWK'S AMERICAN SK8LAND! with a Metacritic rating of 84% - a launch title. You can't squeeze blood from a stone. You can't reduce support from nothing to less than nothing.

6) Failure of Vita may be prescient, but there is little actual evidence that Nintendo's business has been affected - though they are always called out. Patcher routinely references sales drops in DS numbers as evidence of handheld cannibalization - but he compares numbers in year 6 and 7 of the cycle - extraordinary for any platform in history. Comparing 2009 and early 2010 numbers (year 5 and 6 - already pushing it) Nintendo's business was unaffected by an already massive iOS market - it was Sony who was negatively affected. Initial stalling of 3DS sales were quantifiably driven by a misjudged pricepoint. It's now tracking as the fastest selling handheld in history - an obvious time for Nintendo and partners to lose out then.

I accept the basic premise of the article - poorer simpler games see more opportunity on iOS than 3DS. I question whether this was ever a significant portion of Nintendo's business. I also accept that higher profile games would migrate away from Nintendo's platforms. I again question whether this is sensible, whether these games ever existed in any significant numbers - not for lack of opportunity as will (from the West at least - which is more or less what we're talking about here), and given the lack of such games being produced on the vastly successful Wii, whether it will affect Nintendo's business.

This is a Nintendo is doomed article, if not a Nintendo is doomed to death piece.

Leon T
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IMO the 3DS started out with stronger third party support than the DS did and continues to have stronger support. Western third parties never gave strong support to handhelds, so the 3DS is not lacking anything there.

Joe Zachery
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How about lets look at this from another angle. How can something like the Vita survive when it depends on 3rd parties. Nintendo has shown on both their home consoles ,and handhelds. They can survive in the gaming market earning major profits with out real 3rd party support. They have been doing it since the GBA, and N64.

One more thing Nintendo has never never had real western 3rd party support. That wasn't from their own western studios. So now thinking they really need them is a question by it's self. Once again Sony who Japanese support is next to nothing. Doesn't have any western support to balance out what they are not getting in Japan. Remember they need 3rd parties more than Nintendo do.

Neko Otome
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Sony actually has more first/second party studios than MS and Nintendo combined. If anyone doesnt have to rely on third parties, it's Sony.

Terry Reine
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I think a lot of the thoughts here are incomplete. Looking at the pieces you can see some of the logic doesn't hold up.
The 1st argument is that on the DS there was a lot of dreck, and those publishers don't have a reason to return to the DS. Well the same theory applies to the mobile market. With so many new games a week being released the visiblity of individual titles and production levels are all down. The market is larger but I don't know if even it can handle so many games on a regular basis. Publisher making "dreck" will not survive long on any system. In addition you are neglecting the e-shop market. Which while not usually as low priced as the mobile market, has very low entry level cost like mobile but at least for now offers much better exposure to new titles.
The Tamagotchi example mentioned in the article is really good example of the contradictions in the premise. On the one hand you show that this is an example of the dreck the was on the DS and state this is the kind of games that will disappear, and in the next sentence you talk about how they are already releasing a 2nd Tamagotchi game this year. Obviously the production costs weren't too high or they wouldn't have been able to afford the 2nd.
The next statement is that many publishers or moving to mobile. I believe you are absolutely accurate here. With the great success of some of the early companies it is natural for them to want a piece of the pie. Just as they were interested in the social market over the last few years. Gaming companies have always had to ration their resources. The trouble here is with very few restrictions on releases the market is very similar to the atari market back in the early 80's. Too many games that are too similar will eventual cause many gamers to be disenchanted, and only those with the ability to get great visibility will survive. Meanwhile if Nintendo continues to improve their partnership with 3rd party developers and keeps their more measured pace of releases they will more likely ensure those that do get released are profitable. They have already demonstrated this with several of their 3rd party publishers in the e-shop.

Neko Otome
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His point was dreck on mobile makes a lot more than dreck on a card-based system

Justin LeGrande
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This article makes me think about companies such as Atlus... how do they survive, as third parties, by shipping only a few copies of their games? Even a relatively small fanbase can support an operation, if resource allocation is efficiently handled.

Think back to the N64 and Gamecube generations... Nintendo's sector of the wider industry ecosystem was much more unattractive to third parties than it is now. The publishers and producers of the time must have had their reasons for supporting development for Nintendo systems, despite the risks. It would be interesting to hear more about the processes involved within the Nintendo environment, so commonly assailed as hostile.

The gaming landscape has changed, but for third party titles on all platforms, prominent visibility is still a luxury, regardless of Nintendo's activities.

tony oakden
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Just had a look through my kids game library: Mario cart (1 and 7) mario galaxy, mario bros 1,2,3, nintendo dogs 1& 3ds, a bunch of zelda games, various Pokemon and Lego starwars. The only games the kids care about are mario galaxy and cart. As they get older they'll probably play more Pokemon and Zelda but I can't imagine they'll care much if third party developers stop bothering with the 3DS. But it has to be said they play a lot more games on IPad and PC than they do on 3DS

John Gordon
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I do not understand how one moment the author can suggest that Nintendo is so awesome that no one would ever dare buy a third party game on the 3DS. And then another moment he suggests that Nintendo is so terrible that people are flocking to play mediocre games on the iPhone instead. There seems to be a logical disconnect there.

I would suggest the logical disconnect could be remedied with this idea, "smartphone gamers and 3DS gamers are mostly different groups". If a developer finds more success on the iPhone, then I say more power to them. It could be their game appeals more to adults, while the 3DS is selling mostly to kids in the US. But if the developer can make a good game that can appeal to kids (or to all ages), then I think they'll find more success on the 3DS.