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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

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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