Nintendo – Note – 20190129

Nintendo (7974.JP / NTDOY.US)

[January 29, 2019]

Note: Interview, Metriod Prime 4 & Exercise

[1.0] The Sankei News Interview

Nintendo president Shuntaro Furukawa had an interview with The Sankei News and it was released on January 25, 2019. Furukawa talked about strong performance during holiday season, pricing of Nintendo Switch, product development of Nintendo’s home console, the 20M Nintendo Switch shipment target, smart device business, and talent acquisition when the overall economy is doing well. We have already known most of stuffs Furukawa talked about so I only comment on those that I think have implications.

[1.1] Nintendo Switch


[1.1.1] Reiteration of 20M Nintendo Switch Shipment Guidance

Since it’s very close to the earnings release, we expect Nintendo will maintain the guidance number however the actual shipment was in the last quarter.

[1.1.2] Haven’t Considered Successor of Nintendo Switch so far

The keyword here is the “successor” (後継機種). Since Nintendo Switch is performing, Nintendo will expect the console has relatively long product life cycle. Therefore, it’s too early for Nintendo to either have clear idea or discuss the idea publicly on next generation home console when Nintendo Switch just starts its third year. That said, I still believe it’s very beneficial for Nintendo to have a product roadmap for the platform. Another point is that the “successor” is different from model revision / upgrade / variation. So the possibility of a different Nintendo Switch model for this year is still can not be ruled out.

[1.1.3] Haven’t Considered Price Cut for Nintendo Switch so far

Since Nintendo Switch is on track or probably meets Nintendo’s expectation, there’s no reason for Nintendo to consider a price cut in the first two years of Nintendo Switch’s product life cycle. However, Nintendo Switch did have bundles which effectively offered the hardware at a discount. We’re not sure whether Nintendo will adopt a direct price cut, do more bundles, or just do both in this holiday season.

Nintendo mentioned before that it’s would not sell Nintendo Switch below cost so how deep the price could be cut depends the cost reduction of the hardware.

[2.0] Restart of Metriod Prime 4 Development

Nintendo released a development update on Metriod Prime 4 on January 25, 2019 announcing that the current development was halted and that Nintendo decides to restart the development from the very beginning under Retro Studio.

The public feedback is generally positive for Nintendo’s transparency.

For restarting the a game development under different developer, I would expect anything capitalized in the original development should be recorded as a loss. So we might see an extraordinary loss on the income statement next quarter (or this quarter depending on the timing they reflect the economic reality of their business decision). The extraordinary loss should have less impact on the cashflow. Previous research and development expenses are unlikely to generate future benefit for the new development. Most of previous previous R&D on the project was wasted but it also depends on how well Nintendo can keep experience from those R&D. Delayed software launch means the contribution from the franchise is pushed back. Since Metriod is not as big as other system sellers, the overall financial impact is limited.

The change of leadership and strong performance of Nintendo Switch create rooms for more decisions like this.

[3.0] Exercise on Japan Shipment Estimation

ns jpshipment

If the Nintendo Switch in Japan follows previous patterns that cumulative shipment is around 7.5% higher than the cumulative sell-through, then Japan shipment of Nintendo Switch in calendar year 4Q 2018 would be around 1.84M. The Japan share of global shipment in the last quarter should drop significantly if the result of last quarter shows the possibility for Nintendo to achieve their guidance.

~ My Related Posts ~

Preview of Nintendo FY3Q19 Earnings Release

Nintendo (7974.JP / NTDOY.US)

[January 19, 2019]

* Preview of Nintendo FY3Q2019 Earnings Release *

[1.0] Nintendo Switch

[1.1] NS Hardware

  • The haunting 20M hardware shipment guidance for the Fiscal Year ending in March 2019 is finally approaching to the end as both management and market will have relatively high confidence whether it can be reached as of third quarter results being released. The shipment target now rolls over to next fiscal year.
    • If Nintendo maintains giving guidance on hardware shipment for next fiscal year, it becomes a little be tricky for them. This fiscal year the hardware traction is distorted by software pipeline/schedule making business shows more seasonality compared to historical pattern. The management was plagued by exacerbated seasonality and the guidance becomes kind of a challenge rather than a low ball which Nintendo is more familiar with. Nintendo probably will be reluctant to provide “aggressive” guidance but considering the signaling effect of guidance, Nintendo is unlikely to give a down or even a flat guidance. Best estimate for next guidance (FY2020) might be slight growth on last guidance(FY2019) and FY2020 guidance is the best estimate of hardware shipment.
    • If Nintendo stops giving guidance on hardware shipment, the best estimate for FY2020 hardware shipment is the actual result of FY2019.
    • Nintendo is likely to show how Nintendo Switch tracks / surpasses the pattern of Wii installed base again in their presentation material.
    • Important line item and metric to observe are inventory level and days sales of inventory. Based on what we have know, both line item and metric should drop significantly but maintain at certain level to support the 20M guidance (this also depends on how many Nintendo Switch sales channel can absorb).


  • According to what we have known about the software lineup, it seems the seasonality will be mitigated this year if the lineup is carefully scheduled and successfully executed.
  • WSJ reported that Nintendo might release a “new version” of Nintendo Switch as soon as this summer. The term “new version” is very interesting because it has implication on product life-cycle, product trajectory and long-term ecosystem. New version might be a revision (Switch 2.0, tech improvement), upgrade (Switch +, tech upgrade), variation (Switch Lite, taking out features)… Timing is another issue, as the Nintendo Switch is only in year 3 of its life-cycle, it’s more likely Nintendo is taking a installed base perspective on this new version to grow the installed base rather than product trajectory / ecosystem perspective on strategic/product roadmap. Very understandable Nintendo wants to make the cycle of Nintendo Switch longer than typical console. The success of Nintendo Switch gives the company some time to think deeper so short-to-intermediate term their focus in public will be on lengthening current cycle.
  • There are factors like software pipeline from 1st-Party, 3rd-Party and Nindie, household penetration (second Nintendo Switch) and mobility / social aspect that help Nintendo Switch keep some “momentum” in Year 3. That said, considering the competition, difference in product and ecosystem, and product life-cycle, Nintendo will keep pushing the hardware for the next few years. Tactics include but not limit to strong and steady software pipeline, better discovery and gamer acquisition for all 3rd Party on the platform, attractive bundle, thoughtful marketing/adverting, new version, and price discount (it’s reported that Nintendo’s policy for Nintendo Switch is not to be sold at loss. So bundle is more likely than price cut but it’s subject to the reduction of production cost). Sometimes two-sided platform with cross-side network effect working is thought of a conceptual flywheel. However, once the platform is designed with a particular business model and competes with other platforms in reality, platform holder will consistently look at both sides. Some might focus on the balance between supply side and demand side. What is dynamics for a platform where its business model is selling hardware to distribute digital content? For this business, installed base expansion is one question and how the keep the installed base engaged (manage the churn/keep retention) is another.

[1.2] NS Software

  • Strong performance of Super Smash Bros. Ultimate, Pokemon Let’s Go Pikachu / Eevee and Super Mario Party as expected.
    • Nintendo might be showing some data about the synergy between Pokemon Let’s Go and Pokemon Go.
    • These three holiday season titles would help boost the Nintendo Switch overall tie-ratio (defined as software shipment in the quarter divided by LTD cumulative hardware shipment at the of quarter) in last quarter.


  • Nintendo might show the sales of Nintendo Switch software is the fastest in its history. Maybe the company will revise software shipment guidance upward.
  • See if there’s update on software pipeline and schedule. The current pipeline looks decent. New Animal Crossing and New Pokemon (Gen 8) are clearly highlights of 2019. They are both considered as system sellers.
  • Unlikely but it would be great if Nintendo talk about the Nintendo eShop status (not just release digital sales related numbers) and how to further improve the discoverability / visibility / curation for developers on the platform.
  • Finally the system is about to fully support Traditional and Simplified Chinese. More color on Mainland China business?

[1.3] NS Online

  • Might further disclose some statistics (not sure whether Nintendo will release adoption data). In addition, Nintendo might mention that Super Smash Bros. Ultimate help fuel the adoption.

[2.0] Smart-Device

  • See what kind of information about Dragalia Lost Nintendo releases.
  • Mario Kart Tour release date might be announced. (Can this title leverage Niantic’s technology?)
  • Fire Emblem Heroes is likely to sustain the stable performance.
  • Super Mario Run and Animal Crossing Pocket Camp turns out to be more like marketing tools for customer awareness / engagement / reactivation.
  • Probably reiterate 2-3 titles each fiscal year and partnership potential.
  • The reporting style might indicate the potential of Smart-Device business.

[3.0] Nintendo 3DS

  • Nintendo 3DS is in late stage of product cycle. As the gaming console is long term business, Nintendo is keep “supporting” it for a while. Contribution from Nintendo 3DS is will be less and less meaningful. While the price, form factors, game library  seem to be good for onboarding younger audience, what really matters is still consumer behavior (in this case it’s probably those who potentially buy 3DS for the audience).
  • Nintendo probably adopts wait-and-see strategy for this product to phase out while release some 1st Party games for show the “support.” Would be surprised if there is successor.
  • Large installed base with rich library: might be suitable to try some monetization methods.

[4.0] Minor Stuffs

[4.1] Nintendo Switch + Tech Program 

  • What’s the result of this program with Scrum Venture? Any plan to keep doing this or collaborate with other partners?

[4.2] Relationship with Niantic

  • Any plan to further leverage the relationship and their technology?

An article at Business Insider on January 16, 2019:

The other facet of Niantic’s business is the Real World Platform, which the company teased in the middle of last year.

Essentially, the Real World Platform will enable software developers to take advantage of the technology Niantic created for its own games. Developers will be able to use Niantic’s augmented reality tech, as well as the company’s secret sauce for multiplayer gaming and for connecting gameplay to real-world locations.

Finally, Hanke says that Nintendo and the Pokémon Company — the Nintendo joint venture that owns the trademark — have been very pleased with both “Pokémon Go” and “Pokémon: Let’s Go,” and are looking for more “synergies” between the game and the core franchise. That’s good news for Niantic, too, Hanke says.

~ My Related Posts ~

~ Corporate Events ~

  • January 31 (Thu), 2019: FY3Q2019 Earnings Release
  • February 1 (Fri), 2019: FY3Q2019 Business Briefing (TBA)


Epic Games – 1 Month post Store Launch Update

I’ve been procrastinating for a while on the update of early reaction Epic Games’ disruptive pricing on game / app storefront space and the ecosystem approach to the gaming industry.

With more news coming in, I finally decide it’s time to give update as we have seen some development in terms of storefront and ecosystem.

[1] Two developer / publisher jumped on the bandwagon:

[1.1 Saber Interactive’s Decision]

Below are few sentences in the article I find interesting:

Saber has already announced that our upcoming co-op game World War Z will launch as a PC-exclusive on the Epic Games Store. (Editor’s note: A Saber representative said Epic is not paying the company or giving it an advance to put World War Z on the store, but “there are incentives for the PC version being released exclusively there versus Steam.”)

Epic Games provides incentives which might be less financially linked for developers to put games on Epic Games Store as exclusive. This is supply side acquisition in addition to attractive pricing probably due to less features or functionalities on the platform which is still in early stage.

Epic is the first company tо have a real chance to break what has amounted to a virtual pricing monopoly by the major digital game distribution platforms.

Discord is also trying building up a game storefront from user side by leveraging the embedded Discord and it provides even more aggressive pricing on supply side. Why was Discord not mentioned here? Are there any distinctive features in Epic Games Store  or in the ecosystem that Epic Games is building?

While Steam provides a whole host of services and features that have been built over the years and upon which many developers have relied, the reality is that for many developers these features are unnecessary. Many game makers already provide much of that functionality on their own; in other scenarios, players either don’t need those features or have broadly opted to provide them on their own using third-party services.

Obviously a strong feature set is important for a platform in the broadest sense, but for companies like mine, paying for features we don’t need and that our end users don’t want ultimately means compromises on development and unnecessary costs passed onto consumers.

I understand that some developers of course do need and/or enjoy these features, and for them the new Epic platform might not yet be a viable option.

It seems that STEAM is up-selling distribution with a bunch of services bundled and charging distribution fee of 30% rake. Maybe STEAM can un-bundle those services providing them as add-on and charging a reduced distribution rake for suppliers doesn’t need services. The first problem of un-bundling is pricing. What price tag as a rake STEAM is going to attach on distribution and add-on features. It might create other problems that some developers would ask for refund if they did’t use those services. And when the service is un-bundled, it will become much easier to do comparison between platforms. While Epic Games Store might lack some features and provide features that are less polished as of now, those features are likely to be added to the platform later. If Epic Games Store sticks to 12% rake only, basically those added features will be free for developers. It will be hard for products with price tag  to compete with free products. Of course caveat is that those free products are good enough to compete. What do you think Epic Games will do? I expect Epic Game Store would follow product/feature improvement trajectory. It’s just a matter of time that most features on Epic Game Store will be added and good enough for smaller developers to rely on. As Epic Games has abundant resources, it won’t take long time for Epic Games Store to reach a state that its supplementary  features can compete with established platform.

Check the following thread:


It’s been noted for years, even by Valve itself, that the state of product visibility and discovery on Steam leaves a lot to be desired, and this often comes at the cost of developers. While Steam has my utmost respect for what it’s achieved in terms of influence and functionality, the sentiment among indies seems to be a growing fear their games will be lost in a rapidly expanding ocean of both legitimate and junk/spam titles. For a competitor to come onto the scene and offer — for a much smaller fee — a curated experience complemented by PR support that helps ensure visibility among players and influencers is huge, even if it doesn’t add up to as impressive a list of features available at launch.

Visibility and discoverability are issues that distribution platform will face when it become more crowded. Not sure what kind of curation the platform will implement. I think Nintendo Switch’s eShop is facing similar issue but I haven’t read news about that recently.

[1.2 Partnership between Epic Games & Ubisoft]

The Division 2 on PC also will be available for purchase online from the Epic Games store and the Ubisoft Store following the release of the game.

“We entrust Epic to deliver a smooth journey for our fans, from preordering the game and enjoying our Beta to the launch of Tom Clancy’s The Division 2 on March 15,” said Chris Early, Vice President of Partnerships. “Epic continues to disrupt the videogame industry, and their third party digital distribution model is the latest example, and something Ubisoft wants to support.”

As I mentioned in my initial analysis: “If this platform can provide benefits similar to operating their own storefronts/launchers while saving fixed costs in operation, probably having in-house distribution channel might be hard to justify economically”, Ubisoft just took the first step to explore how to leverage a lower-priced distribution platform in tandem with its own store. In the short term, integration is required but in the long run the platform might be able to offer modulized features to replace the infrastructure of in-house store.

[2] Unexpected saga gave Epic Games a opportunity to show its ecosystem commitment:

[2.1 Epic Games’ Swift Reaction and its Ecosystem Approach]

No particular comments on this event. However, the new flow shows that Epic Games is prepared to make swift decision with financial resource signaling the market their commitment to ecosystem approach.

It seems positive feedback loops and reflexivity have kicked in and thing will start to gravitate in way favorable to Epic Games master plan. In the perspective of path dependence, these early stage, “small” events in the history all have similar chance to play as determinants in the following development.

~ My related Posts ~

Epic Games’ Epic Battle on Storefront Space

Gaming-related Platform Ecosystem Competition and the Financing behind

Entering a market where existing platforms have network effect working

Networks can still be beaten

Epic Games’ Epic Battle on Storefront Space

The Wall Street Journal reported that Epic Games will challenge mobile app store business model dominated by Google and Apple. But what factor differentiates Epic Games from incumbents whose network effects are working in this case? The answer is disruptive pricing on the supply side of storefront (12% rake on revenue that apps generate). This is not surprising as Epic Games has already adopted the strategy at its Epic Games Store since December 2018 when it launched the online storefront. Basically gaming online storefront and app store share the similar business model of digital distribution.

WSJ also reported that Epic will start selling games (if you can distribute app game, of course you can distribute other apps) for Android devices where the ecosystem is more open (Epic distributes Fortnite at its launcher bypassing Google Play).

So what will Google react to that disruptive pricing? Mostly likely Google will wait and see until it senses that Epic’s storefront has the potential to become de facto app store on Android devices.

Analyst suggests that if Google decides to reduce the rake on Google Play, the move might force Apple to adjust rake on App Store. There might be a chain reaction but this is different from the competition on PC/Mac gaming storefront. Basically the customer bases between iOS and Android are different. The difference will determine whether Apple will follow the move, when to follow, and the magnitude in rake reduction if it follows.

Below is the chart illustrating how Epic Games’ disruptive pricing might impact game digital distribution (and more). Disruptive pricing will have less impact on closed ecosystem in the short term. That said, in the long run, closed ecosystem might be indirect influenced by another open ecosystem (Google Play’s move might have impact on App Store) and a functionality that makes the ecosystem less closed (Epic Games is rolling out cross-platform services in 2019). Enabling cross-platform will commoditize access devices for games potentially playable across platforms. Consoles with special form factors or strong exclusives will face less pressure from cross-platform. This might be the reason why Sony is reluctant to cross platform.

Disrupt_Pricing_DigiDistrWhile some industry analysts predict Steam will maintain its game storefront dominance, at least in 2019, my posts on game storefront competition analysis has showed that Epic Games and Discord’s potential to gain market share and disrupt the digital distribution space if they systematically execute strategies in their playbooks. Don’t be surprised if the competition landscape changes much faster than you think.

~ My Related Posts ~ 

Gaming-related Platform Ecosystem Competition and the Financing behind

Entering a market where existing platforms have network effect working

Networks can still be beaten

Gaming-related Platform Ecosystem Competition and the Financing behind

On December 21, 2018, it’s reported that Discord raised US$ 150M at a valuation of US$ 2.05B, bringing total funding to date to US$ 279.3M as of this writing.

The timing is particularly interesting because the online storefront price competition on supply side among STEAM, EPIC Games and Discord has heated up since Discord’s “Series E” funding round (Crunchbase classification) in April 2018.

Chart below shows the 2018 timeline of competition on online storefronts and more among STEAM, EPIC Games and Discord.

Storefront 2018 timeline

I have already done some analysis on online storefront supply side pricing and competition in my previous post (Entering a market where existing platforms have network effect working). So in this is post I’d like to briefly discuss implications on the financing side (my speculation only as no access to inside information).


The financing round in April 2018 was to further build the core product and to launch Discord Store. At that time, the next round of financing probably was structured as growth funding for the user acquisition on supply side or demand side of Discord Store and for subscription service. EPIC Games Store’s adoption of disruptive pricing not only forced Discord to follow similar pricing level but also probably had impact on the commercial terms of subsequent financing. Lower pricing means it takes longer for cac to recover and longer to reach profitability.

Thanks to  Discord, Discord Store might not have to spend a lot on demand side gamer acquisition. Discord Store might focus more on the supply side developer acquisition.

[EPIC Games]

EPIC Games had huge financing round in October 2018 that it raised US$ 1.25B making it 2018 largest venture round in the U.S.

The capital raised might go into various area such as technology, esports, online storefront build-up & scale-up and cross-platform online services for developers… In storefront segment, unlike Discord Store, EPIC Games Store has to put more efforts on demand side gamer acquisition.

TechCrunch reported that EPIC Games has generated US$ 3B profit in 2018. If it is the case and the accounting “profit” is not far away from cash flow, that means EPIC Games has US$ 4B+ cash from internal and external to grow its business. The scale is so large that it makes me feel the likelihood for EPIC Games to successfully execute an ecosystem strategy is quite high and that the next round of financing for the company will be the IPO which might be sooner than expected.

[Side Note]

Does the two percentage points difference between EPIC Games Store and Discord’s rake  matter? Business with positive feedback loop(s) tends to have increasing return overtime making market gaining process path-dependent. However, the only thing we can  infer from being “slightly” price attractive on the supply side in the short run is that it might help a little bit but it’s unlikely to be the only determinant since the competition is dynamic and firms are solving different problems and focusing on different things in the ecosystem when building up storefronts. This might be obvious but in fact it indicates the market structure might be market-sharing with some concentration rather than winner-takes-all (or most). This also helps us make prediction: incumbent’s market share will fall significantly due to the competition from new entrants. In other words, while network effect is strong, it can still be beaten.

~ My related Posts ~

Entering a market where existing platforms have network effect working

Networks can still be beaten