Playing a different game: The Nintendo business model

B2
90 min
Premium
1

Think about these questions before watching. Share your ideas with a partner.

  1. Which tech or gaming brands are you most loyal to, and what factors, such as price, innovation, or nostalgia, contribute to that loyalty?
  2. When a company launches a new product, what do you think is a more effective strategy: competing on cutting-edge technology and power, or focusing on a unique user experience and affordability?
  3. Beyond just entertainment, how do you think video game companies influence culture, for example through movies, merchandise, or even theme parks?
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Watch the video carefully. Pay attention to the main ideas and key details.

Video script133 segments · click a timestamp to jump

- [Narrator] This is what Nintendo originally was.

Yes, it was a playing card company.

And this is Nintendo today.

- [Mario toy] "It's-a Me, Mario!"

- [Narrator] Consoles,

theme parks,

even movies.

So, what has driven the $44 billion empire?

This is "The Economics of Nintendo."

Nintendo is different from its competitor's,

Sony and Microsoft.

Thanks, in part, to its low-cost hardware.

Microsoft's Xbox makes no profit on its hardware.

- Consoles are actually sold at a loss in the market.

So when somebody goes

and they buy an Xbox at their local retailer,

we're subsidizing that purchase

somewhere between a hundred and $200 with the expectation

that we will recoup that investment over time

through accessory sales and storefront.

- [Narrator] And Sony only recently began

to make a profit on the PlayStation 5.

Then there's Nintendo.

- The technology is usually five or six years behind

in terms of state of the art.

But that means that they're cheaper to produce

and that means that Nintendo

is much, much more profitable on their hardware business.

- [Narrator] About half of Nintendo's profit in 2022

came from hardware sales.

They've dominated the market

when it comes to handheld consoles.

One of its big successes, the Game Boy, launched in 1989.

- Nintendo was really early to the party with handheld.

They're kind of credited with inventing the console,

although they were probably third or fourth.

- [Narrator] The Game Boy had a longer battery life

compared to some of its competitors.

Four shades of gray, nuanced gameplay, and had Tetris,

one of the top selling video games of all time.

Eventually, Nintendo's Game Boy

became the third most sold console in the company's history,

selling 119 million units to date.

The company continued to innovate,

releasing new hardware for its games,

from the GameCube, Nintendo DS, the Wii,

and to its most recent success,

the Switch, with more than 122 million units sold.

- [Sarah] You can play it at home

like a console on your big screen TV,

but you could pick it up and take it on the go.

And it becomes a handheld device, and that's pretty novel.

We haven't really seen anything

that's hybrid like that before.

- [Narrator] Sales of the Switch device and its games

accounted for about 94% of Nintendo's sales revenue

in it's 2021 fiscal year.

And today, it's the second bestselling game console

in Nintendo's history,

and continues to be a driving factor of its revenue.

The success of Nintendo's consoles

is also due to its software.

In other words, its games.

In 2022, Nintendo had 19 first party titles

that sold over a million units each,

exclusive to its consoles.

- The difference between the others and Nintendo

is that Nintendo historically has produced

about 50% of all the games sold on its hardware system.

And the other guys

are typically under 10% of the games sold on their systems.

So they make make a small fraction of the software

that's played on PlayStation and Xbox,

and Nintendo makes more than half.

- [Narrator] Case in point,

Animal Crossing: New Horizons, release in April, 2020,

created higher demand for the only console carrying it,

the Switch.

- [Sarah] Nintendo makes games exclusively

for the most part for its own devices.

If you want to play a Nintendo game,

like Legend of Zelda, you need Nintendo hardware.

- [Narrator] In fact, Nintendo's first party games

generate over 70% of its sales.

Its best sellers in 2022

were all Nintendo first party games.

And the type of content Nintendo makes

is also different than its competitors.

- [Sarah] Let's keep in mind,

Nintendo characters are very cute.

- [Mario toy] "It's-a Me, Mario!"

- [Sarah] Nintendo is known

for making family friendly games for the most part,

so it appeals to a different crowd

than some of the other publishers.

You won't see blood or gore, or foul language.

But even Nintendo a couple years ago

dabbled into the shooter genre.

When we think of shooters, right,

we think of Call of Duty, Fortnite.

They take a very family friendly approach with Splatoon.

It's a shooter, but you're shooting paintballs.

- [Narrator] The company's next iteration,

bringing these family friendly characters to a larger arena

and building another generation of fans.

In February, 2023,

Nintendo opened its first theme park outside of Japan.

And in April, it's releasing a Super Mario Brothers movie

starring Chris Pratt.

- It's-a Me, Mario.

- That's smart,

because that's gonna expose the Nintendo brand

to hundreds of millions of people

who haven't ever owned a Switch.

I don't think that Nintendo is necessarily worried about

whether somebody who goes to the theme park

will buy a Nintendo console or buy a game,

but they want those people

to be aware of the Nintendo brands,

and they want them to know who Mario is, and who Zelda is,

and who Yoshi is, and who Pickmin is.

- It is risky to start a new franchise,

and sometimes new properties just don't resonate,

but they have plenty, a very deep library,

and they've stuck with that for the most part,

and iterated on it and modernized it.

We'll probably be playing Legends of Zelda

for another 20, 30 years.

Mario is probably not going anywhere.

You know, he's just gonna live forever,

and keep that mustache,

and keep everyone happy for many years to come.

(upbeat music)

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Answer these questions in your own words. Support your answers with evidence from the video.

01How does Nintendo's approach to hardware profitability differ from that of its competitors, Sony and Microsoft?
Sample answerThe video explains that Sony and Microsoft often sell their consoles at a loss and hope to make money later from games and accessories. Nintendo's strategy is different because they use older, less expensive technology, which means they can make a profit directly from selling the hardware.
02What key features of the Game Boy contributed to its commercial success?
Sample answerAccording to the video, the Game Boy was successful for a few reasons. It had a much longer battery life than its competitors, it featured nuanced gameplay, and it was bundled with Tetris, which is one of the best-selling games ever.
03In what way does Nintendo's software strategy drive the sales of its hardware?
Sample answerNintendo's strategy is to make its most popular games, like The Legend of Zelda, exclusive to its own consoles. This means if someone really wants to play a specific Nintendo game, they have to buy Nintendo hardware, which directly boosts console sales.
04Based on the video, what is the long-term goal of Nintendo's expansion into theme parks and movies?
Sample answerThe main goal isn't just to sell more consoles immediately. It's more about building brand awareness and making sure their characters are known by millions of people, including those who don't play video games. This helps create a new generation of fans and ensures the characters stay popular for a long time.
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Vocabulary

Vocabulary
These expressions will help you communicate more naturally about business strategy and market competition.
Examples
To gain a competitive edge — to achieve an advantage over your rivals by offering something better or different.
Usage note: This is a common business collocation. You can gain an edge through a specific strategy (e.g., lower costs) or over a competitor.
To carve out a niche — to create a special, focused area of the market for a particular product or service.
Usage note: This often describes a strategy of not competing directly with bigger players, but finding a unique market segment. For example, 'Nintendo carved out a niche in family-friendly gaming.'
To recoup an investment — to get back the money that you have spent on a project or business venture.
Usage note: A common phrase in business and finance. As the video mentions, some companies sell hardware at a loss and hope to recoup the investment through game sales.
To stay ahead of the curve — to be more advanced or innovative than the competition.
Usage note: An idiom used to talk about trends and innovation. Interestingly, the video suggests Nintendo's strategy is to be intentionally behind the curve with hardware technology to ensure profitability.
Revenue stream — a source of income for a company.
Usage note: Companies often try to diversify their revenue streams. For Nintendo, hardware, software, theme parks, and movies are all different revenue streams.
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Decide if each statement is true or false. Correct the false ones.

01Nintendo has always been a video game company, starting its business with the first electronic consoles.
02Nintendo produces approximately half of all the games sold for its own hardware systems.
03Nintendo is known for creating family-friendly content and avoids mature themes, even in its shooter-style games.
04The Nintendo Switch is the company's third best-selling console in its history.
05A key part of Nintendo's strategy is using the most advanced, state-of-the-art technology in its consoles.
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Complete the sentences with words from the box. One word is extra.

Word bank
01In a crowded market, companies must constantly innovate to maintain their competitive over their rivals.
02Instead of competing with the industry giants, the small startup decided to carve out a for itself by creating high-end, eco-friendly gaming accessories.
03The company expects it will take at least three years to the initial investment made in developing the new software.
04By investing heavily in artificial intelligence research, the tech firm aims to stay ahead of the and anticipate future trends.
05Selling merchandise and in-game content has become a significant revenue for many mobile game developers.
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Choose the best answer based on what you heard in the video.

01According to the video, what was considered a 'pretty novel' feature of the Nintendo Switch?
02What percentage of Nintendo's sales revenue in its 2021 fiscal year came from the Switch and its games?
03How does the video contrast Nintendo's software production with that of Sony and Microsoft?
04Which of the following business strategies is NOT mentioned in the video as part of Nintendo's empire?
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Business strategy sentence match

The video discusses Nintendo's business strategy. Let's look at some common ways to talk about business.

Match the beginning of each sentence with its correct ending.

Drag or click to match
Definitions
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Discuss these questions with a partner. Try to use vocabulary from the lesson.

  1. The video contrasts Nintendo's strategy of selling profitable hardware with competitors who sell consoles at a loss, hoping to recoup their investment on games. Which business model do you believe is more sustainable for staying ahead of the curve in the long term, and why?
  2. Think of a well-known company from your country that has successfully carved out a niche by not directly competing on power or price. How did they gain a competitive edge, and what are their main revenue streams?
  3. Nintendo has expanded from games into movies and theme parks. If you were advising the company, what other market could they enter to create a new revenue stream, and how could they leverage their unique brand identity to succeed?