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How Nintendo Steals Your Money
Editorial by 
Editor
December 20, 2016, 09:26:13
 
This article was originally written for Secret Tunnel Times. If you have a soul, read it there instead.



Being home alone at night is the worst. I mean, not for me. Iím all about that Elon Musk "the absence of photons is nothing to be afraid of" anti-supernatural mindset.

But, you know, for other people who are definitely not me, it can be scary. Demons, burglars, whatever. Sometimes it seems like there are monsters hiding in every shadowy corner; ancient forgotten evils lying in wait for centuries, yearning to enact their revenge upon he who stumbles upon them.

Öthis is kinda how I feel about all the copies of Ocarina of Time I have in my house.


Thereís the Master Quest bonus disk, perched right next to its sister, The Legend of Zelda: Collectorís Edition, on my game shelf. In my entertainment center, stored deep within the Wii Uís bowels as pure data, is the Virtual Console port. Iíve got the 3DS remake sitting a couple feet away from me in my bedroom dresser, and, most precious of them all, the golden N64 cart, signed by Shigeru Miyamoto himself.

Öalright, I lied, itís not signed by Miyamoto. But itís still cool.

A lot of people get mad about this sort of shameless full-priced re-releasing. Take Super Mario Bros., for instance. Itís 30 years old, itís been ported about twenty times, you can easily play it for free using an emulator, and Nintendo still has the nerve to charge five bucks for it on the Virtual Console. "Does Nintendo know what theyíre doing at all!?" these people ask. "If this game was a dollar, maybe two dollars, Iíd buy it in a heartbeat! Everyone would! They could make so much money! (Especially if they added in arbitrary achievements to pollute its classic design!)"

Unfortunately for these people (and fortunately for the rest of us), Nintendo doesnít care what they think, and seeing how they just got 10 million downloads in one day with Super Mario Run, theyíre not going to anytime soon.


See, the conventional wisdom for mobile developers is that they should give away their games for free and then make money off of microtransactions. No one wants to spend more on a game than a McChicken, so if you want any hope of turning a profit, youíve gotta appeal to as broad of an audience as possible by keeping the barrier to entry super low. Toss in problems like game cloning, an overcrowded market, and poor discoverability features, and basic economics says that the cheapest games are going to float to the top of the Most Popular lists, become trends, and stay there. In turn, this means less funds for developers, forcing them to create more disposable games in a shorter timeframe, continuing the vicious cycle.

This problem isnít exclusive to the app store either; as Steam becomes more crowded, publishers are facing the same issues there. In the past few years, our industry has reached a point where supply far outweighs demand, and in a culture of holiday sales, Humble Bundles, and PlayStation Plus, consumers can get more games for a few pennies than they have time to play. Game devaluation is a very real problem facing our industry, and unless platform holders and review sites find a way to better curate games for individual playersí unique tastes, weíre going to see a lot of talented developers leave to go make money in a career that actually pays them for them their work.


And then a week ago, in the midst of all this economic turmoil, Nintendo struts onto the mobile scene with mushroom in hand and releases a $10 game that shoots straight to the top of the Highest Grossing charts.

How is this possible!?

Let's play a game. (You are going to do this because game theory is FUN.) Imagine that youíre the captain of a fleet of 100 ships. Each of these ships has two people on it: one of your soldiers, and an enemy soldier whoís captured the vessel. The enemy is allowing your soldier to leave in a lifeboat in exchange for the ship. However, you have a policy for this scenario: when the enemy boards, your men are to press the self-destruct button in their pockets and destroy the ship, taking their own life and the enemyís with it. You make this policy known to the enemy commander in hopes that it will deter him from trying to capture your ships in the first place.

You order your men to give the enemy soldiers on board their respective ships one final warning before self-destructing, and sure enough, 90 of the enemy soldiers retreat. 10 of them, however, call your bluff, and refuse to leave.

This is the key moment: now that your threat has failed, your soldiers donít actually have any incentive to go through and detonate the ships. If you want to maximize your gains from this situation, you allow your men to say ďScrew this, Iím not dying today,Ē and escape with their lives, letting the enemy soldiers take the ships.


And this seems like it makes perfect sense: you bluffed, it worked pretty well, and then you changed your mind from there to better suit the current scenario.

The problem is what happens next month when the enemy attacks again.

Seeing that your threat was empty last time, 50 of the enemy soldiers call you on your bluff (and 50 still retreat). Once again, wanting to minimize your losses, you allow your men to escape, and allow the enemy to take your ships.

A month later, the enemy attacks again, every solder calls your bluff, and they steal all 100 ships.

Despite the fact that going back on your word each time maximized your gains in the short term, in the long run, it completely ruined any accountability you had with the enemy. Had you made those first 10 soldiers detonate their ships in Round 1, the enemy wouldnít have even attacked you in the following months; but, by giving in, you made yourself exploitable.

AAA publishers donít seem to understand this.


Their strategy for pricing games is a lot like a naval commander who canít keep a threat: theyíll release it for $60 in the fall to get maximum Day 1 revenue, drop the price to $40 after a couple months to bring in the late adopters, lower it to $30 after Christmas, and by the time summer rolls around, you can pick it up for $15 in a sale. For any given product, this tiered approach makes sense; with each price drop, you open the game up to a new market.

After a few years of this though, people are going to catch on. As awesome as Final Fantasy XV looks, I donít need to spend $60 on it during final exam week just to stare at it in the shrink wrap when, by the time I can finally play it, Iíll be able to nab a fully-patched version of it for a fraction of the price. And even for people with all the free time in the world, why buy todayís full-priced games when you can grab all the awesome games from last year for ten bucks a pop?

AAA game sales are dropping, studios are closing, and people are finally getting sick of Assassinís Creed.

Nintendo understands something that these other publishers donít: the long game matters. We buy Nintendo games at full price because we donít have a choice; they arenít going to be on sale for an 85% discount four times a year. In a lot of cases, they wonít even see a $20 price drop for nearly half a decade.

But letís be honest with ourselves: Super Mario Run isnít doing this well just because Nintendo is smart at pricing their games. Mario is one of the most recognizable brands in the entire world. Of course a new game is going to sell well. However, I donít think you can separate this point from Nintendoís corporate philosophy as a whole.

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Nintendo goes above and beyond having clever business sense; the culture of respecting its own products enough to not give them away for a few cents permeates everything that Nintendo does. Nintendo values its games because its developers put hard work into them, and its developers are able to put in such a large amount of effort because Nintendo gives them the time they need. Metroid hasnít been annualized. Mario doesnít have game-breaking bugs or 17GB patches. When a Zelda game comes out, itís almost always praised as one of the greatest games of all time. Nintendo brings a certain integrity to the table with its approach to releasing games, and we all win because of it. Miyamoto might claim that he creates "products rather than works of art," yet he still treats his work as being far less disposable than all the developers who take themselves so seriously.

There are other publishers out there trying to fight game devaluation. Axiom Verge developer Tom Happ and cohort Dan Adelman decided not to put their game on sale no matter what until at least 6 months had passed since its release date. Jason Roher has pledged to never put The Castle Doctrine on sale ever.

The thing is, I wouldnít even be surprised if this isnít the most profitable way to sell a game. It could very well be that these guys are sabotaging their own success for the greater goodóbut theyíre an awesome example for publishers with the courage and financial ability to take that short-term hit.

Personally speaking, I discounted my own game by 90% during the most recent Steam Summer Sale, and that was its best-selling week ever by far. Since then, sales have been dead.

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These are only a few data points; I donít have the capability to scrounge over thousands of games on Steam Spy and examine the past ten years of NPD reports to put together a full picture of how price drops affect sales numbers. There are a million factors that go into why Nintendo games sell so well and why other games donít, and there are plenty of counterexamples of indie games that continue to rake in big bucks from 90% off sales even after years of discounts. This theory is very far from being conclusive.

That being said, if I was Nintendo, Iíd be feeling pretty smug right now. Keep this in mind next time you complain about Super Mario Bros. being $5 on the virtual console:

This is a company thatís been around for 130 years. They know what theyíre doing.

...usually.

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Posted: 12/20/16, 09:26:13  - Edited by 
 on: 12/20/16, 09:28:45    
 
Why not sign up for a (free) account and create your own content?
 
Interesting article. I wasn't entirely sure where it was going until the end, but you can't argue with the logic.

The other thing to keep in mind when faced with $5 Mario is that you don't have to buy it again. But if you really want the convenience of getting it on a newer more, accessible platform, chip in a few bucks. It won't kill you.

Incidentally:

Ocarina of Time Gold cart (N64)- $25 used copy.
Ocarina of Time Master Quest Edition (GC) - Free Bonus
Ocarina of Time Collectors Disc (GC) - Free Bonus
Ocarina of Time VC (Wii/U)- Not owned ( )
Ocarina of Time 3D (3DS)- Ok, I bought this at full price. But it was new and shiny. And I got an actual Ocarina with it.


Posted by 
 on: 12/20/16, 09:59:44  - Edited by 
 on: 12/20/16, 10:02:27
I don't view Nintendo as making the best business decisions. They will see some success despite these failures because the products are so good at their core. There's also a line between not devaluing your product and treating your consumers poorly. The value proposition they are offering needs to be justifiable and ultimately everyone will decide for themselves if it is worth it or not. Coming off of the Wii U though which was a failure I think it is easy to argue that most people aren't seeing the value and if we agree that it isn't because of the quality of the software then it comes down to business acumen and how they run their systems.


Posted by 
 on: 12/20/16, 14:56:31  - Edited by 
 on: 12/20/16, 15:03:19
Because I see everything through the lens of teaching now the whole call your bluff thing... yeah. When you threaten discipline you HAVE to go through with it, even if it'd be easier (as it often is, especially since some of these kids want to turn all discipline into a debate) to let things slide at that point, because every single time you let things slide the kids start assuming they can get away with more and more.

Which is why yesterday, with only 2 minutes left in class, when it would have been way easier for me to let things slide, I stopped a kid who had already had a few warnings and told him to see me after school, and he wanted to argue it, and I told him we're not arguing, and he tried to argue anyway, and then I had to waste my time after school too, and...

FUN STUFF.

I have no idea what I'm going to price my game. I probably should be thinking about these things but it seems like a minefield.


Posted by 
 on: 12/20/16, 15:42:28  - Edited by 
 on: 12/20/16, 15:44:28
One reddit commenter mentioned that when he had to choose between Fallout 4 and Xenoblade Chronicles X last year, he went with XCX and saved $40 because now Fallout 4 is $20 but XCX is still $60. Now, when Horizon Zero Dawn and Zelda come out next year, if he can only get one, he's going to get Zelda, because HZD will probably become way cheaper way sooner.

(I don't think Zelda will come out until November, and wouldn't even be surprised if it got delayed even further, but that's beside the point.)


Posted by 
 on: 12/20/16, 23:50:21
Nice article (and I even read it on the site)! Your headline of it is the kind of thing that IGN or Polygon would post non-ironically. I think the devaluing of games is an interesting subject and a rather complicated one, but I agree that Nintendo's been playing the long game in not selling their games past a certain low price point. It's been a few months since Tadpole Treble hit the Wii U and I'm going to put it on sale eventually, but it's difficult to determine just when the best time for that is without making it seem like you're just giving your game away.


Posted by 
 on: 12/20/16, 23:56:56
@Secret_Tunnel

Look at the games you are comparing though. Fallout 4 made like $750 million in its first day. Xenoblade Chronicles is a niche game on an underperforming system. How can you use that as an example of good business decisions?


Posted by 
 on: 12/21/16, 00:07:28
@Stephen

Sorry what's the bad business decision here? Choosing to release a niche title? Daring to develop a game for their own console?

Is anything that doesn't hit the sales levels of Fallout 4 the result of a 'bad business decision' now?

Whatever your argument is, I'm not sure that gross sales revenue is the best metric to be using at any rate.


Posted by 
 on: 12/21/16, 00:22:23
@Shadowlink

I'm not saying it is a bad decision to do either of those things but the argument seems to be that Nintendo is outsmarting their competition by not devaluing their software. The example he then used specifically is Fallout 4 vs. Xenoblade Chronicles. How does that hold up at all?

And get out of here with nitpicking details. 3/4 of a billion dollars in 24 hours isn't a good measure of success? Really though?


Posted by 
 on: 12/21/16, 00:31:52
@Stephen

Not if you spend 700 million on development, marketing etc it isn't. Not saying they did, but I'm just pointing out that on it's own without any other context, it's not a useful metric. Net Profit is what you want.

I'm sure they made money. But I'm also sure they didn't make $750 Million.


The example ST holds up because of the angle he's coming at it from. He's showing people are more likely to pay full price for a Nintendo game because they know playing chicken with the price is futile. Wheras given the current pricing paradigm, waiting for a $40 price drop on Fallout 4 is a no brainer.

Given how popular Fallout 4 appears to be, wouldn't it make better business sense for them to keep the full $60 pricing for much longer? Get maximum profit from those ongoing sales?


Posted by 
 on: 12/21/16, 00:41:00
@Shadowlink

That's in a day. 24 hours. We don't know net profit because we don't know the budget of the game. Why argue this? You know that is crazy successful.

People aren't more likely to do that, though. One person is. People were more likely to buy Fallout 4 and not even own a Wii U and consider getting Xenoblade Chronicles. How can you use this as an argument for what Fallout 4 should have done when the game was way, way, way more successful than what you are comparing it to?


Posted by 
 on: 12/21/16, 00:58:37
@Stephen

Just pointing out it's a furphy argument that's got nothing to do with the topic at hand (in addition to pointing out that it's not the best way of making said argument anyway). The game is a success. Sure. This topic is not that.

It was successful at full price. That's what ST is talking about here. Pricing strategies and the returns on such.

The game is good. The game is popular. It's selling, even at $60. So why not continue to sell it at the price that reflects that? And if it's known in advance that the price isn't going to drop any time soon, then how many more people would be inclined to simply buy the game now at $60 instead of waiting for a sale? I guarantee you the number will be a positive one. And definitely more than one person.

(I hope you weren't seriously trying to argue that only one person is waiting for a price drop on Fallout 4.)


Posted by 
 on: 12/21/16, 01:09:53
Stephen said:
Fallout 4 made like $750 million in its first day.

Holy crap. Is that true?

That's like Pokťmon numbers. Probably better for Day 1 figures!


Posted by 
 on: 12/21/16, 01:37:52
@Shadowlink

So the argument is that there is lost money by selling it cheaper later on down the line?

That ignores 2 very important things:

1. There is only one consumer base. Whatever money you lose by not charging everyone $60 for as long as possible is going to come at the expense of the money you would have got from people who wouldn't buy it at $60 but for a cheaper price are more inclined to see what the fuss is.

2. You're still using Xenoblade chronicles to make that point against Fallout 4. That's like saying 'Wow Derek Jeter could sure learn a thing or two from this beer league MVP.'


Posted by 
 on: 12/21/16, 01:37:55
@Stephen

Given how popular you keep pointing out Fallout 4 is, I don't think it's a stretch to assume that the money gained from choosing to go with the 'premium' pricing strategy would likely outweigh that from more hesitant onlookers.

And Xenoblade was being used to provide an example of the pricing strategy in action. It wasn't arguing that it was a more successful game than Fallout. I mean you can keep running that line if you want but it's really neither here nor there.


Posted by 
 on: 12/21/16, 01:49:48
@Stephen
@Shadowlink

Xenoblade is pretty good... I definitely wouldn't call it "beer league."


Posted by 
 on: 12/21/16, 03:16:45
Stephen said:
How can you use this as an argument for what Fallout 4 should have done when the game was way, way, way more successful than what you are comparing it to?

Even though I don't think Fallout 4 outperforming Xenoblade Chronicles X refutes my point, this is something worth keeping in mind. I don't like to point to successful things/people and say, "Yeah, but they could be even MORE successful if they did it my way!" since that might not necessarily be the case. Like, if I see a super buff dude at the gym doing a high-rep low-weight workout, I might be tempted to tell him his routine isn't optimal, but as a super skinny guy, who am I to say that!? If Fallout 4 made a massive profit with its price scheme, maybe it's doing something right.

That being said, I'm not sure the Wii U's failure is indicative of Nintendo doing anything wrong from the value side. Is there something specific you're pointing to in that regard that would make someone pass on buying a Wii U? Because even if a lack of a PS+-like system played a part in the Wii U's low sales, I don't think it would have been a very big part at all in comparison to stuff like the console's marketing or a dozen other factors that people have been trying to analyze for the past four years. The way Nintendo prices its software doesn't appear to have a negative impact on software sales (Wii U has one of the best attach rates ever!), and I just don't see it having a huge impact on hardware sales either.

@TriforceBun

I even made a thumbnail!



Posted by 
 on: 12/21/16, 04:30:05  - Edited by 
 on: 12/21/16, 04:36:36
@Secret_Tunnel

Nintendos High pricing is one of the main reasons I have stayed away from the WII U.

Currently the WII U is the most expensive of the 3 consoles at the moment and its last gen, you can pick up a Xbox One S and Ps4 Slim cheaper then you can the Wii U


Posted by 
 on: 12/21/16, 04:40:32
@Secret_Tunnel

I think there are loads of reasons why the Wii U wasn't successful. Ultimately though consumers are going to buy things they consider good value. They didn't buy the Wii U therefore they didn't think that the value offered was high enough for the price asked. That could be due to a million reasons. What is sure though us that consumers do see the value outside of the Nintendo ecosystem. So it's just weird to me to point to that and be like 'Nintendo knows what they are doing'. If you had a situation where like major games would come out and be ignored until they went cheaper and as such the devs made so little that it was unsustainable you might be have a point. I'd need to see an example of this though.


Posted by 
 on: 12/21/16, 15:40:50
@Stephen

Honestly I think that's baseless speculation. You're using 'value' to simply argue that the system was too expensive and everything would be fine if it was just significantly cheaper. I don't buy it. Far more likely is that it wasn't bought because the bulk of the market wasn't interested in the experience it had to offer.
You only need to look at the Gamecube to see proof of that. Significantly cheaper than the PS2, more powerful...yet absolutely creamed in the marketplace. Yet of course Nintendo made money. Had they followed your strategy of slashing the prices even further, I doubt there would have been enough of a significant return to make up for the revenue loss.


Posted by 
 on: 12/21/16, 22:39:09
@Shadowlink

No, I didn't say they needed to make it cheaper. That would be one option sure but what they need to do is add value to what they are trying to sell. There are lots of ways you can do that. The PS2 was more successful than the Gamecube because people found more value in that console. I'm not saying Nintendo has to cut their prices like everyone else, I am just skeptical of this idea that they don't devalue their games and that's a savvy business move no-one else is even considering.


Posted by 
 on: 12/21/16, 23:19:00
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