Nintendo: The Console Wars
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I feel like I got a warm up physically before quarter equipment these days.

It's like a marathon. My back does start to hurt by the end from just standing .

still the all time we we i've .

actually stopped working out mornings before we record because I don't want to be too tired like I need my stampa.

We should figure out like recording on the .

palatia or something .

that be a brothy. Easy, you wait, you wait, you who got? Easy, you busy, you you see me down. Stand welcome two season twelve.

episode four of acquired the podcast about great technology companies and the stories and playbooks behind them. I'm been gilbert David roth, and we are your hosts. We last left our intendo heroes in ninety when they single handedly revived to the video game industry and captured ninety five percent of the market share globally. We did our seven powers analysis and determined the company had a Better competitive position than basically any company in history. And the game was theirs to lose, but somehow they did just that.

dead. They did. And then they won, and then they lost. And then they won, and then they lost, and then they won again.

Exactly today, a story will be about the fall and how an intendo managed to blow a ten run lead in the bottom the nights. But like all great heroes, when faced with foes like sega, SONY, microsoft and eventually even apple, nintendos creativity and cleverness has kept them a major player, and certainly the most unique player in the video game landscape today. So David, as you mention, this is a weird story for us.

Usually the narrative on acquired goes something like revenues cut climbing every year and now they're making more money than they ever had before. But with nintendo, it's been a very cynical ical road and they actually lost money in long of time like twenty eleven to twenty eighteen. And their greatest strength are their greatest weaknesses all the way through.

So on the eve of the release of the Chris pratt movie super mario brothers, we tell nintendos part two story today from the council wars of the nineties forward, well before we get into IT, we want to let you know about the latest over at A C Q. Two, which you can surge in any podcast player. It's got some great episodes.

The next one to drop will be with the CEO of retool David shoe. He's a super contrarian founder and really interesting to just hear his take on startup wisdom generally. We've also gotten lots of emails from people saying you really love the stat sig episode with vj roj.

So that is a great one to check out too. There's also the slack. The slack community has become a critical research tool for David nice, and so many of you have insights and real work experience in the areas that we are covering.

If you are not in the slack yet, that is definitely where the best discussion is happening. On top of what we were able to learn before we recorded an kind of about at all afterwards. So that is acquired dot, F, M, slash, slack and David, without for their due, please take us in and listening ers. As always, this is not investment vice. David and I may have investments in the companies we discuss, and show is for informational and entertainment purposes only.

It'll be very fun at the end of the episode to talk about whether we think ninth endo o is a good stock to OK time, not here in twenty twenty three. But before we talk about all that, we first need to talk about one more giant success from nanjo in the one thousand nine eighties, a very small giant success that we intentionally left off in the last episode because it's going to be very, very important here in part two. And that is, of course, the game. Boy.

yes.

So we talked last time all about gn pauci intend to was effectively chief engineer and his genius behind building everything from the alter hand, the light gun shooting range to mentoring shag me a moto and everything he did for intendo, one of his first early successes that we kind of gloss over last time was the game and watch business.

Now these were portable, dedicated handheld video game systems, meaning, by dedicated, each piece of hardware, only played one game. There was a donkey kong gay and watch. There was a mario game and watch.

There was a elder gave in, watch even, of course, mikey mouse game and watch, but each piece of hard where only played that one game, IT was also actually on the game. And watch where can pay invented the depth that is, you know, unlike every single controller. Yeah, that is where the dept.

Was invented with the same. And what huh? Pret pretty gnosis and .

the game and watch actually sold a ton of units. I think forty three million units got sold before, end of. yes.

And this is the thing western audiences don't know that much about. IT was never that popular in the west. IT was huge in asia though, like he said, forty three million units, over a billion dollars in lifetime revenue from this product line, which back there in the eighties, and kind of pre any, yes, that was super, super significant for an intended now, if you're thinking about this, given everything we talked about last time about technological and video game innovation and marvels, the donkey kong and mario were and the N. S.

And how advanced IT was, how the hell did goods pay and intendo get donkey kong running on a portable piece of hardware in one nine hundred eighty two, please. Any guess, how did this come about? IT would be through gen pays philosophy, which really become sort of the second core piece of an intent. Zo philosophy beyond d, the name of the game is the game and good pays technology philosopher lateral thinking with withered technology c and still .

was cutting IT hardware in many ways.

absolutely IT was years ahead of the competition. IT had the first GPU architecture and a consumer focus device. IT was not whether technology IT was the government of that.

So sitting next to all of this silicon and PC and computing and graphics innovation that happening in the nine hundred and eighties that the N. S. Took part in was another adjacent market and silicon ecosystem, which was calculators.

So we've talked a little bit about .

the calculator industry on the show in the past on like our T S M C episode, specifically the history of morse chain and texas instruments. We got to cover T I at some point in the future. I think that was on our voting for L P S for yeah next potential episode.

But by the early eighties, the calculator industry was kindly like the P C industry is today. Other than the mac and apple silicon IT was total commodity, very mature, cheap, completely understood technology. And you could make IT for very, very low cost.

IT was also specifically dominated by japanese semiconductor companies, very convenient for attendee. So good pay just expanded his mind a little bit. And what could be silicon technology powering video games? And he reached over and grabs a bunch of mature technology from the calculator industry and well up portable dog kyang ang.

And you know what, the LCD screws basically the same type of screen. It's no more advanced of a processor doing simple math to decide whether the character moves left ride and summing points and things like that. It's a calculator.

Nobody would mistake this fun arcade quality port of donkey, but IT doesn't matter. People now can play ducky on on the go. This is amazing. People love a huge deal.

Legend has IT that the way you pay came up with the idea for doing the game and watch in the first place was he was on the train in tokyo, and he observed a business man who was also on the train, who was just killing time by pressing buttons on his calculator, doing red of things on his business calculate. And I think that tells you a ton about the potential demand for on the go video at the table. But in the ninety eighties.

and I say that was a powerful, but that has literally happened to me where I pull out my phone and i'm up to my to date twitter, I pull down. No new streets are coming and i'm like scrolling around on the home screen doing nothing, opening, closing the same apps over again just because it's entring.

Now imagine no smart phone, no twitter, no instagram. Seriously, what else you're going to do? Like how do people even live back then?

Barberry, newspapers, man, newspapers.

right? So time marches forward. Everything that we talked about in episode one on intendo outcomes to pass the N. S.

Launch is achieves ninety five percent global market shared intends on top of the world that at a well, this is all happening. Gunk who remember was not involved with the development of the N. S.

Good pay goes over to yau, I insists, hey, I think we can basically combine the any s and this old game and watch technology and make a similarly awesome portable cartridge based council and yu chi and the rest and intended, I like, well, yes, of course, if you could do that, that would be amazing. Who wouldn't want to buy one of those things? But part of what made the N.

S. So great was IT was years ahead of all the competition and technology. Like, how are we? We gonna do that in the portable era in pace.

Like, don't worry, mr. yug. Ug, i've got IT.

I can make IT all work. This device that I haven't mind. You'll play awesome games.

You'll have great battery life. We can get IT to market super fast and get this. I'm pretty sure we can sell this thing even cheaper than the N.

S. Ever is. Like this is too good to be true.

How are we going to do this? It's quite the promise is like, here's the big reveal. It's gonna a be black and White and .

not even black and White, but black and Green. Yeah.

so godless. Ya ug l that man was a visionary, and he completely got IT. And for a non technologist, he understood technology Better than anybody, because he gives them paid to go ahead on this.

Everybody else that in nintendo is like, this is not gona work. You know, I know we're still in the nineteen eighties here, but the one thousand eighties are more advanced than you might think. Black and White is like the nineteen sixties. Nobody wants black and way, especially in the video game market, which is supposed to be this advanced technology graphical market .

to play games that they're accustom to seeing in color. You're going to go downgrade mario like that's a terrible experience.

terrible, terrible day. So internally, this project gets the nickname. I'm not exactly sure how to pronounce this, but it's either domi game or game game D A M E, G A M E, which basically means hopeless game.

But nevertheless, they push ahead. And in April one thousand nine hundred eighty nine, they released this device in japan, followed shortly in the U. S.

For eighty nine dollars and ninety five cents. And this device, of course, is named the game boy. We talk about this all the time on acquired things that are in technology in our industry in the past that seems so natural.

We don't even think about them. Why did they call IT the game boy? They call IT the game boy to dig IT SONY, who if they have made IT wou'd called IT the game man.

why? Because they .

the walked.

No way. That's really why isn't this is so obvious?

You think about IT the me boy A A, A A in game system. It's A. This is intendo on the rise, looking over at their kind lic big brother. And japanese technology corporations at SONY impart like we are, beats you to the punch here on technology.

I love IT.

I no idea. So freaking awesome. IT obviously becomes a huge success.

So the first japanese production run of the game boy, sells three hundred thousand units almost immediately, and the first U. S. Shipment of one point one million units also sells out immediately.

And the killer APP, especially in the U. S. Driving sales, is not a kids game, but tatras and we won't tell the whole story, is pretty amazing of how touches the game comes out of the communist st.

Server union and makes IT onto the game boy and the U. S. And becomes the most popular game of all time. But go watch the movie. I've heard that it's great.

IT is, yeah, I watched IT this week. It's obviously a little over dramatized, but IT is pretty crazy. You know, talk about the name of the game. Is the game a soviet programme? R invented this game that was then so obvious to everybody who looked at IT that this thing was the perfect game, that there was this massive geopolitical mini war over who could get the rights to this thing in all these different countries, on all these different councils and intendo.

We think of them as a very sort of nice and shiny company and making stuff for kids, but executing the steps they needed to take to obtain the license for terris is a wild story. The movie is awesome. The important thing that the movie does a good job of underscoring is minoru arakawa epl understood, once he saw a demo of tetris for game boy, that this could expand the market beyond just games for little boys and teenage boys.

This is a kids game. This an?

Dm, yes. And now we could sell game boys to every one of all ages, everywhere, and not just as a toy. Totally.

it's what I was laughing. As you would say, all that bad about the image of nintendo is this friendly, you know, cuddly company. I think we deep bunk that in .

part pretty well there's plenty of .

corporate of the mario mile. But yes, a the tech. Her story is amazing on its own, but be like for our purposes here.

And IT really was arcola in the U. S. Who saw this at inten of america. The opportunity, just like good pay. So with the business man playing with this calculator on the train back in tokyo, o everybody loves games. It's not just kids.

And if they can get this device that is easily adaptable and at a low enough Price point by a broader market tender is just gonna ruit. So in any of america, in their tradition, as we talked about in part one, they just have the most amazing vertie campaigns around, belong to the game boy at father's day. I don't know, he was one thousand nine hundred and ninety or nineteen eighty nine years.

And in one thousand nine ninety, they come out with the campaign called punish h your father. And the whole thing is like your dad has been stealing, like the kid's game boy. And so her father's day this year, punni shed him by buying his own and staff for him from stealing the kids.

Gay boy, this is so brilliant, they start buying ads in airplane magazines. And the ads say, like if you're reading this, you are obviously bored and you need a game boy and you need tech us. Oh, that's awesome. They're literally marketing at business travellers.

which make sense. seriously. You walk on airplane today and who's playing Candy crush? A lot of business travellers.

exactly. So in the U. S, forty six percent of game boy players are adults.

This is so different from the N. S. market. IT becomes this business man status.

And I like, I remember this in my own life, like everything in these intendo ads actually happened. My family I did, had used to see my game boy all the time. We had to go get him as old.

Did you have one of the original fat ones?

Oh, totally. I was five years old when I came out. So I was exactly in the target kid demographic, and I think my dad, I was talking with him about this this weekend.

He still plays the original text is carriage like an old game? Boy advances at this point to this day? This is how universal the appeal of this game in this system is, is unbelievable.

So nan tanju ends up selling thirty two million game boys in the first three years, which is way more than the n. That's roughly three billion dollars in hardware sales. Are load the game boy.

And then it's sort of quasi successor, but really the same platform, the game boy color, they would go on to sell one hundred and eighteen million units worldwide, which is over double the nas and the fourth highest selling console of all time period. Wow, just amazing. And this was intense first taste, and really the whole industry's first taste of massively expanding what already was a huge gaming market.

Yeah, IT also was at a completely different Price point. I wasn't allowed to get a console, but my first video game system was a game boy color because I think that was a little over one hundred box or something for the color one verses around the two hundred. Or a more Price point for the at .

home councils that takes both the kids gaming market and the casual adults gaming market that IT creates and marry those into one device and leaves the core gaming market to the home council. Yeah, you would have been like exactly in the target demo for poon .

IT came out so I ought translucent game boy color so that I could get pokemon blue.

Oh my god. D probably like seventy percent of people listening right now, regardless of their age. That, and I think I bought poking on when I came out, even though I was a teenager at the time.

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Game boy is flying off the shelves. But the N E, S is getting a little long in the tooth. And so how does that hold superintendent thing work?

Yeah, here's where we're going to change here. So game boy, another incredible smash success for an attendee. But back on the home council said the things we're entering ing some shoppy waters here.

So where we ended last episode, one third of U S. Households have at any s intendo U. S, roughly ninety percent global market share.

They've got this amazing combination scale economy, network economy, distribution power by the midpoint of the eight bit generation in the N. S. You know, IT looks like the intendo s mode is inpenetrable.

And the reality was for the abid generation, IT was there were other competitors on the market, the hardware side of the former atti. I remember atari got split into two companies when more brothers sold off. The hardware side of atari releases a new console, the seventy eight hundred IT cells, about a million units. Like, okay, you know, also here.

And the N. S. Lifetime sold sixty two million.

Just to put that in context. Saga, in response to the N. S. In japan, they released a home video game council called the S G.

One thousand IT does OK, but also homely cells, about a million units. They take the third revision of that console called the mark three. And they export IT to the rest of the world as a system called the master system.

IT flops in the us. Where they sell off the distribution rights to IT, to tonker. Like the tanker truck toy company talk, a has no idea what to do with this thing.

And also, this underscores how much people thought of this as kids toys. The peer set is motel and tio and tonka hasbro.

And exactly, this is the toy. Nobody understands this stuff in the U. S.

But importantly, this master system consult from saga does fairly well in europe and in brazil. And so IT ends up selling between ten and fifteen million units worldwide. Again, no any.

Yes, this is enough of a success from saga to give them some hope. They like, well, maybe we should continue investing in the home console business. And as we mentioned in part one, say that this point was primarily an arcade company. Did you know this sea was actually founded by americans? Yes, even though it's a japanned ese company, IT was originally an american company .

involved in like world war to military service in hawaii.

Is that right? exactly. So saga is apartment's of service games.

And the company was started to make kind of content to, like gambling games are thinly disguised gambling games. And that morphs into arcade games for U. S. Military service spaces around the world.

crazy. I love how these companies evolve to sort of more and survive over time.

They know that they're not going to be thrown the N. S. In the a bit generation, but they think, baby, we can try and do what intendo did to get this huge advantage with the N.

S, which remember was just like Steve jobs in the iphone. We want to produce something that is years ahead of the competition. We might actually be able to leap frog in tando here and do the same thing to them.

And saga actually has two advantages at this point in time that intendo does not have one. mr. Law has continued to progress since one thousand eighty three, when the family came out into pen.

And more advanced and cheaper processors are now available to everybody. Specifically, sixteen bit processors are now cheap enough that you can put this in a living room. Quai kids toy home.

Nintendo do obviously also had access to this technology, but sort of in the innovators to lima type situation, they don't really have the motivation to pursue IT because the N. S. Is the gift that keeps on giving for them like they want to keep that council generation going as long as right?

Do you have to come out with something eventually? But if they can delay that eventually another year and no forces their hand, that is very good .

news exactly. And say go again because they were so successful in the rk business and the rk business moves so much faster than the console business. New technologies, new games, new game concept are coming at all the time.

They already have a pretty robust sixteen bit arcade board that they've been using on some of their arcade hits at the time, like should not be your golden max. Those were sixteen big games running on advanced our keyboards. The saga was producing.

And so what does that mean when you say the eight bit generation and the sixteen bit generation? Eventually we get to thirty two, sixty four.

Sixty four becomes part of the marketing. In fact, for no.

yes, IT basically means that the CPU for the machine can process eight bits at a time. And so that affects everything. Downstream sound graphics processing power is basically the effectively band with the CPU has in order to process information concurrently, right? And .

specifically, I remember at this time in the jump from a bit sixteen bit processors, like the color pilots that the games could use, like with a bit processors could not even fit so many colors in there. But sixteen bit processors, you could fit hundreds more different colors that could be used in the game of stuff like that.

yeah. And of course, this stuff is expansion. So eight bits, what does that mean? Well, to to the eighth, different combinations that are possible. So two hundred and fifty six different values in each chunk of data that is processing, you can see how going from eight bit to sixteen bit, which takes you from two hundred hundred and fifty six different possible values to sixty five thousand, five hundred and thirty six different values. IT is a sort of enormously .

forward right at this moment in time. That's this whole sup of factors that come together to really give sagan opportunities break into the market even though the N. S.

Is so dominant. Older consumers, especially teenagers and adults, they value graphical performance and they're willing to pay for IT as long as the good games actually back IT up. And so say good like, well, we've got a bunch of really good sixteen of games that we've made for the arcades. We can probably do this.

yeah. IT is interesting how much graphical capability mattered in those days. And IT still matters today. But a kind matters less when you go from, like, almost photo realistic to even more almost photo realistic.

IT makes them more impressive than IT makes them more interesting to look out on a four KTV. But does IT literally make IT more fun than playing something on my switch? Probably not. But back in those days.

it's a hugely forward total. I mean, even like on the switching on the virtual consoles, I love going back and playing super intendo games and take a genesis games, what you can do on the virtual council, this sch, which is so fun. But going back to the N.

S, R, it's tough. I grew up with those games. I remember playing them and loving them. But like, I can go back to sixty big games. Eight bit is pretty tough.

Yeah and i'll say, like I still play my and sixty four super mh brothers, that game is more fun than super smash on my switch. So you do hit some point. I think around fifty four big graphics were like more bits no longer equals more fun.

So back to say you here in sixteen bit, in one thousand nine hundred eighty, they launch a new console called the mega drive in japan that was in late eighty eight. And they turned around in early nine and launched in the U. S.

And they decide, of course, that the mega drive is probably not a good brand name for the U. S. And so they named IT the saga genesis, a new beginning for sega in america. Yes, surprisingly, IT doesn't sell well in japan either at launch or really ever.

It's really weird. I couldn't figure out why.

Yeah maybe just like ntn, enzo had such a lock on distribution and develop me, developers and market share into pay and that even like the quality arcade games that sago was making wasn't enough for the japanese market.

And when they launched in japan, I didn't have sonic yet.

exactly. Well, we will get to that. So IT doesn't have sonic in the U. S. either. So even if you think you know the history of the console wars in the genesis in america, or you lived IT as I did, I didn't remember this exactly as IT happened. So initially, the genesis is also a flap in america. IT tells about five hundred thousand units in the first year, which you do like again, is okay. But this isn't that much Better than the old master system here.

And intendo isn't necessarily viewing IT as the competitive threat that says, okay, we need to release our next generation system a sap. They're like, okay, cool. This one also isn't beating us. So I guess let's keep ride in the sales.

The N S, right? Why would we change things? So the next year in one thousand nine hundred and ninety say, uh, decides like k, we need to make a change here.

And specifically, we need to make a change and say, america. So they installed a new C E. O, A guy name, tom kinski.

Now, if you're looking for an executive to come in and turn around your Ailing video game council business to do things differently, you probably wouldn't go higher. Tom, tom, at this point is a toy executive. He's in his late forties.

He knows nothing about video games. And his most recent job is he was the C. E. O of mattel before being outed by the board for under performance.

And his big success was Barbie.

right? Yeah, this doesn't exactly scream like video games. Now, video games are part of the toy market. But sake is trying to change this. They're trying to appeal teenagers and older adults. Well, IT turns out that actually tom had a second act to him and ends up being the very best higher that, say, ever could have made because he shows up.

He's like, guys, if our strategy is to literally do what the marketing slogan was at the time when he showed up, which is genesis does what nintendo, which is kind of great, yeah, the problem though is they were doing like a peaceful or job of executing on IT. So even with this great tag line, the actual commercials that say go was showing on T V, or this really 7ZAS jingle， I you're gna try like go look and up. They're just like a wini.

So when tom shows up and surprisingly coming from the toy industry, he's like, if we're going to do this, we got to go all out. We can still like keep one foot in the toy industry here. We need to go full on punk, A M, T V, directly appealing the teenagers. None of this like eighty jingles in our commercials anymore.

no. IT needs to what everyone knows, saga n and we need to pivot the whole company. Sega needs to be the aggressive video game company. Full stop.

yes. So he presents to the saga board back in japan, e, and he flies over the tokyo and presents a four point plan of how exactly saga of amErica is going to dethrone intendo.

And it's great the way he gets recruit for this. David, I both read this book, council wars, which is really fun if you want the whole blow by blow on this. Tom actually gets recruit by the chairman of sega, where is on a family vacation in hawaii on the beach.

The chairman osago, walks up to him and says, tomko in ski. And for as compelling as the intendo story is, it's compelling because they one long term for this brief moment of time, the genesis era. I think sega probably has an even more impressive narrative and sort of heroes journey with ankle.

And I oh totally, we're going to get into what they do, this four point plan. But IT is freaking brilliant. I think this is the best example we've ever seen on the show of how to compete against an entangled in comment yeah, they literally walk up to the intend do and just punched them in the mouth.

It's so great. So here's the plan. Point one, we need to preemptively start a Price war. So we know that ninth and do is working on a new sixteen bit system. They're just ragging their feet because they feel no sense of urgency here.

We also know, given nintendo's history, everything we talked about in part one that they like to make money on their hardware. They want high hardware margins. So here's what we're gonna. We think they're probably gonna press the superintendent a when IT comes out at the equivalent of two hundred and fifty dollars, we're selling the genesis for two hundred right now. We're onna preemptively cut that to one hundred and fifty dollars.

And this is perfect counter positioning. Nintendos incumbent strategy is to make money on hardware. What are we going to do? We're not going to make money on hardware exactly.

So we're gna preemptively put pressure on them to cut costs on the superintendent. I don't think time and say even realized how important this would become. Put a pin on this. We're going to come back to this in one sec. This is a critical move.

especially the preemptive. It's not just we're going to make IT so they can make money, it's that before they launch, we have to make them cost conscious.

Number two, we need to change the pack in game like the bundled game that the genesis comes with in america. I had forgotten about this. The original pack in game was a uh, arcade pot called altered beast.

But I think IT was an OK R K game. Like IT wasn't decode. Like IT isn't as good as golden accident when that. But IT maybe had the worst american localized title ever. Like who's gonna a game called the altered beast?

Yeah altered doesn't really make you feel one way or another. It's sort of an uninspiring word.

Yeah, altered beast. I don't even know that means so times like, look, I know you know, when you were recruiting me in my early time here, you say good in japan over there you're working on a top secret. Couldn't quote mario killer game.

And I know that your plan is to sell that separately from the system because you want to maximize revenue from this game that you know it's gna be a pretty good seller. We need to take that and we need to bundle IT to the system. Here in america, I know we're going to lose money on this, but we got a up our install and we need a mario killer that is gonna be with every single gene.

Sis, so that point two, point three. Speaking of games, and this is also just a brilliant insight, he's like, we need to make american games for american audiences. And that means two things. One, we need to have our own cigar development studios here in america, which an nintendo doesn't .

have and never went on to have, right? I don't think there's an intendo game development studio. AmErica still note the .

closest that they had was the second party studio, rare, which they stupidity let get acquired by microsoft twin. Microsoft is launching the x box. But rare made donkey on country and golda, nine, sixty four and lots of great games for the superintendent.

And the end sixty four, that was in the U. K. They never had development studios in america. So tom says, intend us missing a huge opportunity. And so are we.

We need to have our own studios here, and we need to really embrace american third party game developers, which in intendo, they aren't embracing any three pretty game developers. And then don't inten don't exactly. And specifically what this means.

Saga, at this point is locked in a heated negotiation, shall we say, with body trip pokings and electronic arts. As we talked about on our episode trip back a few years ago. Trip is just awesome.

He literally recounted the story .

for us totally. So more on that in the second. But times like we need to settle, all of that contentious ously IT hadn't progressed to litigation yet, but we need to settle all that. We need to bring electronic arts into the genesis is fold and bring them into the home council market. And then the fourth point, as we had to no more of these eighty jingles in our marketing, we're going to go directly straight on after nintendo with our commercials in our advertising.

So naturally, given this brilliant plan of how to compete as another dog, what do you think the saga parent company board says to all of this? They're rejected as corporate words want to do, unfortunately. Then, like he said, the chairman at the time I O nokia a, he sides with tom and he pushes through this plan and says, okay, I hire you you to make your own decisions in america.

I trust you in understanding the american market. You can go ahead into this. We're not going to do this in japan, but you can do this in america.

And this is kind of a career bet for tom, because this is probably his last act one way or another. If he fails, he goes out in spectacular glory. But if he succeeds, then this is proba his job for a while.

And clearly, this market is enormously being C. E, O of saga. AmErica is a pretty great job if they succeed. yep.

So what happens? Let's go through to these points. Point one, the preemptive Price war.

All boy was this important. So nintendo was, as everybody knew, working on the super female slash. Super N.

S. IT would come out in japan in late one thousand nine hundred ninety and in the U. S. In late one thousand hundred and ninety one.

Two years after the genesis is when they launched IT, they launched at twenty five thousand yen in japan and one ninety nine in the U. S. Which even that was fifty dollars more than saga had cut the Price of the genesis too.

More importantly though, than saga being cheaper than nando o. From a day. One is that nintendo u was planning originally to include backward compatibility in the superintendent o so that I could also play any s games. So when I read about this in the research was just like, oh my god.

they blew IT. Which that is, of course, the right strategic move to leverage the fact that you already have tens of millions of people that are intendo customers. You want to come out with something that make sure they remain intendo customers, but your competitor dropped the Price, so you decided to cut something. And the thing you cut is the thing that makes IT so you no longer take advantage of the fact that you have this huge stall is .

that would have given you a stair step into the new generation totally. So nintendo o estimated that, including backwards compatibility in the super N. S, would add about seventy five dollars to the bill. That's you. yeah.

And so rather than come out with the superintendent, o Price at two hundred fifty dollars or two hundred and seventy five or three hundred dollars, because the genesis had already been preemptively cut to one fifty like h, we really can't do that. Let's cut out this seventy five dollar cost and come out of two hundred. Hard to say if this was a mistake on intendo s part or not, they kind of had to do this.

Certainly, the mistake was not pushing their advantage in coming out with the superintendent o earlier. They absolutely could of they let the genesis beat them to market. And then this creepy Price war forces them to take what really would have been their best built in advantage for the new generation of porting the existing install base over to the super N. S. And just kind of have reset on the whole industry.

which is crazy. It's funny. Strength leads to strength.

If nantongo had just been aggressive and obsolete themselves, they would have probably been in a great position. But instead they SAT back. They sort of tried to play defense.

They tried to give enough running room to their ids to keep making good money as long as possible. Then IT left this opening for sega to come in and pull this move. And then suddenly the tender no longer has an advantage to leverage. It's like the classic football prevent defense thing will prevent defense prevents you from winning. You've gotta keep being aggressive in playing offence.

IT reminds me of, I think, my favorite company values sheet of all time, which is the legendary nike corporate values. Uh, so good. I think it's number two is we're on offence all the time. yes. Yeah, you don't win by playing the prevent difference?

No.

I absolutely not. And I think we could maybe give some lighted intendo here and that this was all happening for the first time. People didn't totally understand console business dynamics yet. I mean, if you fast forward to today, SONY and microsoft not only always have backwards compatibility in each new console release, they also do forwards compatibility.

So like new games for a couple years that are coming out for the P S five or the x box, series x and series x, those games will also be playable on the previous generation hardware. Now you couldn't do that back in the day, but this is so important to father in in each new console generation that literally billions of dollars of engineering across not only hardware but software titles are invested in this today. Intendo didn't know that, but this becomes a huge, huge mistake.

Yeah, okay. So that's one point to the pack in game. Obviously, this is sani c. The g sonic is just the most perfect example ever of counter positioning in brand.

Yes.

totally. So if you think about what intendo s real strength is in games that we talked about so much on the last episode, it's these amazing stories and not narrative, but storage of in fantasy worlds that you can get loss and expLoring. You know, that's what mario is.

That's what there is even more that's what metro is. But you know what that style of game is besides being amazing, it's also really slow. And that is the opposite of sagas, DNA, which is all in the archives that is fast and nothing is faster.

Like, I wanted know what kind of drugs the people were on. They came up with sonic c, the hajaj. I think that was an internal competition within, say, an .

employ pitch. A what would .

lead you to come up with a trash talking supersonic blue hedge hog that .

originally had things, and an electric guitar?

That's right. Also like a human girlfriend that was not wearing much clothing, I think originally, yes.

generally clad human girlfriend.

yes. And the best in the worst of the ninety eighties, but mostly, especially with the final version of something just free and awesome, IT doesn't get .

any Better than that. So mario is family friendly and kinds slow and open to exploration. And sonic is not only fast but aggressive. The whole brand of sega kind of adopted the brand of sonic on its means of competing against natano totally.

So remember how we talked about in the a this maybe the nineteen ninety q survey that mario was more recognizable than Mickey mouse. Well, by the nineteen ninety three q survey, mario is still more recognizable than Mickey mouse, but sonic is even more recognized of all than mario by american consumers. Just ridiculous, a couple years later, like that, how successful sonic was.

And this was part of cleanse kiz genius. IT was bundled in with every genesis council. So say, is giving up on the incremental fifty, fifty dollar pop revenue that they could get from some ic, the head tag.

But this really drives genesis council sales. Okay, point three, we need american games for american audiences. So in intend do at this point time is basically making two types of games.

They're making the timeless works of art, like we are just talking about the marios and the elders and the metros. And they're also making super corky japanese stuff. What they are not making is super corky american stuff.

And specifically, they're not making american sports games now. They are making sports games. They make punch out, they make a side bike.

They make a bunch of baseball games. Third parties make games. The, uh, developer tech mo famously makes tech mo bowl, you know, american football games. So like they're out there. But these games don't capture the actual american experience of these sports.

the sort of cartoon approximations of something based on a sport. But it's not like you're .

playing matter exactly. And we talked about this a lot with parkins on our episode with him, but that's what was so game changing about ea's john man in football. IT was eleven on eleven real football with real playbooks like if you ever played football, or if you are a student, the game, or if you watch the nfl every sunday. You know, IT was still a rudimentary video game by today's standards, but this was actually like simulating the game of football in a way that nothing coming out of japan really ever could.

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now, that first version of men came out in one thousand and eighty eight for the apple two, because electronic guards at this point time was A P. C. Game publisher.

They weren't in the console business at all. They don't want to play ball with nintendo and the ridiculous licensing terms that ninna deo had. And they're right in the middle of these negotiations with sega because trip N. E. A had famously gone out in reverse, engineered the genesis in a clean room, and he had these grand plans of he was gonna make his own genesis cartage not pay any royalties to say that, and then he was gonna his program to other third parties, and like, completely end around, they got .

altogether which he had this to negotiate from that point. But they were ready to do like they actually did, the unbelievable engineering feet of, in a clean rim environment, reverse engineering, the way to make games work on this system totally.

So you can imagine, why say that the parent company would be and were really, really pest at electronic guards and not want to play all of them. But Colin skies like, no, no, we gotta settle this. We got to embrace them.

If we can get mad on the genesis and not on superintendent, this is gonna be huge for us. So they do and say, a basically completely bends over backwards to E. A to accommodate them.

which is the right move.

by the way, absolutely.

the pie massively grows by this game, seeing the light of day on sega exclusively versus if they enter a litigation. It's like, okay ay, let's divide up a small pie. No, absolutely not the answer. In this moment where this is rapidly expanding market and the fight to the death between second and tender is no side quibble figure IT out, move forward, launched the product.

everybody makes money totally, so seek as original program. And the program for other third parties was ten dollar licensing fee game unit for E A. They give them a two dollar licensing fee per game unit capped at a million units.

So E A will never pay saga more than two million dollars on any game. Very, very different. But like you said, that this is just an enormous win.

So that first year, the first version of aton that comes out on the genesis E A and saga's prediction is that IT all sells seventy five thousand copies. IT ends up selling four hundred thousand copy is, oh my god, that is just a huge hit for them. And this is the exact kind of thing that is not on Lindane and seem to be the superintend.

Do E A eventually does bring main to the superintendence, but they have a separate studio working on IT. They've got the A T working on the genesis version. They they ve got the B.

T. Working on the separate intendo versions. So the denis versions were always Better. And I remember this, says a kid, this is a big reason. I was lucky. I had the superintendent and the genesis, like, I wanted sonic, but even more, I wanted really good matter games.

Oh, wow, I didn't realize. Because these days, you know, the x box in the playstation versions are like, I think equivalent. If there's an a hard court mad and fans out there play to come at me with, no its way Better in this, that of the other way, if you kind of the same thing. But I didn't realize there were such a difference then.

Yeah, back in the day, they were actually bid by different studios. And there were some things about the superintend du architecture that limited the frame rate that I could run out. So IT, basically he was always Better on the genesis.

And is worth saying, point one, in eliminating the backwardness compatibility IT made, nintendo do have to fight sega on an even playing field. IT didn't mean sea was going to win. IT meant even playing field that negated their advantage of large previous and topic. Point two and three are the games you know, you've got with point two sonic being faster, brighter, more exciting than mario when you see them head to head, which seg was making sure that you saw them head to head. Sonic seems like a much more interesting game that you kind of want to buy, regardless of the fact that you have loved more of the last few years.

On the surface, IT is much more compelling.

yes. And of course, with matter now, they have even more advanced. The scale are really starting the tip towards sea here.

So point for punching nintendo in the mouth. Kinski goes out and brings on a guy named Steve race who had masterminded reboc resurgence against nike in the eighties with the pub sneakers. Remember that? Oh yeah, that was Steve races brainchild.

And kinsky tells him to just go wild on the marketing. Steve would go on to leave cigar and become the first president of SONY computer entertainment amErica for the launch of the playstation vote. Before that, he would pretty much single handedly jank saga. And really the whole video game in this mean, this really sets the stage for the playstation out of the toy world and into full on media technology, the mtv generation. This is saga and his work. So they go out, they hire the goody selver stein add agency, and they come up with the welcome to the next level campaign, which was just so great and had the trademark way that all of the add spots ended with the saga scream.

Yeah, there is also some pretty amazing. You get to hear around the idea that you've graduated from nintendo. That's cool. You used to do that, and like that was for baby. And now you're a real growing up, and it's time to graduate a real grown up system.

IT worked on every level. IT was so great. So they premiere the campaign during the one thousand nine ninety two mtv video music awards. What a perfect marriage of everything here. literally.

Like, you know, the same B, M, S, where many years later, can you would take them back from tea swift? This is like, not the toy out here. This is pop culture and its pinna.

They also invent the term blast processing. If folks remember this, the genesis has the last processing, and that's what makes sonic fast. It's a completely made up marketing term. There is something in the development manual, like somewhere for the genesis about something that maybe could be translated as blast processing, but like I didn't actually do anything.

Apples been hot on this recently. What the eight, twelve bionic, the neural engine and marketing terms for something highly technical such that IT doesn't actually describe. The technical thing that is doing, or another apple example, is the retina display. Once they start marketing the retina display, IT doesn't matter if their competitors have something that's just as many pixel per inch like it's not a retina display, but there's completely .

meaningless IT all affected the genesis. It's got huge fund on the actual console in, I think get gold letters in japan and silver letters in amErica that say sixteen bits on the council itself. It's amazing.

I love IT. I mean, that is their competitive edge totally.

One of my big takeaway from this whole series is just how much apple took from the video game industry in their marketing. Steven, tom and the team at saa also do super innovative stuff that really just brings the industry forward into the modern area. Before this era of saga, there weren't actually release dates for video games when new nintendo games would come out.

They just start showing up at retailers and not even on the same day, just like some regions of the country would get them before others. There was no organization, tom and Steve, in the marketing department at sake of america. They're no this is the movies we are doing worldwide release days for our games, and they're going to be just like movie premiers.

We're going to have celebrities. We're going to have big marketing events. The day is going to be plastic all over everything totally.

I mean, there's millions of people that know me. Twelve, twenty, twenty three is going to zala tears of the kingdom. This has become the way the american video games.

and that all started with sake of america. Specifically, IT started with sonic, where they had sonic tuesday, the launch day. Oh, so hockey.

But this is hugely innovative. The other thing that take a of amErica doesn't their marketing. And then you'll love this is.

They literally do the pepi chAllenge, so they take truck like eighteen wheelers, and they outfit them with superintendent s and sega genesis sis in the back, and they drive them around to walls across america. And they invite kids in to play head to head sonic versus super mario world. And then they ask them which game they prefer after, like five minutes of playing. So the first five minutes of sonic are really good. The next couple hours not as good.

right? And this is an amazing trick. It's the same thing that all the TV manufacturers do. They gama up and contrast up and brighten up all the tvs when they're in the store. And you get measure ized by the one that got the most in saying Christmas light color is on IT and then you take IT at home and you're like, uh, this is kind of terrible for watching, you know, the dark night rises or whatever. And IT turns out that when you're comparing things side by side, there are things that appeal to you that are actually not the best long term .

option totally. So they keep track of all of this. And low and behold, seven out of ten kids in amErica preference tomorrow, of course, say the trumpets. That is like the wall street journal. All of the investor press like, everything is amazing.

And so at the same time, it's segers genius. And the fact that they like showed up to play but also intendo keeps PS dropping the ball. I mean the games that they're shipping for the superintendent are like, again, very conservative, very like we're gna try to maintain our lead. You play the mario game for you're like, okay, yeah, it's mario again and like, it's nice and I like mario, but this isn't new. I don't really understand necessarily why this even needed to be sixteen bit.

right? Super mario world is an amazing game, but is that that much different from super mario brothers three on the N. S no, like it's got, you see, you see, is no sonic.

So all of these four points by themselves, would any one of them have dethroned nintendo? Certainly not. But all four of them working in concert and sake is just amazing execution. My god, they do IT. So it's tough to tell exactly because both companies, nintendo and sega, were uh, highly incentivized at this time to be creative in what they were reporting as their counsel sales today.

shall we say, right? This is when you have to really tease out the cell into the channel numbers versus the cell through the channel numbers. yes.

But as best as I can tell, I think IT is basically fair to say that every year that they're competing head to head on the market, the genesis and the superintendent, the genesis outsells, the you can certainly quibble with that. The data is not perfect. Take a set back even if it's fifty fifty.

We went from nintendo having like for all intense purposes, one hundred percent of the market yeah neck neck with the genesis is and nintendo basically fights to a draw. It's not like the superintendent was a failure, IT was a success. But corporate wise, for nintendo, this is a huge failure.

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Yeah, it's a long and sad story but basically Collins, ky. And saga of amErica and the parent company in the board back in japan massively disagree on how and when to launch the cigar sator, the next thirty two, the council generation, that conflict and that mismanagement becomes a total disaster. And IT starts a downward spiral.

Al for saga, with the failure of the saturn. And then they followed up really quickly with the dream cast that also never really gets traction. Dream casters actually an awesome console and very innovative on a lot of fronts, but they just start bleeding cash. The end of existing the hardware are business, and the company basically goes bankrupt and has to get acquired by a mechanical manufacturer called semi. It's really sad.

brutal. They now make games foreign tender platforms well.

And the great outcome of that is that you can play genesis games on the virtual console on the switch. So good for consumers.

The story feels abrupt, but I remember that feeling abot when that happens to.

yep, a story for another day. But for our purposes, here in the nintendo story, the point is that nintendo has now fAllen, and they have fAllen pretty hard. There were a couple other self inflicted ninth enda wounds around this time to starting in one thousand and eight.

They actually get emb roiled in two separate, and I trust, lawsuits with each of the successor, a tari entities, both the hardware side and the game side. They win both of these. But this really hurts nintendo's brand image.

IT kind of comes out to the american public through this that what we know from doing part one ntn du corporate wise is not really this family friendly, gentle, kind company. There's a great quote from Howard licking in game over about this lawsuit. He says, I thought to myself, you have no idea what you've taken on a tree.

We are a tiger who will skin you piece by piece. Obviously, he doesn't say that publicly, but this isn't really good for an intense image. Fun side note on this, the attarian games case is actually the start of the video games career for the then baby lawyer mitch lakey of benchmark and game craft part test fame.

Oh no way.

Yeah super fund but talks about that. I game craft, they're just so arrogant at this point time.

they are arrogant and are .

getting beat up. yep. And then they do even more dumb stuff. So nintendo sees blockbuster during this time for renting their games, which is just really dumb.

Like what's a really good marketing for your games is renting them and letting people try them. And what american consumers really gonna hate you suing them to stop that. They also sue the maker of the game genie, which is one of my favorite video game artifacts from this period.

and the game gene that you like, enter and modify the games and stuff. This just shows another example of nintendo s belief that they know Better than anyone else what makes a game fun. And you are not to modify their game rules at all, because me, a model will come down from the mountain and .

tell you what is fun or not. So true. So true. It's also, we would be remiss, I think, if we didn't point out to that all this was happening during the incredibly ugly and sad era of japan bashing in the U. S.

That we talked to about a little bit on the SONY episode. You and our kid, so thankful, fully didn't really experience this. But I remember people in my parents generation just sing like really awful things about japan.

And japanese company is at this time. And there is this real worry in the U. S, especially in the business community, that as japan's economy was the sending so rapidly that japanese companies will come take over all of american media and movie studios, stuff like that.

Yeah, we talked about this a lot on .

the SONY episode. And this culminates for nintendo deo in another well intention of what really self inflicted wound debacle, le, where they buy the seattle mariners, which really was well intentioned, the owner at the time was gone to move them to florida. And nintendo kind as a good wal gesture for how good the people of seattle and washington state had been in nintendo america, steps in as like a White night savior to buy the mariners and keep them in seattle. Major baseball tries to black ball them from buying the team because they're like a weird foreign company.

So a company buying a team, I mean, really sports team ownership in the U. S.

Owned by individuals. So kind of again, well intention, but probably ill advised, move on intendo part at this points time and don't win the world series despite having kenric y junior alex really, really Johnson. But they do make a superintendent game out of IT.

That's pretty i'm good.

good. So anyway, by the end of the sixteen bit generation, nintendo fall is pretty precipitates here. And the magnitude of IT is actually kind of hidden initially because of gas, subsequent total implosion and even bigger fall with the sator and then the dream cast.

But nintendo is a really irreversibly weakened from this era. So we talked about the numbers, how in a single generation they go from ninety percent global market chair to basically, but more importantly, strategically, like the net result of this, is that a lot of the things that made the N. S.

So powerful in the market are completely negated by the end of this. So first and most importantly, the whole years ahead of the competition, hardware advantage that's gone, they're now behind the competition to the lost control of the third party developers. They had this incredible lock on the third party ecosystem with the N.

S. Now, developers like electronic cards and others are saying, well, look at saga and look at these other new folks like SONY who are going to enter the ecosystem. I can make more money with less drama on their platforms, screw unit in tendu.

and less drama and often Better economics. They are willing to cut special deals with me that you're not exactly and in many cases, they have more vanes capability. So it's an easier platform to program for.

And then maybe worse of all, nando s brand value just takes a huge hit in this generation. And we've talked about this, you know, as we've gone along here. But to put a fine point on IT, older kids and teenagers no longer play mario, or at least they don't want to admit that they do.

Sonic doesn't become the long term replacement, but tum ratter does, halo does. Grand theft auto does. Call of duty does the intent deo, ironically, gets kind of trapped in the toy i'll get over the next twenty years.

all right. So we're through the genesis a. We've unfortunately seen basically the end of sega, but there's another sort of adult oriented gaming firm that's gearing up in the shadows right now to come aggressively at nintendo and expand the gaming market even further. And that is SONY. So take us to the playstation.

So the whole sixteen bit generation story for the intendo o that we just told was really one of arrogance bordering on stupidity and self inflicted wounds for an intendo o but ultimately, they were competing against, at best, a roughly equal footed competitor and say, get a really an underdog. Say, good. Did not have the financial firepower, the technological firepower that nintendo did.

IT was like, amazing that they came proud of where they did and battled, intend to, to a drought that's not onna happen in this generation, because now the big boys are coming. And we talk about this often on acquired of self inflicted wins. This may be the worst self inflicted wounds of all time.

What nintendo u does here, because as we talked about about on the Sunny episode, the playstation was supposed to be the intend to play station. yes. And somehow this partnership that the intent deu had been working on with their fellow japanese technology and consumer electronics giant SONY, to enter the C.

D. Medium and the thirty two bid era, somehow that went from being a beautiful partnership to basically almost signing their own death warrant. So at the june one, nine hundred ninety one consumer electronics show, there is big expectations in intendo and Sonia all set to announce the C D.

RAM. Add on for the superintendent system, bring the C D format to nan tando powered by SONY, the SONY and intendo playstation. They're all set to announce IT. And in fact, SONY does announce IT at their press conference.

And then the very next day, intendo turns around and in their press conference doesn't mention IT at all and instead trumpets their major RAM technology partnership with sony's arch rival, phillips. They betray SONY. They stabbed them in the back.

So much hub.

so much hubris, like dumb decision to do this period, even dumper decision to do IT this way.

to let them whip in the wind publicly like that.

And they just light a fire under exactly the company that you do not want to lie a fire under at this point to come and destroy you.

And to illustrate how much bigger SONY is, I mean, in ninety four is when the SONY play station would launch, they were doing thirty eight billion in revenue. And at that point in time, in tando was a four billion dollar revenue company. So SONY is the much bigger beast tier.

yeah. Now look, this partnership that they were working on with SONY, it's unlikely that IT ever actually would have ve worked out because there's just like too much money at stake. The video game market is too attractive despite the fact that SONY didn't enter the portable market with the game man and intend to stuck to them with the game.

More like the bad blood goes way back here. And the reason that nintendo pulls out of the partnership is they couldn't come to terms on how they were going to split the royalties on software revenue, which has we talked about a part one like that's where all the economics are in the business. It's a razor and blades.

right, which is actually quite rational.

There is not really a viable alternative history where the intendo o play station came out. There is a viable alternative history where, like SONY waited a little longer to enter the market, and they didn't have as much burning hatred for nintendo intendo generated here.

So that happened at the nineteen and ninety one CS ten CUDA gi goes often within SONY music builds the playstation franchise and Steve east comes over from saying, gets involved on the american side. The playstation finally comes to market at the end of one thousand nine hundred ninety four in japan and one hundred ninety five in america. And it's an amazing council.

It's C. D. based. It's got incredible. Power is much easier to develop for they've got all of SONY book technological and financial fire power behind IT.

And it's a thirty tupid system on power with the sec. Satan.

yes, it's a thirty two bit system. So just blows away the superintendent o on every dimension here. Much more storage availability for games and game developers by using the C.

D format. Much more powerful processor. It's clear that this is gonna be a big investment from SONY here.

And there gonna be a big player in the industry. Nintendo, again, probably in hubris, tries to compete directly with tony here in response. So they go off and they partner up with legendary silicon valley company, silicon graphics S G.

I, as we talked about on the injuries series back in the acquired canon to build the n sixty four. They're onna leap frog, the thirty two bid generation, and go right to sixty four beds with the end sixty four. But one IT comes out too late. So the sixty four doesn't come out until one thousand nine hundred ninety six after the playstation has already had a year plus to be on the market and establish both the install base lead and the third party developer network. Two and fifty four famously uses cartridge again instead of cds.

They have a very particular way. They love doing .

things which I think .

was partially an entire pacy thing. They cared so much about stopping piracy that they were willing to hamstring developers and needing to use a much more constrained format in the carriage than cds because they thought H. L. Cds are just going to get pirated. And we don't have as many mechanisms .

to prevent that. you. And then the third part of this, yes, the end sixty four was a very powerful sixty four bit system, but IT required very expensive silicon graphics hardware to develop for that.

The playstation did not. So like really the whole thing is just a giant F U to third party developers who already hate nintendo o. So at this point, everybody pretty much abandons nintendo for the SONY platform.

The end sixty four would sell thirty three million units in its lifetime. That's about half of what the N. S.

Sold versus the P. S. ones. Hundred and two million units. So nintendo o just gets the floor wiped with them by SONY here, which was obviously predictable.

And the end sixty four ended up being a fantastic console to play nintendo first party games on. yes. And they even more than ever before entrenched that that is what our company is all about.

I mean, super mario sixty four, mario cart sixty four, super smash brothers, star fox, golden night. I mean, these are all first party titles. The only one that wasn't is golden night. And that was rare, which was a very close relationship with .

intendo was a second party title. Ninth enzo owned at that point in time, some like twenty five thirty percent of rare and rare developed exclusively for nintendo o platforms. So that's the end sixty four playstation. And then in the next generation, the wheels just totally come off the busy SONY and the playstation two goes on to become the best selling council of all time. Still.

to this day, the P. S. Two has sold more units than any other council, including the boy, including the intended .

to switch everything they sell, one hundred and fifty five million play station tools. My god, did I love my P. S.

two? I mean, never pinned my ride. People were putting P S. Tus in cars. That was the ultimate rapper status symbol.

This was the console that I got after my barnett foo when I was finally allowed to have, like, a real console, not just a game boy. And IT is the last council I owned until I bought a switch a month ago. And i've had a and sixty four that I bought a sort of like a novelty thing to play smash after I graduate college.

But like that, not a real thing. The P. S. Two is totally the worker system that I grew up on as a teenager.

I mean, this is SONY at its absolute pinacle. In the like free internet era, IT was their consumer electronics expertise. IT was bringing DVD players to the living room of homes around the world for the first time.

right? IT was a DVD player and a game system in one for the Price of just a game system. I mean.

forgot six. There was all this fun. I remember in the media at the time when I was launched in the american media, about should we allow japan to export these things? Because what if adversarial nations to the U.

S. Get a hold of these and use them to build missile guide and systems? I mean, the P. S. Two was a literal supercomputer at the time, and this is the other huge advantage that SONY had over an intent do.

And anybody else except microsoft, that will talk about in a second, which was they could afford to subsidized the crap out of this thing. So the police station to launched for two ninety nine in the us. I don't actually know what the bill materials was, but they cost way more than two ninety nine for SONY to make everyone of those. But they had so much capital that they could take that loss and then make IT up on the software library over time for the high and councils. This is how the business works to this only in microsoft.

Yeah.

for an intendeth. Oh god, it's such a sad story.

Their answer is the .

freak game came the four game. Um I actually have a really fond memories of the game cube. But this was just the epidemic. Tendu was like a kid that was really cool in middle school and then got awkward in poverty. And high school gets stuffin locker.

They had no idea who IT was for. They made IT. And IT was more competitive on a pex perspective than the P.

S. one. And they did try to market IT like I was for everyone, like IT was a game system for kids.

for adults yeah, except IT look like a lunch box totally.

And IT also was competing against the supercomputer P.

S. two. Yeah, literally people are worried about. This thing guiding nuclear missile, like, what do you think the american teenager is gonna want to buy the thing that their parents are freaking out about nuclear war, or a thing looks like their little brother's lunched .

box and the PS two, you know, it's black and it's sleek and it's the same playbook that the second genesis ran in terms of, we're like the grown up gaming machine. On top of all of this.

microsoft enters the market. Yes, another company.

So suddenly you have a two horse race, both of which have infinite treasuries and are subsidizing this market they really want to get into. And neither of the two horses is an nintendo.

yeah. So microsoft, with the x box, microsoft takes at least a five billion dollar loss on the first generation of the x box. And they are thrilled about that because this is their entry into the long term strategy of getting into the video game market and .

owning the living room. There was there. How do we get microsoft in .

the living room even though they took that loss on the whole generation? Like I think that hardware and software included, I don't think x box as a franchise was profitable at all for microsoft on the first generation. They're willing to take that enormous capital loss, which is basically all of intendance treasury to compete against them. And they've got so nintendo just gets rocked.

And on top of all of this, there was a bill coming due. The ninth endo had to pay eventually, and this is where they had to pay IT. They finally leave cartouches. So they have zero backwards compatibility with the game too, because they were too to adapt disk sooner. And on top of the fact that they're moving away from the cartage, they go with mini cds.

mini dvds.

What on earth it's like did .

you learn nothing?

It's not backwards compatible with any of the stuff they've had before.

which the end sixty four wasn't either another dumb move, but that had to happen because of the silicon graphics technology, which was done .

in the first place. Yeah, IT is truly hard to believe that nintendo would come roaring back from this moment. So this is an intent, deo, at the ultimate law.

You so put some numbers on that the game cube cells, barely over twenty million units for the generation verses one hundred and fifty five million. That the playstation two cells, even the x box beats the game view of the x box cells, twenty four million units with that five billion dollar plus loss that microsoft taking. So any other company like this is SaaS failure with the saturn in the dream cast to basically bankrupt company.

This is that times ten like this is a smoking, smoking creator fur nintendo. Except unlike saga, all the way back to the beginning of this episode, they had one very small, but very big thing. They kept them alive through all of this.

They give that, kept on giving the game boy. Yep.

before doing the research for this part too, like I didn't realize the boy and its successors saved intendo skin for like twenty years.

So that game boy, which includes the game boy pocket, its game boy color, it's game boy advance. And then, of course, they would launch the D. S, which will chat about a minute here.

But IT is amazing that nintendo basically had a monopoly on portable gaming this entire time. There is the home council wars they're playing out. And there's this whole side thing that's happening where intendo is selling millions of units as the only credible player in handheld.

literally everybody y's rigging all their hands about the home council business. And that's all that anybody could serious pays attention to. But over in the add market, intendo is just continuing to crush IT like it's like sixteen, eighty nine here.

So remember how we said all the way back in the beginning of the episode that the game boy is the fourth best selling console of all time. And then we just said that police station two is the first best selling console of all time. Numbers two and three are the D.

S. And the switch. And then the game boy advances in far hind. So everything, and we're going talk about the switch at the end epsom. Obviously, everything that intendo gets wrong in the home console market, they get right in the handheld market.

We could have retitled this episode as nintendo, the hand held gaming company, and that won't been far from the truth.

is one hundred percent of truth. So what's good on the checklist? Global monopoly? Yes, SONY does launch the playstation portable. I had one of you have one that's also I never .

had one got stolen out of .

my locker in high school or no uh, brutal, which is a great device. But IT was for a different market segment than the game boy. I never competed head head with game boy.

I had a really fancy screen, so was like, pretty good for watching movies. IT was more like a small computer, kind of like an ipad, is probably the precursor to an ipad type device.

totally, very SONY device.

yes. All the way to the proprietary memory sticks. Very SONY, yes.

So global monody jack, most innovative technology, ironically, also check, thanks to go pay. You chose maxim of lateral thinking with weather technology, a huge and dominant third party developer platform. Check, locked in consumer software libraries with perfect backwards compatibility.

Check literally everything that they got wrong in the home business, they get right in the handheld business. So the game boy and game boy color sell one hundred and eighteen million units over a twelve year run. That is the more impressive headline number, but the game boy advance, which comes out in two thousand one, only ends up having about a three to four year lifespan before the D.

S. Comes out in two thousand four. During that time, the game boy man and sells eighty one million units, making IT the tenth best selling council of all time, despite having this incredibly short primary lifespan.

So average selling Price for the game boy advances about a one hundred dollars a pop. That is eight billion dollars just in hardware revenue. And remember, nintendo s making margin on this hardware revenue during those years.

IT also does three hundred and seventy five million units in software sales, which is almost double what the game cube did. So like literally, you're right. Like this episode should be titled nintendo, the handheld gaming company.

It's crazy. I mean, that just gives them so much margin of safety to screw up generation after generation over in the home council market.

And then the D. S, I was perfectly within the generated window where I missed the D. S, so I didn't realize what a monster this was.

What I mean in the window, I was too old to buy IT as a kid and too Young to buy IT as a old funny study. You will get into that in a minute. The D.

S. Was a monster member. We just sent the PS. Two, sold a hundred and fifty five million units.

And the D S is the second best selling council of all time. It's sold one hundred and fifty four million units. So basically neck and neck with the P.

S. two. Let's be conservative and say that the average selling, Chris, for the D. S, was a hundred dollars. That was actually more, but will will be conservative.

We'll it's a hundred dollars that is fifteen billion dollars in hardware revenue for an intendo. And that is the hardware. The D.

S. Sells almost a billion gamming units at an average selling Price of like thirty dollars. So that thirty billion dollars in high margin software revenue.

and at this point, nan tanju is still dramatically a first party publisher for their own platforms. And so that billion units sold, also, most of that, or at least half of that is them.

is the day. Yeah, it's incredible. I mean, the D S. Franchise generated almost fifty billion dollars in revenue from intendeth.

Wow.

that's wild. How is that possible that the same company is fAiling so spectacularly on the home council side while simultaneously succeeding so spectacularly on the hardware side?

And i'll say the portable side is the side that's paying the future for what intendo would become, for Better or for worse. They are the ones who are having this very strong opinion of let's innovate on a gaming device and what a gaming device is. And to this point, that hasn't really been intendo s emo.

I mean, you look at the any as the controller is kind of what you would expect. The S. N S, okay, cool.

They came out with the shoulder buttons on top. The L. N, R, okay, that's a small step forward.

You know, the end sixty four, I think, does deserve credit, particularly mario sixty four. That was the first game in game system that showed how to do three d gay. He was incredibly innovative.

totally. And then the game cube is a very meet to console. You know, everything about IT is like, we wish we had done some of this and sixty four, but is too little too late now.

But what you're seeing in the handheld, especially in the D. S, is okay. This is super innovative to have two screens.

One of them is a touch screen with a three D. S. I would come later. One of them is a 3d screen。 Nantongo is starting to at least I can help group figure out.

The way forward for us is we design innovative hardware that can inspire new types of games to be played, a new types of games to be designed, especially by our first party team and house. And that does all kinds of amazing things for them. Think about the we, think about the switch switching, literally, and the joy cons and how popular that is. IT also does terrible things for them, which will talk about for the way you. But this is when they really discover they are unapologetically innovating on the hardware to play games, and that is what defines them. This is so much the future direction for intendo that in two thousand and two, when heroes yma uci is leaving the company and transitioning to the next CEO water and leaving in in his hands, his final request is, quote that nintendo give birth to holy new ideas and create hardware which reflects that ideal and make software that IT hears to that same standard.

yes. And it's not just new types of games to be made on new types of hardware. It's serving the end goal of enabling new types of people to play games.

So what's going on here and why the hand held business becomes such a jug and offering intendo is, I think as we did to earlier, IT starts serving to completely different markets than the playstation in the x box. And both of those other markets are a completely ignored by zoning and microsoft and be very, very large. So the first is the kids market.

This is the brain button all the way back to the N. S. In the as SONY and microsoft moved into the grandee f. doerr. H and the call of duty era and the .

halo era right core gamers and.

More mature content. The game boy became the new home for kids. It's cheaper. A so like if you're a parent of a four or five year old, you're gonna worry about buying a hundred dollar piece of plastic for them.

It's less immersive, which is actually a feature for kids because it's easier to play. And then back to the intendo kind of guarantee seal of equality brand, you can be pretty sure that little susie and little Jimmy isn't gonna playing really violent or adult content games on your games. Boy advance or D S, or what have you.

So it's really compelling for little kids and their parents. And as we talked about a few minutes ago, nothing embodies this more than poking on. We talked about poking on on the nfl episode where poke on is, I think, in my opinion, wrongly listed as the highest growing media franchise of all time because the nfl really should be a single media franchise and is bigger.

But IT doesn't matter. Poke on is number two or number one. No matter how you wanted, say, lifetime, poke on franchise revenues are just under a hundred billion dollars. And the primary medium for IT is the freking game.

Boy, yeah. So let's take a little detour and tell the pokemon story here, because IT is incredible. I think this is not a super deep story, but so cool.

So many little aspects of this are like one in a million chances. So you mentioned one hundred billion dollar lifetime franchise since one thousand nine hundred ninety six, when I came out. Sixty billion dollars of that is merge.

Merge, like video games, is only thirty five fish. Billion of the hundred billion. So people became such big fans of this that they tripled quite drole to the actual video game sales in merge revenue. And that sixty billion dollars, if you compare IT to say, I don't know, the marvel cinematic universe, which people think of as a big media property, the mcu is thirty billion dollars lifetime, which is half of pokemon merch revenue.

Yes, now poke on is a masterfully managed business franchise IP. I don't know for sure that break out, but I believe a large portion, if not maybe even the majority of that merch segment is the trading card game and all, all the way back to hunt of .

food cards and .

intended almost fifty billion cards have been sold. That's five zero billion pokemon cards exist in the world.

Wild, alright. So poke on one thousand nine hundred and ninety game boy comes out. And seti to Jerry had started this thing called game freak, like a decade before, with some of his friends as a fan magazine for video games that eventually get into making own video games.

None of them really necessarily take off certain in not to the extent of poker. So a game freak, satoshi to Jerry, is sort of pitching internally. Hey, we should make something for the game.

boy. I saw the functionality with the link connector, and I loved collecting bugs as a kid. And it's sort of made me think about bugs going back and forth on the link cable between these two game boys. I wonder if there's something we can do around kids and bug collections and trading them or battling them or something. And so he comes up with this concept and he pitches, and internally, now, internally.

what is IT? It's four programmer that started life as a video game magazine. Yes.

round off about this concept and he goes and pitches IT in nintendo. Nintendo is not excited about IT, but there's one person who sees promise and says, I think we should Green like this and I will mentor so toshi to jury. That person is me, a moto. And so suddenly you have the very best game designer in the world seeing promise in your hair brain concept.

literally bug collecting, which, if you know anything about momo to personally like, obviously that would resonate with him. And yes.

game freak raises money from creatures ink, who I think the right way to kind of think about IT is creatures ink is the publisher and game freak is the developer.

Yeah, I think creatures also manages the trading card game.

Okay, make sense. So they then spend six years developing the game, four people over six years with the whole bunch of setbacks, living off of basically satoshi dads money because they're living in his basement and trying to survive off of him having a real job. And in nineteen ninety six, is finally ready, and they launched IT. Yep.

I believe I was red and Green in japan initially, and then I was read and blue in the us.

Oh, you're right. And the whole thing is so unbelievably frail that when they go to translate IT and make an american version, they actually need to recover the whole thing from scratch because it's like spaghetti everywhere. So IT does well.

But unlike every other game, boy game that peaked and started trAiling off, this thing just accelerates and IT just goes and goes and goes. And everyone in intendo is shocked. Everyone a game freak is shocked. Everyone a creature is is shocked to no one expected this thing to be this successful, especially after taking six years to bring IT to market with basically four crazy people.

Yeah, it's just wild. And you know obviously, fast forward today and pokemon is enormous on just about every dimension. But he goes from that to selling just on core video game councils and intendo councils, over half a billion lifetime units of console software sales. It's incredible.

Do you know the trivia with the names of the pokemon characters?

Oh, no, I don't.

So ash, catch him in the japanese version is named the toshi after a to geter. So, so toc is nemesis, you know, griot. The arrival of ash catcher in the japanese version is named sega after a .

shag mea motto hha, that's awesome. yeah.

But this would evolve eventually into will come back when we talk about pokemon go later. But I would evolve into the pokemon company, which is sort of licensing body that is thirty two percent owned by an intent do, and the other thirds are owned by game freak and creatures. And I think the way they basically Operate is as if there are a studio of nintendo yet this point.

it's the most successful second party business of all time wow, I don't know that for fact, but I assume that is a fact. I can't think of anything else that is a second party business that would be as big as poke on. yeah. So obviously, the kids market is huge. I mean, I know this is all I did .

all day at recess and time. I could best out my void school like this is what we were doing.

And IT spends generations like I think it's all kids are doing today all day at this and we're all now like I have kids not yet a poke money, sadly. okay. So that's the kids market, obviously huge.

The other market that the game boy slash D S. Franchise serves for intendin. This is perhaps not surprising given if you think back to the original history with good pay, observing the business man on the train playing with the calculator. But it's what eventually becomes the casual gaming market. Now people aren't thinking about IT quite as that at this point time.

Intend to totally discovers slash events.

Casual gaming, one hundred percent too. I mean, this is my dad and millions of dads around the world playing tatra. And eighties and nineties IT.

Really like the intent. Do codifies this. And embraced as IT best with the D. S. This is brain age. Brain age of these like mind training games that were targeted at older people and like grandparents, it's inten dogs, which is dog, and that's like really popular with women. And older women is opposed to most video games. And IT turns out that this category, which nobody knew existed until nintendo o accidentally found IT and then they didn't even like truly embraced until amid two thousands. This is actually the biggest gaming category of them all by far.

And it's incredible because the modern essentials of casual gaming, certainly the largest, is mobile, free to play, casual gaming. And intendo sort of invented IT before mobile and before free to play totally.

So brain age one into combined, sell thirty four million copies on the D. S. Ten dogs cells, almost twenty five million copies.

Touch, I saw the way back on the game. Boy sold thirty five million copies. Now most of those are bundled LED in the us. These are billion dollar franchise with nintendo that nobody thought about for decades. It's kind of crazy.

yeah.

So we asked the question, how is nintendo screwing up so royally on the home council side while they are succeeding so spectacularly on the handheld side? I think it's one that the kids and the casual segments were viewed as these kind of geos for a long time, that no serious company and certain tainting nobody likes only microsoft to would go after and go compete with wrongly. So by the way.

the people who would have competed with them were attarian sega, and both were basically define by this point. So nintendo had this lane. Why open? Because everyone else who's trying to come into the industry is coming after the core gaming segment or the series gaming segment or the high output, the high average revenue producer people that are buying sixty dollar DVD disks to play.

And so you know then to the other side of how they allowed to grow up so badly in the homeside, I don't want to say IT doesn't matter, but a kind of doesn't matter. So in intendo s revenue and Operating profits, more or less, they flat from the N. S.

Era all the way through to the mid two thousands, even though the home council business basically just gets like daoust gasoline and lid on fire. But the handheld side completely replaces IT. Nintendo s kind of always doing a solid four to five billion in revenue a year call IT and maybe half a billion to a billion dollars in Operating income like there's no gun to their head.

Yeah so hand held very good business for the nintendo. And when you couple that with a generation of home council that is also a good business for intent, do when they absolutely knocked IT out of the park and define a brand new form factor and a brand new way to play games that has mass, mass audience, then they do the most revenue in the company's history. And that's gonna the wee.

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And right around the same time in two thousand, three dish reg fees A A works his way up the ranks and comes in as the president of nintendo of america. And so you've got this pretty awesome tag team of leadership that is ready to do something very different. And the game cube comes out.

They sort of no right away. This is a this. They're still doing everything that you sort of think they would do to try to occupy the time until they have something really great. But they're already for shadow away very early here. Yeah we hear you developers and gamers like we need to be doing something different and .

they learning from the D. S, which they just launched to, became this enormous success. They, like, who may be? These people wanted play games .

at home too totally. So this is great keynote. In two thousand and four, where reg comes out on stage, he's introducing himself and he says, i'm regi.

I'm about kicking us, taking names and what about playing games? And then they have this whole keynote of kind of the most hard core nintendo i've ever seen. It's almost like a dark in your face.

They don't know who they are as a company. A kind of reminds you of loose skyWalker at the beginning of return to the jedi, like your really not sure which way it's gona go. Could be dark, could be light.

But what you do see is then started to really embrace something. So they start talking about the D. S. And they're showing off the backwards compatibility. IT looks kind of funny, but you can put in a game boy game, and I kind of sticks out in a way that is clearly awkward.

But they know that this is an important thing because they have this massive install base of people that had all these game boys and game boy advanced in everything over the years. So okay, we're embracing that check. You also see them talk about everything they sort of can in the game cube. But then regie invites satory water out on stage in from japan to talk about this revolution that is coming for a home that .

the code me for the we was project revolution.

And they really start started just for shuttling, how they really want to change everything again and how it's an exciting time to be working with the intent do as developers because everything is just about to be so different and truly a revolution. They lay this groundwork a whole year before they even announce the name we yeah .

and I think almost two years before the we actually comes out.

I think that's right yeah.

that we is such an enormous success on basically every level. But IT really is the triumph now fully across all of nintendo as a company, in all their product lines of the good pay, equal lateral thinking with weather technology, maxim, infrared motion sensing, which is what the we o uses, is an incredibly novel technology to bring two video games. But it's a well understood, quote, quote, weather technology like TV remotes have been using this for decades.

It's a world war two technology. yeah.

But IT works just unbelievably well that we goes on to be incredibly counter position to the P, S, three and the x box three sixty. We talked on the SONY episode about all their problems with the P. S.

three. There was this like cell based supercomputer that was a total beast, a program for, and here's the way that's underpowered and using this old technology. But opening up brand new markets, IT sells over a hundred million consoles coming back from barely twenty that the game could be sold.

What a turnaround. IT beats the P. S. Three, beats the x box 3。 IT becomes the seventh best selling council of all time in the fourth best selling home council.

And the games they make for IT, they make we sports and they bundle IT in with the we, they make we fit, they make we play. This completely revolutionized the market. My favorite side bar story on this is, uh, remember how travis colonic was like a world champion wee tennis player.

right? Second west in the world, there's something .

where is later got deep bunk because turns out there war, no global leader boards. I think he was just really obsessed with we tens or something like that.

He is really good and just told people he was second bus in the world totally.

But this is part of the market that that we enables, which is like chavez colonic doesn't have time to go spend to thousands of hours playing call of duty, but he will go play with tennis and he'll get like really into IT totally.

And they intentionally make the controller look like A T V remote because they just want people to call IT the remote. They don't want people to be intimidate by IT. As I look, if you can use A T V.

you can use A V totally the remote.

They also made IT smaller. I think the Mandate was that is the size of three DVD boxes so that it's not this big intimidating .

and the .

council itself, yes, exactly. And this is where we should talk a little bit about the different segments of games because is starting to become important. And I think this will help us understand non tanju today that we really starts to lay the ground work for understanding where their position today.

We have three people to thank for conversations that we had leading up to this nick fight from record long time front of the show and some games industry veterans, the creators of x box live arcade, john David and greg canna, for kind of going down memory lane with us and helping us to understand the way that this landscape looks. So there are many segments of games, but it's worth breaking IT down to three. There is casual, there is mid core in the middle and then there's a core gaming audience. And so casual games are what we've been talking about that have sort of a broad appeal that you can kind of pick IT up and play. It's a quick in and out IT takes you minutes to understand but hours to master.

It's teches. It's brainy. Is we tennis?

exactly. And in the modern casual world, the most common type of moitie ation model is free to play. And this is the thing that's really taken off on mobile. You you see Candy crash, that sort of almost brainless thing that you could listen to a podcast while you're playing this type of game.

And the revenue per user per day, if you're really good in this sort of thing, is like twenty to forty cents, that's the way is hard to think about the model zone potential. If you're not good at IT can be like one to five cents, then there's mid core games, which is like games where you pick up where you left off. That sort of how I think about IT like not core games like world of word craft, but a version of that where they're taking these core game mechanics and you're making them more approach able.

And so they take some time to learn. But once you learn them, you really love the game. Elder breath of the wild is a really good example of this. And when we are talking about ARP down the average revenue per daily active user, that metric we mentioned before, it's more like a dollar in terms of monetization potential smaller market than casual gaming, but a dollar per person like that's definitely a market worth going after a dollar per person per day once you get into into the core gaming segment. I mentioned the world of warcraft, but this is really anything where you're like training yourself even to play IT at all and your grammar can pick you up .

and start playing league legends.

right? The revenue processes on that is through the roof, but it's a much smaller audience. And so I wanted to sort of paint this picture to try to help us understand where intendo decides to start playing from here.

They've typically been kind of a mid core company with their titles. You think of the out as the supermarket IO auto si, and with some casual games, you think about super smash brothers or mario car. You know, you're kind of button measure those games, learn more casual what they did with the wee, which in some ways was shooting themselves in the foot.

And David, you can push back on this, if you disagree, is that they started walking away from their mid core characters that really defined who intendo is, and launched a casual gaming home console. The thing that was a hit for the wee was wee sports, if they sort of lifestyle games. And the things that I don't even ever remember playing on the wee are mario and elda. That's not what that platform was for.

Yes, I would agree with exactly how you characterized that. And I also agree that by doing this in tando shot themselves in the foot. But I don't know that you can blame them necessarily. I think IT actually was completely brilliant at the time, and IT completely revitalizes the company. So with the wee and its success, nintendos revenue, almost quite rubles from the five billion dollars range to just under twenty billion in two thousand nine, all time high .

even to date, even including all the switch success that was still the all time high.

An Operating income goes through the roof to over five billion dollars. They're killing IT. This is like an unbelievable revolution, as they would have said, unfortunately though, you know, and this is where you can debate whether I was possible to see this coming or not right after the we launched and brings this revolution.

So that's two thousand and six two thousand seven time frame. The APP stores launched on mobile late two thousand eighty and to two thousand nine. And that just sucks all of this away. And this is the problem about shooting themselves in the foot. They were so vulnerable to this in a way that microsoft and SONY weren't because the core gaming market and the hardware and the platforms that microsoft and SONY were putting out, they weren't threatened by mobile. Mobile didn't take share from them, but IT took like all of nintendo share.

right? Because the wee was not the mario council. The we was the casual game in console and the greatest casual gaming experience in the world launched and fell right into everybody's pocket a few years later that swept out their entire current market away from them. And then I took him a decade to basically go back to their roots with the switch and how to, like, revitalize all the mid corn intendo O I P onto a platform that was dedicated and best in class for that use.

This is like they are really sad part of the story if they just get rugged .

here and you can see IT in the stock Price, IT is nuts. When you look at when iwata came in and took over in two thousand and two, and we talked about the we was released in two thousand five, in the four years from october of two thousand three to october of two thousand and seven, the tendons market cap, nearly eight x from nine billion to seventy billion. They were a seventy billion market cap company. But very briefly, I think their market cap was even bigger than SONY for that year. But by twenty twelve, IT was all the way back down below where IT even started to eight billion dollars.

Yeah, the impact of mobile gets felt pretty much immediately in two thousand nine, which is just the third full year that the we is on the market when IT should be hitting like the fat part of its lifecycle against prime. That's when the f stores really hit and we sales decline twenty percent here when they should be accelerating and then they fall roughly another thirty percent each of the next two years.

And software sales, which are more important, declined even more. That's on the home council side in the wee, which is like maybe a little more insulated from mobile. Meanwhile, the D. S, which was this drug nod, is just getting rocked.

Yeah, it's weird in some ways. And nintendo called IT, because they realized that casual gaming was gonna a huge market. And they realized that portable gaming was gonna be a huge market, but they did not have any strategy around mobile. Yes.

IT was the perfect marriage. So nan tando wanted the three D, S. To try and differentiate and versus smart phones and having the three d screen, they launched that in twenty, twenty eleven, but sales stall out pretty much immediately.

I'd forgotten this about the three D S. And they have to do a major Price cut on IT within six months of launch. So they drop the Price thirty percent less than six months after the council launches.

Like that is bad. So that does stem the tide for a bit. And three ds sales do grow for the next couple years.

But then the smartphone jg onod is just too big. Twenty thirteen, fourteen, fifteen, three D S. Sales just fall off a Cliff.

The saving Grace that they had their entire life, or from nineteen ninety onward, of no matter how much we screw up, our handheld gamming system will sort protect us. Shield ds are gone totally.

And so now an tender is in a saga post satan and dream cast type situation. There's an existent al crisis happening. So in intendo s fiscal year twenty twelve, they report their first ever annual loss. So this was a company that even during the crappy years was making half a billion to a billion dollars. An Operating income is just coming off the we are bananas as where they're making five billion dollars in Operating income, all of us on their bleeding cash.

And IT gets doubly bad because the only way out of this for them, if they're going to keep their hardware strategy, is to rush out a new console, which means they have to invest capital in R, N, D. And in marketing for launching a new console. The train stem, the loss is both on handheld and mobile is rough.

So they have rush out the three ds. They rush out the way you is the successor to the we, oh, the we, you is a piece of garbage. The things sucked.

And there are so many insights with the V, U. That are correct directionally.

correct. Let's put IT out away.

People want touch screens. okay? You're right. Phones and ipad are really starting to take the market by storm.

So having a controller for your home that has a little touch screen on IT, okay, I can see that. But god is this convoluted. You basically handed people what looks like a portable console, this controller with a screen on IT.

But it's GTA be in range of the council, right?

They can actually use IT as that they have to use IT as a controller for the council. And there's all sorts of innovative things they can do that. This is sort of where the maxim of nintendo really comes into play, where they're obsessed with designing hardware that enables new game experiences and then designing games to work with that hardware. They still, at this point in time, have never shipped a game on any hardware where they did not design the controller.

And so they're starting to make all this like very clever use case games for this very strange piece of hardware where like there's accelerometers in the controllers, you can tilt IT back and forth or you can put IT down on the table and you can write on IT or you can be like playing chess and you can flip outside. It's weird watching the commercials for this cause you're like why this could do everything. This is like a very innovative council, but a bunch of things were wrong with IT, including the fact that IT was rushed market wildly misnamed. IT sounds like it's an accessory for the we, which IT wasn't IT was a full new generation.

Yeah, IT was bad. So the V U just really compounds the gravity of the situation. For an nintendo o IT only sells thirteen million units in its entire lifetime ever. The game key was bad selling over twenty. Its nintendo s worst selling council ever, save for the virtual boy, was worse.

And these losses continue year after year after year. I think most of the years from twenty eleven to twenty seventeen, eighteen were in the red.

yeah. And so as that happens, shareholders and shareholder activists start demanding that nintendo go the way of saga and get out of the hardware business. There's this really, really obvious value maximizing, at least in the short term, move that nintendo could do, which is take their IP and publish IT on smart phones. And this .

argument that makes a lot of sense. What does this company have anymore? They do have I P that is super valuable that you should put everywhere.

But nobody likes their last console. They can't prove that they've been able to do two consoles in a row. They can't prove that they have been able to leverage their user base into buying the next console, literally ever. They can't prove that there's any purpose to everything they learn from the wee because all that great casual stuff that they learn for the wee is now happening on smart phones, which they have no play in. So IT would be very reasonable to be like you really need to stop making hardware and you have this unbelievable asset, which is some of the worlds most valuable IP.

yes. So there's a legendary story which may be a powerful, and after a similar research, I think actually is a powful, but the spirit of IT is absolutely on point. Mitchin Blake tell this over on the game grave pot gest, where at the twenty thirteen shareholder meeting and what is up on stage is taking questions from the audience.

He gets an an argument with a shareholder, not even an institutional shareholder, just like an individual shareholder who's there who says, like, hey, my daughter loves playing games on her smart phone and he loves playing nintendo games. Why are they are known intendo games on smart phones? And that a lot is like, model honor is offended and he jumps off stage and punches the shareholder in the really so I don't think this really actually happened.

I think it's a urban legend, but it's very well could of because nan tando and a water were just so stubbing through all of this. They like, no, that we you, it's the future. Like please buy our council.

And there are philosophically opposed to a mobile in a number of ways. One, they like controlling the whole experience. They did not design the smart phone controller.

Therefore, they don't feel they can make great games for IT, which is pretty. But how they feel, they also philosophically hate the business model that's doing well on mobile, which is free to play. They think it's like the devil. They think this is an .

immoral thing to do.

We talk to a video game veterans, and they do say, like we are very grateful that nintendo exists in the industry, because otherwise I would literally just become this detritus of capitalism.

I totally sympathies with this point of view. And you know if what is this is an actual code from him around the time he says making smart phone games is absolutely not under consideration. If we did this, nintendo would ceased to be an intent.

Do having a hardware development team in house is a major strength. It's the duty of management to make use of those strength. IT probably would be the correct decision in the sense that the moment we started to release games on smart phones, we'd make profits.

Remember, they're not making profits at this point time. However, I believe my ability is not to short term profits, but in intendo is mid and long term competitive strength. Now he's absolutely right, and history proves him right here. But from a shareholder perspective, at the time, people are like, you GTA go, we've had enough. Well.

the funny thing about the survival bias is, if history didn't prove him right in the long term, we also wouldn't be doing this episode. Somebody could have had that same opinion and then gone the way of sega. And today we will be talking to you about the x box or some other episode.

totally nintendo. A stock race from the highs after the wee declines over eighty percent. So like oh, it's brittle and I think there's probably a decent chance that a what a would have been forced out. Unfortunately, and completely tragically, he dies way, way, way too Young and unexpectedly, ly of cancer. And tony, 4.

eight.

fifty five, eight, fifty five, it's just terrible. This also really sad because he and mea motto and other intendo executives finally do realize that they have to change things and they come up just like time and saga had the four point point. They come up secretly internally around this time in twenty thirteen with an internal three point plan for nintendo.

And IT is everything that they need to do. And that starts with point one. We need to stop fighting the smart phone battle and embrace IT. But we're going to embrace IT in an intendo way. And this is super smart.

We're going to build a new standalone business unit, and we're going to do IT in partnership with the japanese mobile company DNA to co develop smart phone games using nintendo I P. But we're not onna fully transition the business to smartphone games like the investors want us to. We're gna use this as a way to unlock R I P and spread IT out more broadly to the rest of the world, kind of lake we've seen pokemon has done.

The pokemon I P is applicable so far beyond the game boy games. And all of the revenue and activity from that IT drive sales back to the game boy games and to the game boy platform. We can and should be doing that same thing with all of our I P, with mario, with elda.

Speaking of if we want to do that, right, just like we see pokemon doing IT, it's not just that we want to do mobile games, we also want to do theme parks, we want to do movies, we want to capitalized on metal. Gic is now just like you, and we be in the core intendo customers. From the old days, i've gotten old enough that we have nostalgia for the N S, the S N S, the n sixty four.

They start releasing N S S. N S. Classy shit is like rereleasing, the home councils with HDMI ports. This is genius. S, they make tons of money from this. So they sign a partnership with universal studios to start building supernatant deu worlds, first in japan and then in hollywood. Just open the coming to florida is coming to singapore.

And then really these points, one into embracing smart phones, embracing the IP strategy, is really to buy time so that they can rethink the hardware strategy and reimagine what the future of an intendo is going to be. Because I think of what is totally right, for Better or worse in intent do is not in intendo. If they exit the hardware business, sago is a shell of its form or self, and the intendo probably would ultimately have gone the same way if they had expected the hardware business at this point time.

alright. So in two and thirteen, they start laying the groundwork for the switch for leveraging the IP, you know, the movie coming out right now and theme parks and of course, mobile.

So that takes us to the summer of twenty sixteen and a big surprise announcement, the very first smart phone game with kazi intendo. I P. It's not through their partnership with D N A.

It's not mario, it's not ela, it's pokemon and poke on go. And this is like, it's not perfect everything mobile game away from intend o to depuis foot in the water. It's just amazing. Pokemon o is one of those things that you just cannot make up.

What happens here? The craziest thing is I had been playing ingress for the previous eighteen months, and so when poke man goo came out.

you and all the nerds out there.

I was like me. This is just ingress with poker in IT. This is very strange.

Do you know how the intendo o pokemon google relationship starts? no. So niantic, which developed poke mango in collaboration with the pokemon company and intend there was one of the many shareholders of the pokemon company was a spin out from google. And niantic was the team that within google had made the mobile location based game ingress that ban was just talking about, which was super geeky and like, really fun. But I was basically pokemon go without the poke on.

yeah, I was like a test of the infrastructure and to develop the right game mechanics in the IP that I was using was sort of an old side fine novel, but IT wasn't like, exactly wonder one.

That's right. But the Spark of this relationship actually goes back to twenty fourteen and the twenty fourteen April fools joke. Google loves April fools joke. And I had forgotten about this until I read about the research, of which was the google maps poke on chAllenge.

So on April fools day twenty, google released a video saying they were recruited for a new position within google that was like the, I think they called IT like poke master, or something like that, like the google poker master, and that there was a competition to get this job. And the way you could compete was by capturing pokemon on google maps. And they had like a video for IT and all this stuff.

And there was a whole areas. Now what I don't know, I wasn't able to find was where they already started to think about pokemon go and building a game together, because very clearly, the work that went into putting pokemon showing up on random spots on google maps was exactly the work that needed to go into building poke among go. But this was a total like under rap surprise.

Nobody outside of google and pokemon company and intend to knew that this was coping then one day in the summer twenty sixteen, IT hits. And it's just a cultural touched. I mean, i'm sure not everybody listening to this episode remembers this.

I was convinced A R. Had arrived. I was like, h, we found the A R use case. The world will never be the same.

Every eventually capitalist was running around trying to find A R and V R company. Niantic s spins out and then does raise a boat load of venture capital from, you know, all the big VC poke. Mongo itself gets over five hundred million downloads just in twenty sixteen, which is mind boggling. Now, a lot of those folks turned, but IT becomes a real viable ongoing smartphone game.

But the ones who don't .

turn spend, they love IT. So IT as well over one hundred million ongoing monthly active users. IT now earns about a billion dollars every year.

It's one of the top mobile games out there period. Investors in intent do gets so excited about this. In particular, what this means is a harbinger for other intent.

Do I P coming to mobile that within two weeks a pokemon goes release the intendo stock Prices doubles from colorada fifteen billion dollar to a thirty billion dollar market cap. And everybody's going wild like this is in intendo is finally gonna embrace smart phones. The reality is maybe perhaps in part because of pokemon goes success in the breathing room that advise them they don't.

The funny thing is this game is not released by the pokemon company that nintendo has thirty two percent ownership in. This game is released by niantic, who has secured a license to the IP from the come on company. And to your point around the stock spiking, nintendo has to issue a press release telling investors mid quarter hey ya, really excited. We do not expect this to impact our revenue meaningfully for the quarter. This was a license.

What's interesting is I think the stock does drop back a little bit when they issue that press release, but not that much. People are still really excited there. Like this is the great unlocking of value it's happening.

But to like really underscore this, I mean, there's a few interesting nuances here. One to this day, only three percent of intendo s revenue is the entire basket of mobile and licensing and theme parks and movies. They climb mobile in with all that.

They don't look at games like poker go, or what will talk about a minute super mario run as a nintendo game. They look at this as or we've licensed R I P for someone else to do something with. And the fact that it's a game, even though that sounds like what we do as a company in our core business, this is different. This is a license.

It's actually part of the IP strategy and it's .

actually marketing, right? IT is only three percent of their revenue. So all of this poker go stuff that happened is like, okay, like a lot of people got reminded what poke on is again. But non tic makes a bunch of money from that. Nintendo doesn't make a bunch money from that.

Now I suspect the pokemon company made and continues to make a bunch of money from poke man. Not quite as much as native.

but a bunch is relative like it's not impact. Full tune in ten .

business is not transform, certainly not to intend to.

Also, it's worth pointing out, if the pokemon company were the developer of this game, there is no way I would have the attractive business model that IT has. IT is a whe driven micro transaction game that nintendo is philosophically opposed to. And so in the same way that apple gets to claim um you know where the privacy company but then get paid tens of billions of dollars by google and then tando gets to claim like oh we you don't touch these dirty mj transactions and yet we're selling a license to a company that is making billions of dollars from doing that.

So pokemon go is the first quasi intendo O I P. To hit smart phones later that year in the fall of twenty sixteen. They do come out with the first game in the DNA partnership, super mario run, and they hope on to people download IT. IT doesn't end up becoming a big ongoing in like ongoing.

So moto gets up on stage in an apple cano, which was really cool to see. You know, these companies are like so spiritually aligned, although one sort of eight, the other's lunch nintendos throwing stones at apple, saying that their business model is a moral evil. So you ve got me a motto announcing on stage that they're going to bring mario to the iphone, which to me watching IT, I remember thinking like OK. So they have no strategy. This is like him waving their arms around and being like, oh my god, the way you is so bad, we don't know what to do.

Don't look over here.

Look over there. And I think even in the keynote te, they say we don't know what the Price is going to be, but it's not gonna be in that purchases you're going to buy at once up front because that's how we believe game should be bought. Which of course, is him saying where is not going make any money on this?

You're not gonna sell a sixty, seventy, eighty dollar skew on the iphone. You're going to sell five dollar skill on the iphone until the game itself is effectively the original. But since nintendo doesn't own the controller, it's sort of A A little bit of weird mechanic. You're like tapping on the screen to make him jump and you're holding IT to make him jump higher.

Yeah, it's like a really weird baby between original super mario and a runner game. Which runner games are, uh, somewhat popular? Niche genre mobile.

right? Because you're not controlling the speed at what you're running. You is going the fuddy is lying about IT is it's so intendo in all these different ways. They are super, super anti pacy.

So even though they're making basically no money on this thing, they won't let you play IT without an internet connection because they're so afraid of people jail breaking the iphone. Like you can play in on a plane or in the subway. It's so sometimes .

they .

like cut off their entire body despite their .

face had forten. That's ridiculous.

Matthew ball puts at the very best he has a great peace written in twenty twenty, willing to in the show notes, which is basically, here's wine. Intendo looks a lot like apple and disney, but isn't actually as attractive of a business as apple and disney is kind of the crooks of the piece.

And this is a paragraph that says twenty sixteen super mario A R A N is one of the ten most downloaded mobile games of all time with over seven hundred million installs. However, IT is achieved only seventy five million and growth revenue after four years, according the sensor tower. These downloads are a testament to the power of intendo s IP. But a eleven cents pretty user and less than one hundred million in total top line likely makes supermarkets run the worst performing game with nine figure installed by far.

which you know, on the one hand, point taken. On the other hand, this is explicitly not intended strategy, right, which brings us to the announcement at the end of twenty sixteen and then the launch in march of twenty seventeen of the switch. Now the switch is so interesting, IT obviously goes on to become this enormous success. I love mine. I've played the hell out .

of IT hott and twenty three million old in the .

first six years. Yep, it's the first council you bought since the p two.

Yeah, I guess I had a PSP, but I didn't consider that a council exactly.

IT is this amazing success. But when it's announced, so many people, certainly the investor community, and I raise my hand and count myself among this, I thought IT was a terrible idea. IT was not obvious, at least to wall street, that this was the savior that IT ended up being when they announce IT, intendo stocks drops seven percent and then IT keeps falling until lunch. Remember, everybody is is all excited about the intendo is finally coming. The mobile like there's a great bulcke narrative for nintendo out there and then they drop the switch and people like, what the hell is this?

We're making a thing that's like a phone but bigger, and you need to also Carry IT with you. You need a second device.

It's an underpowered home council combined with a big portable council that doesn't fit in your pocket .

even though you do have a council that does fit your pocket.

right? You have Better versions of like both of those out there on the market. Now this will be really fun for us to talk about because I think there's two things going on here, and I think intendo saw both of them.

The one that they certainly saw band is what you're talking about earlier of the mid core market being underserved at that point time. And in particular, the mid core market foreign. And do I P, there wasn't a really good platform to play nintendo or otherwise mid core type games out there, and the switch was the perfect platform to do IT.

That certainly was one thing that the market didn't appreciate that intend to saw. I think there was also another dynamic here, at least this is my experience with the switch. While the dynamics in the mobile gaming industry, on the one hand, were very different than the ata thousand eighty three video game crash in that obviously that industry still makes tons of money, is by far the biggest segment of the gaming industry.

It's one hundred and twenty billion dollar annual revenue industry in and of itself. Now mobile gaming, on the other hand, some of the same problems are definitely, there is filled with shovel, wear crap. Even the games that make the most money are crap.

This is why intendo is philologically opposed to IT, and so many people appreciate their point of view. And so when the switch launches, it's actually kind of a throw back to the N. S.

Seal of quality. A lot of people, certainly, myself included, I would play more casual, like certainly mid core, but also more casual mobile games. If I had to seal equality, knowing that this wasn't, this wasn't gonna, try and drain my credit card of hundreds, if not thousands of dollars and treat me like a whale.

And that's what the switch becomes. Even despite all the success of model. There was this room for like quality.

You're right. That quality is the way to describe that. It's not first party, it's not third party, it's quality. And nintendo is going na basically have a pretty low volume output of third party games. And the way that they design the device kind of forces you to customer make games for IT because it's not great for porting other games.

So IT sort of flies in the face of everything else happening in the industry, which is we want our game available on the most end points because it's gonna some kind of open world, services oriented, event based game. And we want to be able to play that with all your friends, no matter what device is they're on. And what intendo saying is we're going to make a device so weird that is basically a smart phone, but without blue tooth. A IT does have blue tooth.

It's just noodles. You can't use headphones. Yeah, right?

What the heck? I can't use my blue tooth headphones with IT. It's weird. And also IT is going na have like a two thousand and thirteen fourteen era tega chip .

the invidia a tega finally finds its use case.

It's so strange. And so what that means is it's a great first party device because nintendo do is not making their games for any other platforms. So they're are happy to custom right for this weird thing.

And indie developers at first probably won't write games for IT because there is an an audience. But over time, if I can an install base, it's great as an developers to develop a really high quality game purpose driven for IT. But if you're developing call of duty, yeah, it's pretty unclear that this is a great .

device for you. Yeah, I think we need to separate out two different parts of the market because on the one hand, when you're talking about color duty, when you're talking about fitting matter like mad football is not on the switch still to this day, stuff like that the very, very high and the core gaming market, what you're saying is absolutely correct. There is no color duty for .

switch rate pretty IT actually is gonna be part of the diva sture I love .

IT I love IT.

Microsoft has announced that activision will do IT if they're required, right?

But only is like a concession to the D O, G.

And no consumers actually.

So I think that's a hundred percent rate on core games. But the games the switch becomes this very viBrant, flourishing platform. And like, yes, you have to do some work to put IT over, but it's actually not quite as hard as you making IT out to be, especially if you originally developed the game in unreal or in unity or for the P C.

Or for steam, because the switch runs on the tega, on the videos system, on a chip, like you got got to do some stuff with the controls to make IT work. But you can point these games over. And so games like hates is a great example, or undertaken or less like these.

Any games that i've played and I loved on my sites like the switch is by far the best platform for games like this because they kind of harking back to the old sixteen bit and hindu era. For the first time in generations, nintendo o has actually become a really viable third party platform for the right type of developer. And IT tends to skew more.

Andy, we talk to folks in preparation for this episode who have games that even tend to be kind of more mobile, smart phone based games. They are actively working, trying to get them on to the switch because of this quality dynamic. And the players on the switch are much more likely demons, even though it's a smaller in space.

I mean, people on the switch will buy like plus sixty dollar games over the life of voting their switch. This is not a casual arpu type audience. This is a high monitise ing high intent audience.

And then finally, I think there is another element that we really got a given intendo o credit for with the switch that I am very few other people saw the potential. And when they announced IT, which is that the use case that they market IT, the primary use case of seamless playing between on the go and at home is actually pretty compelling. Totally let diary game director and designer hio cogia of the metal salad franchise.

He was one of the few people prelaunch that, like publicly really recognize this. He has a quote. He says the fact that you can play something at home and take IT outside.

This is the game's dream. The switch is an evolution of that. And before the switch, you really couldn't do this. You're same safe stay, you're same progress. You're same everything.

Yeah, exactly right. The other thing they got right with the switch, which has been huge for them both as a business and as an unlock for player dynamics, is they finally, finally got online. Yes, this is a thing where people have been saying on the ten was always five years behind.

I think nintendo a was like ten years behind an online play. This was literally their third attempt. They now finally have this thing called the nintendo switch online.

And there's two versions of IT. There's a twenty dollar and sixty dollar, but they finally have some sembLance of like an xbox live type service that works. And before I think they had the intendo wifi connection in the D.

S. And we era, and that had some really weird sub things inside of IT, the wee shop channel and D. S.

I. shop. And they have this whole like friend codes thing.

And then they deprecated all of that. And they launched the intendo network. And inside of that they had the intendo e shop.

And the e shop eventually got folded into nintendo switch online when that launched. But IT has taken a long time, and some pretty like half token, the water technology bets to get here. Famously, they launch switch online and they said, it's greeks, is pear appear.

And everyone was like, that's terrible for us. That's good for you because, you know, to build data centres, but it's slow and bugging. What he means is peer to peer. X box. Life is existed for, like eight years.

I like life is accepted like eighteen years.

Yeah, IT is wild. So they finally kind of have their act together with that. I have never bought a physical game for my switch. I've only bought them digitally. The difference between the twenty dollar and the sixty dollar is there is a bit of differences. But one of them is like you can get access to the end sixty four emulator if you do the sixty dollar online, the twenty dollar year online.

And I think you get the maro car D L C courses. If you buy the sixty version.

yes, you do. The functionality is good and others compelling reasons to subscribe tune intendo, which is a pretty big unlock and business. And if you had told me in twenty sixteen before they launched the switch, that at some point i'd be paying an auto recurring subscription to the nintendo for services I may or may not be using at any given time to play on a dedicated intendo device at that point in history, I would told you you are completely insane.

The switch really is just an incredible comeback for in tando. And while the we was also an incredible come back, IT was kind of one that they had clear lines IDE into from their experience in the hand held business. And they sort of new, of course, creativity was involved in making IT.

But if we can build this were pretty sure they will come the switch. I don't know if IT was luck or genius or just what, but this was the first time they were the true under dogs, and they had all the deck stack against them. And they prove everybody wrong.

right? And the big question is, do they have to keep doing this and betting the farm on inventing a brand new form factor half the time they fail on? Or have they now discovered something that is a durable platform for the future that they can keep building on top of leverage the existing base? I mean, how freak attractive is that now that they have one hundred and twenty three million people who have bought these things for developers, developers finally want to be in business with nintendo o again.

especially indeed, but the major three parties too. Okay, we are going to have a very robust analysis discussion of this because intendo is literally right at the cross. Where is again of what to do about the next generation?

The harvard business school should be like surrounding the intend da and doing a say like he is like the most incredible business strategy, micro causa, to learn how they are going to handle this unique position that they're in right now.

Forget her business school. This is why we're here. Acquired is on the sea.

right? So let's finish out the story and then .

we will go to analysis. So once they went to the switch, IT is an immediate head nintendo, a plans in the initial two million units worldwide production run. Remember, red, the V U was such a flap. So thirteen million units in the whole lifetime. So like two million units, IT sells out immediately. They have to air ship more units from their production lines to retail across the world at a cost of forty five dollars per unit, just to get more in the hands of demand out there, which was a brilliant move that the old intendo never what had done like it's worth eating that cost to serve demand and build out the install base. What a difference.

Yeah, although I would if they still have some of that in them. I mean, it's the six year of the switch and I was like backed up to like a month to get one online. And I drove to a target and got the last one in person. Like I think they're still some games going on over .

there limiting supply yeah now and they can probably use the excuse of the chip shortage, chip shortage, the gra from anyway, it's a huge success to your point about the middle n market. IT launches with sell the breath of the wild, which originally was supposed to be a we u game. IT launched is also on the V U.

It's forward and backward compatible to the switch and switch copies of breath of the wild sell at literally a one to one rate as the council itself for a hundred percent attack. This is never before happened in history of a non bundled game. You can't separate out breath of the wild from the switches. Initial success in the first year, too, IT was a generational game that deserves its own episode on a different podcast, and i'm sure has many out there.

And this is one where, like, when you talk to game industry of insiders, a hundred percent of people are like, this game is just so beautifully designed. The quote that I got from someone I was chatting with this, when breath of the wild two comes out next month, the whole industry will stop, will not go to work, and will just play tears of the kingdom.

simply go to the switch. I think there's some questions of like what could tears of the kingdom do to top of the world? But we will see the switch cells over fifteen million units in the first year.

So like more than the V, U, just in the first year goes on, as you say, to sell one hundred and twenty three million units so far. It's still on the market will see. I think it's unlikely will pass the D S. And the PS to, but IT depends how long intendo weights s to launch the successor and what form the successor .

takes my moneys on switch to in the next six months.

I think that is where the betting line is. But we will discuss on the back of all this, nintendo revenue just explodes from less than five billion at the end of the V U. Era immediately the next year to ten billion after the switch launches.

The twelve up to sixteen billion during twenty twenty one and the payano mic stack goes up another fifty percent as switch sales now have started to slow. That were in the six year of the council life cycle. The stock has fAllen again a little bit, but they're still doing five to six billion dollars in the annual Operating income, still a fifty billion family market cap.

Nintendo today is so far removed from nintendo of the we era. And then there's the IP. We are literally recording this the day before the super mario a brother's movie comes out.

which is possible, actually be pretty good.

I suppose. Be pretty good. I wanna see that. I mean, you've got Chris prat theyve got huge stars. This is a departure for intended, how they did do a supermarket y or brother's movie for me once, and intend to, yeah, we will talk about that one. That was a disaster back in the day.

Matthew ball points out that the ninety three, I think that's when IT was movie, was so bad that I said the whole industry back by a decade for licensing video game I P for movies.

I totally believe that because obviously, as we see here now in the mid twenty twenty years, video game I P is fantastic tic for movies and T, V shows. But yeah, IT was because of that movie, I think, can large part the people shed away from IT. The first superintendent o world opened at universal studios japan in twenty twenty one, and the first american one opened at universal studios hollywood just a couple months ago.

By all accounts, they're both pretty awesome. Two more are opening in twenty twenty five in singapore and orlando. O pokemon go continues to crush IT on the I P. Strategy, you are talking about .

a lot of things right now that don't seem to make much money for intendo. I just want to point out IT is getting their characters out there. That's all well and good. Maybe they will start making a bunch of money in the future. But like so far, none material to the top line.

I think that's the point. What aren't let's transition to analysis and .

talk about this first. yes. So what is the end game? Is the end game to get people to fall in love with the characters all over again on a continuous basis so that then they go buy more, switch games and switch to stuff.

I think, yes, with the additional nuance that i'm no brand I P strategies here, but I think the additional goal is general management that Frankly, the pokemon company has done so well every year, is a new cohorn of children in the world who can and should be brought into the intendo fold and poke on, has done this so well. You and I played IT growing up, and kids today play IT growing up equally, if not more passionately. And I think once you start moving into look across generations like that, you really do need a broad multi media IP strategy to make sure that you're engaging and bringing the new generations into the fold.

I think that's right. The Better compass is probably the nfl than disney. Originally, I was I O. They are running the disney playbook. But disney takes on all of the in house work of Operating their own theme parks and having all their own employees and needing to like, have that core competency. Also, disney has hundreds of stores.

Nintendo has like I think, two stores that they don't have like physical touch points with consumers as much as in part one we talked about world of nintendo do in the stores to sell the games. It's so different then the actual boots on the ground stuff that disney has that sort of makes up the disney fly wheel. And so you know, on our old disney plus episode, we talked about how a dollar on a disney movie in revenue equals two dollars in parks and merge.

The way that nintendo do is sort of structured where they've decided they want to make great hardware to play games and they want to make games and they want to not do anything else because that not very intendo. That's a different strategy where all of this other stuff is brand building and IT might make some money. I an nfl films was like break even. So it's probably one click away from nfl films, but it's certainly not the disney fly. We all I think .

the nfl and nfl films is the exact analogy. I think the mobile games strategy within in tando is don't lose money but extend the IP they're not trying to build IT into a revenue driver.

In other words, they're willing to give away margin dollars to not have to be in those but accomplish the same touch .

points with customers. yeah. okay. So that's the IP. Let's talk about the big question.

What is switch too? Yes, okay. So here's an interesting way to tee IT up.

Let's work backwards from intendo switch online. So that launched in december twenty eighteen. So the switch didn't have IT at first.

Which thing is interesting? IT grew very quickly three months after the launch had had eight million subscribers. By january of twenty twenty, IT had six millions of temple of twenty twenty one thirty two. Today, a reasonable estimate based on everything theyve sort of disclosed is somewhere between thirty five and forty million subscribers. There's about one hundred million active switch players per month. When you sort of think about the turn and people buying multiple devices and devices breaking and stuff like that, so you have an attached rate of like thirty five to forty percent on a recurring revenue software business.

it's pretty it's pretty good. It's not something you would want to just throw away like intended did with the N. S.

Install base. And with the N. S. Install base. IT was theoretical, right? IT was like, well. These people who eave relationships with should stay our customers.

But our customers, the hour is doing a lot of heavy lifting in that sentence because they were your customers when they bought a game last time. You hope they will be your customers when they buy a game in the future. Flash forward to today with the nintendo to switch online. There are forty million people who are your current customers who are paying you money.

Their credit is are automatically being charged every month. yes.

And when you do some quick math, there's two Price points. There's the twenty doll and the fifty dollar. Assume the average revenue per customers, no thirty bucks, maybe thirty five bucks, depending on the mix between those two skills.

That's a billion dollar, maybe a billion and a half dollar recurring revenue, super high margin software business. And that is before you even factor in the digital games. It's probably a three billion dollar business when you think about the one of digital purchases people are making. So there is like a company called intendo that does all the stuff they used to do, but also makes a billion dollars of recurring revenue in another two billion on top of that of super high margin software revenue.

This is so fully on acquired. We always talk about how software is the best business model of all time, media is the second best business model of all time. And video games are truly the best because they are software that is media and nintendo.

With help from study, a tory figured that out before anybody with the N. S. M.

Built this incredible jog. But then they, like, forgot IT for a very long time. Everything you just described is not new innovative business models.

Well, this is new.

right? But microsoft figured this out twenty years ago, and this was the whole point of the xbox. Some guy, they were willing to lose five billion dollars up front on IT because they knew that if they can get those experts life subscribers and now the game pass subscribers, that's a really, really, really good business model. And intendo is only just figured that out. So fatty.

yeah. So they basically make ten billion dollars a year selling physical things on a non recurring basis. And they make three billion dollars year selling digital things that have super high margin revenue, and lion of that is recurring. So I think that's the framing that you sort of have to go into when you think about what their next move should be. Now they're intendo, so they are gone to do whatever their next move, whatever they want you to be.

But if it's, what should I be? The answer is figure out how to launch a next generation piece of hardware that makes people upgrade, very similar to the way that people do with their iphones, that has backward compatibility to every other thing that theyve purchased in your ecosystem before. So preserve, make IT so that you're growing your monthly active customer base. If they are thinking like this, we might see them do the thing that apple shifted to, which is instead of reporting total devices sold, reporting their monthly active participants in their ecosystem, and make IT so that the switch to has all these cool capabilities that make people want to upgrade. But the same great games work everywhere.

This is the forward compatibility peace, the exact microsoft SONY an apple two have figured out of like make sure the software for a certain period of time keeps working with the old switch councils and .

they've already done this for a half generation like you have the switch light and when you're in my house you were playing with the switch oh, that I went about a couple month ago. I could see a glimmer in your eye. I could see you saying, boy, if they don't release a switch too soon, I might be buying this olid think his boys is nice if I didn't .

know that we were going to have this robust discussion about the switch too, I would have already bought a switch OLED it's so .

funny because I went out in bottom, I was like, I can't believe i'm buying a thing that's a six year old piece of hardware like, how is the thing not outdated? And then as I started to do the research, IT seems like what happened was they were a planning, a switch pro that was gonna release sometime during covet. But then when demand popped right around the time of animal crossing in twenty twenty hit, and they sold the whole bunch of them, they were supply constrained. I think the plan for switch pro or to go out the window and they were leg, let's just extend the life of the switch and some of the features they were planning for the pro, like the OLED screen, sort of win into this mini step of the switch OLED before they do the switch .

to which kind of procedures like I think it's unlikely na tando will do this because they're to do. But if you really wanted take the logical conclusion of this business model to the extreme, you turn the switch hardware line into the iphone hardware line totally or it's not switch one, two, three blab b. I'm going to guess iphone is thirteen, fourteen and fifteen bit like you might upgrade every now and then. And there's plus models and like incremental s models, but you enter the ecosystem at whatever point feels right to you and your part of .

the ecosystem. yes. And we shouldn't take credit for this. This is the exact this is popularized by crossroads capital, who a an intendo long and write awesome letters that will link to on the sort of bulcke for intendo. But if you are a boy on intendo right now, this is the sort of thing that you believe they should do. And there's sort of this question of like, okay, but what will nintendo o do? What do the close insiders at nintendo who don't care about the stock Price, who don't really care about their revenue, who don't really care, I think they care enough about shareholders.

I think they care about the spirit of nintendo, as we just discussed for several hours.

make really fun games on hardware that pushes the envelope on what types of experiences are possible for people. So I think if they get to be in bond about a new hardware idea that they think is groundbreaking and will enable a whole bunch of new game experiences, they're gonna do that. And then they will figure out the business model implications later.

I think the thing that is a little scary, and we'll see how much this is imprinted on in intendo, the V U. Deb acco. And when smart phones came out really existent, ally chAllenged Lindane for the first time ever, like they could afford to have that philosophy during the nineties and the two thousands, when they had the handheld business to save them every time, they could kind of do whatever the health they wanted.

And IT was fine. There was no existential risk. We've seen now, even with all the incredible success from the switch and the five billion dollars of any new Operating income that they are generating right now, they are in a much more precarious position. And like if they don't get things right, consumers will just leave and go back to mobile. They can't do another way.

You now we're full on and bull in barra IT. Just pull that forward and do IT. Now this is one of Matthew bulls point on the bare case, which is everyone's all hot on the switch as the best selling console ten was ever done. But really it's not one council. It's two because IT, canabal, zed, their other business line. So you kind of have to look at not how's IT doing against the we, how's IT doing against the wee plus, the D S, or the N S, plus the game boy and that really kind of putting in a different perspective where like they have no back up plan, they can't you know move forward in one while keeping the other one stable. They now have one platform for Better or for worse, and they really can't screw IT up.

which is a great thing as a consumer. That's also it's just like please don't screw IT up.

So here's all the other panels on the bare case. Nintendo missed mobile and they'll never have a business on mobile and all the future growth is in mobile gaming and they just are not there.

Disagree, I hate mobile gaming and I love my switch.

Okay, but let's talk about the business. So nintendo is cute doing thirteen billion a revenue a year, five billion of Operating income. But let's look over at mobile.

Let's see how apple and google are doing, who, by the way, make no games, just Operate stores and sell devices. They're getting away with murder on mobile games. Sixty one percent of APP store purchases are games.

Turns out that the killer APP is mobile games. Casual free to play mobile games turns out to be the killer APP for the iphone. Ninety billion dollars in total revenue per year, which means almost thirty billion dollars for apple and google. That is nearly three x nintendo's very impressive revenue from the switch this year. That is the part of gold in gaming.

Yes, totally true. I think one of the things that this episode has really Christal zed for me though, is that it's kind of wrong to think about gaming is one market because it's .

not I think that's right, especially as we're entering the sort of era of people hanging out in video games. I mean, the diverse is here. It's just in people spending time in the environment that isn't necessarily V R, is unnecessarily immersive. It's like you know hanging out on discord while you're playing games together, whatever.

To the extent that video games are where you hang out with your friends, that's like a super different use case than me playing mario cart to pass the time in my living room, and also a super different use case then someone who wants to basically play a sot machine on their phone while they're on a flight. These are all such different human experiences, and like jobs to be done, that IT is totally crazy to call them all gaming. And to your point, I bet if you talk to an intendo executive, you know they look over at mobile and they're like, okay, sure, apple is making twenty seven billion dollars a year.

Apple and google on people playing what you're calling mobile games. But if I look at that, I think i'll need two billion of those are games, and the rest of that is something that's not games. There is some kind of like statistical extraction of people's money through .

digital marketing. yes. And I think the reality is even more fine grained than that. For example, I love the new halo infinite. IT had a lot of problems as a live service, but it's finally getting ironed. And having spent a large person of my teenage years on hello, I just love playing IT.

If you were an alien, or let's say, if you were a sixty year old person observing me playing halo infinite versus observing somebody else playing fortnight on the surface, that looks pretty similar. You're in a live service environment with other people and you are shooting at them. But the jo B2Be don e of tho se two exp eriences is com pletely dif ferent yea h and tho se are ver y dif ferent mar.

kets yea h you sai d liv e ser vice, which is another nintendo bear case. Nintendo is not a good life services company so even if you're writing off the whole mobile market, fortnight on xbox and fortnight on playstation, people play those games as forever games because their life services, you need to have fresh content introduce, you need to be able to sort to have events. The way you monitise those games is with this live orientation, which nintendo do, has none of in their DNA. So that sort of like a second market that is not particularly addressable to intendo or at least they don't seem to want to address.

Well, I think they're building into IT. Mario card eight dialogue has certainly become that, especially with the new waves that they're building into, which is their version of seas. It's like a mario card eight wave is the same as a league of legend season.

Well, it's the same concept. Whether in the intend do is as good at seasons as riot is. They're absolutely not, but they are building towards IT. Clearly.

as he sort of look around IT, i'm not sure it's a bare case. But IT is interesting to just note where everyone else has sort of ended up in this market where microsoft is trying to do the netflix of gaming, they're really pushing into this predictable revenue subscription. You pay us, we give you all you can eat.

We don't even care if you play on x boxes. We want this to be available anywhere. And you should use our APP that you pay subway pan for to play games on all devices. That's a very different strategy than what SONY has done, at least for the last five years. They might be changing right now, but worser of in the middle a potential pipt.

They're basically playing the same build console game and they're playing IT with the highest monodist ing audience of people who want to pay a whole bunch of money for a game and get the unbelievable graphics experience out of IT and play IT on that device. It's interesting how all three of these companies in intendo, SONY and microsoft, after competing for a while, have now all chosen completely different lanes to occupy in terms of what they're marketing to consumers and what the business model around that is. And I think the big question for intendo is, do they care about the strategic position and picking a lane and deciding to be microsoft in this way with the subscription? Or is IT really just like do they pay attention to their shareholders? I don't know.

IT is a legitimate tion, I don't know.

But thank god that someone is an intendo in the world and gets to like innovate and drive things forward because everybody else is just kind of copying each other and figuring out is there a cash gra B2Be had or we gon a mis s out on som e big thi ng we nee d to hur ry up and go cha se IT int end do .

is rea lly not doi ng tha t. Yeah I think that is what is clearly different about nintendo duo now than the past twenty years, which is there are no longer stupid. They may not be as commercial as shareholders would like them to be, but there are no longer stupid.

And I think you probably GTA have some faith that there gonna figure IT out. On the other hand, relative to a SONY or a microsoft, where you can be pretty sure that they're not going to screw up the next generation. There is still that wild card dress .

with inten totally, which is the bare cases. Games are hitt driven, councillors ory and moral hit driven. And they take sixty years to recover from a mistake, and now they have all their games in one basket.

Just to close out the bare case, even with the switches success, revenue still hasn't matched the two thousand and eight peak. Sure they're doing war with like this licensing movie theme parks, other mobile apps, but it's not clear how they will make a material amount of revenue from all of that relative to their core business. We talked a lot about the bare case, the bull case.

I mean, if they actually transition to this durable platform business, they have a billion plus dollar subscription business on their hands. They have a three billion dollar digital high margin direct consumer business on their hands. They also, on top of all of this, to your like video game, to the best business model of all time. They also have durable IP, perhaps the most valuable IP in all of video games on top of the subscription business, creating the additional sticky ess. And as we get in into the accrued rodd's capital viewpoint here, there's a valuation bull case because you have this company that if they're actually set up in this way and they do actually execute the platform playbook, their Price to sales.

Is that a measly three and a half ex where they're trading right now? You compare that to apple, half of apple if they're actually gonna execute apple strategy and they actually have the ability to have the margin structure and the growth rate and the durability that apple has with the iphone business, with the apple store on top of IT, you can make a case that you should value those companies the same based on their multiple of revenue. But then let's get to profits.

Their Price to earning is only thirteen ex. For comparison, frickin SONY is at sixteen ex apples at twenty eight dex, disney at fifty four x earnings. So nintendo s got a three billion dollar digital business.

If you value that comparable to other sass businesses, that's like a twenty one billion dollar business you add in their cash, so that gets you to thirty four billion. If you look at intendo s actual market cap their trading today, it's forty seven billion. So that means the difference between those two is thirteen billion.

Would you value their entire hardware business, hardware switches and hardware cartridge games for the switch a and all the future licensing revenue at just thirteen billion dollars as african steel? That's like the whole AWS and error ever around. You buy AWS and you get the retail business for free if everything goes right. And if you believe the whole platform thesis, that's the evaluation bull case that crossroads are sort of absolutely pointed out.

What's really interesting is that crossroads and others have been talking about this narrative for a longer.

And at the same time, it's fund a video games executive told me last week we've all thought and intended I was gonna a business .

for the last twenty years. I suspect there are a lot of people listening right now at the end of our two part call IT seven eight hour series on intendo that i've learned a lot and are surprised about a lot of things. However, I think people that actively follow the stock and either are long or short in IT are not surprised. This is not new information. First day, there's just so much uncertainty.

and I do think of me were in a very fun period here because we will get to learn what their strategy is. I think in the next six months around the next generation council. Yes.

and that will be amazing. I guess, though there is sort of a third option, which you never know with nintendo, which is that we don't and they just doing nothing, I don't think they will do this, but they could, right? Is there a really compelling reason right now to release another hardware generation? Is the switch under attack from any angle.

right? Why released another? The switch? L is a great device.

right is awesome. I was playing at at your house. I'm tempted to DIY one. The only reason i'm not is because I think there might be a switch to .

coming soon and i'm actually not sure what the switch to would have. Maybe IT would solve a developer problem, whether are certain developers that are frustrated right now by the processor and there is a bunch of games that can get created that consumers might want.

Certainly, that is a big thing. The processor is wilfully, wilfully under power at this point. But processors are so good in, particularly in the gaming world that cannot.

Mobile processor from twenty fourteen that invidia made run the latest games sure can. Will IT run them with retracing? no. Do most consumers care?

no. As a good question, there's also some weird way that field thing that they can do as they could actually decide we want to be the next disney. And they could do theme parks and house and movies in house and merch in house and design all the toys themselves and sell them in stores that they own.

which is what marvel did. You marvel initially didn't make their own movies, then they kind of stare stepped into IT. And then when they started their own studio, that's when that really took off.

right? The tea leaves are reading against IT since they're constructing, for whatever knew, theme parks in partnership with N B. C.

universal. So I imagine they're a pretty long dated license on that break ground. Yeah, that's the bear in the ball. We're out of order here, but I would like to do power and playbook if you're game. Oh yes, for sir.

right? So what of the seven powers? And for listeners who are new to acquired, go list to our previous epo de with hamilton to learn what power is do you think that nintendo has in the time period from one thousand nine hundred ninety two today?

Well, let's start with what we talked about last episode and what we talked about with hamilton and Cheney about this amazing, magical alchemical blend of scale economies, network economies and switching costs that the N. S. Was in the nineteen nineties.

I think they basically do not have that anymore. That has disappeared in all the up and downs over the last twenty, thirty years. I think you could maybe argue that none of the console players have the anymore, at least not in the same way that the any as did they do. You have these elements, but so do their competitors. So it's not differentiate anymore.

Good point.

So I think that's actually no longer the case for intendo O. I think they absolutely have a cornet resource in their I P, for sure.

that's the strongest one.

Now that may be the strongest one and potentially also process power. There is nobody else that can make breath of the wild. There are other studios that can make other amazing games, but the corn intendo games serving that ID core audience. Nobody does a Better. And I don't think anybody kitten really compete with them.

And I have a hard time with this. I'm sure there is any developers.

H okay, fair enough. Too much in the stale.

A, B, I mean, I have played breath of the wild yet. I don't know what are waiting for, but I don't know. I'm not sure that they uniquely can create that type of game. If you were to pluck out all the IP.

yeah, that's fair. You're right. It's corner resource. It's the IP.

I do think there's a new one that they've introduced with intendo switch online, which is no unintended switching costs. I bought my games from nintendo like I don't own them. It's a different .

version of switching costs totally.

And interestingly, if I let my subscription labs, if I don't pick IT up again for six months, there's I got six months Grace period, then I lose all my safe data. So I find someone who got like super invested in all the progress I made in breath of the wild. I have to keep paying intendo, assuming that I bought the game digitally instead of as a little as a cartage yeah, which is weird that they offer both by the way, it's a very contrive. It's very nintendo.

I think that is actually a console games industry problem as a whole, not just in do x box and only have the same as you like. You look at the P S 5 and the series x one， then you like, why the hell do you have C D slots? On the other hand, core gamers feel very strongly about this further reason. You said they really want to own their games and make sure that nobody can never take them away from them.

And L I never sell. I just paid in ten to one hundred twenty dollars for two games in the last week.

That money i'm never getting back. You know they still have like a weaker version of that scale economy, network economy, switching costing. It's just not solely there is like microsoft box have their version of IT.

right? If I an developer, twenty million switches is a very active group to distributed to and so are the play stations and so are the x boxes.

I think the switch and intend do is counter positioned against the smart phone gaming market right now, in particular because of this quality concept. I can be very sure that when I buy a game for my switch, it's gonna be quality.

right? An apple to adopt that stance would have to forgo revenue. So IT is counter positioning.

Alright, playbook. Playbook.

there is a great line that gigi motto has, which is, a delayed game is eventually good, a bad game is bad forever.

So good. I go about this all the time.

ever since I first read the court, and we were first starting researching three months ago. IT is something I think about a lot for acquired episodes. It's like we loosely have a schedule. You know we do six episodes every six months, but uni just keep canceling stuff and we're like an qualities low. And i'm not sure it's the best way to run a business, but IT is the best way .

to create art. Yes, which to our discussion about what is IT that the people who work at and run and do think they're doing there, yes, it's somewhere between.

right? They really do value the art. And I think that's pretty rare when you look around like activision, E A, the people making the big decisions do not care about the art running spread sheet businesses. And nan tando is not.

But there's a until stuff to read into in this quote, which is great, a delayed game is eventually good. A bad game is forever. Also nettled in that quote is that nintendo doesn't improve upon their games after releasing them, right? That's so the opposite of epic games.

Such a good point. And even my favorite example, hello, infinite, halo infinite was a bad game when IT launched. IT still has a lot of room for an improvement, but IT is so much Better than when .

he launched fortnight, didn't have batra when IT launched is crazy. So that's another interesting one. Matthew ball points out a third thing about this quote. Where he looks at the world is a delayed game is eventually good.

Now the clinton territory define .

is Matthews point is, well, a delayed game could be eventually good. But I think there's A A sort of artist polishing thing, which is like, if I just take enough time and I make IT the way that I want.

IT will eventually be good. Yes, I think intendo falls victim to this. We even really talked about the games themselves side of intendo because that way bee on the scope of acquired as a podcast. I think there's a big government of this though within intendo. I think they think that every elle, the game is like amazing and it's not yes.

yeah, you can kind of feel that .

are all jumping on with a couple here. One really popped up to me in this episode in part to is the jobs to be done framework. And we talk about this sometimes on acquired, not a lot, certainly not as much as we talk about seven powers and other ideas.

But the handheld market in particular really highlights this for me and how everybody in the industry like basically ignored IT forever. And I don't know, often intended thought about this conciousness, but the game boy and the D. S.

Were hyper serving two jobs to be done. One was games for kids and one was games for casual adult players. And neither of these audiences were being served well at all by all the innovation and investment going into all the other gaming platforms and intend just got IT right. And so on the surface you look at like the game boy and you're like, what is this thing, you know but then like it's actually serving these wildly diverse audiences in very .

good ways yeah at such a good point.

Two more that I want to talk about, one I don't really know what to take away is for this on me. But i've really stuck on this episode of, like how start. The difference is for me on switch games versus smart phone games. I know that smartphone games are a much bigger market and are likely to continue to be. But the actual experience of playing them is so bad, and many people will argue with me on this.

that we're being reductionist on how bad global games are, and we're not talking about any other good ones totally.

And back to what I was just saying on the jobs to be done framework. I think a lot of people that are playing those games, that game is accomplishing a jo B2Be don e for tha t. absolutely.

But what this really makes me think and makes me a little bit sad for is how badly apple failed the consumer in gaming on I O S. There is an alternative history where I O S and ipad O S is in in tando, like giving platform and like game design. And the art of gaming is flourishing there. And there would be so compelling as a consumer that, like my phone that I have with me all the time, also has these beautiful game experiences. And that is just so not the case.

the ethos of what these devices were supposed to be. And Steve jobs, apple is very intendo like. And when you think about the APP store and APP store review, and we don't need further apps, when you have an enormous pile of money on the scale, it's pretty hard to let your values out wait.

And I think that happened to apple. I think they all sort of looked at IT and i'm not saying Steve jobs would be any different. Steve probably would let the same thing happen.

And the whole thing was said in motion he was there. But I don't think anyone had any idea how much money will driven casino mechanic type games, loot box games, Candy crush type games, how much money those could make. And if you sort of could go back up priory and say, apple, you can have a much more close down APP store that looks a lot more like intendo a switch online.

Or you can have what IT is today. I think they wish maybe they wish they could have gone the intendo out. But being the most valuable company in the world and the most profitable company the word ever seen is also pretty attractive.

I think they wanna think they would have gone the inten out, but they first sure wonder and it's unna. I was since thinking, as you say, that on the one he had, nobody could have predicted and nobody did predict how big the mobile gaming market would become. But i'm taking all the way back to bring a full circle to the origins and of intendo.

Of course, you could have it's called gambling is human nature. It's been there forever. And like the more things change, the more they stay the same.

But it's not just gambling. It's gambling combined with social status and sometimes is not gambling, you know sometimes is literally .

do what do you think caso s are? That's true. I'm combined with several status. That's true. It's just all digital. Now yes, you can tell a what is nintendo hundred and thirty five hundred and forty year old company story without IT fundamentally boiling down to being like human nature is human nature.

And the intended a story just illustrates so much for me that the seeds of success are shown in a fall, and the seeds of a fall are so in success. The intendo story, with the up and downs, the falls came from their successes, and the success is came from their falls. right?

Yeah, they're greatest strength are their greatest weaknesses, yes. right. So my last one is kind of a what would have happened otherwise? And that question is, how is this company not owned by disney? You have to imagine bobber was on a plane in japan at some point discussing this .

is uni maginness that he wasn't.

They bought pixar. They bought luis film. They bought marvel. And in twenty twelve, the year that lucas film was purchased, nintendo do was only worth twelve .

billion dollars.

So assuming that that happened, how did that meeting play out? And I think nothing has ever come out about this, but either disney would have had to decide. We don't want to be that in the video games business.

I mean, they bought play them and they do have games. I think they make billions of dollars from mobile games, but maybe they decided that I P is not the type of I P that we were buying. And we think that movie I P is more refers power into our fly wheel than games I P. I don't think that's the case.

No.

cause that would be perfect to be so perfect. Mario, all the the whole cast donkey is first class IP along with those three franchise they bought and the disney princess series.

Totally, i'm not the first person to say this filling. I suspect this new mario movie is going to do really well. You know, it's gonna just breaking crush IT. absolutely. When there is a alta movie television series, whatever, people are going to go absolutely nuts. We talked about IT in part one, but like more people like mario than like elda, but people who like elda get freaking tattoos of link like they named their daughters zelter.

It's gona be like lord of the ring style. yeah. So one thesis I have is that japan as a nation would never let nintendo be sold to a foreign buyer.

It's like the reverse of what almost happened with the mariners.

Yeah, I just have a hard time imagining the japanese government allowing a deal to go through. And I have to imagine. This sort of some discussion with the state before you even try to propose that, I mean, it's a national treasure. The olympics opened with nodding to mario, I think when the camera, what year IT was, but the japanese prime minister came out of a tube like one of yes.

So I think no matter how bad .

this company does, the state would would nationalize IT before whatever get sold to a foreign yer.

Yeah, I think that's right.

So man, I would kill them to hear the conversations between the Bobby gar.

And there's got to audio tape out there where I know somebody recorded that meeting on their smart phone.

Alright, if anyone has that recording or any knowledge, any conversations.

we promise we won't tell anyone.

actually. Yeah, join the slack. You can. D, M, in the selective.

Yeah, exactly. Oh, that's such a good point. yeah. There's no way that that conversation didn't happen, right?

No way, no way. Alright.

carve outs. So I have two car outs, pocket and pocket related. One is really, really good. Vanity fair article with care switch that just came out, friend of the show for acquire guest cares about pioneer of our industry and our category.

So good when we had her on the show way back, when we told the story of the recovery acquisition. And she's had like six more chapters in her career since then. What is just so I hope we have six more chapters in our career at that age.

Yeah, good for her. You know, he has two children that are about my daughter's age. Two, amazing.

Wow, I could not imagine being twenty years old and parenting. It's like, I am alec. Her energy is just incredible.

While also doing all these things that's carve number one, carve out number two is a long, long, long time coming. But I have finally this names to be like, finally, finally really gotten to heart core history. nice.

It's always been an inspiration for us in theory, and i've never just actually spent the time to dive into IT. And then so good, like the O, G, everything we do is trying to be a shadow of him. So, so good. If you haven't listen to go check out. Yep, all I do is .

research for required. So I like i'll come up with some other ones, but are the touches movie is great. I think it's like totally worth your time.

It's a fun watch. See, I should come up with one. Oh, I did just listen.

A great podcast episode this week. Invest like the best with petrick onny. Always a great show.

I mean, truly like he's just one of the best interviewers alive and in front of the show. We've one home at home with them, and we need to do some again. He interviewed dar al murray, the G.

M, of the philadephia seventy sectors. I think he's A G. M.

right? Oh, wow. I'm not up on my M. B. A. Ah.

yeah. So he left the rockets. He was considering leaving basketball. He thought he was out, and he is now all the president. Baseball Operations .

at the seventy sectors. I am so behind on my M. B. A drama. So he took inkyo job. wow.

IT is a fantastic interview. IT is really fun and actually dub tails off this episode. Well, they spend a lot of time on the topic what makes a good game and they're basically for all the video game nerds out there who love thinking about baLance and things that are peer over powered or nursing VS buffing and sort of trying to make a game the most competitive.

This episode spends a lot of time on that. And obviously, darl has thought a lot about this problem. And how do you continue to tweak the rules of sports to make IT a the most competitive, like the best true game and the poor sense of the word, but also the most interesting to watch, which in some situations mean you actually want to make IT less skill driven.

You want to make IT more about luck because you want the any given sunday effect. And so there's a lot of very interesting a point makes. As usual, Patrick does does a spectacular job with the interview, so highly recommend that will blink in the show notes.

I even listen when yeah I need to go added to my view, it's awesome related that cautiously interested, skeptically interested to see how the pitch clock goes in a baseball this season.

So yeah, i'm literally going to the manners game tonight. The former property of intendo of america. And I ll have to keep you posted to be found.

Yeah.

you have to report back. Well, with that, you should join the slack. IT is a great way to discuss this episode, share childhood stories of playing intendo here from people who are involved in the industry who are always dropping great nuggets in after we record so awesome place for a post episode discussion that is acquired.

Dot F M, slash, slack, A, C, Q, two, turn out bangers. So go subscribed. If you're not subscribe, you should. Because the next one, seriously, with the co of retool, was like one of my favorite conversations we've ever had on the show.

H, David is so great. We've also get some really great E, C, Q to episodes coming up. two. So stay in there or taking the duce to the next level.

We are speaking of the next level, David, that is a fancy shirt that I see wearing. How can people get sweet merch like that?

In the acquired merged store .

acquired dota m slash store marit listeners. With that, we'll see next time.

I'll see the next time. is.