It’s a bad economy out there. Microsoft has had layoffs. Sony has had layoffs. EA has had layoffs. And Nintendo has downgraded its profit forecast.
One of these does not belong. As the always worthwhile Rob Fahey points out in this week’s GI.biz editorial, the economy has become a convenient scapegoat to do a little job cutting, even when that doesn’t totally line up with the data. After all, if the situation was so terrible, Nintendo would be announcing layoffs just like everyone else, and quite to the contrary, they show no signs of shaken confidence.
Fahey points to a couple of alternate factors in analyzing the recent layoffs: poor management decisions, overextension during boom times, gambles that didn’t pay off. In the midst of this, I can’t help but be struck by the parallels between what has happened here and the turmoil in the broader American (and world) economy. Fahey doesn’t discuss the reasons that Nintendo employees have managed to stay off the chopping block because it’s not really part of his thesis, but for the most part, it’s pretty simple and obvious stuff. The Wii and DS are both cheap to manufacture and develop for. They are wildly popular. And Nintendo executives run a famously tight operation. All of this is in contrast to offerings by Microsoft and (especially) Sony. But this isn’t just a story about the triumph of frugality. It’s also a story about how, like with the broader economy, someone was visionary enough to see the coming storm and take proper precautionary measures.
The story of the current economic crisis is well-known, at least in broad strokes. Banks made loans to people who wouldn’t normally qualify for them and then sold those loans to other dealers who packaged everything together and then sliced them up to sell to still other people. And in large part, this all depended on the assumption that everything, from stock prices to real estate values, would just keep growing and we would all be able to borrow against the future value of our assets. Meanwhile, the American people in particular were not saving and so when any of them fell ill or lost their job, there was very little to live on if they could not find another source of income quickly. This whole attitude could coast along for a few years or even a decade, but in the long run it was unsustainable. Plenty of people saw this coming, but they were ignored in the euphoria of the moment. Depending on your point of view and political leanings, you could say that this is a problem that has been decades in the making and has finally come to its tragic, inevitable conclusion at last.
The same thing could be said about the videogame industry. For the past two generations, the console wars (and to a lesser extent, handheld wars) have been a power game. True, the actual most powerful console usually did not win, but games were still judged, in major part, by the beauty of their graphics and the complexity of their physics. If a game did not meet a minimum standard of technical excellence, the consumer and the press by and large did not pay much attention to it. Nintendo was the first to see the problem with this. As games grew more and more complex, developers would have to expend more resources on making them, development times would stretch longer, and individual games would have to sell ever more in order to recoup their costs. The equipment to play these games—not just the consoles but also the televisions to play them on—grew increasingly expensive and unavailable to people without significant independent income. Meanwhile, the industry as a whole was growing more and more focused—to an unhealthy degree—on catering to the desires of men between the ages of 18 and 34. A market based on such a narrow demographic can only grow so much, especially as these men grow older, gain more responsibilities in life, and begin to have less time to spend on mastering intricate video games. Like the credit economy, the whole system was unsustainable in the long run, and although it was admittedly in Nintendo’s own interest to keep pointing this out, that didn’t make them any less right. And out of the three console makers, it was Nintendo alone who took steps to address the looming wave as they created a console that appealed to a broader audience and reduced costs. No More Heroes sold less than half a million copies worldwide, last I checked, but that was enough to justify a sequel. On no other system would numbers like that make any sense.
But wait, you say. Isn’t the videogame industry in the middle of a boom period? Well yes, it is, but you have to be careful with the numbers. As this analysis from GamaSutra shows, the videogame industry did grow. But that was almost entirely due to Nintendo. Nintendo’s total US market share is now approaching 50% of all consoles or handhelds sold. Without Nintendo, it is likely that the console and handheld market would have shrunk just like the rest of the economy. It makes sense intuitively if you think about it. Last generation had the best selling console of all time, the PS2. Neither the PS3 nor the Xbox 360 are anywhere near on track to reproduce the same success. And with prices that are still well above $200 even after three years, it is highly unlikely either would have achieved the same mass appeal even without Nintendo in the picture.
If only it had been possible for some agent in the credit market to have taken such forward seeing action in order to benefit themselves so massively and protect the broader economy in the bargain. However, the banking and finance industry is not dominated by three main players like the videogame industry is, so even prudent action by one of the competitors would not have saved the system as a whole. It’s really too bad. Nintendo spent a lot of time warning of the coming danger, and all the companies that ignored them are now paying the price (Sony and Microsoft most obviously, but also developers who bet on the Xbox 360 or PS3 being bigger successes than they turned out to be). A very few economists and politicians warned of the incoming credit crisis and the shocks that would reverberate throughout the economy. And those who ignored them (which is most of us) are paying the price.