Source: Snow Leopard Finance

Mobile games have become a castaway. $Nintendo (7974.JP)$ 8月20日，任天堂宣布旗下手游《动物森友会 口袋营地》（Animal Crossing: Pocket Camp）将于11月29日停止运营。

Released in 2017, 'Pocket Camp' may be the least impactful work in the 'Animal Crossing' series.

The loss of 'Pocket Camp' is not only due to its content volume and game depth being inferior to other console versions, but also because its revenue and other Nintendo console games are not impressive. According to Sensor Tower, as of 2022, the total revenue of 'Pocket Camp' in five years was 0.28 billion USD, while Nintendo's annual revenue that year was 14 billion USD.

The loss of 'Pocket Camp' is not only due to its content volume and game depth being inferior to other console versions, but also because its revenue and other Nintendo console games are not impressive. According to Sensor Tower, as of 2022, the total revenue of 'Pocket Camp' in five years was 0.28 billion USD, while Nintendo's annual revenue that year was 14 billion USD.

Currently, several other mobile games operated directly by Nintendo are at least 5 years old, and if there is no greater resource investment, it is expected to face the same fate as Animal Crossing: Pocket Camp.

Mobile games were a short-term strategy for Nintendo to cope with declining performance, but they did not grow into a second curve due to uncertainty. Later, with the success of the Switch, mobile games were gradually put aside by Nintendo.

However, between taking and giving up, Nintendo has missed an era in the face of the mobile wave.

01 A promising experiment that ended up anticlimactic

From entering the mobile game market in 2015 to Nintendo President Shuntaro Furukawa explicitly stating in 2020 that they do not plan to release more mobile games, Nintendo's mobile game experiment only lasted for 5 years.

During these 5 years, Nintendo's mobile games had their shining moments, but ultimately faded into obscurity.

In 2016, Nintendo released its first social mobile game, Miitomo, in collaboration with the leading social gaming company DeNA. It was positioned as an app for communication among friends. On the comprehensive rating website Metacritic, the game received a score of 7.

A year later, Nintendo's then-president Tatsumi Kimishima revealed that Miitomo had been downloaded only about 18 million times. In contrast, the top ten mobile games in terms of global revenue that year achieved downloads of over one billion. In January 2018, less than two years after its launch, Miitomo announced its discontinuation.

In February 2017, Nintendo launched the mobile game "Fire Emblem Heroes", which has gacha elements and is the most profitable mobile game for Nintendo.

According to Sensor Tower data, as of June 2022, the global revenue of "Fire Emblem Heroes" has exceeded 1 billion US dollars.

But in the entire mobile gaming industry, this number is not enough. In 2021, there were 8 mobile games with annual revenue exceeding 1 billion US dollars. However, "Fire Emblem Heroes" averages less than 200 million US dollars in annual revenue and is ranked outside the top 20 in the global mobile game rankings.

Even the peak work is not up to par, and the performance of Nintendo's other mobile games is even more dismal.

The cumulative revenue from the operation of 6 mobile games by Nintendo until 2022 is approximately 1.833 billion US dollars (Sensor Tower data). In contrast, Nintendo's revenue for the fiscal year 2022 alone is over 14.011 billion US dollars, which is more than 7 times the total mobile game revenue.

After 2019, Nintendo has not released any self-developed mobile games, and the mobile game revenue has not been disclosed separately in the financial reports. By 2024, Nintendo will only have 4 self-developed mobile games still in operation, and all of them are outside the top 100 in the Japanese iOS game rankings.

During the years when Nintendo was trying and finally giving up, the global gaming landscape had undergone earth-shattering changes.

In 2015, global electronic game revenue reached $91.5 billion, with mobile games on smartphones and tablets accounting for about $30 billion, or 32.8% of the market. By 2023, mobile game revenue alone had reached $90.4 billion, accounting for 49% (according to game market research company Newzoo).

During the booming days of mobile games, many dark horses emerged and grew into giants.

According to Newzoo, Tencent, which ranked sixth globally in 2011, had become the world's top game company by the first half of 2015, with mobile games contributing nearly 40% of its gaming revenue. Supercell, which only released its first mobile game, "Hay Day," in 2012, saw its revenue soar to $2.33 billion by 2015, making it the world's top mobile game company for two consecutive years.

Nintendo, who woke up too late in such a critical year, had already missed the boat.

02 A performance that everyone knows in their heart

Despite holding several world-class IP and having a team of talented developers, Nintendo still couldn't create a hit mobile game. The reason behind this is that they approached mobile game development with the same mindset as console games.

Regarding the difference between the two, game blogger 'Big Bear Talks Games' summed it up like this:

As a buyout single-player game, console games need to have enough original game fun to support them in the project planning stage. 'This means that the basic gameplay, level design, world exploration, and continuous content need to be rich and deep enough to gain market recognition.'

But the development approach of mobile games is the opposite, and it is based on a commercialization model to build content. For example, products that sell values, gachas, and time, how to shape the demand for values/character cards/shortened time through what kind of content, scenes, and conflicts.

The result of Nintendo's deviation from the path is the release of the mobile game 'Super Mario Run' at the end of 2016.

This mobile game is designed and produced by Shigeru Miyamoto and Takashi Tezuka, the leaders of the company's core team, and enjoys the treatment of a Mario orthodox work. However, its problem lies in the payment model, which is still a buyout system - free trial + payment to unlock subsequent levels.

This payment model encountered Waterloo in the mobile game field. In an interview in 2017, the then president, Tatsumi Kimishima, revealed that the payment rate of this game was less than 10%, lower than expected. The Wall Street Journal reported that its true payment rate was only 5%.

In the mobile games released afterwards, Nintendo has also tried gacha card draws, dress-up payments, and passport payment mechanisms, trying to explore in-app purchase mechanisms that match game content and gameplay, but most of them have had mediocre results.

The most fatal reason for failure lies in the wavering of the strategy.

Before 2015, Nintendo had a very conservative attitude towards mobile games. At that time, the president, Satoru Iwata, had repeatedly stated that Nintendo would not make mobile games.

Until 2015, Nintendo, under pressure from multiple shareholders due to the lower-than-expected revenue of products like Wii U and consecutive years of declining revenue, finally agreed to develop mobile games. Even a foreign shareholder proposed that Satoru Iwata should step down as president and let a member of the founding family, Tatsumi Kimishima, take over.

At the time, Satoru Iwata even explained publicly that this was 'not a decision made by a company with no other choice'.

However, from the subsequent development, it seemed more like a performance for the shareholders to see.

According to a report by the foreign gaming media Naavik, Nintendo did not pay much attention to mobile games internally. In 2020, the current president, Shuntaro Furukawa, bluntly stated, 'The original intention of entering the mobile game market was to compensate for the sales shortfall of Wii U, which did not meet expectations. Now that the Switch is performing well in the market, there may not be similar plans in the future.'

As a result, mobile games did not become Nintendo's second curve, and Nintendo missed the last opportunity to stand at the forefront of the great transformation era.

03 A profitable business that never loses money

Whether slow or arrogant, Nintendo's capital lies in the fact that it can make a fortune even without making mobile games.

In the 1980s, when the Nintendo Entertainment System was a huge success, Nintendo introduced a large number of third-party game production companies to meet market demand.

The sales of hardware give it enough bargaining power, and the terms of the contracts signed with external parties are extremely strict: authorized third-party companies not only need to develop game cartridges compatible with the NES, but also need to order cartridges from Nintendo, with a minimum order quantity of 10,000 boxes; for each game cartridge produced by Nintendo, third-party companies need to pay corresponding fees.

Due to the lucrative profits, even in the face of such demanding terms, there are many manufacturers willing to join.

Taking Konami, the developer of Contra, as an example, after cooperating with Nintendo, Konami's revenue increased from 10 million US dollars to 0.3 billion US dollars over a five-year period. By 1988, there were already 50 third-party companies authorized by Nintendo, including Namco, the developer of Pac-Man, and Capcom, the developer of Chip 'n Dale Rescue Rangers.

For Nintendo, this is a profitable business with no risk. For a third-party game with million unit sales, Nintendo can earn at least 7 million US dollars in revenue, while the risks are borne by the third-party companies.

Nintendo established a profitable model of combining hardware and software: it attracts players to purchase hardware by producing excellent exclusive games, and it supplements the software ecosystem with third-party games, which brings in more profits.

But all of this is premised on the fact that Nintendo's consoles are still influential channels.

Every console has a lifecycle, and only with high enough sales volume within the cycle can it attract third-party companies to produce more games, achieving a virtuous cycle.

For example, Nintendo's bestselling handheld GBA (Game Boy Adwance) sold over 80 million units, attracting many third-party companies such as Capcom to develop games for it. While the Wii U only sold over 13 million units during its lifecycle, the lack of third-party games is widely considered one of the reasons for its failure.

Today, the game industry still revolves around distribution channels, but the crown of the king no longer belongs to the consoles.

Where is the future of Nintendo in 04?

With the rise of mobile games, the biggest distribution channel in the gaming industry has shifted from the previously scattered, unstable, and cyclical consoles to the more centralized and stable App Store, Google Play, and the Android software stores of various mobile phone giants.

Apple may not be considered a typical gaming company, but it has become an indispensable player in the gaming industry.

According to Sensor Tower data, in 2023, the 'Apple Tax' (the commission charged by the App Store to developers) brought Apple approximately $22.34 billion in income. In the 2023 fiscal year, Nintendo's annual revenue was $12 billion.

Since 2017, Nintendo's proud achievement, the Switch, has sold over 140 million units, making it the third best-selling console/handheld in history. However, the top ten best-selling games on the Switch are all produced by Nintendo's headquarters or come from Nintendo's IP.

By comparison, the iPhone had sales of only 0.2346 billion units in 2023 (IDC data), and the games on the App Store were all made by third parties.

Where is Nintendo's future when its channel advantage is no longer there?

In September 2023, Doug Bowser, President of Nintendo America, said in an interview with The Washington Post, "Nintendo is developing into an entertainment company with gaming as its core business."

In 2021, the first Super Nintendo World in Osaka, Japan was unveiled. In 2023, it opened a themed area in Universal Studios Hollywood, and two more are expected to be added by 2025. The film "Super Mario Bros." released in 2023 had a global box office revenue of over 1.3 billion dollars.

The premise of Nintendo becoming an entertainment company is to continue and maintain the vitality and influence of its intellectual properties (IP).

Classic IPs like Super Mario and The Legend of Zelda can continue to thrive, which is the result of Nintendo's continuous efforts in the console gaming industry. Xu Yiran, CEO of MultiMetaverse, a venture company in the metaverse sector, said in an interview with Snow Leopard Finance, "Nintendo is the only company in the world that relies solely on video games as a medium for IP succession." In other words, if the gaming business encounters obstacles, the profitability of related IPs will also be in question.

However, in terms of player count, consoles, handhelds, and PCs are no longer the main channels for global gamers to access games.

According to a report by TikTok and National Research Group, the number of mobile gamers worldwide will exceed 2 billion. When one-fourth of the people on the planet are mobile gamers and half of the gaming industry's revenue comes from mobile games, whether Nintendo wants to return to its glory days of the 1980s or become an "entertainment company with gaming as its core business," it needs to face the elephant in the room.

Since the beginning of this year, Microsoft and Sony, old rivals, have revealed their new developments in the mobile gaming industry, highlighting Nintendo's stubbornness and silence.

Satoru Iwata once said, "A company must know how to respond to this rapidly changing world, or else it will only face decline."

Has Nintendo achieved that?

Editor/Somer