Nintendo

Harvard Business School

9 - 7 9 5 -102
Rev. July 12, 1995

Power Play (A): Nintendo in 8-bit Video Games
One strong company and the rest weak.
Hiroshi Yamauchi, President, Nintendo Co., Ltd.1

The origins of home video games went back to 1966, when an engineer at Sanders Associates, a U.S. military systems consulting firm, developed a ball-and-paddle game called Odyssey that could beplayed on a TV set. But the industry really began in 1972 with the founding of Atari Corporation, which enjoyed huge success with a table tennis video game called Pong. By 1982, the U.S. home video game industry reached $3 billion in retail sales. Then the market collapsed, with sales plummeting to under $100 million in 1985. A flood of low-quality software was blamed for the bust, and home videogames were dismissed as yet another toy fad. The Japanese company Nintendo (the name means something like “Work hard, but in the end it is in heaven’s hands”) began life in 1889 as a manufacturer of handmade playing cards. In the post World War II period, the company expanded into a variety of novelty toys and games. In 1977, Nintendo began making a home video game system in Japan under license fromU.S. television manufacturer Magnavox—which had licensed the Sanders technology back in 1971. In 1983, Nintendo launched a new video game system, the Famicom (“Family Computer”), in Japan. The company also developed games specially tailored to its new piece of hardware, such as the hits The Legend of Zelda and Metroid. In 1985, Nintendo released the smash hit Super Mario Brothers. “Nintendomania”had begun. The U.S. launch of the Famicom, under the name Nintendo Entertainment System (NES), followed in 1986. By 1990, home video games had become a $5 billion worldwide industry. A Nintendo Famicom/NES could be found in one out of every three households—in both Japan and the United States. Cumulative sales of the Super Mario Brothers game series alone topped 40 million copies.

1DavidSheff, Game Over: How Nintendo Conquered the World (New York: Vintage, 1993), p. 71.

Professor Adam M. Brandenburger prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. The case draws on reports by Anna Minto (MBA'93), Michael Maples, and Michael Tuchen (MBAs'94). Assistance from Research AssociateMonique Burnett, Rena Henderson, Brad Ipsan, and Research Assistant Julia Kou is gratefully acknowledged. Copyright © 1995 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used ina spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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Power Play (A): Nintendo in 8-Bit Video Games

A survey that year found that the Nintendo character Mario was more popular than Mickey Mouse among U.S. children. From mid-1990 through mid-1991, Nintendo’sstock market value exceeded that of Sony or Nissan. (Refer to Table A below, and to Exhibit 2 for further financial data on Nintendo.)

Table A xxx Average Stock Market Values, July 1990 through June 1991
Company Nintendo Sony Nissan Source: Datastream (¥ trillions) 2.406 2.212 2.032

Home Video Game Systems
Video games were a form of home entertainment targeted principally at 6- to14-year-old boys. Players of video games controlled game characters on a TV screen, vanquishing foes, seeking hidden treasure, playing sports, and the like. A home video game system consisted of three types of component: a console, controllers, and cartridges. The console was essentially a microprocessor-based computer optimized for graphics processing capabilities. It was designed to receive information...