Caso Nintendo

NINTENDO – THE LAUNCH OF GAME BOY COLOR

INTRODUCTION

In June 1998, Peter MacDougall, president of Nintendo, Canada was looking forward to November 23, 1998 when a color version of Nintendo’s Game boy would be released simultaneously in North America and Europe. It would be one of the most important launches in Nintendo’s history. Both Game Boy hardware and software sales had declinedsteadily from 1992 to 1996 on a worldwide basis (see Exhibit 1). They had recovered somewhat in 1997 as a result of increased marketing effort, but without significant new products the recovery was unlikely to be a sustained one. Game Boy was arguably the most successful gaming platform in history, boasting sales of more than 70 million units during its almost 10-year life in a highly fickle andcompetitive market. By the end of 1997, Game Boy had sold more than 1.6 million units in Canada (see Exhibit 2). In the United States, Game Boy products claimed nearly 10 per cent of category revenues in 1997.

MacDougall was responsible for ensuring that the Canadian launch was successful. Although he hoped to leverage elements of the U.S. launch, he recognized that the Canadian market situation, andGame Boy’s competitive position in Canada, might require the Canadian launch strategy to be different in significant ways.

NINTENDO

Game Boy was manufactured by Nintendo Co. Ltd. of Kyoto, Japan (see Exhibit 3 for a summary of Nintendo’s financial results from 1994 to 1998). Nintendo was the leader in the worldwide US$15 billion retail video game industry. The company manufactured andmarketed hardware and software for home game systems, including the 16-bit Super Nintendo Entertainment System, the 64-bit Nintendo 64, as well as Game Boy. Nintendo of America, Inc., based in Redmond, Washington, served as headquarters for Nintendo’s operations in the Western Hemisphere. In 1997, more than 40 per cent of U.S. households owned a Nintendo game system.

Nintendo 64 had been launchedwith heavy support in 1996 and it rapidly became the hottest product on the market. Fights sometimes broke out in retail stores as customers competed to take the product off the shelf. Nintendo 64 was named Time Magazine’s “Machine of the Year” for 1996. One of the historical strengths of Nintendo had been its control of the games that ran on its game machines. Nintendo produced 10 to 15 of its owngames each year, but it relied to a significant degree on third-party software providers for the rest of its game product line. Nintendo kept these third-party software providers under tight control. Nintendo built a security chip into the console and then licensed certain third-party developers to develop specific games for Nintendo. These suppliers came up with game concepts, which Nintendoeither accepted to rejected. If Nintendo accepted the concept, the developer went away and began the software development with Nintendo reviewing the new product at several points. If the final product was approved, then Nintendo would manufacture the cartridges for the developer to take advantage of Nintendo’s economies of scale in purchasing and production. This allowed Nintendo to leverage theexpertise of particular developers. For example, Electronic Arts had a real competence in the development of sports games.

In 1997, sales of Nintendo consoles and games were very strong, but in 1998 Nintendo began to lose momentum as some of the third-party developers began focusing more of their development effort on Sony Playstation. They viewed the Sony Playstation as an easier platform on whichto develop games, as well as viewing the Sony business model as being a more profitable one for them. With the slowdown in the Nintendo 64 business, Nintendo became more dependent than ever on the Game Boy business. In north America, the total handheld games market was only about 10 per cent of the total market for Nintendo with console sales of hardware and software accounting for the other 90...