Why Nintendo is More Appealing to Xbox Than Ever
Originally Posted on Linkedin - Co-Written with Hon-Ming Gionatti
Gaming Today
According to recent conversation, Phil Spencer still wants to acquire Nintendo... but the gaming landscape is drastically different from when Xbox was laughed out of the Nintendo boardroom 20 years ago. In fact, the moves Microsoft is making in the gaming industry are making it, whether intentionally or not, more Nintendo-compatible than ever before.
A disclaimer: this article is not saying that the Nintendo acquisition will ever happen, or is likely to. Rather, by looking at market dynamics and Nintendo's console-based portfolio, we aim to understand a little better why Xbox views Nintendo as so appealing - beyond just buying mainstream IP - in today's market.
Today, things are blending into a media-entertainment mix. IP is more valuable than ever (I'm looking at genre leaders like League of Legends, Mortal Kombat, Mario), and Nintendo has been on a tear with the Mario Movie, the new Legend of Zelda, and more.
Beyond IP, though, the business model of Xbox Game Pass delivers a (better) way for customers to play games. As we begin the approach to 4 billion gamers worldwide, let's take a step back and look at the traditional video game business model, the "over-the-counter" model:
Build a product, stick a price tag on it, and hope that people buy it.
But the market's shifted. Game development has gotten MORE expensive, not less, and building a AAA game is a huge business risk. See how EA has reduced its portfolio, for example. Of course, we have to accept exceptions like Call of Duty and Pokemon, but ultimately they are exceptions. Companies with flagship games are increasingly focusing on post-launch expense and development, which, while difficult to replicate or maintain (Fortnite, Roblox, League of Legends) is an increasingly attractive business. After all, loyal players expect the game to stay interesting and fresh. This only makes big-budget games more expensive, not less - DLCs (for those that remember them) can easily cost more to develop than the cost of a game itself.
The Game Pass Revolution
What Xbox Game Pass and Microsoft bring to the table is a new model, where the value exchange happens at the service level. This enables developers to spend less time and effort on million-sales AAA titles, and opens up more creative space for not only more fun and creative experiences, but perhaps even the gaming equivalent of short-form content. Game Pass will be under increasing pressure from consumers (like on Netflix) to provide a variety of fun titles on rotation, but the tradeoff is that it enables increased variety and exploration for subscribers, and takes pressure off developers to funnel all their efforts into single, high-cost products.
Credit to Gaming Over 30 (https://gameoverthirty.com/). A terrific resource.
Of course, that's not to say that the AAA business model is going to die, or anything so drastic as that. What the Game Pass model provides is a unique value proposition for certain kinds of players, enabling more exploratory and fun-driven gameplay; what it offers developers is a new path to funnel creative dev efforts without the fear of unprofitability (the Alioth in the room that looms over every product, not just games).
Game Pass enables a service focus over a product focus in the industry. (this probably won’t be the first time you hear gaming-as-a-service). When customers pay a set service fee (e.g. $15/mo) for a roster of games, we have a proposition for more reliable long-term revenue than selling new title after new title, as the over-the-counter model suffers from very predictable sales drops after the first time increment.
The point is that games themselves will no longer need to have the expectation of being mass-marketed mega hits.
Let's see how Nintendo fits into that picture.
Nintendo's Game Pass-complementary titles
With a recent deal to bring Call of Duty to the Switch, Xbox's expansion plans absolutely include Nintendo in some capacity. Nintendo's hardware, opposing Microsoft's original value proposition, has performed extremely well in market, with a focus on the Switch pushing its operating & ordinary profits up to the peaks of the 3DS and Wii era.
What is more interesting is that for every premium $80 USD title that Nintendo puts out (think Mario Odyssey or Pokemon Scarlet/Violet), they also release a number of experimental, genre-defying flanker titles, often at a lower price that play with new genres. Some examples:
Mario, with Odyssey being a capstone of years of exploration by Nintendo's talented developers throughout the series, providing a unique and riveting set of exploration pathways and unique mechanics that make it the best-in-class platformer.Flanker Titles: Mario vs Donkey Kong, WarioWare, Captain Toad, Super Mario 3D World, Bowser’s Fury
Pokémon, a franchise with not only a deep competitive scene in battling, but which has always entertained various non-battling competitions, character customizations, and activities for players who don't want to sweat out IV and EV farming. Remember Pokémon Contest?Flanker Titles: New Pokemon Snap, Detective Pikachu, Pokemon Mystery Dungeon, Pokemon Conquest
There is absolutely still a market for full price AAA Nintendo games, so much so, that Tears of the Kingdom warranted a price increase and sold console bundles for the game. That being said, Nintendo has nailed the art of monetizing their strong IP in lower dev cost, lower ad spend, high genre variety, titles in the years between large installments. These are great candidates for Xbox Game Pass because there are lower commercial expectations surrounding them.
One Reddit user points out Nintendo's identity very succinctly:
Nintendo is simply fantastic at resolving obvious design flaws, pushing into new territory, and focusing on fun, fun, fun.
Tradition and the "tried-and-true" matter less to Nintendo than exploration and innovation (case in point: BoTW), and that stylistic tendency empowers them to continue creating games that - while not necessarily the savviest on the technology or industry trends layers - are simply very enjoyable, and don't need to be played forever.
For every premium $80 USD title that Nintendo puts out, they also release a number of experimental, genre-defying flanker titles.
In a world where commercial pressure and technological competition is removed or accounted for, Nintendo really gets to shine.
Summary / Final Thoughts:
Ultimately, Nintendo's game-development expertise and idiosyncrasies keep it appealing to Xbox in a few ways.
First, as always, Microsoft and Xbox remain at the forefront of gaming tech. With their technological edge, they can still offer the same value proposition to Nintendo as they did 20 years ago. On the flipside, however, Nintendo's Wii and Switch have performed very well, suggesting that they do not need any urgent changes to their hardware model to perform well in market.
Second, Nintendo carries IP that is so iconic that it basically symbolizes gaming as a whole. This is perhaps their biggest asset category.
Third and finally, Nintendo's development style is incredibly complementary to Microsoft's vision for Xbox Game Pass. Finally, a world exists where small, fun, experimental games can reach the mainstream consumer without suffering enormous losses. Nintendo's flanker titles to big-budget flagship games act as an incredible complement to Game Pass's catalog-rotation model, and Game Pass offers the value proposition of financial safety to this more experimental category, which would make a tremendous addition to its ongoing repertoire..
In a world where short-term, accessible gaming looks more and more appealing to us ever-busy working professionals (Looking at you, Marvel Snap), the transition of developer incentives that Game Pass offers to the market makes Nintendo's only look sweeter and sweeter, indeed.
