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Deconstructing the method to Nintendo's madness

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It's easy to hate on Nintendo. With the Wii U, the company played right into negative consumer expectations by releasing a product derided for its kid-friendly appeal, Fisher-Price toy-like looks, less-than-bleeding-edge silicon, confusing branding and (initially) clunky operating system. The message to the market at the system's launch seemed clear: The gaming giant had fallen behind the times. But that's not quite the truth.

There's a well-reasoned and deeply entrenched philosophy behind the often baffling, public-facing decisions Nintendo makes and that's to deliver high-quality and accessible entertainment experiences on cheap-to-produce (often older), innovative hardware. It's the Nintendo recipe for success as concocted by the domineering former president Hiroshi Yamauchi. It's the reason why Nintendo sits on billions of dollars of cash; why its famed first-party studio -- the home of Mario and Zelda creator Shigeru Miyamoto -- is called Entertainment Analysis and Development, or EAD. The company quite literally agonizes over ways to innovate the concept of "fun."

The trouble is you'd never know it. The stubbornly traditional Kyoto-based company has communication issues; issues that have created quite an image problem, and not just externally either. Sure, the streamed Nintendo Direct presentations are a step in the right direction, but overall the company's marketing remains either nonexistent or tone-deaf. Consider how often you engage with Nintendo the brand on Twitter, Facebook, Instagram or Tumblr. You don't. Ask someone from the non-gaming population who bought a Wii what the Wii U is and they'll likely stare at you blankly. Ask those same non-gaming folks who've actually bought a Wii U to call the system by its name and they'll likely call it the "Wii."

Nintendo Co. President Satoru Iwata Attends Business Strategy Briefing

But contrary to popular internet belief, Nintendo is not blissfully unaware of its conservative reputation and deep-seated issues. Nintendo knows it needs to change. For evidence of this, look no further than comments made by Nintendo President Satoru Iwata. In a recent Q&A with investors, an uncharacteristically candid Iwata had this to say about the company's internal identity crisis:

"[The] real issue seemed to be that people inside the company appeared to be obsessed with the belief that Nintendo is a company that makes video games and should make nothing else. This is one of the reasons we revised our definition of entertainment and why I announced that Nintendo's goal for the next 10 years is to 'improve people's QOL in enjoyable ways.'"

That investor talk is a goldmine of insight into the company's ongoing internal transition, future business direction and refusal to adopt certain trends. So let's dive right in and read between the lines, shall we?

Amiibo is a new platform, not a line of figurines

"While under development, it was internally referred to as 'NFP (Nintendo Figurine Platform).' In other words, we were spreading the message inside the company that Amiibo would be a 'platform.' What we are offering with one Amiibo figure is the ability to experience a range of entertainment with a variety of software."

Linear thinking is not the Nintendo way and thus Amiibo is not your typical "toys to life" line of figurines. In fact, Amiibo isn't actually a line of figurines at all -- it's a new platform. Iwata himself stresses this point. Future Amiibo will take the form of trading cards, as well as the tantalizing prospect of something "other than plastic figures." And in addition to its ability to unlock bonus content and store data for a customizable figurine player a la Smash Bros., Amiibo will also be used as "cartridges" to download vignettes of select NES/SNES game stages.

Not all Amiibo are created equal

"Some Amiibo have a more complex structure and a greater number of colors, which means they cost more to produce than others."

Translation: Your Samus Amiibo was more expensive to produce than Kirby, but Nintendo's not charging you for the difference and for a very wise reason: It doesn't want you to think one character is more valuable than the other. Scoff if you must, but Nintendo takes the protection of its IP and that IP's valuation deadly seriously.

Games-Nintendo-Amiibo

Nintendo's next home console will have handheld DNA

"Technologies that were suitable for handheld devices or home consoles had nearly nothing in common, so it was reasonable to divide hardware development into two divisions. However, with recent technological advances, technologies for both systems are becoming more similar."

Handhelds have buoyed Nintendo's profits for some time now, so it's no big surprise that the company would seek to cross-pollinate that segment with its home console business. Nintendo's even gone so far as to merge its separate hardware divisions for consoles and portable gaming into one unit, a process that began two years ago. Iwata points to the Wii U's portable-ish GamePad as justification for this unified structure. Bear in mind, though, that you won't see the fruits of this strategy bear out until Nintendo rolls out its next-gen hardware. You can bet that whatever home console Nintendo creates next will be somewhat portable by default and run on a shared OS.

Nintendo's barrier to entry for games will remain 'friendly'

"In particular, under the recent circumstances surrounding the video game industry, what is highly evaluated does not always sell well. We have to create products that are easy to understand, do not cause consumers to feel stressed at any stage of the experience and that consumers are attracted to at a glance."

Exhibit A: Kirby and the Rainbow Curse.

Nintendo's working on mobile apps, but it's not doing it for the money

"We recognize that we need to make changes in various areas, and consider how we can take advantage of smart devices and more actively use our character IP. Please do not take it the wrong way. It does not mean that we are going to proactively utilize smart devices and character IP because we are not making enough profits from our dedicated video game platforms."

Nintendo is not desperate for your dollars (or euros or yen). With nearly $10 billion in cash reserves, the company can endure a few product-cycle misfires. If Nintendo were seeking to merely cash in on its portfolio of IP, we'd have already seen classic NES titles saturate Google Play and iTunes. But because of that nest egg, Nintendo can afford to experiment in the mobile space on its own terms and that means no mobile games. Capisce?

Iwata doesn't talk about Nintendo's Blue Ocean strategy anymore because he's done talking about Blue Ocean

"I verbally used this term so often that even I myself was concerned whether the audience would be fed up with it. I did so because, as the leader of an organization, I believe that my message cannot soak deeply into people's minds if I do not repeatedly convey the same message to the point that the audience are fed up with it."

Iwata is sick of talking about Blue Ocean, Nintendo's Wii-era philosophy that sought to expand the reach of gaming beyond the traditional "core" audience; I suspect that's because the folks that swam in that water are now sitting beachside taking selfies and playing Candy Crush on their phones. It's a sore point for Nintendo and one the company intends to rectify by luring them back in with its Quality of Life initiative.

Iwata's Blue Ocean message was lost on Nintendo

"For the last few years I have been wondering whether people inside the company have a clear image as to exactly how we could expand the gaming population. ... We released "Wii Sports Club" and "Wii Fit U" for the Wii U system, but they did not have the same strong impact that the original Wii versions had. Those who have tried these Wii U games know that we have actually realized a variety of new things, but at a glance, they look just similar to their predecessors."

Iwata throwing shade at his own people.

'Pick up and play' is very important to Iwata because no one reads instruction manuals

"When you play a video game, we should try to create a situation that you can do so without reading the instruction manual. I am sorry to say this for the people who are working very hard to make instruction manuals for our games, but my impression is that only around 5 percent of consumers bother to read the instruction manual when they start playing a video game."

Exhibit A: Kirby and the Rainbow Curse.

Happy Senior Couple Play Video Game with Remotes

Nintendo's QoL platform will reward users much the same way Pavlov rewarded his dogs

"For any video games, it is also very important to encourage the players to continue something. I think all the game players can agree that they voluntarily continue their mission because of the rewards they can receive in the form of output as a result of their input."

We game because there is a payoff for our progress. You kill enough bad guys and you progress to the next stage; you level up; you gain more powerful weapons; and you get to watch gorgeously rendered cut-scenes. Nintendo's planning to do the same with its QoL platform. And the first device to come from that will deal with sleep and fatigue. What those "rewards" will be are anyone's guess. Knowing Nintendo, they'll be delightful, engaging and worth putting in that full night of sleep.

Change is hard, but innovation is even harder

"If people inside the company think that Nintendo is a company which cannot make anything other than video games, and believe that video game controllers remain a certain way because that is the way they have been for 30 years, video games should be created in a certain way or video games must start with a tutorial, end in a particular way and have a lot of hard-at-work elements in between, a high mental wall would stand in front of us when we tried to create a brand-new video game genre with which many people would be amazed or when we try to create an unprecedented user interface that pleasantly surprises people. "

Preach, Iwata. Preach.

It will take 10 years of Iwata repeating himself until consumers realize that Nintendo's business has changed

"Our strategy for the next 10 years is to change the definition of entertainment and expand the area that Nintendo can do business in, and with this strategy, I believe we can capitalize on our strengths."

If you thought you were sick of hearing about QoL now, just wait and see how you feel in another five years when it's been beaten into your brain.

There was a lot of finger-pointing going on at Nintendo and it made Iwata mad

"If developers tended to think that even though they had created good products, incompetent marketing team members were the cause of poor sales or if, on the other hand, the marketing team members thought that the products were not selling well because the developers had made unappealing products, then we would be seen as a bad company with a culture in which everyone tends to lay the blame on someone else. ... Since such an organization should never exist, I have been encouraging everyone internally to first consider what more they themselves can do. A company is a group of people, so it is impossible to completely eliminate these kinds of opinions in challenging circumstances, so I repeatedly make this kind of remark internally."

If you thought only commenters or posters on NeoGAF got pretty heated about Nintendo's misfortunes, you were wrong. The company's own staff members were playing a bit of the 'ol blame game internally because it's easier to say, "S/he did it!" to Papa Iwata who, once again, is tasked with repeating himself ad nauseam.

Nintendo Train Takeover

You can kiss price drops for Nintendo hardware goodbye

"Consumers will purchase high-quality products even if they are expensive or, in other words, even if there are slightly reasonable discount offers, consumers will not purchase products unless they truly understand and are satisfied with the quality."

Remember when the GameCube was $99 and it still failed to move a significant amount of units? Yeah, that's never going to happen again. Nintendo knows you'll pay out the nose for something you deem good enough; the challenge is convincing you it's good enough.

Amiibo and mobile apps will be Nintendo's way of delivering DLC without calling it that

"There is a constant stream of breaking news on the internet and new videos are uploaded to it and are being played every day, and the content changes by the second. As for packaged video game software, however, the structure of video games in the past was that once the game software was developed, it is done with, and the only thing left to do was to deliver it to consumers. However, will our current consumers, who expect everything to change by the day, truly be satisfied with this structure? We cannot put unlimited amounts of energy and power into one product, so our challenge is how to embark on new endeavors efficiently with limited investment, while having consumers notice the difference. I plan to explain this topic when I talk about how we will make use of smart devices, and I believe that we have to undertake all of these efforts together as a set."

The most curious bit here is how Nintendo intends to deliver content updates via smartphones and tablets, especially when it's explicitly not making mobile games. What this likely means for consumers are applications on par with experiences akin to Animal Crossing/Tomodatchi Life, albeit pared down for a single Amiibo. Imagine this: You tap your Amiibo (be it card or figurine or non-plastic thingamajig) to your phone's NFC reader, download the Figurine Player data and then care for/level up that character before transferring the data back to the Amiibo for console/handheld play. Just a guess, but a likely scenario, non?

Iwata's mad that your crap, derivative FPS game sells so well

"When not only the marketing issues that you have pointed out, but also the product development and service operation issues are skillfully solved ... we should be able to return to a "content is king" situation, where the people who make genuinely interesting products sell more."

Nintendo makes critically acclaimed games that not many people are buying. This makes Iwata an unhappy man. But one day, you'll see; you'll all see who's king. Right, Iwata?

Shigeru Miyamoto Portrait Session

You won't be getting a PS Plus/Now-style game-streaming service from Nintendo anytime soon

"The tough issue for this platform is that the platform holders are not so interested in maintaining the high value of the content and instead feel that the cheaper the content, the better or even that the content should be free. ... Once [consumers] have regarded as a norm that they can digitally obtain content free of charge, we cannot easily change their minds regarding content value. ... Observing these transitions, we can say that the digitalization trend presents not only a promising chance, but also a huge crisis for us, so it can be said that we are faced with both an opportunity and a dilemma at the same time. Without thoroughly considering our business approach, the value of our content will instantly be damaged."

Nintendo saw what happened to the music industry with the advent of Napster and iTunes, and it's watching closely what's happening to the film and television industry as streaming stalwarts like Netflix and Amazon swoop in to disrupt the industry's business model. In Nintendo's opinion, any subscription-based streaming service would foster the perception that its games were worth less. And that's just not a proposition it's ready to risk.

"If consumers commonly expected content to be free or very cheap and as a result, if a price and service competition occurred on the similar-looking products, we would not have a bright outlook. Therefore, the most important points will be how we produce original content, how we create a way for value of our offerings to be well accepted and how we invent payment methods for new consumers."

Translation: If you want to pay less for Nintendo's brand of quality entertainment, you're going to get a smaller amount of that quality entertainment (read: shorter play times).

Iwata knows you think Nintendo is slow to evolve digitally, but he has a plan for change, so relax

"Since distribution costs are becoming very close to zero due to digitalization, the number of consumers who do not focus on the value of the content is increasing, based on their idea that content can also be free. How we deal with this situation where there is the pressure to decrease the value of any digital content will be the key point for us. If we find the right answer, Nintendo will prosper as a company that creates content. If we make a big mistake, on the other hand, our business structure will collapse. We know there is criticism that our decision-making or transformation is slow in this field or our activities are not sophisticated, but we would like to take forward steps by considering everything thoroughly and with confidence that our future approach will work. "

The internet has ruined everything. Without the need for a physical product or distribution channel, anyone with a broadband connection can buy a new game -- a formless thing that lives as 0s and 1s on that hard disk. We can't really see it or touch it, so it should be cheaper to buy, right? Wrong. Development teams spend years, countless hours of overtime and financial resources to meticulously craft that video game you're snarking on for costing more than you think it should. And this gives Nintendo agita; the kind of agita that keeps Iwata up at night and reaching for the Alka-Seltzer and wondering why can't everything be like it was in the '90s?!

[Image credits: Pete Maclaine / Alamy (Mario zombie); Bloomberg via Getty Images (Satoru Iwata); Associated Press (Amiibo); Nintendo (Kirby and the Rainbow Curse); Andy Dean/Getty (Senior couple); Peter Barreras/Invision/AP (Luigi on train); Casey Curry/Invision/AP (Shigeru Miyamoto)]

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