How I'd Fix Nintendo: Start Playing the Disney Game

Nintendo should start thinking out of the box to save itself.

Feb 5, 2014 at 2:21PM

 

Gamers and investors alike have heard the news – Nintendo's (NASDAQOTH:NTDOY) current financial performance is as disastrous and embarrassing as a plumber hitting a rolling barrel thrown by an ape. Consumers aren't going for the Wii U; instead, new consoles from Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT), as well as a legion of cheap cell phone titles, are grabbing all the attention away from the onetime juggernaut of home systems. What can the company do now to avoid further calamity?

First: Admit something about the Wii

I think it's time for Nintendo execs – as well as perhaps everyone who bought one – to advance a truth about the Wii: the only reason people went wild for it in the first place is price elasticity. Relative to the other consoles at the time of its release, the Wii was cheaper, and that was that. Some will probably have a problem with that assertion, but I know, on an anecdotal basis, gamers who were once thrilled at the prospect of owning a Wii with the fancy wand controller and its revolutionary nunchuk companion eventually pined for the good old days of Atari 2600 joysticks.

Nintendo based its Wii strategy on the wireless interface, and although the zeitgeist thought it liked it, it didn't. The market was simply killing time until PlayStation 3 and Xbox 360 became more economically appealing. Once this is accepted, then maybe the rest will come easier.

Diversify into filmed content creation

I know, it sounds crazy. For those who follow the movie and television industry, the idea of entering the realm of motion pictures is a frightening prospect because, well, let's just admit it – there is a ton of risk, and Hollywood tends to fleece the newcomers. Even the non-newcomers can get fleeced; major studios are constantly being overcharged for the services of talent by an agent-management system that seems to want higher upfront guarantees and even more lucrative first-gross-dollar participation points.

Let's keep something in mind, though. Nintendo, like all video game companies, is in the entertainment business. While video games represent a specific kind of entertainment that necessitates rigorous technological focus, that doesn't mean that Nintendo is precluded from delivering all kinds of entertainment experiences in different forms of media.

I would propose that Nintendo seriously consider competing with Sony by generating and releasing filmed content not necessarily tied to just the Pokémon and Zelda trademarks. Content is risky, but inevitable for an enterprise like Nintendo; just as Disney (NYSE:DIS) couldn't afford to ignore the merchandising implications of the video game industry, Nintendo cannot be cavalier about engaging its consumer base in ways that go beyond controlling pixels on a monitor.

And while there has been experimentation in the past with porting Nintendo's IP to the big screen, I think the company would have to do a lot better than the "Super Mario Bros." movie that was released back in 1993, starred Bob Hoskins, and was released by a Disney label at the time called Hollywood Pictures. That was a different era, one that today's movie consumers don't want to revisit, as they are used to a certain level of quality and sophistication that was absent back then in some feature product.

I'll also mention that Nintendo would have to strive to produce more competitive content than what has been seen in the previous Pokémon movies and small-screen cartoons -- the animated Pokémon series is still around, but any content plan Nintendo would hypothetically create would need to cross over to other audiences.

What kinds of content would Nintendo make?

Nintendo could produce superhero movies, low-budget horror, cartoons, comedies ... you name it. It has the connections, it has the talent, and it has the advantage of operating in an area that is becoming more like the movie business every day. I foresee a time when all gaming publishers, from Activision Blizzard to Electronic Arts, will start software franchises on the silver screen. "The Walking Dead" started out as a comic book, then became a TV show, then became a video game; the direction in which the process flows is wholly agnostic.

One of the best examples of what I'm talking about, a model that Nintendo should emulate, is the one previously employed by Marvel. Marvel used to license its IP to other studios to bolster its brand equity, push merchandise sales, and generate a little revenue. Little is the operative term, here, because when you license your movie to a studio, you're only going to get so much in return.

Marvel figured out it was better to actually make films itself so as to keep all of the bounty generated. It was a risky move; I myself wasn't sure at the time about the wisdom of the strategy. Things turned out very well for the comic-book factory.

The intersection of technology companies and entertainment is empirically obvious. Pixar is nothing but a technology company driven by creative mission statements. Nintendo is a technology company that could evolve one section of its business into a Pixar-like division that takes characters like Mario and Donkey Kong and places them in their own "Toy Story"-like world.

And it doesn't have to cost a lot. Budgets for Pixar projects, as well as those released by DreamWorks Animation, tend to run well over $100 million; Pixar's "Brave" was rendered for a reported $185 million while DreamWorks Animation's "Turbo" cost $135 million (source: Box Office Mojo). While those big guns tend to spend more, you have to appreciate what $146 million can buy you; believe it or not, it actually could buy a "Despicable Me" and a "Despicable Me 2," as the former cost about $70 million while the latter set its animators back by $76 million. (As a side note, I always thought the Gamecube title "Luigi's Mansion" would make a great CGI cartoon.) "Despicable Me 2" captured $970 million in ticket sales around the globe. Not a bad business model.

It doesn't have to be all Luigi and Pokémon films. Nintendo should cast its celluloid net further out into the cinematic ocean. Younger people love Pikachu, but as they move into their teens and beyond, they also appreciate pictures like "Paranormal Activity" and "Saw." I know, I just mentioned "Paranormal Activity" and "Saw" in a piece about why Nintendo should go Hollywood. Your first thought is: why would Nintendo do this when its image is so family oriented? My rejoinder is that Nintendo isn't above exposure to adult-oriented stuff being on its platforms; if the company is willing to be associated with something like the awesome "Resident Evil" series of games, then it probably would be OK with investing in a hard-edged horror fest every once in a while.

As I also mentioned, superhero characters are something Nintendo could excel at. While I wouldn't expect the company to create as profitable a mythology as "Batman," there is still plenty of opportunity to synthesize an imaginative set of heroes and villains that could be cross-promoted to the demos that wait with anticipation for the next release of the "Zelda" saga.

Nintendo should release another console, but...

All of this is not to say that Nintendo shouldn't eventually release a new, more powerful console. It should. One that will hopefully embrace older games while keeping the younger members of the family unit entertained as well. That's always been the image problem with Sony and Microsoft – those two tend not to program for kids. Even though the image might not be entirely accurate (Kinect, anyone?), it still is instructive for Nintendo: be open to all age groups.

At the same time, Nintendo has to do things completely differently. Entertainment, whether delivered by algorithms or optical illusion in a screening room, is a complex collection of cultural touchstones that consumers are willing to apply a premium to. It makes synergistic sense, and it is appropriately diversifying in terms of revenue generation.

Perhaps if Nintendo does a little zigging and zagging as the above suggests it can buy itself a little time as it tries to figure out its new place in the post-digital world of fickle video game consumers who don't know whether they want to play a twenty-plus hour first-person shooter or a challenging game of war between avian and porcine societies on their portable telephones. Until some better news and/or innovative thought comes out of Nintendo, this remains a company to avoid.

The next step for you

Want to figure out how to profit on business analysis like this? The key is to learn how to turn business insights into portfolio gold by taking your first steps as an investor. Those who wait on the sidelines are missing out on huge gains and putting their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you what you need to get started, and even give you access to some stocks to buy first. Click here to get your copy today -- it's absolutely free.

Steven Mallas owns shares of Disney and DreamWorks Animation. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Microsoft and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers