Nintendo in the Video Game Industry

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Table of Contents

Introduction
Nintendo’s product enhancement
Pricing and Subcontracting
Atari’s troubles
Rationale behind licensing terms
Conclusion

Introduction

Power play is the intense painstaking activities undertaken in order to realize specific laid down objectives. Atari and Nintendo were among the major companies that ventured in home video game system business. Previously, Atari was a major power to reckon with in the industry but was later toppled by Nintendo. This paper is generally about Nintendo’s power play in the video game industry.

Nintendo’s product enhancement

Nintendo’s power play of displacing Atari, an earlier entrant in the industry, was by various tactics. The first tactic included by Nintendo in the earlier stages was to advance its product by extracting the performance from the 8-bit processor into an enhanced powerful home machine with superior graphics and fast action.

Secondly, Nintendo’s policy of incorporating security chip among other microchips in the console made sure that only their approved cartridges played on their system. Why? According to my personal view, it was a measure to ensure their cartridges were selling, since Nintendo was also in cartridge manufacturing business.

In addition, insulating its dedicated R&D team from sales team, guaranteed better chances of getting truly fresh game concepts in line with Nintendo’s third President, Hiroshi Yamauchi. The team emerged with several successful hit games such as Donkey Kong, Famicom and Game Boy among others.

Pricing and Subcontracting

Part of Yamauchi’s vision was to introduce new and cheaper video games in the market than the competitors. Nintendo games become cheap than those of its competitors due to several factors. Nintendo subcontracted manufacturing of its cartridges, chipsets and later on games.

This gave the company room to concentrate more on crucial matters such as marketing. Cartridges and chips were obtained at a rock bottom prices and were later retailed to Nintendo game producers at very profitable margins. These measures by Nintendo were essential in displacing Atari and ensuring impeccable sales and revenue.

Atari’s troubles

On the other hand, Atari was facing it own problems, which included rampant counterfeiting of its products, poor sales and production of low quality software which subsequently lead to lack of hardware coordination.

This was reflected when Atari came out with Super, a second-generation video game that failed to run cartridges for the VCS. Atari suffered two more blows, one was defection of its engineers who run away to open their own firm and the other was loss of money because of an overbuilt inventory.

Rationale behind licensing terms

Nintendo’s main underlying principle behind its licensing terms for game developers and its strategy towards retailers was to fight, if not to exterminate competition. It engaged in unfair restraint codes and used its market power to prevent potential competitors from challenging its market dominance in system, chip and cartridge manufacturing.

For instance, production of consoles with security codes that could only play on Nintendo’s system was one such unfair restraint code application. Another biased practise was restriction on the number of game titles.

The company restricted each developer to five titles in one year. Other competing manufactures withdrew from development after Nintendomania took grip of the market.

Nintendo intervened in the retailing price of its products and in some instances like in the U.S., the company stocked stores for free thus effectively cutting competition. This amounted to monopoly as alleged by Namco head, Masaya Nakamura as he responded to the new contract requirements.

Conclusion

Nintendo was becoming vulnerable to several factor, one being lack of concentration due to over expanding of its market. The emerging legal issues were another risk that Nintendo faced.

Many potential competitors sought legal action against Nintendo, due to indulgence in unfair business activities and allegations by subcontractors concerning power abuse. Nintendo at some point bullied retailers that it would to do away with them if they sold competitors products.

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