Nintendo Company, Ltd. - Company Profile, Information, Business Description, History, Background Information on Nintendo Company, Ltd.

11-1 Kamitoba-Hokodate-cho
Kyoto 601-8501

Company Perspectives:

At Nintendo we are proud to be working for the leading company in our industry. We are strongly committed to producing and marketing the best products and support services available. We believe it is essential not only to provide products of the highest quality, but to treat every customer with attention, consideration and respect. By listening closely to our customers, we constantly improve our products and services. We feel an equal commitment toward our employees. We want to maintain an atmosphere in which talented individuals can work together as a team. Commitment and enthusiasm are crucial to the high quality of our products and support services. We believe in treating our employees with the same consideration and respect that we, as a company, show our customers.

History of Nintendo Company, Ltd.

Nintendo Company, Ltd. is known worldwide for Mario, Zelda, Luigi, Donkey Kong, and hundreds of Pokémon "pocket monster" characters. Nintendo's Game Boy handheld gaming systems (the Game Boy Advance PS is the latest version) have ruled the market since their debut, and its gaming console, the GameCube, overtook Xbox as the second most popular console after Sony's PlayStation 2. Though Sony has dominated the console market, Nintendo's Game Boy Advance and new Nintendo DS lead the handheld market, despite the introduction of Sony's PSP (PlayStation Portable). As its GameCube and Nintendo DS gain market share, Nintendo remains the interactive game leader for its graphics and innovation, and designer Shigeru Miyamoto's slew of popular animated characters.

A Playing Card Company: 1880s to Early 1960s

Nintendo was founded as Marufuku Company, Ltd. in Kyoto, Japan, in 1889 by Fusajiro Yamauchi. Marufuku made playing cards for the Japanese game of Hanafuda, believed to have its origin from Tarot cards. In 1907 Marufuku introduced the first Western-style playing cards in Japan. Marufuku initially made the cards for Russian prisoners of war during the Russo-Japanese War of 1904-05, when the soldiers wore out the decks they had brought from Russia.

Between 1907 and World War II Marufuku solidified its status in the playing card business. World War I, in which Japan fought on the side of the Allies, did not affect business in any remarkable way. In 1925, however, Marufuku began exporting Hanafuda cards to Japanese communities in South America, Korea, and Australia. From 1925 to 1928 Marufuku developed new marketing strategies to place its products in tobacco shops, complemented by aggressive, more Westernized advertising.

World War II devastated the Japanese economy and delivered a hard blow even to the previously modest but stable home amusement market. The playing card industry and Marufuku, though, fared far better than most. In the austere postwar climate, when entertainment had to be cheap and simple, the demand for playing cards only decreased slightly. Marufuku's manufacturing plant had not been damaged much in the war, and the company thrived in the succeeding years.

Hiroshi Yamauchi, great-grandson of Marufuku's founder, became president in 1950, embarking on a wide-ranging program to modernize and rationalize the way his family's company was run. In 1952 Marufuku consolidated its factories, which had been scattered throughout Kyoto. In 1951 Yamauchi changed the company name to one more appropriate to the leisure industry; he called it the Nintendo Playing Card Company, Ltd. In Japanese, the word "Nintendo" has a proverbial meaning loosely translated as, "You work hard but, in the end, it's in heaven's hands."

Business boomed in the postwar era. In 1953 Yamauchi responded to a shortage in playing-card-quality paper by challenging his company to develop plastic playing cards. After initial difficulties in printing and coating the plastic cards, Nintendo started mass production. In 1959 Nintendo reached an agreement with Walt Disney Company and released playing cards imprinted with Disney cartoon characters. By 1962 business was so good that Nintendo decided to go public, listing stock on the Osaka and Kyoto stock exchanges.

Diversification: 1960s to Early 1980s

In the 1960s Nintendo began a drive towards diversification and innovation, which eventually led to it becoming a household word in the late 1980s. In 1963 the company augmented its product line by marketing board games as well as playing cards. By 1969 the game department was so successful a new game production plant was built in Uji city, a suburb of Kyoto. In 1970 Nintendo introduced electronic technology for the first time in Japan with its Beam Gun Series. An especially popular example of this technology was the laser clay pigeon shooting system, introduced in 1973, in which arcade players aimed beams of light at targets projected on a small movie screen. By 1974, Nintendo was exporting this and other projection-based games to the United States and Europe.

In the next few years, arcade game technology made remarkable strides, with Nintendo in the vanguard. In 1975, in cooperation with Mitsubishi Electric, Nintendo developed a video game system using a video player--a technology made more complex the next year when a microprocessor was added to the system. By 1977 this technology was being marketed as part of the first, relatively unsophisticated generation of home video games.

In the amusement arcade Nintendo's games were beginning to feature higher levels of technology. In 1978 Nintendo developed and started selling coin-operated video games using microcomputers. This innovation, which in 1981 resulted in such arcade hits as Donkey Kong, gave arcade video games the complex graphics and stereo sound Nintendo would later market for home use.

As the 1980s began Nintendo started selling the Game and Watch product line--a handheld series of electronic games such as football, with liquid crystals and digital quartz micro-hardware. By this time, Nintendo found its export business required a firmer foothold in the United States and established Nintendo of America, Inc., a wholly owned subsidiary, in New York City. In 1982 the U.S. office was moved to Redmond, Washington, and established there with an operating capital of $600,000. As the 1980s progressed, the company focused on the development and marketing of home video technology. A new plant was built in 1983 in Uji city to meet the production requirements of Nintendo's new flagship product, Famicom (short for the "family computer"). Famicom, which allowed arcade-quality video games to be played at home, came to be played in more than 35 percent of Japan's households.

With Famicom swiftly selling in Japan, Nintendo began exporting it to the United States. In 1985, however, when Nintendo was ready to enter U.S. homes, the home video market seemed all but tapped out. The United States had experienced a dramatic home video boom in the late 1970s and early 1980s, but by mid-decade this boom had ended, leaving the U.S. industry with hundreds of millions of dollars in losses. The sales of the U.S. home video industry had plummeted from a $3 billion peak in 1983 to a $100 million trough in 1985. These figures did not daunt Nintendo, which quietly test marketed its games during the darkest depths of the U.S. slump. The response was enthusiastic. Nintendo concluded that the problems in the U.S. home video market were caused by an excess of uninspiring, low-quality games that had flooded the market and disenchanted customers.

Seizing Opportunities: Middle and Late 1980s

Nintendo came to the United States in full force in 1985 with its American version of the Famicom, renamed the Nintendo Entertainment System (NES). First year profits were astounding, and the skillfully managed demand of the U.S. market showed few signs of softening from its introduction to the end of the decade. NES hardware was similar to its Japanese precursor, the Famicom, consisting of a Nintendo control deck, hand controls, and the game cartridges themselves. The control deck sported an eight-bit computer that generated stereo sound and images in 52 colors. It hooked up with the purchaser's television set to allow the viewer to play a complex video game--which could take up to 70 hours to complete--by manipulating a joystick that controlled movement in two dimensions.

The NES control deck was sold at close to cost, about $100, to place it in as many homes as possible. Nintendo then made a profit by selling its own game cartridges at $25 to $45 each by arranging lucrative licensing agreements with computer software manufacturers who were eager to get a piece of Nintendo's pie by creating software for NES games. From the very beginning of its U.S. home video foray, Nintendo gained customer loyalty and enthusiasm by producing or licensing sophisticated, challenging, and surprising software for its NES. By 1989, this practice had translated into an almost 80-percent share of the $3.4 billion home video game market. But the business strategies that brought Nintendo to its position of dominance soon came under intense scrutiny. Stymied competitors, the U.S. government, and Nintendo's own licensees--who found Nintendo's mode of granting licenses for game software could soak up as much as 50 percent of their profits--all came to regard Nintendo's trade practices with a suspicion that led to widely publicized litigation.

Nintendo and most industry analysts maintained that a lack of quality control killed the first home video craze in the early 1980s. To avoid making the same mistake, Nintendo erected a demanding series of market controls. Each of its licensees was limited to developing only six new game titles a year. Nintendo manufactured its own patented game cartridges and required would-be software programmers to buy the cartridges in batches of 10,000 and then to assume full responsibility for reselling the game cartridges after they had been programmed by the licensee.

To make certain hardware competitors and software licensees would not try to circumvent Nintendo's control, Nintendo included a security chip in each game cartridge. Games programmed on cartridges lacking this microchip appeared scrambled when played. Nintendo reserved the right to modify games or to forbid a licensee's attempts to market a game deemed unsatisfactory by Nintendo evaluations. When a licensee's game gained approval, the developer had to wait two years before selling a version of its game to Nintendo's competitors. Because of these safeguards, the quality of Nintendo-compatible software remained high.

For the remainder of the decades, the company concentrated on popularizing its existing products and developing new ones. In Japan Nintendo developed and began selling a Family Computer Disk Drive System, which hit the mature Japanese market in 1986. The way this new product expanded communications capabilities of the Famicom was dramatically showcased in 1987, when Nintendo organized a nationwide Family Computer Golf Tournament in Japan. Players throughout the country used modems, public telephone lines, and disc facsimile technology to compete against each other from their own living rooms in Nintendo's home video game version of golf.

In 1988 Nintendo began publishing Nintendo Power magazine for its U.S. customers. This magazine, aimed at adolescents, was filled with game-playing tips and announcements concerning recently developed games and hardware. For those times when Nintendo Power could not help a frustrated game player, Nintendo introduced a 20-hour telephone bank with advice from 300 game counselors.

Further public relations efforts included a deal with Ralston Purina Company in May 1989 to market a citrus-flavored Nintendo Cereal System, featuring edible versions of the heroes from its video games. In 1989 Nintendo also teamed up with PepsiCo and nationwide toy retailer Toys 'R' Us for special joint promotions and in-store displays. Nintendo spent $60 million on U.S. advertising during the year.

In 1989 Nintendo also returned to the handheld electronic game market it had created a decade earlier. The battery-operated Game Boy, about the size of a paperback book, featured interchangeable game cartridges, stereo sound, and complex dot-matrix graphics. In Japan Nintendo unveiled a new 16-bit advanced version of the Famicom, dubbed the Super Family Computer. Its more complex electronics meant more challenging games, more interesting graphics, and more realistic sound. Nintendo waited to release the U.S. version of the 16-bit machine until it felt the market was ready.

A New Game Forming: Early 1990s

In the early 1990s the continued success of Sega Enterprises, Ltd. gave Nintendo its first real competitor. It was Sega's 16-bit Genesis System that led Nintendo to upgrade its eight-bit machinery. Sega's growing product line and state-of-the art programs rivaled those of Nintendo and offered buyers an alternative video game system. Nintendo was not easily vanquished, however. Many industry observers saw Nintendo as the "next Disney," and a survey of school children found that the Mario character was more popular than Mickey Mouse. Although video game sales slowed in 1990, growing less than half as fast as they had the previous year, Nintendo's sales increased by 63 percent. When U.S. video game sales reached $4.2 billion by 1991, Nintendo products accounted for $3.2 billion.

In the summer of 1992 Japan's Capcom Company released Street Fighter II for Nintendo which was an immediate success. Also in 1992, Nintendo produced Super Mario Paint, a drawing program featuring the company's star character, a game based on the Road Runner cartoon character, a sequel to its very popular Zelda character, called The Legend of Zelda: A Link to the Past. Nintendo hoped eventually to raise its U.S. household penetration rate from 17 percent to the 35 percent it had achieved in Japan and mirror the ten-to-one software-to-hardware ratio it had achieved in its home country.

Nintendo's exports to the United States had grown eightfold from 1987 to 1991, and the company held 60 percent of the 16-bit U.S. market at the end of 1992. Yet Sega's comparative advertising, begun in 1990, pried open Nintendo's grip on consumers. Sega branded Nintendo's games as children's toys, and Nintendo of America failed to respond to the ploy. Nintendo's U.S. market share fell to 37 percent by the end of 1993. Jeopardy continued into 1994 when a new generation of machines hit the market.

Sega's and Sony's new game consoles were 32-bit systems utilizing CD-ROM disk drives. Sega's Saturn and Sony's PlayStation had inherently large storage capacities, thanks to the CD-ROMs, but were considered sluggish. Nintendo, on the other hand used much faster but more expensive silicon storage cartridges. Instead of matching the moves of its competitors, Nintendo concentrated on developing, in partnership with California-based Silicon Graphics, Inc., a 64-bit processor with superior capabilities.

Faced with consumer desertions to the 32-bit machines, Nintendo tried to extend the life of its 16-bit Super Nintendo System by bringing out hot games. Donkey Kong Country, which had been designed for the 64-bit system, was released in a 16-bit format and became the bestselling game of 1994.

Since consoles needed games, Sega, Sony, and Nintendo spent millions each year on software development. Independently produced games continued to generate the bulk of Nintendo's revenue in this important area, with in-house software only bringing in about 35 percent of sales. In 1995, pressed by the need to produce software for its new machine, Nintendo purchased a 25 percent stake in Rare Ltd., a U.K.-based developer. This was Nintendo's first investment in a software maker outside of Japan.

Nintendo's promise of a cheaper and more exciting video gaming system by early 1996 dampened Saturn and PlayStation sales somewhat during the 1995 Christmas season. Nevertheless, Sega passed Nintendo in terms of total sales for the first time in the fiscal year ending March 1996. Nintendo's consolidated sales fell 15 percent and operating profits fell 24 percent. The 32-bit machines, the economic recession in the important Japanese market, and the defection of independent software producers to the competition contributed to Nintendo's downward spiral.

Nintendo 64 (N64) finally hit the market in 1996. Japanese consumers were eager to check out the new system. "With preordering rampant and queues outside the stores, some 300,000 Nintendo 64 machines were snapped up by eager addicts on the first day," stated an August 1996 article in the Economist. Anticipating the U.S. release, Sega and Sony cut the prices on their 32-bit units.

The N64 Japanese launch got off to a fast start but stalled just as quickly: only a few games were ready for the format. Nintendo had backpedaled on the N64 release date a number of times, which frustrated independent software makers and led to the defection of some important developers to Sony. Further complicating matters was the complexity of programming required for the N64 software and programmers' frustration with the limited storage capacity of the cartridges compared to the CDs used by the competition. Another factor in the mix, one which was not there during Nintendo's glory days, was the personal computer (PC). PC makers were fabricating increasingly sophisticated games, drawing talent from the software developer pool and eating into the market.

Difficulties aside, Nintendo continued to live up to its reputation for quality software and produced another blockbuster game. "This is probably the most perfectly crafted video game ever," wrote Neil Gross in Business Week (October 14, 1996). Shigeru Miyamoto, the designer of the original 8-bit Mario game, scored big with Super Mario 64.

Mario's fluid movements through dazzling three-dimensional graphics set the game apart from earlier versions and from competing 32-bit games. Sony and Sega, on the other hand, were not just waiting for Nintendo to rack up points. Sega was the first to release a web-browsing device, and Sony was way ahead of the pack in number of games available. Nintendo continued to feel the pinch and recorded its third straight year of declining financial results in the fiscal year ending March 1996.

In the first half of 1996 sales of the 16-bit Super Nintendo machines and related software plummeted. Sales generated by the new system, due in part to the lack of software, did not pick up all the slack. In September 1996 Nintendo 64 (N64), with eight titles on hand, hit North American shelves; by June 1997, 2.6 million machines had been sold, capturing half of the market. An additional 2.7 million had been sold elsewhere in the world. Revenues for fiscal 1997 were up 18 percent to $3.5 billion; earnings reached $54 million.

Sony, the market leader, had more than 11 million PlayStations in the hands of consumers worldwide and carried 150 game titles. Nintendo 64 offered just 17 titles for play. The importance of the software lay most clearly in its profitability. Nintendo's margins for hardware were usually under 5 percent while software yielded margins of nearly 45 percent. Software produced more than 50 percent of the company's profits. Aware of the dilemma it faced, Nintendo of America's chairman personally solicited the services of U.S. software developers.

In an effort to boost capacity, a sticking point with the game makers, Nintendo put an N64 peripheral in the pipeline. The DD64, a magnetic disk drive, was to also contain a communications device. Nintendo was headed in the right direction, but the progress was slow; however, sales and profits were boosted in 1997 by Pokémon (short for "pocket monster"), a new game played on Nintendo's handheld Game Boy machines. Nevertheless, the year was marked by a delay in the launch of the new DD64 hardware platform and the botched delivery of Yoshi's Story, a much ballyhooed software title.

From the 20th to the 21st Century: 1998 to 2001

Nintendo came back in early 1998 with the introduction of the Game Boy Camera, a digital offering that sold for $50 and attached to the Game Boy machine. Nintendo sold more than 700,000 of the units in its first five weeks on the Japanese market. Solidifying its dominance in the handheld market, Nintendo also released Game Boy Color and Pokémon Pikachu, a virtual pet. (The Pokémon game had spawned a multibillion-dollar industry of related merchandise.) GoldenEye 007, based on the latest James Bond movie, was another hit for Nintendo in 1998, winning the prestigious "Game of the Year" award from the Academy of Interactive Art (AIA). GoldenEye helped fuel fiscal sales of $4.42 billion for 1998.

In late 1998 as Sega introduced its 128-bit Dreamcast in Japan, Nintendo spent millions on the rollout of The Legend of Zelda: Ocarina of Time. The game enthralled millions around the planet, achieving record sales and winning Nintendo the AIA "Game of the Year" award for the second year in a row. In addition to Zelda and GoldenEye, perennial favorite Pokémon was back in 1999 with Pokémon Pinball and Pokémon Yellow for Game Boy, and Pokémon Snap for N64. The Pokémon craze continued to sweep Asia and the United States, and Nintendo had no shortage of titles to sustain the hysteria. Sales for fiscal 1999 reached $4.73 billion, a healthy increase from the previous year's figures.

Sega's Dreamcast, which processed data more quickly than both PlayStation and N64 and was capable of producing more lifelike graphics, hit the United States in late 1999. Nintendo countered by releasing a slew of new N64 titles including Mario Golf, Mario Party, Super Smash Bros., Donkey Kong 64, Racer, and others. The new century a few months later brought several milestones for Nintendo, including the sale of its one-hundred millionth Game Boy, the release of The Legend of Zelda: Majora's Mask and Pokémon Stadium for N64, and Pokémon Gold and Silver for Game Boy Color.

Not to be outdone, Sony's new PlayStation 2, which it categorized as a home entertainment system, was even faster than Dreamcast and produced images with graphic quality similar to animated movies. Not just a game console, the PlayStation 2 accommodated movies and games recorded on DVDs (digital video disks). Breaking with industry convention, the console also played games produced for the original PlayStation. With PlayStation 2 flying off the shelves, Nintendo knew its new console had to be spectacular. The company partnered with ArtX and IBM for specially designed microchips for speed and graphics, and signed an agreement with Matsushita Electric Industrial Company, Inc., known for its Panasonic work, to create the media system for the new console, code named Dolphin (later christened GameCube).

By the following year, 2001, both Mario and Donkey Kong celebrated their 20th anniversaries and were featured in new games for the introduction of Game Boy Advance, which debuted in Japan in March 2001 at the end of the fiscal year. Revenues had fallen sharply, however, to just over $3.7 billion with Sony's PlayStation 2 dominating the console and software markets. Nintendo countered with the release of Game Boy Advance in the United States in June 2001 to much acclaim, though the gaming market declined dramatically after the terrorist attacks of September 11, 2001. All of the major players in the gaming industry lost sales, but geared up for a fresh start in 2002.

A New Era: 2002 and Beyond

At the beginning of 2002 Nintendo faced a changing of the guard: Hiroshi Yamauchi stepped down after 52 years of running the company and was succeeded by Satoru Iwata, a software developer. Iwata had only joined Nintendo two years earlier but had been developing games for the company for decades. Despite the retirement of Yamauchi, it was business as usual at Nintendo: its phenomenally popular Game Boy Advance continued to attract new players and sales had reached more than 25 million handheld units. Then came the launch of its long anticipated GameCube and several games to go with it, including Super Mario Sunshine. Other bestselling games released during the year included Mario Party 4, Eternal Darkness, and the well-received Metroid Prime.

While the GameCube was intended for players of all ages, Nintendo had succeeded in attracting teens and a more mature audience with titles such as the Diehard games (based on the movies starring Bruce Willis) and Resident Evil series. Nintendo's legendary game designer, Shigeru Miyamoto, commented to Japan, Inc. (June 2003), "We always get Sony and others saying that Nintendo is for children, but it really isn't," he insisted. "People are becoming better at games; the players have grown up, and the company has to do the same. ... It's about producing a formula that works everywhere around the world." Miyamoto continued to create new adventures for his most famous characters, including Zelda, Donkey Kong, and Mario, following the same mantra for more than 20 years, "Behind every door, a surprise."

In 2003 Nintendo launched its new Game Boy Advance SP, with a new flip top and an illuminated screen. Units flew off the shelves of toy stores, yet Nintendo soon suffered unexpected losses due to fluctuations with the yen. To bolster its bottom line the company slashed prices, and prepared to go big into China's lucrative video game market before rivals Sony and Microsoft. By offering the Chinese a lower priced version of its GameCube, Nintendo hoped to eclipse sales of both PlayStation 2 and Xbox. In addition, Nintendo bought a 3 percent stake in Japanese software developer and toy manufacturer Bandai Company. Though Bandai officials denied any future partnerships or deals were in the works with Nintendo, its development deal with Mattel was due to expire at the end of the year. Nintendo finished the year with sales of $4.2 billion, but net income plunged to $561.3 million, down from 2002's $802.5 million.

In 2004 Nintendo initiated several moves to steal customers from rival Sony--it lowered the price of its incredibly popular Game Boy Advance system, released two new Pokémon titles (FireRed and LeafGreen), and brought out its next generation handheld game, the Nintendo DS (DS stood for dual-screen). The DS took mobile gaming to a new level: it was wireless, had surround-sound, excellent graphics, and voice recognition; it was compatible with Game Boy Advance and its library of games; and it had two screens instead of one. The company had high expectations for the Nintendo DS, believing it would take gaming to a totally different level. Designer Miyamoto (whose Mario had sold 170 million games to date), confirmed this in an interview with Game Developer magazine (June-July 2004): "We didn't make the DS because we wanted to make our console games portable, or because we wanted to make our Game Boy Advance games more gorgeous. We really wanted to create the DS so people could [play] completely new styles of games no one has ever experienced before." The DS had already created a buzz in the industry by the time of its release, and had signed hundreds of game designers willing to create DS adventures.

While Sony's console sales eclipsed those of Nintendo and Microsoft, the latter's XBox was considered the most sophisticated in terms of graphics and had Microsoft's clout and billions behind it. Nintendo's hardware products--GameCube, Game Boy Advance SP, and the new DS--continued to attract new fans as well as loyalists. The company's imaginative games and characters, however, remained as popular as ever. "We see these characters as ageless," George Harrison, senior vice-president of marketing and corporate communications at Nintendo of America, had commented to Brandweek (January 7, 2002). "There is a huge following with people who have played Nintendo games since the 1980s. They are not at all embarrassed to play Luigi's Mansion, Mario Cart, and Super Smash Brothers." Harrison was right on the mark; Nintendo's fans bought new games featuring their favorite characters again and again, and as Nintendo hoped, bought the next generation consoles or handhelds necessary to play them.

In the gaming wars of the mid-2000s Sony remained the undisputed king of consoles with its PlayStation 2, but Nintendo had gained ground on Microsoft's Xbox, enough to claim it had edged Xbox out of the number two slot. In the handheld arena, however, Nintendo was still the market leader with its perennially popular Game Boy and the new DS despite Sony's launch of the PSP (PlayStation Portable). "The key to success in our industry is no secret," Harrison told Wireless News (September 30, 2004), "when you offer great interactive entertainment at a great price, players respond in droves." These "droves" took Nintendo's sales to $4.7 billion for 2004, and this figure did not include sales of the new Nintendo DS, which was earning raves from the gaming industry. Not to be outdone, Sony's new handheld PSP hit stores in early 2005.

Principal Subsidiaries: Nintendo of America, Inc. (U.S.A.); Nintendo of Australia Pty, Ltd.; Nintendo of Canada, Ltd.; Nintendo Espana, S.A. (Spain); Nintendo France; Nintendo of Europe GmbH (Germany); Nintendo Hong Kong Limited; Nintendo Netherlands B.V.; Nintendo UK Entertainment Ltd.; Pokémon Company.

Principal Competitors: Microsoft Corporation; Sega Corporation; Sony Corporation.


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