The Economist 20161001 ed79b8

62 Business The Economist October 1st 2016
2 was the only one at the company that Mr
Iwata could not overrule, says a Nintendowatcher
at a bankin Tokyo.
The firm has belatedly realised that its
hesitation in embracing smartphones has
already lost it a whole generation of potential
gamers, says Mr Toto—and lots of revenue
to boot. Nintendo owns only a third
of The Pokémon Company, which licenses
the Pokémon franchise, and ofNiantic, but
it could earn ¥7 billion-14 billion a year
from “Pokémon Go”, says Haruka Mori of
J.P. Morgan, an investment bank. It is already
played in 100 countries.
Underlining the potential of Nintendo’s
intellectual property (IP) on platforms
other than its own, it was only when
Niantic overlaid Pikachus, Jigglypuffs and
Digletts onto a niche augmented-reality
game called “Ingress” that it took off. In
two months “Pokémon Go” racked up a
staggering 500m downloads. Jefferies, an
investment bank, calls Nintendo’s IP an
“unmatched treasure”. That it is now putting
its most precious character on mobiles
and tablets suggests that other creations
will soon follow suit.
But Nintendo is not jettisoning its conservative
approach. The message at headquarters
in Kyoto, says a local investor, is
not to get “carried away” by the success of
“Pokémon Go” or by Mario’s leap onto the
iPhone. Its mindset is in some respects still
that ofan old hand in an oldish tech sector.
Only last year Mr Iwata clarified that its
mobile foray in no way suggested that it
had lost any ofits passion for consoles.
Indeed, Nintendo says it is making the
shift in the hope that mobile users—who
may be encountering its games for the first
time—will be enticed to buy its consoles
and help perk up hardware sales. “Super
Mario Run” will be free to download, but
playerswill paya flatfee aftera fewsample
levels (the amount is as yet unknown, but
probably ranging between $5 and $20).
Company staffers are preoccupied with a
new console to be launched in March,
code-named the NX. It is said to be a hybrid
between a console and a handheld device,
to be played on the go or docked at home.
The focus on the NX is partly because the
firm badly needs a big technological
splash. If the console is another dud, it
could even be forced to think about shutting
its consumer-hardware business.
Its continued focus on hardware is of a
piece with a firm that still sees itself primarily
as a craftsman of boxed goods, says
Mr Toto. At its headquarters (which he describes
as a mix between a “Kafkaesque
castle and Willy Wonka”) games designers
sport dark-blue engineering jackets like
those worn by Japanese factory workers,
with pens in their breast pockets. Seth Fischer,
an Israeli activist investorin the firm,
says the building is “like a mausoleum”.
For many observers the success of “Pokémon
Go” shows the gulf between Nintendo’s
offerings and what customers
want: hobbled, perhaps, by monozukuri, a
tendency for Japanese consumer-electronics
firms to over-engineer products to best
others on weight or size, say.
Yet the firm has clearly shifted direction.
For Nintendo to approve a partnership
with a tiny foreign company like
Niantic is an about-turn, as is its decision to
put its mustachioed mascot on hardware
made by Apple. Even two years ago, says
Hideki Yasuda, an analyst at ACE Research
Institute in Tokyo, Nintendo would not
have agreed to Mario’s appearance at the
closing ceremony of this summer’s Olympic
games in Brazil. To the glee of many,
Shinzo Abe, Japan’s prime minister, took
up the baton forTokyo 2020 dressed in Mario’s
signature dungarees and red cap. In
2014 Nintendo launched wildly popular
“Amiibo” figurines of its video characters
that connect with its games.
Continued success will of course depend
on more than just endless recycling
of IP. Nintendo will have to create new,
compelling characters and stay on top of
consumer hardware, which still accounts
Business in China
Mixed messages
LI KEQIANG, China’s prime minister,
made a big promise to the world’s leading
businessmen at the World Economic
Forum’s annual gathering in Davos in January
2015. It was that China would introduce
a new legal regime for foreign investment
that would “treat Chinese and
foreign companies as equals”. Its government
has duly unveiled a set ofrevisions to
its foreign-investment laws that come into
force on October1st. The standing committee
of the National People’s Congress
for a lot of its revenues. And the move into
mobile carries risk. One is the clout that
Apple and Google have in smartphonegaming.
Nintendo will have to hand over
to Apple 30% of the revenues that “Super
Mario Run” earns via its app store, for example.
Its partnerships with DeNA and
Niantic mean that it is relinquishing at least
some control over game development, too,
which could dilute quality. And it is unclear
that casual gamers paying small
amounts on their phones will fork out the
money for a pricey Nintendo device.
That said, Nintendo certainly has the
skills on the software side: the firm is simply
a fantastically good makerofgames. Of
the world’s 25 all-time, best-selling video
games, it owns 17. It also has impressive
staying-power in the business of fun. The
firm began in 1889 with the production of
handmade hanafuda playing cards decorated
with flowers, and was one of the first
to move into arcade games in the 1970s. It
also likes to remind people that it invented
the whole business of hand-held games
played on the go. Seen that way, Mario is
just returning to his roots. 7
SHANGHAI
A missed opportunity to improve the environment forforeign companies in China
adopted the laws earlier this month and
bureaucrats have drafted detailed rules.
The revisions, and the extent to which
they fulfil Mr Li’s grand pledge, are an important
indicator of how serious the government
is about pursuingotherinitiatives
to liberalise rules on foreign investment.
China is currently negotiatinga bilateral investment
treaty (BIT) with the United
States. American businesses hope it will
lead to greater market access. A BIT with
Europe is scheduled to follow.
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