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History of Nintendo

September 19, 2013

Hiroshi Yamauchi, who ran Nintendo for more than 50 years, passed away this morning. He played a great role in bringing the game consul to the American marketing and in the creation of Super Mario, Donkey Kong and Zelda. To take a look back at his life and his role in the company, here is an overview of the history of Nintendo (Part I), first published in Uncle John’s Ahh-Inspiring Bathroom Reader.

History of NintendoNO SALE

Back in 1981, Atari was the world leader in video games. In 1983 Nintendo offered to sell Atari the licenses to their Famicom game system, but they couldn’t come to an agreement, so Nintendo decided to go it alone.

They renamed the American version the Advanced Video System (AVS) and in January 1985, introduced it at the Consumer Electronics Show in Las Vegas, one of the largest such trade shows in the world.

They didn’t get a single order.

Nintendo’s problem wasn’t so much that the AVS was a bad system, but more that the American home video game industry was struggling. After several years of impressive growth, in 1983 sales of video game consoles and cartridges suddenly collapsed without warning. Video game manufacturers, caught completely off guard, lost hundreds of millions of dollars as inventory piled up in warehouses, never to find a buyer. Atari’s loss of $536 million prompted Warner Communications to sell the company in 1984.

Mattel sold off its version, Intellivision, the same year and shut down their entire video game division. Many other companies went out of business.

GOODBYE VCS, HELLO PC

Meanwhile, computer technology had finally advanced to the point that companies were able to manufacture and sell home computers at prices that families could afford. By 1982 a computer called the Commodore 64 could be bought for as little as $200, which was $100 less than the cost of an Atari 5200.

Why buy just a game system when you could buy a whole computer— which also played video games—for the same price or lower?

Just as the video game industry had evolved from dedicated Pongonly games to cartridge-based multigame systems, game systems were giving way to the personal computer. Stand-alone video games were dead…or so most people thought.

Hiroshi Yamauchi, the president of Nintendo, didn’t see things that way. His company didn’t make personal computers and he didn’t know much about the American market. But Famicom game systems were selling like crazy in Japan, and he didn’t see any reason why they shouldn’t also sell well in the United States. So what if the company didn’t receive a single order at the Consumer Electronics Show? He told his American sales team to keep trying.

WORD GAMES

Nintendo’s American sales team was headed by Minoru Arakawa, who also happened to be Yamauchi’s son-in-law. Arakawa had to keep trying. He didn’t have any choice—he was a member of the family.

One of the problems the AVS was up against was that retailers had been badly burned by the video game crash of 1983. They weren’t about to put any more nonselling video games on their shelves. Arakawa decided that the best way to proceed was to conceal the fact that the AVS was a video game. He couldn’t do that while it was still called the Advanced Video System, so he renamed it the Nintendo Entertainment System, NES for short.

He added a light pistol and some shooting games, so that he could say it was a “target game.” (Guns and target games still sold well in toy stores.) Then he added the Robot Operating Buddy (ROB), a small plastic “robot” that interacted with a couple of the games played on the NES. “Technologically speaking,” Steven Kent writes in The Ultimate History of Video Games, “ROB offered very little play value. It was mostly a decoy designed to prove that the Famicom was not just a video game.”

DEJA VU

With a new name, a light gun, and a robot, Arakawa was sure the NES would sell. He rented a booth at the Summer Consumer Electronics Show and set the ROB out in front, where everyone could see it.

He didn’t get a single order.

Why didn’t retailers want to buy? Were consumers turned off too? Arakawa didn’t know for sure, so he set up a focus group where he could watch young boys—Nintendo’s target market— play NES games. Observing the scene from behind a two-way mirror, Arakawa heard for himself how much the kids disliked the NES. “This is sh*t!” as one kid put it.

ONE MORE TRY

Arakawa was ready to throw in the towel. He called his father-inlaw, told him the situation was hopeless, and suggested that Nintendo pull the NES out of the U.S. market. But Yamauchi refused to hear a word of it. He didn’t know much about the Consumer Electronics Show and he didn’t know much about focus groups.

One thing he did know was that the Famicom was still selling like crazy in Japan, so why couldn’t it sell well in the United States?

There was nothing wrong with the NES—he was certain of that.

Yamauchi told Arakawa to test it one more time—in New York City. This time Arakawa left nothing to chance. There were about 500 retailers in the city, and Arakawa and his staff visited every one. They made sales pitches, delivered the game systems, stocked store shelves, and set up Nintendo’s in-store displays themselves.

They made plans to spend $5 million on advertising during the Christmas shopping season, and—without permission from Yamauchi—promised retailers they would buy back any game systems that didn’t sell. And they never, ever referred to their video game as a video game. The NES was an “entertainment system.”

IS NINTENDO THE NEXT ATARI?

With the buyback guarantee, retailers had nothing to lose, so they agreed to stock Nintendo, even though they didn’t think it would sell. They were wrong—more than 50,000 games sold by Christmas, prompting many stores to continue stocking the NES after the holidays. Arakawa launched similar tests in Los Angeles, Chicago, and San Francisco. The NES sold well in each city.

In 1986 Nintendo expanded its U.S. marketing push nationwide and sold 1.8 million game consoles, and from there sales grew astronomically. They sold 5.4 million consoles in 1987 and 9.3 million in 1988. By 1990 American sales of the NES accounted for 10% of the entire U.S./Japan trade deficit.

But if there’s one thing that video game makers have learned the hard way, it’s that staying ahead in the business can be a lot harder than getting ahead. For all their successes, Nintendo has made their share of blunders, too. They clung to the NES a few years longer than they should have, on the assumption that its market dominance would allow it to keep ahead of its rivals. They were wrong.

When a rival company called Sega introduced their Genesis system in 1989, Nintendo ignored it, even though the Genesis was twice as powerful as the NES. They shouldn’t have—Genesis introduced a character called Sonic the Hedgehog, an edgy, anti-Mario character who appealed to older kids and adults the same way that Donkey Kong’s Mario had appealed only to kids. In late 1991, Nintendo introduced SuperNintendo, but it was too late. Sonic’s appeal, combined with six years of waiting for Nintendo to update their system, helped Sega get a toehold in the market…and outsell Nintendo.

SONY’S PLAYSTATION

The industry was gearing up for yet another generation of game systems—using CD-ROM disks instead of cartridges. CD-ROMs were cheaper to make and stored more than 300 times more information than a Super NES cartridge, allowing for much more sophisticated graphics.

Nintendo had no experience with CD-ROMs, so they made plans to partner with Sony Corporation to make the new system.

But there was a problem—Sony had already announced plans to introduce its own game system (Play Station), and Nintendo executives were worried about revealing Nintendo’s technological secrets to a competitor as large and powerful as Sony. So what did they do? For some reason, Nintendo waited until the day after Sony announced the partnership. Then they made an announcement of their own: they were ditching Sony and partnering with the Dutch electronics giant, Philips.

REVENGE!

Though the company had lost ground to Sega in the U.S. market, Nintendo was still the world leader in video game sales, and many Sony executives were reluctant to challenge Nintendo’s dominance.

The consensus: scrap the Play Station project because Nintendo will wipe it out. But Sony CEO Norio Ohga was so furious at being humiliated by Nintendo that he almost singlehandedly forced the company to continue work on the project.

The Sony Play Station was introduced in Japan in 1994 and in the United States in 1995. Nintendo eventually scrapped its CD-ROM–based system and introduced the Nintendo 64, yet another cartridge game system.

As we know, the saga continued with the launch of the Nintendo Wii in 2006 and the Wii U in 2012, giving the company a new leases on life and keeping the competition between Sony and Nintendo strong for another generation of players.

 

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