As a cheap fast wow gold long term Nintendo (OTCPK:NTDOY) shareholder and fan, I nearly fell out of my chair the other day when I saw the movement of the share price up more than 4% on 8.18 on the Tokyo stock exchange (though it's subsequently down a bit today as folks take some profit).
The reason: speculation that Nintendo will finally enter the booming mobile games market through its affiliate, The Pokemon Company, by launching a Pokemon game made for Apple's (NASDAQ:AAPL) iPad. Though there is no exact date set yet articles appeared in both the WSJ (for those of you who still pay for news) and Bloomberg related to Nintendo's plans. The Pokemon game in question, a trading card game (TCG), works perfectly for this franchise (since Pokemon is not only a hit TV show but also based on a real world collectable card game in its own right). More importantly, the TCG mechanic has been tried and proven in Asia by many of Nintendo's would be competitors on mobile like Mobage (part of DeNA), who arguably pioneered the genre with Rage of Bahamut, Blood Brothers and Marvel: War of Heroes in 2012 2013. Rage of Bahamut was a top selling iOS and Android game for much of 2013 and continues to be among the top 100 here in the United States while Marvel: War of Heroes is ranked 59th on the Apple store currently according to Distimo, an app analytics company, and ranked 21st on Google Play (NASDAQ:GOOG) (NASDAQ:GOOGL).
Nintendo needs a hit and it desperately needs to be on mobile. To put things in perspective, there were 200 million tablets sold globally last year alone, according to IDC. Compare that to the most successful console of all time: the Playstation 2, which had lifetime unit sales of around 150M units over 6 years! More importantly, tablets have become gaming machines in their own right. To gamers who scoff about a tablet's capabilities, look no farther than games like Infinity Blade, Racing Rivals, and Nova 3 to get an idea of what these machines are capable of. Are they up to the likes of top console games? Not yet but given the demographics of how people use tablets (11 min average gaming sessions, for example) consumers don't expect a console like experience yet but still happily will spend money for mobile games. More importantly, companies like Nvidia (NASDAQ:NVDA) are now unleashing a new generation of processors (like the K 1) that are even more powerful and consume less power than the chips actually used in the Xbox One or PS4.
The size of the stake is huge and has never been hotter. The mobile gaming industry is estimated to bring in some $21.7 bln in 2014 and could generate as much as $35 bln by 2017, according to figures published by AppLift and Newzoo.
That said, the market has never been more competitive. Though games like Puzzles and Dragons or Machine Zone's Age of War may bring in several million dollars per day in revenue, development costs, marketing costs and the overall cost of doing business are all on the rise (see the post I did on this recently here and the opportunity it presents for Google).
Pokemon, Zelda, and Mario are all household brands and games that people all over the world of all ages have played and enjoyed. The impact of brand is essentially reduced marketing costs, pricing power and the ability to extend the brand far beyond its base of users. For all their early successes, there is a reason Zynga is where it is: nobody would ever care to watch Farmville on Nickleodeon, and my kids aren't interested in brushing their teeth with Words with Friends toothpaste. These are essentially casual games designed to reach a very broad user base quickly but with little depth. The result is that they reach a large base but typically only 1% 2% of users monetize and the ARPU (average revenue per user) is much lower compared to games that appeal to mid core or core gamers. For example, Candy Crush is estimated to generate a little over $1M/day from more than 7M daily active users, and Clash of Clans does roughly the same revenue for 4M users.
OK great. But what about the numbers? Well, just bringing Pokemon to iPad won't turn Nintendo around. So if Nintendo were to launch on both devices and also add an Android version (assume the Android game would monetize around 80% of the rate the iOS game does, which is consistent with other top games), you might see yearly revenues of roughly $780M. Less Apple and Google's take, you're looking at around $550M in gross revenue (30% distribution costs) before development and marketing costs. For just one game. If you also factor in that marketing costs will be far lower than normal given Nintendo's brand strength (I would be amazed to see them spend as much as 5% of revenues on a mobile launch) and that development of a high quality game will likely not exceed $10M $15M per title, you're looking at something far more profitable than console equivalents. For perspective, the company earned $6.7bln in sales in 2013, according to their annual report. Now also keep in mind that mobile development is faster and allows developers to make changes "on the fly" and resubmit to Apple and Google. This means Nintendo could potentially be launching yearly sequels of their major titles and be continuously updating existing games with fresh content (characters, missions, events). The importance of this is that it essentially de risks development by turning Nintendo's games business into a games as a service business where games can be constantly improved and always provide users with new content. This is exactly the model top developers like Zynga, Tencent, CJ (a top Korean developer), EA and others use.
So in conclusion, investors should rejoice regarding the news that the Japanese publisher is finally dipping its toes into the water. Now let's just see if they can embrace mobile and bring the joy of Mario, Luigi, Zelda and others to the teeming masses of users who have been waiting so long. Myself included.