The secret to Nintendo's success

Summary

Summary of "The Secret to Nintendo's Success"
The Indicator from Planet Money
Released: June 16, 2025

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Introduction

In the episode titled "The Secret to Nintendo's Success," NPR's The Indicator from Planet Money delves into the remarkable transformation of Nintendo from a modest Japanese toy manufacturer into a global powerhouse encompassing video games, movies, and theme parks. Hosts Adrienne Ma and Jamal Michelle explore the unique business strategies that enabled Nintendo to thrive, even when its products were not the most technologically advanced in the market.

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Nintendo's Humble Beginnings

The story of Nintendo dates back to 1889 in Kyoto, Japan, where Fusajiro Yamauchi began producing Hanafuda cards—traditional Japanese playing cards often used for gambling. For decades, Nintendo's primary business revolved around these cards, supplemented by the production of Western-style playing cards, Disney-themed cards, and eventually branching into children's toys during the 1960s and 1970s.

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The Rise and Fall of the Early Video Game Industry

As video games began to surge in popularity in the United States during the mid-1970s, companies like Atari led the charge with home consoles that quickly became mainstream successes, selling hundreds of thousands of units in their debut years. Yost von Droynen, a professor at NYU specializing in the business of video games, explains that Atari's triumph attracted numerous competitors, including General Electric, Emerson Radio, Fairchild, Coleco, Bandai, Mattel, and RCA, all eager to create their own home consoles.

However, this rapid influx of manufacturers led to market saturation by 1983. Many new consoles and games were poorly received—“janky and confusing or frustratingly difficult to play” (Yost von Droynen, [05:10]). As consumer interest waned, spending on video games plummeted by nearly 90% within a year, resulting in significant financial losses and layoffs across the industry. By 1985, the home video game console market appeared to be on the brink of collapse.

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Nintendo's Strategic Entrance into the US Market

Amidst the industry downturn, Nintendo made a bold move by introducing the Nintendo Entertainment System (NES) to the United States in October 1985. As Yost von Droynen recounts, "When Nintendo came to the US, people thought they were nuts. Like this was the most counterintuitive thing to do from a business strategy perspective" ([06:22]). Despite skepticism, Nintendo executed a three-pronged strategy that would set them apart:

1. Retailer Relationships: Nintendo assured retailers that they wouldn't need to pay upfront for consoles, allowing payments only upon actual sales.

2. Quality Control: The company established a high standard for NES games, ensuring that only well-crafted titles made it to the market.

3. User Experience: Emphasizing fun over frustration, Nintendo introduced supportive measures such as magazines, a Nintendo club, and a hotline for players needing assistance with games ([07:06]).

This approach resonated with consumers, leading to the NES selling approximately 60 million units and effectively revitalizing the video game industry. Yost von Droynen notes, "Nintendo was walking towards the games industry and rebuilt it" ([07:46]).

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Embracing "Lateral Thinking with Withered Technology"

Nintendo consistently differentiated itself by not competing on technological prowess but instead leveraging limitations creatively. This philosophy, termed "lateral thinking with withered technology" by Nintendo's head game designer Gompei Yokoi, involves repurposing existing technologies in novel ways to enhance user experience.

A prime example is the Nintendo Wii, released in 2006. Despite having simple graphics and using infrared technology akin to TV remotes, the Wii introduced motion-controlled gameplay that allowed players to engage in activities like tennis and golf through physical movements ([08:56]). This innovation made gaming more accessible and family-friendly, appealing to a broader audience.

Yost von Droynen explains, "You could play with anybody else in your house...they managed to take a low-tech approach and make it fun for a broad range of players" ([09:31]).

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Building a Culture of Accessibility and Coziness

Nintendo's strategies extended beyond hardware to cultivating a distinctive brand culture. Jamal Michelle, a video game writer for publications like the New York Times, observes that Nintendo effectively "was selling a culture"—one that includes beloved characters, merchandise, and a welcoming community. This culture emphasizes a cozy and inclusive gaming experience, contrasting with competitors that often focus on high-octane, graphics-intensive games.

Drawing an analogy, Michelle likens Nintendo's aesthetic to that of filmmaker Wes Anderson, characterized by "coziness and softness" ([10:07]). This approach allows players to enjoy gaming without the pressure of intense competition, fostering a relaxed and enjoyable environment.

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Conclusion

Nintendo's success story is a testament to the power of innovative business strategies that prioritize quality, user experience, and brand culture over simply being the first or the most technologically advanced in the market. By focusing on accessible and enjoyable gaming, Nintendo not only revived a declining industry but also established a lasting legacy that continues to influence the global entertainment landscape.

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Notable Quotes

• Yost von Droynen: "When Nintendo came to the US, people thought they were nuts. Like this was the most counterintuitive thing to do from a business strategy perspective." ([06:22])

• Yost von Droynen: "And so Nintendo has never been one to compete on technology, even though the rest of the industry has for that reason, to differentiate itself." ([08:28])

• Jamal Michelle: "The best sort of analog or comparison I could draw up would be like video game consoles to film directors for the Xbox... definitely Wes Anderson from the aesthetic and the softness." ([10:07])

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Production Credits

This episode was produced by Corey Bridges and Ella Feldman, engineered by Kwesi Lee, and fact-checked by Cierra Juarez. Edited by Kate Concannon, it was brought to you by The Indicator's production team at NPR.

Transcript

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[Jamal Michelle]

In the world of consumer electronics, being number one is usually an advantage. Like, if your product has the newest tech, the most features, the fastest processors, chances are people will line up to buy it.

[Adrienne Ma]

Sometimes, though, it pays not to be number one. Take Nintendo. Earlier this month, it released its latest console, the Switch 2. Now, as a piece of video game machinery, the new Switch is nowhere near as powerful as its competitors like the Sony PlayStation or the Microsoft Xbox. And yet, when the Switch 2 was released a little over a week ago.

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[Adrienne Ma]

Gamers in New York camped out on the sidewalk outside a Nintendo store for hours just to snag one.

[Yost von Droynen]

She's been here since 12:30.

[Listener]

Oh my God, so much longer than I thought.

[Jamal Michelle]

I've been here for now 18 days. And me and my buddy Chris and or Chicken Dog have been planning this for two years. Chicken Dog is such a great name. Anyway, despite the hype around this new product, today's episode is not about the Switch 2, because we think that the story of Nintendo itself is a lot more interesting. This is the indicator for Planet Money.

[Adrienne Ma]

I'm Adrienne Ma, and it's a Mia Waylon Wong. Today on the show, the business strategy that transformed Nintendo from a tiny Japanese toy company to a global brand that includes games and movies and even theme parks.

[Jamal Michelle]

And how Nintendo reinvented the video game industry by not being number one.

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[Adrienne Ma]

From NPR sponsor Insperity providing HR services and technology from payroll benefits and HR compliance to talent development. Learn more at insperity.com hrmatters the story of Nintendo begins long before the invention of video games. In 1889, a guy in Kyoto, Japan named Fusajiro Yamauchi started making these things called Hanafuda cards, basically playing cards that were often used for gambling.

[Jamal Michelle]

And for several decades, playing cards are Nintendo's whole business. Hanafuda cards, Western style playing cards, Disney themed cards. But by the 60s and 70s, the company also branches out into making kids toys.

[Adrienne Ma]

Meanwhile, in the US a new form of entertainment begins to explode in video games. At first you have to go to an arcade to play video games because they're these bulky six foot tall machines. But by the mid-70s, the arcade experience starts to move into the home with companies creating the first at home video game consoles. One console made by Atari was an especially big hit, selling hundreds of thousands of units in its first year.

[Jamal Michelle]

Jost von Droynen is a professor at NYU where he teaches a class on the business of video games. And he says Atari's success caught the attention of other companies who were like, hey, we can do that too.

[Yost von Droynen]

Companies like General Electric that come out with their own devices. You have Emerson Radio, Fairchild, you have Coleco with Colecovision, one of the more famous ones. Bandai comes out, Mattel comes out, RCA has its own device. So you just have a host of manufacturers all creating their own versions, version of what they think is a home console.

[Adrienne Ma]

Some of these names like Fairchild or Emerson Radio, you may have never heard of them. And that's because within just a few years, this booming industry would self destruct.

[Jamal Michelle]

Yeah, by 1983, the market had become saturated with new consoles and games, a lot of which according to Yost, were just plain bad. I mean, janky and confusing or frustratingly difficult to play. And eventually consumers just got fed up.

[Yost von Droynen]

And they walk away from it, which leads to this collapse in consumer demand and revenue. And therefore, of course, it cascades throughout the ecosystem.

[Jamal Michelle]

In less than a year, consumer spending on video games fell by some 90%. Companies lost hundreds of millions of dollars and laid off employees. And by 1985, it seemed clear that this home video game console was just another passing fad.

[Adrienne Ma]

Then came Nintendo. See, Nintendo had been off in Japan developing its own video game devices, which when you think about it, is sort of a natural extension of its toy business. And in October 1985, it brought its latest machine to the United States, a little gray box called the Nintendo Entertainment System, or nes.

[Yost von Droynen]

When Nintendo came to the US people thought they were nuts. Like this was the most counterintuitive thing to do from a business strategy perspective. Why would you run towards a burning building and you know. And that's exactly what they did.

[Jamal Michelle]

But Yost says Nintendo had a plan. It entered the US with a three prong business strategy. One, they told retailers, listen, you don't have to pay us up front, just pay us when you sell a console. Two, they had a high bar for what games they would sell for nes, so only games they thought were really good would make the cut. And three, and this sounds pretty obvious, but they focused really hard on making games fun as opposed to frustrating for users.

[Yost von Droynen]

We're gonna have magazines around this. There's gonna be a Nintendo club around this. There's gonna be a hotline that you can call if you're stuck so that you don't feel like you just spent 30, 40, 60 bucks of your money and you're off on your own and whatever, go figure it out.

[Adrienne Ma]

It never occurred to me to call the hotline when I got stuck in Double Dragon. My whole childhood could have been different.

[Jamal Michelle]

Just like banging your fist against the wall, throwing the controller at the TV screen.

[Adrienne Ma]

Well, this strategy worked. Even if I did not call the hotline, the NES would go on to sell some 60 million units. With that success, Nintendo essentially hit reset on the whole industry and everybody else was walking away.

[Yost von Droynen]

Nintendo was walking towards the games industry.

[Adrienne Ma]

And rebuilt it, to use a business school term. Yost says Nintendo's NES found product market fit that sweet spot where the right product meet strong consumer demand. And eventually more companies like Sega and Sony would bring their own consoles to the US market. If Nintendo hadn't succeeded like it did, some argue the video game industry as we know it today might not exist.

[Jamal Michelle]

In the decades since, Nintendo has released lots of different devices. Some were hits, some were flops. But one thing has been consistent, Yost says, and it's that Nintendo has never been about making consoles with the best graphics or the most cutting edge technology.

[Yost von Droynen]

And so Nintendo has never been one to compete on technology, even though the rest of the industry has for that reason, to differentiate itself. It's always really leaned into limitations of technology.

[Jamal Michelle]

One of the company's head game designers named Gompei Yokoi called this philosophy lateral thinking with withered technology, which sounds a little funky, but a good example of this idea in action is, is the Nintendo Wii.

[Adrienne Ma]

Oh, the Wii. We still have ours.

[Jamal Michelle]

We do? I mean, you do?

[Adrienne Ma]

Yeah. You should come over and play it sometime. Well, I don't know if it still works. We should plug it in and see. Released in 2006, the Wii was a console with simple childlike graphics. And its controller used very old technology, infrared beams like the kind that come out of your TV remote. But the Wii designers repurposed this withered technology in a novel way, allowing users to play tennis or golf simply by moving their arm. And the result was a very family friendly gaming system.

[Yost von Droynen]

You could play with anybody else in your house. I used to get my ass handed to me in Wii tennis by my mother in law, but they managed to take a low tech approach and make it fun for a broad range of players.

[Jamal Michelle]

Yost also says this lower tech approach meant Nintendo could manufacture consoles for less and sell them for a lower price. So theoretically more people will buy them.

[Adrienne Ma]

For Nintendo fans, the sort of cheap and cheerful ethos is something that has always distinguished the brand from its competitors. That's true for Jamal Michelle, who writes about video games for publications like the New York Times.

[Jamal Michelle]

Without saying it, Nintendo was selling a culture.

A culture that includes characters and merchandise and a whole community. But also, Jamal argues, a certain aesthetic experience.

The best sort of analog or comparison I could draw up would be like video game consoles to film directors for the Xbox. I think of Michael Bay, huge explosions and special effects and stuff like that in Nintendo. I think the most appropriate is definitely Wes Anderson from the aesthetic and the softness.

Yeah, there's like a coziness to a Wes Anderson film.

Yeah. And I think the cozy vibe Nintendo leans into. I don't want to constantly have to be in a fight and so Nintendo lets me just chill out.

I think this whole episode could be summed up as like the business case for coziness.

[Adrienne Ma]

I love that. And you know what? I hope Chicken Dog is feeling real cozy.

[Jamal Michelle]

This episode was produced by Corey Bridges and Ella Feldman. It was engineered by Kwesi Lee and fact checked by Cierra Juarez. Kate Concannon is our editor and the indicators production of npr.

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