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Landscape Analysis Nintendo

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					Landscape Analysis: Nintendo’s Wii Claudia Steer Georgetown University Research & Evaluation October 7, 2008

INDUSTRY INFORMATION The video game industry is one that continues to expand as the definition of entertainment evolves. Today, the gaming industry includes online, wireless phone, PC and console games, and continually challenges the boundaries of what constitutes a ‘video game’. The market has seen tremendous growth over the past several years; a trend that can be attributed to software sales, which grew approximately 40% (adjusting for inflation) in the past five years, and the introduction of several new console systems by the major players in the industry: Nintendo (Wii), Microsoft (xBox), and Sony (Playstation). The gaming market has seen growth in consumer interest, as a result of the online expansion of traditional gaming avenues by each of the new gaming consoles, and non-traditional gamer involvement through more interactive options, namely Nintendo’s Wii system. Traditionally the industry has had a very target market, comprised of predominantly males between 18 and 35. Therefore, with the exception of the few game titles that generate significant income (Madden, NBA Live), industry players have executed similar communications strategies with hopes of gaining (or at minimum, maintaining) market share. And then came Wii. SITUATION OVERVIEW Wii will celebrate its second year in the marketplace next month. In 2006, it was met with a great reception, receiving numerous industry awards and much fan fare in the media. To date, Wii has sold over 29.62 million units worldwide, with the majority of those sales (13.11 million) in the Americas. Wii is currently the market leader in console sales for its generation (seventh), leading both the xBox360, which was released a year earlier, and the PS3. Nintendo revenue for the fiscal year ending in March 2008 amounted to over $16 billion dollars, almost 75% more than the previous year; this success is attributed to the sales of the Wii and the handheld DS system. Wii had a successful pre- and post-launch, creating buzz for the product worldwide. It differentiated itself in that it appeal to a broader audience by offering a more interactive, physically involved gaming experience. It strategically chose to avoid the incorporation of over complex graphics and technology (unique selling points of its competitors); instead, rather than attempt to steal market share, it expanded what was available. As a result of its success, the Wii and its parent company, Nintendo encountered several communications challenges. First, there was an unexpected supply shortage around holiday season of 2007. Several major markets (most notably the United Kingdom) found that there simply was not enough Wiis in market to meet the demand. This resulted in the perception that Nintendo was purposefully hoarding units in order to create demand. Secondly, Nintendo’s Wii has been the target of several patent infringement lawsuits; one of which it lost, and the other currently under investigation by the International Trade Commission. The latter could possible affect Nintendo’s ability to sell certain products in the United States. By taking a look at the company’s communication practices to its various publics, this report hopes to highlight areas of strength as well as suggest actions that aim to continue to build on both the Nintendo and the Wii brands. COMPANY MISSION AND GOALS Mission “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,

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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.” Goal To expand the gaming audience by offering a variety of products which satisfy both novice as well as skilled gamers. By identifying these key points, we have a base from which to determine the overall success of Nintendo’s communications efforts to date. We will refer back to these statements after reviewing the current communications framework that exists. ORGANIZATION ANALYSIS Overview Nintendo is a Japanese company headquartered in Kyoto, Japan. There are several divisions internationally: Nintendo of America Inc. (NOA), Nintendo of Canada Ltd., Nintendo France S.A.R.L., Nintendo Benelux B.V., Nintendo Espana, S.A., Nintendo Australia Pty. Ltd., Nintendo of Europe GmbH, and Nintendo of Korea Co., Ltd. The scope of this analysis will concentrate on the communications efforts of Nintendo of America, given their position as the lleads other regions in revenue generation for the company, and is therefore an integral part of their overall success. By taking a look at the various mechanisms in place for communication, we can then assess how each one is used in working with its target audience. Internal Nintendo of America, located in Redmond, Washington, houses approximately 1,100 employees. They have a communications division located in their California office that oversees “corporate communications, public relations, government affairs, investor and analyst relations, and internal communications.” There is very little information available about the company’s internal practices or corporate culture, therefore a fair assessment of how it communicates with this audience is not viable at this time. External Nintendo of America currently utilizes its own communications division to execute its communications on a national and international scale. However, it is imperative to mention that much of the public relations and media efforts surrounding the success of the Wii are due to the efforts of GolinHarris, a public relations firm, Leo Burnett USA, an advertising agency, and Starcom, a media buying agency, who were hired for the launch of the product. The initial efforts of these companies have spurred the excitement around the Wii, and built a solid foundation for Nintendo’s internal communications arm to continue to build momentum. Other communications outlets for Nintendo of America include Nintendo Power, a paid subscription magazine aimed at the Nintendo fan, and the annual report, released at the end of the fiscal year in March. Online Nintendo occupies the url www.nintendo.com on the worldwide web. It does not appear to have an intranet system that is accessible to ‘employees’ or third-party affiliates from this portal. There are a significant number of gaming blogs in the blogosphere, but it appears that Nintendo neither has an official

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blog nor an online user community; the only one of the top three console manufacturers not utilizing these communication outlets. General Public Perception Nintendo is, and has always been, considered one of the innovators of the gaming industry, and with 40% of the American public owning a Nintendo system of sort, the brand is considered a cultural icon. The introduction of the Wii has extended Nintendo’s brand recognition into audiences that, traditionally, have not been engaged in the gaming industry before. The media has also been favorable in its perception of the company, and the Wii’s unique selling point (USP) has accounted for much of this attention. Ellen Degeneres, celebrity and morning talk show host, has, on several occasions, promoted the Wii through giveaways and sampling. The Wii Fit addition, which promotes exercise and fitness, has also received favorable endorsements from leading authorities in fitness as well as the elderly community. Significant communications efforts with its various publics are needed to continue this momentum moving forward. PUBLICS ANALYSIS Below are Nintendo’s various key publics, grouped according to their relationship to the organization:
Functional Publics INPUT Employees Suppliers Consumers OUTPUT Retailers Distributors Third-party licensees

Diffused Publics Voters Media Special interest groups

Enabled Publics Stockholders Governments and/or Government Authorities Boards of Directors

Functional With the launch of the Wii, this is arguably one of the most important sets of publics to Nintendo up to this point. Research regarding communications efforts with the Output groups was unavailable. Based on available public information we are best able to assess Nintendo’s relationship with its consumers at this time. Prior to the Wii, the gaming industry segmented its target market into six segments (according to a study conducted by Park Associates): • Power (11%): account for largest percentage of spending • Social (13%): view gaming as a way to interact with friends • Leisure (14%): play approximately 58 hours monthly and prefer challenging games • Dormant (26%): enjoy gaming but time commitments (family, work) prevent them from playing as often as they would like • Incidental (12%): mostly online games for sake of boredom • Occasional: (24%): play, almost exclusively, board, word and puzzle games. Nintendo Wii, as stated in its goal has targeted the non-traditional gamer, who would otherwise not consider a game console at all, namely due to the increasing complexity of competing systems. Through several interviews and media sources, Nintendo has alluded to its strategy for reaching its various

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audiences: keep it online for the 24 and under; use more traditional advertising and PR for the 25 and above. Sampling has been a key component of its strategies, and the unconventional methods it has used to do that (Wii parties with influential ‘mommy bloggers’, installing Wiis on Norwegian cruise ships, placement in senior centers and hotel chains) has generated considerable word-of- mouth. It appears that Nintendo has fallen short in its willingness to engage with consumers. As mentioned before, there is no Nintendo-endorsed blog or online community for its users. Several consumergenerated outlets exist that accommodate for Nintendo’s absence, but it does not appear that Nintendo participates in these as a voice of authority. As a point of comparison, Playstation’s blog (http://www.blog.us.playstation.com) has a rank of 742 according to Technorati, a website that ranks and assigns authority to over 1.5 million blogs worldwide (the closest Nintendo-specific blog ranks # 18,412). An increasing number of adults outside of the Millenial demographic spend considerable time online. Additionally, given the role that word-of-mouth played in the Wii’s success, there is a growing sense of community among its users. Nintendo is failing to capitalize on this, and craft an effective way to communicate with one of its key stakeholders. Non-media personnel do not have access to press release archives through Nintendo’s website, or through other means. And despite recent legal outcomes, Nintendo fails to give a voice to their perspective, and instead allows company-related information to be delivered solely by third parties. Diffused For the purpose of this analysis, we will focus on the media as the Wii’s key diffused public. The media (both traditional and new) has played a key role in building the Wii brand, especially in realizing their goal to expand the gaming market. They have helped to shape the favorable position of the company and have also been the vehicle through which consumers can find out the latest information on the company. Equally, the media has been the only way reputation challenges to the company have been publicized. Nintendo has not posted a press release, for example, either on their recent loss or the current status of the International Trade Commission (ITC) investigation. The latter is significant in that it could possibly affect consumer’s ability to purchase a certain Wii accessory in the United States, and is a topic of high interest for those users who could be affected if the verdict were to go against Nintendo (several games on sale require this accessory for use). For its launch, Nintendo utilized significant online media outreach to target influences in the blogosphere to promote the product. Maintenance of these relationships will be integral to maintaining momentum, but it does not appear that the company is doing so. For example, Wii Fit users that blogged on the topic would probably be very interested to know what other games utilize the $100 accessory, but Nintendo does not seem to be developing relationships with outlets that can disseminate this information (although independent, non-affiliate blogs do). Enabled Nintendo utilizes standards methods of communication with this group of publics, due in part to the significant legal regulations surrounding stockholder communications. Governments are also a somewhat complex public, given the various practices of governments globally. Still, information pertaining to the extent of Nintendo’s communications with these audiences was not available at the time of this analysis.

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SITUATION ANALYSIS & RECOMMENDATIONS For all of the innovation Nintendo is being praised for, its online presence and overall communications efforts do not parallel that of the Wii and what it promises and delivers to its consumers. Nintendo’s greatest shortcoming is its obvious closed communications system. A request for corporate information directly from the company was denied. When I received my response to the request for press release access, I was somewhat satisfied with the timeliness of the response and the seeming concern of the corporation in its referral to other sources. The consecutive, identical responses from different representatives that followed left me disappointed with Nintendo’s phony attempt at concern. The company does not accept gaming ideas from fans, users or anyone else outside of its organization. They do not offer a forum to provide feedback on current games or experiences. From a corporate standpoint, they fail to address any risk that could affect the company (or its publics) anywhere else outside of its annual report. Currently, the novelty and overwhelming success of the Wii seems to be masking the gaping communication inadequacies to the general public (although bloggers and gaming influencers have alluded to it), but as the Wii approaches its third year of existence, it needs to consider strategies for momentum and whether this one-way communication ‘strategy’ will continue to go unnoticed. With the communications trend of increased corporate transparency and two-way conversation, Nintendo has not been proactive in addressing issues surrounding corporate reputation. The company’s foreign origins and the resulting implied corporate and cultural differences could be seen as a reason for these shortcomings. However, given the importance of the American market to the success of the Wii to date, it would behoove Nintendo to allow NOA the necessary autonomy to conduct communications in ways that are relevant to its market. Nintendo recently hired a PR agency in Europe, due to its increased need for public affairs and corporate reputation counsel. My recommendation for Nintendo would be to either do the same in the United States, or strengthen its own communications arm to handle its growing need for these services. Below is a chart of the daily reach of the websites of Nintendo, Playstation and xBox. Despite Wii’s position as market leader in terms of sales, it is attracting significantly less traffic to its website. One reason for this could be the perceived cannibalism of an online community and/or corporate blog with the offering of the company’s paid subscription magazine, Nintendo Power. I would argue however, that each communication channel reaches a very distinct audience. Nintendo’s failure to create an online community most likely greatly affects the target public it craves the most – the traditionally non-game user. Enthusiasts, who seek insider information to more complex games, will continue to subscribe. The average Wii user may simply want to share their latest weight loss achievement with other Fit users. Nintendo ultimately sends traffic away to other sources, rather than encouraging interaction with the brand itself.

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I would strongly recommend that Nintendo make the effort to become a part of the communities it is creating. Being a global company is no longer a sufficient reason for not interacting with key publics, because those publics now understand more so than ever, their role in success of products in the marketplace. In order to strengthen, maintain, and build upon its recent successes, Nintendo should: • • • • • Create an online community for its users Create a blog that allows all interested audiences to gain access to information directly from the source Offer your key publics a more direct way to interact with the brand: o Host a bi-annual community brainstorm for game ideas (example) Maintain relationships with key influencers in the blogosphere Promote transparency

SOURCES • • • • • • • • • Technorati Factiva Nintendo of America website Nintendo Corporate website IBIS Global Gaming blogs Mintel Video Games Report Competitor websites (xBox, Playstation) Google News Alerts

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