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The Patent Strategy Podcast is a twice-monthly podcast where hosts Ian and Samar explore the patent tactics and portfolios of leading companies in tech, media, and beyond. Each episode breaks down a company's business strategy, analyzes their patent portfolios, and scores their patent strategy efforts. You'll gain valuable insights into the business landscape these companies operate within and learn how to effectively build a patent portfolio to support business objectives. Join us to deepen your understanding of patent and business strategy.
I'm your host, Samar Shah, and with me is Ian Holloway and Bobby Walling. Bobby. Ian, welcome to the show, guys. Yeah. Hello. Hello. Absolutely. I'm glad to have you guys here We are rounding out our discussion about the video game industry. We talked about about Xbox. We talked about gaming generally. We talked about digital streaming, so now it's Nintendo's turn.
and this one's gonna be a little bit different than the other ones, as I think. It would be apparent to everyone is that Nintendo doesn't really follow the same rules as everyone else in really anything. So, this is gonna be a little bit different in terms of their strategy and it'll be a little bit different in terms of how we analyze their patent strategy as well.
Yes, indeed. Kind of a unique company. Absolutely. So why don't we start, you know, I guess I can set the background up here a little bit. But yeah, Nintendo. To me, there is this real tension in terms of what Nintendo potentially could be and what Nintendo is, right? It is, as of right now, it is a niche product that's beloved by many gamers, right?
Like,, many gamers will choose either a PlayStation or an Xbox. Then in addition, they will buy a switch. Right? Certainly those who are into more social gaming will always choose Nintendo over some of the other gaming platforms. but, but yeah, they managed to kind of, be less performant but still be beloved by many and they made their way into many households.
And, and there is. Which raises the question as to is that the best strategy for Nintendo, right? Like, is this, like, have they found something from a product market fit perspective? like, they, they're certainly very profitable. They make a lot of money. They make a lot of profit on everything that they do.
But, you know, is there. A sliding doors moment here where maybe they could have been PlayStation or they could have been Xbox or as big as those companies and maybe more profitable than those companies. Right? Like that's, that contrast and attention that I think we should pull on a little bit throughout this episode.
We definitely have a group that's, uh, focused on the nostalgia and family, uh, level games. Right. As opposed to, and, and maybe you don't need those performance or the performance, uh, that's right. Consoles to do that. According to Nintendo. Yeah. And maybe to understand all of this, we should start from maybe day one, right?
Nintendo really came out, of the 1983 crash, the video game crash. Right. Um, before Nintendo there was Atari, there was Sega, and those companies were dominating the market. They started off as a niche, businesses as well. They became bigger than anyone ever expected them to be.
And there was this kind of bubble, in the video gaming industry, and it crashed, I think 1983. Nintendo comes out of those shambles and has a new pathway forward. You know, one of the problems with Atari and Sega systems were, piracy, right? So there were tons of knockoff chips that were cartridges that were in the marketplace.
Oh yeah. And, really bad quality control, that kind of thing. Nintendo comes in and says, Hey, we're gonna solve all that. So they had their, they. Have a lockout chip right, that they came out with in the 1980s. So each cartridge came with a lockout chip. And if you didn't have this chip, your cartridges wouldn't work on the Nintendo platform.
And they really seriously reduced a lot of knockoffs in the marketplace by doing this. And these, lockout chips were. So serious. Like they wouldn't even like have anyone else assemble them or they wouldn't give rights to anyone to include them in their cartridges. In fact, if you wanted to be on a Nintendo system, you had to tell Nintendo to make your cartridges for you, and you had to order way in advance.
You'd had to be like, Hey, Nintendo, make 10,000 chips for me and you gotta pay for those 10,000 chips. Two Nintendo day one, right? And then Nintendo will go and produce them. And then either sell them, or if you were allowed to sell them, you'd have to pay a premium and a revenue or some kind of a fee on top of it.
Right. And you know, a lot of people say that the app store model, Steve Jobs kind of copied from Nintendo. They took 30%, of every sale. Nintendo certainly did that for every game. Not only had you had to put up money upfront to make the game. Money upfront to manufacture to get nten to manufacture the game.
And then you also had to pay 30%, for, um, Nintendo to sell your game for you. So it was a great business model. Nintendo made a lot of money that way. The market really enjoyed the quality control, and all that stuff. But, also made Nintendo kind of difficult to work with and developers, really didn't like some of the draconian restrictions that Nintendo put on them.
Well, Nintendo could just refuse to sell you the chips, right? If they didn't like your game, it would not end, end up, up on the Nintendo system. That's too violent or if it just, was not, family friendly enough, they would just say no. And, and there, there you are. So they, they kind of also steered how, , the direction of the games as well.
By just saying no has to feel good, to be in that position in the business. I suppose. You're kind of the only game in town. You get to set all the rules, coming outta this crash. Yeah, it's, it's interesting, right? Like, it does take a special person. Like, I think Steve Jobs is kind of famously difficult to work with, um, for you.
Like if you're an executive in industry, for you to just say F you to a bunch of your colleagues right outside of your industry, you gotta have some kind of special, culture to support that. And Nintendo certainly had that in spades. Never had to work with anybody like that. Baba can, can't think of anything.
yeah, so, and Ian actually, maybe you should take this next one, , but cartridges great, great product and a great solution for Nintendo, right? They had the lockout chips, they made a lot of money this way. They, really held their developers mm-hmm. To the fire using this cartridge system. But with.
Every opportunity comes an opportunity cost. Right? So yeah. Can you walk us through what happens next? Yeah, I, I think this is great 'cause Nintendo is looking towards the future a little bit here. They hire a, a small company, to help develop a disc drive for their next console. They see CDs as potentially the future solution, , to gaming.
This is between, the Super Nintendo and Nintendo 64 days. And this company, developed it. They were very excited, to put it forward to Nintendo. And Nintendo said no. So that company went off and became the Sony PlayStation, to work directly in competition with them. So I, I guess you really have to be careful at who you say no to, as you're going on.
Which is interesting 'cause it's, it's an opportunity that Nintendo saw. They, they recognized it early on. They put r and d resources into it. And just passed on it. 'cause they chose to maintain that control that they got with cartridges. Uh, CD is obviously a lot cheaper to make. It gives you a little bit more freedom and you can't put a lockout necessarily on your cd.
We see Nintendo make this choice and it, it continues on. I think throughout whenever Nintendo has an option of maintaining control over what they know works, and potentially opening up to a new, , you know, broadening out their ecosystem here, they always choose control. So when online gaming comes out, they're very slow to react and they're gonna put out.
Some sort of add-on to, I think the Game Cube or something like that, but make it fairly inaccessible. Don't have a lot of games to support it. They're not doing any sort of video streaming, quickly. You'll see the competitors do that first. And then just looking, mobile gaming was, was a very big part of Nintendo.
They've had their game boy for a long time and now the switch, but, they really don't. Touch or or license out there IP very much for, any cell phone games or anything like that outside of when they had a lot of success with Pokemon Go. Right. So I think culturally, Nintendo just, they're not wanting to adjust to this, this lack of control.
They're going to maintain, a strong. Grasp on their brand, to kind of protect it and not let it get diluted or anything like that. You see that control too. Um, there's a whole ecosystem in making games. There's, there's a game called Mario Maker. people can, players can make their own levels.
And there's like Twitch streamers and YouTube streamers that they'll like. The player will make a, , troll level that intentionally messes something up. They glitch the game, or something like that. Where like, um, the level tricks the player in some way.
Mm-hmm. And then there, there players who will go play that level and they'll play troll levels. Like that's all they do on Twitch in, in YouTube. They'll find these troll levels that have a glitch in it, and then Nintendo will delete 'em. Isn't that how like Minecraft is built maintaining, people building stuff and Nintendo's like, Nope.
Yeah, but they encourage it as long as you, you play within the sandbox, I guess as long as you color within the lines, they, they're okay with it. But when people find stuff that tricks the players, in a way, the Nintendo didn't authorize those levels, it's like that, that guy in the Stalin pitcher ,
this culture is, uh, like the corporate culture of Nintendo. Very control oriented, very lockdown oriented. And you know, it comes from a like, there, there's this, like my grandparents are like this, right? Like, uh, people who grew up in the, in the Depression era will just like cord food whenever they get the opportunity to.
Uh, it's just like becomes part of your DNA is like, you're just careful with money. You're just, always worried about scarcity, even though like they haven't experienced that kind of scarcity ever since. You know, maybe that's what happens when you come out of like a, a crash of some sort, right? Like, you just become very, worried about like piracy and all these other things, right?
I also say very early in Nintendo's, um, existence, they got hit with a big IP suit, universal sued them over, uh, alleging that Donkey Kong was a rip off of King Kong. And so I, I guess they, very early on realized how important. Protecting their brand was, and, they were actually so appreciative.
They said it saved the company and they named Kirby after their IP attorney. So Nintendo made like a bloated white thing full of hot air, their, you know, tribute IP attorneys, which would all be, man, I, I would've imagined it was links. But go figure, don't you? You feel so lucky. But yeah, so I, I, who knows, maybe that, , initial,
you know, getting exposed to another company, enforcing their brand imposed on them. Yeah. The importance of that, I don't know. It's, it's one thing to be worried about these things, um, but it's another thing to miss opportunities in the marketplace because of it. Right? So, like, they actually saw the CD in the power of cd, but.
They just chose to stick with the cartridge, right? Because they were like, well, deterring piracy and asserting our control is more important than expanding the video game market, right? Because CDs offered A lot of, uh, improvements over the cartridges, right? Like you could, like quadruple the amount of graphic storage so that you could run more graphics, intensive games on a CD based system than a cartridge based system.
So. Yeah. Yeah. So like you could open up new, you know, gameplay possibilities. You can open up new storytelling mechanisms, you can have more immersive gameplay. All that stuff that comes with that improvement in technology they just said. No, we're gonna stick to this thing that we know. And may, maybe the thought process there was that, hey, our cartridge technology will come along, right?
It will just, keep growing and we'll be able to compete with CDs. I don't know if that was part of the thought process, but I know a big part of the thought process was, what about the lockout chips? Right? People can just copy CDs. That's not that hard. And then where do we generate our revenue from?
But the flip side is what about the opportunity, right? Like PlayStation became a multi, multi-billion dollar, maybe the most successful video game product of all time. And that could have been Nintendo, right? So that's the sliding doors alternative. Mm-hmm. Um, it's hard to criticize Nintendo 'cause they're doing so well for who they are.
You know, like part of me is like, could they have been Sony? Like should, they should have been Sony, right? Like, they should be the most successful video game platform of all time. Like they could have potentially retained all the cool parts of being a a Mario platform. Plus all the cool parts of being like a Call of Duty platform or whatever it is, right?
So, I don't know, I thought think it's a missed opportunity. And their kind of culture has blinded them to this missed opportunity. Maybe. I definitely did. I mean, look at all the developers they lost during that, that transition too, right? It took a while for, square Soft to come back to work with Nintendo again in the future.
They. Quickly over to a place where they were made to feel welcome. Yeah. in other requirements. Yeah. And other, maybe the last piece that I'll say here is that, they like a company that, uh, came out of a crash. They're so focused on profits and margin. On literally everything that they do., So like a PlayStation, Xbox famously will just, you know, basically sell their units at margin, for the first couple years, right?
Mm-hmm. And then because the chips get old every successive year, they make more margin on every unit sold as the years co go by, but they just kind of do a big write off in the beginning, and say, well, this is gonna help us sell a bunch of, games and so on and so forth. And then build our platform and our ecosystem, and then they can generate margin later, right through like all the software sales and things like that.
So like for example, if you buy Madden for your PlayStation. Sony gets 30% of that sale price, right? So Sony's making up that margin in other ways through software sales. Nintendo doesn't do that. They're just like, everything we sell is going to have really healthy profit margins associated with it.
There's no part of them that's like, oh, we'll forego some revenue today for an even bigger revenue tomorrow. Right? Like, they just, they just don't do that. Like, yes, you could have missed out on some. Um, revenue and margin by having CD piracy, but you could have made that up so much by having, such a bigger footprint, right?
Uh, and that kind of thing. So, even random things like controllers, accessories, they make a profit on all of those things where many companies, will just like, sell them at cost or something like that. Nintendo won't do that for any reason. It sounds like they're very short term focused on profit, but long term focused on control.
Yes. Good way as a company. Yeah. Example of a very short term, uh, profit. Leading, also showing a long-term control in the, if you remember when the NES and the SNES classic edition, , consoles came out this was what shortly after, people were modifying their raspberry pies to be able to play hundreds, if not thousands of video games.
Nintendo looked at it and said, well, we can do that too, and just put it under our own brand. So they came out with a little box that looked like a Nintendo. You could plug it in your tv. Everybody wanted one. I remember people lining up, in front of the different stores at this time. They sold out immediately.
And looking at all these sales and realizing they didn't make enough. What do you think Nintendo does? They discontinue it after just a few months. They're just like, yeah, we did it. We're done. We're gonna leave you wanting, constantly for more Nintendo products.
They're the the best Coke dealer on the block. Yeah. Indeed. Oh my goodness. So, I don't know. You look at it as a consumer and it's pretty. Frustrating to any of your like, core fans, right? Like if you missed out on it because hey, I want to give you money Nintendo, and you're not letting me do it.
You're gonna be frustrated as a fan. And I would think it would damage the brand a little bit. Although some people look at it as well. It's that idea of you can't have it. So it's very exclusive. Owning Nintendo is kind of a special thing to have, so, and I feel like it went a little bit against their brand of being like friendly to the fans and friendly to families and things like that.
So it was a little bit of an interesting choice I thought, for, for this. Yeah, it is interesting. And I think that's like, I love that example because it's telling, it tells you a lot about the, how the company thinks about their positioning in the marketplace and about its products. So. Like the other companies who would use a tactic like this would be like, is it LVMH?
Right? Like, uh, Louis Vuitton, they will put out a limited edition, you know, purse or bag or whatever it is, and they will artificially limit, um, supply, right? So that, scarcity goes up and then prices go up and people will spend tens of thousands of dollars on some of these things, right? And there's no reason Louis Vuitton can make.
A hundred thousand, millions of these things, right? Like it costs 'em like 20 to 20 bucks to make it. Um, but the name of the game is scarcity, right? And, um, that's how you make prices go up for things. Uh, if you are, uh, a kind of a niche or a luxury, luxury goods products, right? What the internet or electronics, uh, world, what makes it different than like a purse market?
Is that. Is that like a, it operates on a totally different kind of scale and volume and marginal cost. Louis Vuitton to make an additional handbag. It's, you know, like the marginal cost stay the same essentially, right. For. It's, they're not gonna make up like the additional, like whatever loss of income they have from lowering the price of their bag, um, they would have to sell like millions of them to make up that loss revenue.
It's kind of opposite for electronics companies, right? So like, uh, there is this function or a curve between quality and the number of units. And for like luxury goods, it, it's not like Louis Vuitton can, like, by selling more. Make the quality of their goods better, right? Like the quality of their goods remain same.
Um, but uh, you know, the margin and marginal cost remains the same, but the pricing obviously fluctuates based on supply and demand. Electronics companies, the quality actually improves. The more you make of something and the marginal costs come down, the more you make something as well. Right? So like, uh, think, like, think about the best cell phone.
What is the best cell phone in the world right now? Apple, right? Oh gosh. Like, it's the iPhone. iPhone, right? Like, um, uh, or, you know, I take from summer. But also the bestselling, uh, cell phone in the world. Right? Um, they're kind of tightly correlated, whereas in the past, I'm gonna say Huawei, whatever Huawei's making, that's okay.
Go ahead. Um, yeah, you know, but the idea is that like, uh, you can bring a lot of innovation to the marketplace by selling more units, right? If like, OLED screens cost a bunch, the only way to like get, you know, like get it in. To make it cheaper, right? Is to sell a bunch of it and whichever company can kind of mm-hmm.
Bring that customer base to bear, can bring down the cost curve of any incremental technology. Right. Um, so like foldable phones are a great example of it, right? Like they are a better product in many ways, but they're so dang expensive. Right? Those phones are $2,000. Um, and, um. You know, not something, they're not gonna be a mass market product, but whenever Apple brings a uh, foldable phone to the marketplace, that phone's gonna be a thousand dollars.
Right? It's gonna cost half as much as Huawei's foldable phones cost today. Um, but it's gonna be like twice the quality of a Huawei phone, uh, just because they're apple's. We'll be able to do it at scale, right? And they're gonna bring down the cost of the technology, and they're going to spend more money on r and d and quality control and all that stuff that, uh, a, a niche product just can't do.
Uh, whereas with a Louis Vuitton handbag, right, that it doesn't work that way. Like you're not gonna, um. You know, make a much better bag by selling more bags. Like you're gonna make a much better bag by selling fewer bags. Um, so that's just kind of my heuristic for like how I think about technology markets versus like niche and luxury good markets.
Um. And you gotta pick one. You gotta be one or the other. And, um, you know, we certainly know where Apple stands. We certainly know where, um, Sony stands. Um, and where does Nintendo stand, or Nintendo is trying to create this artificial scarcity. I don't even know why. It's not like they raise the prices of these things to exorbitant amounts.
Um, they just wanna. Show that there's scarcity. They just, they wanna show that, hey, this is kind of a luxury good type of a market. Uh, just remind people of that maybe it doesn't work that way in electronics, right? Like electronics. The more you sell, the better the product becomes and lower your marginal cost.
Go. Yeah, I was gonna ask about that. 'cause I thought the, those classic editions were Yeah. Pretty reasonably priced. Oh yeah. Yeah. They were. Very fair. Everybody, I I'm sure once they hit the, the secondary market, uh, right. eBay people are reselling. Yeah. They became outta control. See, this is the power of Nintendo.
We think it was reasonably priced, but it probably Nintendo, when they priced it, they were like, oh my gosh. Can't believe we're gonna get away with this pricing because it cost them like $2 to make so 20-year-old games. Oh my goodness. Yeah. They're not, they're not selling any copies of Super Mario Brothers anymore.
Yeah. You know, uh, and all of a sudden they were able to monetize that. Yeah. Yes. We're the suckers here? Oh, I guess so. Well played Nintendo. Um, but it's interesting too, uh, 'cause they, it feels very much like a thing that a, a, a fan would put together, right? Like, Hey, I, I've made a. That plays all my old favorite Nintendo games.
And like I said, uh, Nintendo made it, destroyed it, uh, much to the distraught fans everywhere. Um, the Nintendo also is just overall a very aggressive, a very protective, uh, company. Do we kind of talk a little bit about what they get into with their, uh, their IP and every type of ip. They'll go out and either write a cease and desist letter or provide some sort of lawsuit, whether it's a patent, a trademark, or a copyright, um, which is very different from what we see from their competitors.
Uh, Microsoft very famously allows some fan made content online. Minecraft and things like that. Um, valve who owns Steam has a whole section for Moders to add things to games that they sell on Steam. Uh, they, they wanna encourage it. They want their fans to, uh, they participate in more ways with their games than just one controlled version.
But, uh, no, uh, Nintendo, uh, just. We'll clamp down on this. So once again, maintaining control at, at this point, I'd say sacrificing, uh, consumer engagement as well. Yeah, it is interesting. You know, one of the other heuristics I have is that if you're a niche product, your biggest job is to generate consumer demand.
Um, because, uh, purchasers of niche products typically are pretty price insensitive. So. Like, maybe this is part of that strategy, or maybe this is just like the pet project as somebody who's like, uh, who loved Nintendo old Nintendo games, um, who knows? But like if your job as a company is to generate consumer demand, then I think this is a pretty good job, right?
Like, it, it could be argued that like having lines several blocks long to purchase an iPhone is like a. Reducing consumer sentiment in some ways, right? Like it make, making people frustrated about being able to purchase this thing. But in many, in many ways, it's like a fan experience, right? Think fondly about standing in line to get the latest iPhone.
I don't know. Um, and maybe there's, there's some of that that's happening, uh, with Nintendo as well. I'd say longest. I think I've stood in line is for the Lord of the Ring that came out there. Do you, how do you remember that time? And I can think back fa fondly to that. Yeah, that was, it was good times. You ever stand in line Favo?
I stood in line for the first Teenage Mutant Ninja Turtle movie. I remember that. Good memories. Uh, yeah, because they gave us a, um, little plushy, uh, uh, ninja Turtle and I got, uh, I got Leonardo. That was my favorite, so, oh, Leo's my favorite too. Nice. See? There you go. It worked.
So, yeah, we, we kind of touched on a little bit of their strategy and it is very brand centric and, uh, I know Bobby wanted to talk a little bit about Nintendo's brand as a whole. Yeah. I remember my trademark professor once said that, uh, Coca-Cola is so ingrained in our culture, it has a advantage that no one can touch because the image we have of Santa Claus is from a Coca-Cola.
I don't know if that's true or not, but it's a great story. And for me, Nintendo is that, um, I remember when I was a kid, my first mail that I would get was like, Nintendo Powers. Mm-hmm. You guys said either, you know, uh, PlayStation, Xbox, or, and Switch, but we just have a switch hooked up in my house. And um, and there's like, when I was thinking back, I thought about a lot of things, but there's two stories in particular I think, you know.
Drill, you know, really nail down how ingrained, um, Nintendo is for me. Uh, my first memory involves Nintendo, actually. Oh, wow. Um, I think you guys, yeah. Yeah. I think you guys know that I, you know, I'm a bastard. My, my parents separated when I was two and my brother was newborn or maybe even younger. And for two weeks a year, uh, during the summer, we were forced to go stay with my dad.
You know, everyone's on summer vacation and, uh. We gotta go where we don't know anyone and watch old howdy duty episodes and be forced to eat fish sticks and hot dogs. But like every year, one one day he would take us to showbiz pizza and that we loved it. We'd see the animatronic animals play and uh, eat pizza.
So we looked forward to that. And one time when we went there, and this is my first memory, um, I imagine they had arcades, but. They, they had one where you had a screen on top and you could see what was happening. Mm-hmm. Like for someone, a little guy like me that couldn't see into the console and it was making all this noise and, and it was colorful and the, you know, people were controlling it and it was Donkey Kong and I was like, just transfixed on that screen.
I was like, this is the coolest thing I've ever seen. And I actually remember the next time I was like, oh, like the next summer I was actually looking forward to going to my dad's house. And I was like, oh, we get to go see the donkey gun game, the game. That's incredible. Yeah. That's so cool. And then another thing I remember, um, when I, when I first realized some people are playing a, they're different game than us.
Uh, like, uh, I went to a boarding school, but it was a unique experience. Um, it wasn't like a typical boarding school in Coca-Cola. Paid partial or full scholarship for almost all the American kids that were there. And then you'd have these international kids that were super wealthy paying full freight.
Um, so I went there from eighth grade to 12th grade, but I remember when I met the first American kid that was paying full freight and uh, he had, um. Every shade of Tommy Hilfiger shirt in his closet. And I was like, oh, wow, this guy's super rich. And, uh, but I didn't realize how rich, um, his name was Chad fitting up.
Of course it was his grandma came up from Atlanta and, uh, this was when the Nintendo 64 first came out. So we all remember Super Nintendo, Sega Genesis thinking, you know, biggie, like, wow. What kind of wealth is it to afford both of them, both the Super Nintendo and the Sega Genesis. I'm about to hit you with something, even a higher level.
So Nintendo 64 first came out. I didn't know anyone that had it. I don't know what the real retail price at the time was, but it was whatever it was at the highest, like mm-hmm. They may have had eight games for it. You know, Mario, 64, whatever. So his grandma comes, they go to Walmart, they buy a TV that he's not allowed to have, and a Nintendo 64 that he is not allowed to have in like every game.
They come plug it up. Chad wants to play with his roommate, but it only came with one controller. So they go back to Walmart, they don't have controller, so they buy another Nintendo 64, take the controller out the box and give the, you know, game list controller list, Nintendo 64 to his roommate. And so from that point on, I was like, whoa, Nin.
Nintendo 64. Nintendo 64, you might have money. Do you have two Nintendo 64 money? I dunno. Anyone else to do? So that's when I realized, whoa, some people. Yeah. Yeah. Got it. So I, and I, I was trying to think like, what's another brand that, uh, to me has been like consistently good and just my whole life and I don't know that there is another one.
One other possibility is Lego, and I know that Lego and Nintendo both have like theme parks and, and they both have. Animated movie. So I, I guess what I'm saying is if you want have a great brand, you need to make an animated movie and have Chris Pratt do the voice. So that's some advice for Chick-fil-A.
I know they're getting into content, so they need to make a full feature with a, have Chris Prat voice the cow. That's pretty good. Yeah, that's true. Uh, I mean, yeah, I can't think of a better gaming brand. Then Lego, you know, as a, as a comparable to Nintendo. That's incredible. Incredible. Um, yeah, I, it, it, it's, they did a lot of things right.
Right. And I think this is why they have such an arrogant culture, because the people would buy, if you could afford it to Nintendo 64. Yeah. Who could afford it though? I can only imagine. Um, yeah, branding certainly is very important. Um, and actually I was trying to teach my kids about investing in stocks and um, like this is a great proxy.
Like my kids are very young, right? They're like six and eight. Um. But like even they understand what a valuable brand is. You know, any, anyhow, so like if you had given young Us like some money to invest, we probably would've invested in Nin Antenna and it would've been a great investment. Definitely. I'd say, yeah, this has been the most brand centric, uh, value company that we've, we've seen so far.
So, and, and in a good way, you know, that's always positive. You can always be like Comcast, and you've got a brand value, but, uh, not necessarily a good one. Yeah. So, and, and this is, this is what's unique about Nintendo, right? So looking at it, you see this company that's got this super protective, uh, kind of slow to adopt many things, uh, although they have to create some sort of excitement from their breyers.
What, what do you focus on? Summer or even Bobby? Yeah, go ahead, Bobby. Well, I think their edge is in their controllers. Like, like Summer said, it's a social thing. Mm-hmm. I, I, I think of like party games and a lot of players and they have the controllers that break out where you can allow a lot of multiple player, a lot of, uh, a lot of players to play with.
Like, like one controller becomes two controllers and so anything to kind of create a more social. Uh, aspect, like the kind of hype that up around their console, you can play with more people. Yeah. I think like the, the, one of the best, uh, case studies there is like the we, right? The Nintendo, we was such a huge success, right?
Because of the social element. Uh, like I, I remember playing, we, uh, like with my parents, my cousins, you know, and my nephews, it was like everything. Mm-hmm. And it was a very great social experience. But then we, you that came right after it was a total flop, right? Like, uh, it, it, I mean there's some branding mistakes there since we were talking about branding.
Like, uh, it was a totally new console, but it just seemed like it was version two of the we, which it was not. Um, so poor branding choices there. One of the rare branding missteps by Nintendo, um, but also. It, it didn't let you know, like one reason, one of the reasons I think it failed so miserably is because they didn't leverage their content and they didn't leverage the social gaming part of this, right?
So, um, when the OU came out. I don't think they released any specific Mario games with it, or if they did it was one or two. Um, so like, it just didn't generate a lot of excitement from the buyers from the get go. There's that confusing part of this. They had these controllers with like the, the screens inside of them, um, which.
Although it's cool, it didn't make it more social right? Like you guys said, being able to split your controllers and being able to share them, that kind of thing. Um, it didn't, it didn't work. Um, so I think, and so Nintendo came out with the switch right after that, which was a huge success. Right. Um, and I think the thing they, they learn pretty quickly, which is to me is also a sign of a very healthy company culture, is that they released a bunch of Nintendo game content right alongside.
Switch, right? So you could buy a Mario Kart, you can buy a Super Mario Deluxe or whatever they, you know, like games are called Mario Tennis, all that stuff. Mm-hmm. It just came right alongside or with the switch. So that made it much more palatable for buyers and then they doubled down on the social aspects of it.
So to me that's a great case study to tell us. What works and what doesn't work. So, you know, we should focus on those things. And I think you guys identified all the right things, right? The social aspects, the user experience aspects, um, you know, the portability, the controllers, all those things which make the switch such a big hit.
And certainly leveraging their ip. I would focus on those things if I was, uh, advising, uh, Nintendo's patent Council. There's even an accessibility part to it too, right? Everything still seems very straightforward and simple, I think when compared to a lot of their competitors, right? It's, uh, set up play very quick, easy with the games.
Very simple. Yeah, very simple support controllers. So yeah, so we went and we looked at what Nintendo was actually, uh, patenting these days. Um, kind of looking back over the last 20 years or so, but recently, um, almost everything when, when classified by the patent office is focused on video game development.
So this is, uh, the consoles. This is the controllers, and these are a little bit of developmental tools as well, when you're going to come up with a new game Very recently, uh, which was interesting. Um. They had some, uh, dealing with ai, like, uh, generating items for, I think it was Link, uh, in this example.
Like how does a, a game put together this cool item that does such and such and uses AI or leverages AI to, to accomplish that task. So that was one of the more interesting ones and, uh, you know, looking through it. There was a lot of focus as well on the actual design of these, you know, the, the actual look, the, of these devices.
Um, a lot fewer utility patents. Uh, you know, we're, we're looking at more things that are, how does the controller look, how does it feel? How does the console look and, and things like that for Nintendo. So, which had kind of spurred on. Further discussion that, that we can get into. Uh, but just looking at it, yeah, I would say almost 70, 80% is straightforward video game and, uh, and how those, how those things work, which I guess is, is expected, right?
Yeah. And I'm sure we'll get to this in a minute, but, um, they're certainly doing things that I would expect a niche product company to be doing. Um, but you know. The larger question to me is, should Nintendo remain a niche product? Right? Like, is this their fate forever? Um, like certainly they locked in this fate mm-hmm.
When they made the choice to stick with cartridges over CDs. Right. Like when the, when the PlayStation, uh, product was coming out, um, they just said, you know what, we are gonna. Not focus on immersive gameplay, we're not gonna focus on high quality graphics, 3D graphics. We are gonna focus on our core competencies and be very good at that, at delivering those core competencies.
Right. And it worked, um, but also it didn't work, right? Like they were relegated to third place in the marketplace and mm-hmm. Like, the question is, should they be doing that again, right. Like, um. We, we talked about it in the Xbox episode that, um. Uh, video game sales have stagnated, right? Um, there's a lot of kind of downsizing that's gonna have to happen at the game developer levels, certainly at the, um, at, at the console maker level, and so on and so forth.
We, we've seen a 20 year bull market in the video game industry. And that market has softened in the last four or five years, certainly since COVID. Um, and there is an opportunity to reshuffle the deck a little bit, right? And should Nintendo take advantage of this opportunity and kind of reposition themselves in the marketplace?
Um, or should they just keep doing what they're doing? And if I was advising Nintendo, I would, you know, certainly on the business level. I would be like, Hey, why should we be the third place player in this space? Right? Why can't we become the Sony for the next generation of video games? Um, we already see Steam deck coming, uh, like Val.
Um, they are doing very interesting things, um, from a. You know, market share perspective. I mean, they're allowing you to play AAA games on a handheld device. And that market I think is gonna keep exploding. Um, and if Nintendo put a little bit more time and effort into their handheld console, like, why couldn't you run AAA game on a switch too, right?
If, if you can put powerful enough chips, if Steam deck and Valve can do it on their handheld portables, why can't Nintendo do it? Um, and why can't they offer. A more performant gaming experience. Um, we also talked about this in the Xbox episode, that like gaming studios are moving away from exclusivity, right?
So just because it's becoming easier to develop for d different platforms because you have these engines out there. Um, so it's presumably easier to develop for the switch than it ever has been, right? Uh, I mean, outside of the difficulty of working with Nintendo, so if I'm AAA gaming company. I want, I want to make my games available for sale on the PlayStation, on the Xbox system, and on the switch.
Um, and you know, why can't, why can't Nintendo leverage that and take advantage of that, right? Like, uh, right now, if you wanna play AAA game on a handheld device, you're gonna buy a switch. You're not, you're gonna buy a. Steam deck. That's right. Steam deck. Yeah. Shouldn't you buy a switch? Right. That's the market opportunity that I see for Nintendo.
Why aren't they picking that up? Yeah. It feels like when Madden wasn't released on the switch, they kind of gave up something. They kind of mm-hmm. You gotta, if you're gonna be number one that Right. You gotta have Madden in her. Yeah. Call of Duty, right. Is like, um, yeah. Yeah. That's right. Exactly. Mm-hmm.
Yeah, there's so many games like these that, like, if they were available on the Switch as a casual gamer, which all of us are, um, like I think all of us own the Switch, right? Like, I don't own, like you, Bobby, don't own an Xbox or a PlayStation. We own a switch. Uh, but if some of these games are available on the Switch, I would buy them.
You know, same, same. I haven't been motivated enough to get a platform to. Madden to get the new Madden, but uh, I'll just keep playing Madden before that's, that's exactly it. Um, but if it was available Yeah. Switch too. I'm looking forward to it. Yeah. And it should be more as stronger. I won't perform it system.
Right. So perhaps they're moving this way. Well, that's kind of thing, right? It's a, yeah. Like that's the thing is that. Like their portfolio, if they were moving in that direction, should look closer to the portfolio of like an Xbox or a PlayStation. Um. But it doesn't, right? Like I would be focusing on the cooling and the thermal technologies, um, on graphics performance and 3D um, content integration, uh, 3D modeling, all sorts of stuff that we don't see in their patent portfolio, right?
Like if, if I was open and tuned into this pro possibility. I would be spending a lot more time on those things than on just kind of staying locked in with like controllers that magnetically attach to the, to the game console. That's, that's nice, but it's not. You know, it's not gonna open up new markets for you.
No, it is not. They, they're a niche company. Um, and we mentioned this during the Xbox, uh, presentation as well, where they, they just file a fraction of their, what the Ian Xbox do. Um, but they're still very successful in their allowance rates overall, which is neat to see. Um. That partly I think, was due to the fact that they are filing a lot more design patents as well, in general, a lot easier to, uh, define success in that area.
Over a third of their patents are design patents as opposed to, you know, actually making, uh, better graphics or, or anything else. Uh, we like to see how our controllers look at Nintendo. Microsoft is, you know, about 20%. Sony keeps up also about 30%. And, uh, valve, much smaller company. Uh, but they're moving towards it.
They, uh, they do about 15%, 16% of their patents. Now. I, I know that an interesting observation, I guess, uh, for, for their company. They seem to be focused on how they look more than what they do. Yeah. Also, very, that's a great playbook out of a niche product category, uh, playbook, right? Like assist. That's, that's what a niche product should be doing, is focused on the design, the look and feel, the user experience.
So this all makes sense and that's, this is the hard part about criticizing Nintendo's patent portfolio makes, it's like they're doing all the right things for what they wanna be, but the question is, is this what they should be? Yeah. You think we, we look back, uh, with, with fond nostalgia here to see what Nintendo could be back on top here and just they're not looking for that.
Maybe there's a little frustration there. We did mention earlier, uh, Nintendo, fairly litigious when compared to any of their competitors. Um, seven cases, seven patents were involved in, uh, in some sort of litigation, mostly, uh, cartridge design. There was one related to that lockout chip actually, uh, they sue somebody for that and, uh, they did have a design patent.
Get litigated for the design of the Game Cube Controller. Uh, back in the day, uh, I mentioned that they also, and if you remember the Game Genie back in the day, it was, uh, oh yeah, add-on that, uh, you could give yourself Infinite Lives and Mario, or make it so you ran super fast. Um, Nintendo ended up losing that one.
Uh, the Game Genie still. Was allowed to exist, but, uh, it's, it's, once again, they're trying to protect the, I guess, purity of their brand there, their control over it. Um, they famously went after, uh, rom sites, which are, uh, somebody goes, they take an old game and they digitize it to make it so that you could share it on a computer and run through an emulator.
They've been going after those sites, constantly. Which ironically I did remember this, the, uh, the NES classic, um, you know, they had all their, they had to make essentially a series of ROMs to be able to create that device. one of them they found was from one of these ROM sites, somebody had put a digital signature on it.
and so Nintendo very famously, uh, kind of did what they were discouraging others from doing. I know it's, it's a weird thing to do, like you're protecting a game that is, you're not making any sales on right now. Right. And, yeah, fan games come out. They'll issue cease and desist letter letters. somebody made like knockoff Pokemon games or knockoff, Metro games and they're no longer online.
And, uh, modding groups as well. They, people were trying to mod the switch so that it could play. All these other games and, they cracked down pretty hard on that. So very litigious, uh, company. Trying to be careful what I say. So the ROMs are, are not allowed, huh? I believe it's kind of a gray area.
Uhhuh, you're supposed to own the game if you have the ROMs. Okay, well there you go. I would not been able to beat Final Fantasy, which I own, or mega man two without the wrong, safe state.
Uh, I guess this would be a good time to mention that. The views of, no, I'm just kidding. Please don't sue us, Nintendo. Oh my goodness. Yeah, they might come after us now. Edit that out. Yeah, no, I mean, this is again, a classic page out of the playbook of a fashion jewelry brand, right? It's like, uh, the gotta be very litigious.
You gotta be really on the lookout for counterfeit. It's actually like worth enforcing, like even brands that make $0 and properties that make $0, I mean, that's what, uh, Louis Vuitton does. So this all. All makes sense. Um, and it's, it's almost like Nintendo is being run by like a Louis Vuitton, um, from just like a legal perspective then from an electronics company.
Uh, so there is that, that brand tension again, it's like, uh, they, they, they just are in a operating in a different paradigm, in a different world, which to me doesn't make a lot of sense. Um. But Well, for trademarks you do have to, you do police your trademark and Oh yeah. Some of that stuff, you know, even though Super Mario Brothers is 36 years old, that character.
Yeah. Still very much alive. And Madden the same with Yeah. A lot of those. Yeah, that's right. The trademark and copyrights, you definitely, um, that's a totally different enforcement story. Um, but, um. Yeah, I, you know, it's like, it's almost like this is, this is my, this is maybe just me, uh, more about me than Nintendo I'm sure.
But like, uh, anytime you are overly successful with something, to me that's also signals the start of your downfall, right? Like, so if you are over indexed on your, like Mario properties and the characters, like those are hugely successful franchise and you should be protecting them for sure. But. It can also allow you to miss the opportunity that's right in front of you, right?
And, uh, like part of me feels like Nintendo's missing that opportunity. Hopefully they won't, like, maybe they will self-correct when the switch two comes out, but I come from like a fan perspective. Somebody who wants to see Nintendo do really well and expand its product offering and expand its positioning in the marketplace.
Um, and, and maybe some of that frustration is, uh, coming through here. Alright, well, shall we put together some final thoughts here? Score up Nintendo. We all want Nintendo to succeed. We wanna give 'em Are you gonna bias us your grading too Summer? No, I don't want them to sue me. So they're gonna get all A's from me.
No. Uh, so let's, let's start up here. Does, does it cover they're base tech looking at it, they've carved out their niche, right? They protect exactly what they've staked out. They don't put a toe outside that line pretty much. And, uh, they do a very good job building up the, the IP around that. So, you know, I gave them an A for this.
I thought that they, they did a good job. For what, for what they're focused on. I guess this, this whole thing, it feels like this struggle between what we wish that Nintendo was doing versus what they're doing, uh, what they're doing or what they're focused on. They seem to do very well, but, uh, what we wish that they were doing.
They maybe don't do so well as we go on through. Yeah. I'll try to check my bias at the door here. But yeah, they have done a good job of, of executing on the strategy and the game plan that they have in the business and in the marketplace. Right? So, um, yeah, that like. What is really interesting about the switch are the controllers, um, and the user experience and all that stuff.
And they've done a good job of patenting and covering that as much as you can. So, um, yeah, I think they get an A there from me as well. And it kind of tr follows through to the competitive differentiation as well. Bobby, what do you feel? Do you think they did a good job? Yeah, I don't, I don't have much to add to that.
That's same a for me. Yeah. And same thing with competitive differentiation. They've kind of protected what makes Nintendo Nintendo so. Got an A there, but then we ask ourselves, how do they benchmark against their competitors? Um, as we've seen in the past, Nintendo doesn't file as much. They are much more successful at it.
Um. They don't necessarily file in the same areas, uh, as their competitors. So with that in mind, uh, what are you feeling? Same. I mean, um, you know, like they are a niche product company, so you, you can't file as many patents as the bigger players. Um, so I, I think they've done really well. And as you outline Ian, they get almost all their patents allowed.
Um, so they tend to be. Pretty conservative or thoughtful in terms of, um, how they file. Like we always say, especially with our smaller clients, it's like, hey, it's not the volume of patents, it's the strength of the patents and the quality of those patents. And I would say, um, Nintendo, certainly it's those marks as well.
You feel about that same, uh, yeah. I, I guess I was. Well, I was looking onto the next one, and I think that, uh, mm-hmm. We, we, I guess for both of 'em, we kind of determined their biggest competitor is the valve steam deck. Yeah. For what they're trying to do. And I don't know that they're, uh, are are they able to exclude 'em?
It doesn't look like No, no. So far, uh, as far as we've seen, they, they can't, in that mobile space there, they're, they're not doing a very good job of excluding competitors from that area. They've, uh. They've definitely given up, grounded an area that I think they've had a lot of success in in the past.
Game Boy has been a very popular mobile gaming, uh, console for a long time, and then they kind of carry that over into the switch and just kind of, I don't for, from my perspective, does Nintendo view the switch as a home console or a portable one? Um. Because if it was viewed as a portable one, I think they would be working harder to, uh, to exclude like valve from that.
Yeah. It might be kind of hard, right. Um, to exclude valve. But, and, and also Nintendo doesn't see Valve as a competitor, right? Like, uh, it, it offers, yeah, you buy it for two completely different reasons, but that's a constraint that Nintendo has introduced, right? More so than, than Valve or the marketplace.
Um. Yeah, I don't know. I don't know. Uh, it's hard to grade them on this because like for what they consider to be their business segment, they have done a good job of excluding competitors. Like, I don't know if another tier or two kind of handheld gaming console, uh, that's out there, that's competitive with the switch.
Um, there's this other kind of upper tier market segment. Um. That may, maybe Nintendo doesn't consider it to be theirs, but um, that's why they get a c It's hard to, hard to, to gauge here, right? Yeah. Who are their competitors? Like what we think of as their competitors is maybe not how Nintendo thinks of their own competitors.
I agree with that. So does it align with forward looking business plans and their r and d spend? Same here. Yeah. And this is once again, yeah, I mean it's the conflict, what we wish and what they, yeah. Certainly there will be some consolidation of some sort, um, or downsizing in this space. Is Nintendo position to take advantage of that?
No. Do they want to take advantage of it? No. You know, so I don't know. Well, maybe the c is the middle, middle grade here, but, uh, again, as you said, Ian, hard, hard to say. And then potential horizontal, vertical integration. I think you kind of touched on it there somewhere, if they kind of aren't, aren't trying to play in that sandbox right now, they're, they've carved out their niche and they're happy with it.
I guess for us, we'll still be able to buy a Nintendo, uh, in the.
Maybe it'll be harder to find people to play with, uh, because there won't be as many sold. Who knows? Who knows? We'll find out. It's a, it's been an interesting, fun analysis journey though, that's for sure. Um, in Nintendo it's a very much its own thing, and they built their portfolio to be its own thing. Um, which, which all makes sense to me, I guess.
Any final thoughts? Uh, Bobby, I look forward to us all getting Nintendo Switch twos and challenging each other in Madden. Let's go. I'll brush out my, uh, 2023 or 20 2003 playbook. It'll be great.
Awesome. Well, thanks everyone for listening. We appreciate it and we'll see you on the next episode. Well, bye. Take care.