The main problem I see with their current strategy is that it's going to take a very long time to see any results from their internal expansion. Meanwhile everyone around them is making power moves. One month into the year and there was Zynga, ABK and Bungie. If Jeff Grubb and Geoff Keighley are right, we're going to see even more. Not saying that large m&a's are desirable or likely but I don't think internal expansion or partnerships (which are always at the risk of being broken up) can be the only answer. I guess Nintendo is uniquely positioned that a lot of this doesn't affect them right now. But what if it does? Will they be flexible enough to react?
Well yeah, I think this is the risk they're taking. They must feel the current momentum and success of Switch and whatever plans they have in place for the coming 5 years are going to give them the time they need for these initiatives to take effect. Some of the development expansion is also very near term - the new facility and the leased facility in Kyoto will open this year. Obviously, that won't mean that there are suddenly hundreds of new staff, but it is the case that expansion is accelerating in the very near term. It's also an extraordinarily complex situation. Nintendo's plans for how they evolve their hardware and software offering will play into third-party software support and variety, and the viability of their platform business; until we know more about that, I think it's extremely difficult to know how negatively Nintendo will be affected by this. I've posted about it elsewhere, but I think the best bet for Nintendo is to gradually transition to a mixed model where by large amounts of retro content (300 plus games), first-party expansions, new downloadable titles (not just Tetris 99, but things like BoxBoy, Part-Time UFO, The Stretchers, even things like Pokemon Unite), and older (first-generation?) Switch titles become rolled into a more expensive subscription. The software model becomes a mixed subscription/purchase model, while the hardware model moves to a multi-generation Switch platform, with Dane being the second generation, to ensure continuity for developers and consumers.
We also shouldn't lose sight that, even if the present gaming environment has huge risks for Nintendo, factors outside their control also benefit them, such as the indie boom. I do think Nintendo are fortuitious this has kicked off now, and not while Wii U was on the market. Switch has solved one of the big problems Nintendo had - the perception (and often reality) that there were frequent software droughts on Nintendo systems. Even if I think we can all agree (with differing levels of convinction) there's room for improvement from Nintendo themselves, software quantity and variety on Switch as a whole is enormous. While I'd also be inclined to agree having the support of Bethesda and Activision was important in 2017, especially for the
perception of the Switch, I don't think losing that support now is as damaging as it could have been had it happened to Nintendo a few years ago. Indie gaming has become an increasingly important sector and Switch especially has benefitted from that.
As much as I'm supportive of the internal expansion strategy, I agree it's still risky in the present environment. There's a danger now that acquisitions and mergers will spiral and compound and will begin to have a material effect on the factor that sets Switch apart from previous Nintendo systems: sheer software quantity and variety. There's a slight danger Nintendo are left without much 'traditional' third-party support (say if Capcom, Square-Enix, and others were to be bought out by Microsoft or Sony). However, I think this is an important point:
What do people realistically want Nintendo to do anyway, though?
Say Furukawa wakes up and chooses violence tomorrow and buys Koei Tecmo. That's going to erase their cash reserves and basically rule them out of any other spending for the foreseeable future... and then that would probably push everyone else into consolidating even more/quicker.
Let's say Nintendo
do react aggressively and buy Koei-Tecmo or even Capcom. What would Sony or Microsoft do in the face of this? Sony might not have reacted to Nintendo's domestic dominance in Japan, but if Nintendo begin to absorb larger quantities of Japanese game-development, they may well feel compelled to move for Square-Enix (even if Japanese developers are moving to Nintendo's platform, Sony can still count on high-end support from the bigger publishers and would want to protect that). That would be a blow to Nintendo, absolutely. Any aggressive move they make arguably has bigger risks than the current strategy. At least internal expansion won't be perceived as an immediate or existential threat by rival platform holders. Is acquiring Koei-Tecmo (for example) worth risking the loss of other Japanese publishers?
All this being said, I do hope Nintendo become a bit more imaginative and a bit more proactive in the present environment. I'd like to see them formalise some of their deals with independent studios to help protect those studios from acquistion - perhaps they could enter into IP-sharing agreements similar to their long-standing affiliates HAL and Intelligent Systems. Expand that sphere of influence - which protects HAL, IS, Game Freak etc from being the target of acquisition - to studios like Grezzo, Camelot, Good-Feel, Mages, Way Forward and so on; especially given so far, those studios don't appear to want to sell. Perhaps in addition to that, they could acquire sizeable, but minority stakes in those studios were possible. The affiliate agreement could give studios a slightly larger share of revenue associated to Nintendo IP they develop (which could, in turn, help these small studios fund expansion), while also allowing them to work on new IP in collaboration with producers at EPD or other Nintendo studios. As with Game Freak and HAL, who have self-published when they want, the likes of Good-Feel would be free to self-publish their own IP; Nintendo might be given first refusal as publisher, while these companies would self-publish without seeking alternative publishing partners.
One positive in the current environment is the continuing emergence of large numbers of talented independent studios. Again, Nintendo could push more initiatives like Cadence of Hyrule and The Stretchers; either collaborate to provide more games which make use of Nintendo IPs and characters, or collaborate in pursuit of more new IPs which wouldn't emerge from Nintendo itself. There are plenty of teams emerging who Nintendo could begin to fold into an affiliate network or, if it was right, acquire and turn into a subsidiary. Way Forward's involvement with Advance Wars will be interesting to watch - they feel like a good fit for Nintendo more broadly. This also gives Nintendo the opportunity to internationalise further. Ideally, they should expand the external developer network without necessarily acquiring masses of studios but also without leaving those exclusive or near-exclusive studios as hostages to fortune in the present environment.
And of course, there's That Old Chestnut: create a bigger internal development presence outside Japan. Nintendo have subsidiaries like Retro Studios and Next Level, who can lead development on software projects. But the other international subsidiaries - iQue, NST, NERD - don't yet have that capacity. This is an increasingly odd oversight to me, given the range of companies around the world Nintendo willingly entrust their IP to with oversight from EPD. The first step would be to turn iQue, NST, and NERD into subsidiaries like Retro and NLG who can lead development on projects under EPD producers. The eventual goal should be to turn these into regional development hubs with internal and external production. They don't need to be on the scale of EPD, of course; but what if iQue, NST, and NERD could, along with their other duties, lead development on a game at a time, while supervising or producing games with a developer or two in their own region? We might say they've got EPD for that, but any work not being done by EPD frees EPD resources to concentrate on other projects.*
Hoo boy. That's definitely long enough.
*edit because this wasn't long enough. For this scenario, I think it's interesting to consider how Intelligent Systems' role has shifted a little, to the point they're now supervising and producing/co-developing external titles like Advance Wars Reboot Camp (they were described as supervising) and Fire Emblem Three Houses (we all know how this arrangement worked) as well as developing in-house titles with EPD producers (Paper Mario, WarioWare). EPD producers would presumably remain attached to the goings on at iQue, NST and NERD regardless of how those divisions evolve.