On February 3, 2022, Nintendo Life published an article by Mr. Thomas Whitehead on the subject of Nintendo’s game sales. Nintendo dominates the market for physical game sales, but itlags behind Sony and Microsoft in the digital game sales market (including sales for add-ons and microtransactions). The article generally considers what Nintendo needs to do to make up for its relative weakness in digital game sales. However, in my view, Nintendo’s focus on games that its users actually own is a good thing that should be encouraged.
Nintendo vs Sony in the Game Sales Market
Mr. Whitehead noted that Nintendo dominated the physical game sales market in the most recent quarter:
When reading through Nintendo’s briefings and notes the trends are all too familiar. Nintendo’s big strength, as it has been for over three decades, is producing and selling physical entertainment goods.
Conversely, Nintendo trailed its primary rival, Sony, in the digital goods marketplace:
If Nintendo ‘rules’ the physical media space, though, it is arguably lagging behind in the digital sphere; that leapt out in the financial results around other more positive angles.
Mr. Whitehead attributes Nintendo’s strength in physical game sales to the interests of the Switch userbase:
[Y]ou only need to see the sheer volume and variety of physical edition games, and the ‘limited edition’ industry for Switch titles, to appreciate how a significant number of Nintendo fans value and prize physical media and collectibles.
Sony has pursued a different strategy in making 62-percent of its revenue from digital game sales:
Sony’s business in [the digital] sphere has some key advantages over Nintendo — for one thing, more revenue is generated from add/ons and microtransactions than games, an extraordinary indication of the power of the likes of Season Passes and FIFA Ultimate Team, areas where Switch largely misses out. The digital side of the market accounts for 62% of Sony’s game sales revenues.
While Mr. Whitehead does not portray Nintendo’s focus on physical offerings as a bad thing, he nevertheless suggests that Nintendo would ultimately have to follow Sony and Microsoft (and with the Steam Deck, one may add Valve) in adopting a digital-first strategy:
[T]rends suggest that the gaming scales will continue to tip towards the non-physical in the future. While Nintendo can still keep fans happy with physical media, the need to capitalise of the market for those that want more download and online services won’t go away. Whether that’s in new or amended subscription offerings, more DLC content, an eShop shake-up or a mix of all three, it’ll be interesting to see where Nintendo’s ever-shifting strategy takes it next.
In Praise of Nintendo’s Cartridge-First Strategy
I begin my essay with the curmudgeon’s once upon a time…
Back in my day, people owned their media. I grew up with movies in cassettes, music on CDs and cassettes, and games on cartridges and CDs. My first game console was a Sega Genesis – all of the games for it were produced on cartridges.
However, over time, content has been delivered more often in ways that give the end-user something more akin to rental rights than ownership. Movies and music are often tied to cloud services. Ebooks are often DRM protected and tied to a cloud provider such as Amazon or Rakuten. Games were a bit slower to adopt the trend – but as the article noted, two of the three major home video game console producers – Sony and Microsoft – have adopted digital-first strategies. The computer game arena is dominated by Valve, which runs Steam, and offers digital games that are (usually) tied to a Steam account.
Whether or not it does so intentionally, Nintendo stands athwart the trend in games. While it offers digital versions of all of its games and has a large selection of digital-only games on its store, Nintendo’s customers are still largely interested in ownership of physical game cartridges. Unlike its rivals, Nintendo does not offer a version of its flagship console that only plays digital games. In this way, Nintendo serves as the heir to the traditional idea of a video game console.
To be sure, Nintendo has adopted many of the arguably undesirable trappings of modern consoles – such as requiring subscriptions to play games online and access all features – but it remains closer to the consoles of old than its current-generation competitors.
The Benefits of Physical Game Cartridges and Disks
In light of the fact that Nintendo Switch owners can easily “purchase” any game with the mere click of a button, why do so many go through the trouble of acquiring physical copies of the game? Digital games are arguably more convenient. They do not need to be stored like a game cartridge and box. One does not need to replace one cartridge with another to play a different digital game. Taking questions such as ownership out of the equation, the only practical downside of digital games is that they require more space in the Nintendo Switch’s storage. However, even this problem is readily rectified by an SD card for most users.
Mr. Whitehead suggests that Switch owners “value and prize physical media and collectables.” I do not think that most Switch owners purchase Switch games as collectables. Those interested in collectables likely have their eye on materials related to the games (e.g., figures, art books, etc.) or classic games that are no longer in print. Thus, the question remains begging – why do Nintendo Switch owners “prize physical media”?
Speaking for myself, there are several reasons why I prefer physical games to digital games.
When you purchase a digital game from Nintendo, Sony, Microsoft, Valve, or another service of the like, you are, in most cases, purchasing something akin to a perpetual rental license for the game. That game, however, is tied to a specific account. If you lose access to the account and your hardware, you may lose access to your entire game library. Disadvantages exist even in cases where there is no danger of losing access to a Switch account. For example, you cannot lend a digital Switch game to a friend to enjoy.t. Likewise, you cannot sell a digital game if you are so inclined because you have no interest in replaying it.
Conversely, a physical game cartridge is something that you own. Even if your Switch account disappears, you still have the game cartridge. If you have a friend who may want to try your game, you can lend (or give) the game to your friend. You can also sell physical games. Twenty years from now, you may be able to play your physical game on working Switch hardware even if you no longer have your current Switch or your account.
I think that most Nintendo Switch owners who buy physical games simply like the idea of actually owning their games for some or all of the reasons I noted above. While a limited subset may be collectors, the concerns of most Switch owners are practical.
Until now, I focused only on physical game cartridges vs digital games. However, there is more to a digital-first game strategy than merely selling the game itself. Mr. Whitehead explains that Sony generates more revenue from add-ons and microtransactions than it does from game sales themselves. That is, a company not only makes money when it sells a game but also when users make purchases in that game after already buying it. Mr. Whitehead notes that Nintendo lags behind Sony in both additional content for games (DLCs) and microtransactions. While he portrays DLCs as generally positive, he cited microtransactions as not always being popular.
Microtransactions and DLCs are a bit beyond the scope of the instant inquiry. However, I will note that both microtransactions and DLCs can be anti-user software distribution methods in and of themselves – although I agree broadly with Mr. Whitehead that DLCs are often (but not always) positive to the extent that they can extend the lifespan of existing games. Conversely, microtransactions which either use a “free to start” game or a paid game to induce players to spend large amounts of money after buying a game are more broadly anti-user.
It is not the case that all digital media are anti-owner. Good Old Games, for example, offers DRM-free digital games that the end-user owns and that are not tied to a specific account. Even the ubiquitous Steam which is generally not a DRM-free-friendly platform, has some DRM-free games. While this is beyond the scope of my commentary on physical games for the Nintendo Switch – it is worth noting that there are ways to sell digital games that are closer to the ideal of physical media ownership than what most digital media sellers offer today.
It is not clear to me whether Nintendo’s physical-first game strategy is entirely by design. But whether it is intentional or not, it is a good thing for the game industry and for video game players, and it is one of the reasons that I like the Nintendo Switch and what it has to offer. Nintendo went against the grain in 1996 when it decided to make its flagship Nintendo 64 a cartridge-based console when its main competitors at the time, Sony and Sega, released CD-based consoles. It is generally accepted that the Nintendo 64 was limited by its cartridge format and for that reason, it was supposed to be the last cartridge-based home console. The Nintendo 64 remained the last mainstream home console to not use some form of CD/DVD/Blu-Ray media until the Switch – which has been significantly more commercially successful than the Nintendo 64. I hope Nintendo continues going against the grain and perhaps serve as a harbinger of a return to more pro-consumer methods of game distribution.