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Nintendo: The Pokémon Effect

by internationaldirector

Written By: Stephanie Williams – Corporate Finance

In the late 1990s and early 2000s, Pokémon Go was all the craze among kids and teenagers. The game was quite successful and helped cement Nintendo as the global leader in the gaming industry of the time. The game was created by Satoshi Tajiri in 1995 and was released as an inclusion in Nintendo’s Game Boy console. Pokémon is a portmanteau of poketto monsutā, which is Japanese for pocket monsters.

The concept of the game involves the capturing of monsters—oddly, cute-looking ones—in the wild to form a team. The monsters captured are then trained to fight other monsters. The player is, therefore, a trainer. The capturing involves a device in the game called a Poké Ball and at times incense to attract the monsters. The trainer plays against other trainers by battling their Pokémon. As the Pokémon triumphs, its stats increase with each win, especially in terms of attack and speed. The Pokémon also has the capacity to grow in strength, attack and speed as well as in other abilities in a process known as evolution, which largely involves hibernation. The game proceeds with incremental challenges that include fighting off a team of trainers involved in a ploy. It later proceeds to engage in a series of challenges with eight “gym leaders” (powerful trainers), then on to the Elite Four, and finally the regional champion (master trainer). In essence you could say the game is modelled on a journeying warrior who seeks out weapons and battle. However, in the game’s anime films, the warrior is a teenage boy named Ash Ketchum, accompanied by his friends Brock and Misty.

The game’s appeal is that it has been able to engage players in a way that none of its competition has yet been able to. In the past, the game would have been played in front of a game console, and the appeal of the monster search was limited to the screen in front of the player. But today the player can traverse the real world, hunt for monsters and battle other players. This is made possible by augmented reality (AR). The technology basically superimposes virtual objects onto the real world. With the technology incorporated into the game app and downloadable on smartphones, the phone’s camera is provided with AR capabilities. By holding up the phone and looking through the camera, a Pokémon is seen at any point designated by its maker, Niantic.

Niantic is a California-based start-up firm that is owned by Nintendo, Pokémon Go and Alphabet (Google’s holding company). The game is owned by Pokémon Go Co., the company, 32 percent of which is owned by Nintendo. While information about the ownership of Pokémon Go Co. is available, and it definitely receives payments from Niantic for the game’s add-on sales (the game is free to download, though), what has not been made public is how much of Niantic Nintendo owns. Essentially, analysts have been making wild estimates, and undesirably baseless at that, considering that the ownership details are crucial to determining the impact of the Pokémon craze on Nintendo’s financials. Niantic is unlisted so the next best point as an investment opportunity comes through Nintendo. Nintendo saw its share price rise a little more than 110 percent from the start of July to the 18th of the same month, until the company nipped the buying craze in the bud with a statement saying that they don’t expect the Pokémon sales to make a significant impact on its bottom line.

Looking back at Pokémon’s revenue history, one can understand why buying was frenzied. The game, as a media franchise, consisting of game sales, licensing, trading cards, feature films, etc., has grossed US$57.65 billion as of 2015 since its inception in 1996. It’s the most financially successful game by far among all of the games produced. Two more aspects may perhaps have yet to be fully factored in by analysts. Japan, one of the biggest and arguably most “game crazy” markets in the world, has yet to see its full impact, as it was introduced much later there. Also, the game involves the physical movement of players from place to place in search of monsters and battles. All is fine at the moment since it’s summer, but the impact should be considerably more negative as winter comes in, and players are less motivated to search for Pikachus in snow and storms. The emphasis on physical movement seems to be both its strength and Achilles’ heel. The 20-year-old game was a hit when the Millennials were teenagers. A key figure to watch is the portion of the apps downloaded (of note is that the game is on more than 10 percent of all Android phones as of mid-July); this constitutes the younger generation, which has professionalised game-playing, with superstar players earning six figures a year. It’s been bandied around that the Millennials are driving both the game’s downloads and Nintendo’s share-price craze.

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