Frohman 1 English 111 March 15, 2001 Research Paper MadNESs The business of playing games has become a hugely lucrative one in recent years, with sales easily rivaling movies and music. When Sega released its Dreamcast System in 1999, it gained 96 million dollars, easily eclipsing the The Phantom Menace to have the highest one-day sales total in history (Charla 12). This record was topped by the PlayStation 2's sales one year later (Russo 15). With new consoles coming out from Nintendo and Microsoft, the sky seems to be the limit for video games. However, this was not always the case. In 1983, the bottom of the market fell out on video games. Oversaturation of the market and a glut of poor software led to the demise of the once mighty Atari 2600. Coincidentally, a former playing card manufacturer named Nintendo released their Famicom (Family Computer) console in Japan that same year. Thanks to its then unprecedented 56-color display and audio effects, it soon became a phenomenon in its native land at the same time 2600 cartridges were being sold off at less than a dollar in the US. Soon, Hiroshi Yamauchi, the CEO of Nintendo, thought he could reach into the US market and revitalize the market. After all, their Donkey Kong game had been a huge success a few years ago. He thought he could recognize the factors that led to the fall of Frohman 2 the market, and he thought he could find the solutions to those problems. To lead the US operation was his son in law, Minoru Arakawa. Determined to set a foothold in the American market, Arakawa went to the CES shows in 1983 and 1984. He was largely ignored. He found that toy dealers wanted nothing to do with video games because they had such a stigma attached to them because of previous failures. Back in Japan, Yamauchi still insisted that it would work. After those early dismal results, Nintendo was ready to try a new angle. It would be sold as more of an interactive toy than a video game (Lundrigan 106). This was done by adding a gun peripheral (the "Zapper") and a short-lived toy robot (R.O.B.) to the system. The cartridge would be inside the redesigned system, as opposed to the 2600 which left carts exposed. The Famicom's American name would be changed from the AVS (Advanced Video System) to the NES (Nintendo Entertainment System). Still retailers were wary to bite. Nintendo even tried to talk to Atari to get them to distribute their console (Cox 115). It failed. So Arakawa came up with a risky buy-back plan, where unsold NES units would be returned to Nintendo for a full refund if they did not sell (Kent 205). Retailers had nothing to lose from this bold proposition. Doing much of the legwork themselves, the US team went around the selected test area of New York City setting up displays and game kiosks in major stores such as Toys r Us and FAO Schwartz (Kent 144). The original NES configuration went on sale in October 1985. Thanks to dynamic marketing and market positioning, it slowly but surely became a holiday hit in New York with sales of 50,000 units (Kent 145). The next year, the NES Frohman 3 expanded to other major markets such as LA and Chicago. After these successful runs, Nintendo partnered with the creators of Teddy Ruxpin, Worlds of Wonder, as to better distribute their games (Lundrigan 106). In 1987, with the slogan "Now You're Playing With Power", it exploded onto the national scene, featuring the hot new title Super Mario Brothers. Yamauchi's predictions were right for the hugely successful console, and soon Nintendo would be telling the toy chains what to do. One large reason for success was Nintendo's software and its Third Party licensing agreement. Nintendo's own Super Mario Brothers and Legend of Zelda series turned out to be great hits and sold systems by themselves. Major third parties such as Capcom, Konami, Acclaim, Taito, and Tecmo created hot new software and insured a new flow of demand for the console. But no matter how big the company, they still had to accept the stringent licensing agreement. This didn't always sit well with many big name publishers, as Greg Fischbach of Acclaim explains: Most US businesses weren't too interested in Nintendo's trading charges, which required that you purchase all your inventory requirements from Nintendo, that you purchase them in Japan, and that you purchase them for a fixed price. In essence, Nintendo really controlled how much inventory put into the marketplace. They also made you open up a letter of credit guaranteeing payment for the goods at the time that you made the order. If you came out of the toy business like Hasbro and Mattel, that really wasn't the way that you did business, especially if you were the size of Hasbro or Mattel. (Kent 215) Frohman 4 This was Hiroshi Yamauchi's main way of combating the forces that killed off the pre-1983 market. First, Nintendo would manufacture and distribute all cartridges themselves to ensure that a limited number was released to keep demand up. Secondly, licensees could only produce five titles a year as to not overload the market (Kent 221). (Some companies circumvented this clause by taking out a second license under a different name). Every game had to meet Nintendo's quality and censorship standards- Nintendo was notorious for its ultra-politically correct stance during the 80's. Monetary wise, each license had to pay a huge fee for every cart- about eleven dollars. Nintendo was to ensure everyone needed a license by creating a lockout chip that would only recognize software if it had Nintendo's verification code "10NES" on it (Nielsen). This technology was not perfect, and several companies including Tengen, AVE, and Wisdom Tree produced NES games without Nintendo's permission or strict standards. One company, Panesian, even produced adult themed games. This unauthorized action often resulted in companies going to court. The most infamous case involved the Nintendo and Tengen versions of the game Tetris, where Nintendo won out and Tengen had to destroy their carts, making them an instant collector's item (Nielsen). A final stipulation of the agreement, and perhaps the least legal, was an exclusivity agreement. New York State took Nintendo to court, claiming they had used monopoly-like practices (Nielsen). Licensees could not develop or release games for other systems. This effectively killed off the NES' closest competitor, the Sega Master System by outselling it at a ten-to-one ratio (Charla). This stipulation was lifted in 1990, but by then the damage had been done. Frohman 5 One of the ways Nintendo and Yamauchi continued to ride their wave of success was through clever marketing devices. They released Nintendo Power, an official magazine whose main job was to provide biased coverage for new titles. They created live action and cartoon television shows based on their Mario Brothers game (Wasielewski). Mario's face was everywhere, from bed sheets to underwear, lunch boxes, and cereal (Wasielewski). They even released a major motion picture, The Wiz, which was in fact a thinly veiled commercial for the new Super Mario Brothers 3 game. They were sure to always position their products as some of the hottest around the holidays. It controlled 90 percent of the game market (Russo) The NES proved to be so successful that Nintendo themselves accounted for ten percent of the trade deficit between the US and Japan (Kent 253). By 1991, the writing was on the wall. Sega had turned up the competition with their new Genesis, and Nintendo themselves were gearing up for the launch of a new console. The NES eased out of production in 1994, after 33 million consoles sold (Lundrigan 145). It produced several breakthrough titles, made Nintendo a whole lot of money, and opened up the game market so others could enjoy it in the future.