Transcription
There's no better way to start this episode than with a quote. So, here it is: "I don't want to blow things out of proportion, but this feels like a true crisis moment for Nintendo." Those are the words of former PR manager for Nintendo of America, Kit Ellis, talking about the backlash to the Switch 2. And it's fair to say there has been a lot of backlash out there. This was Nintendo's golden opportunity to take the insane success of the Switch, to present the future, and to lock in their dominance. Now you've got people talking about the Wii U. You've got people talking about pricing, about things that feel a little hostile to the consumer. So this is not what Nintendo wanted, and things could get worse before they get better. But that, of course, is only if, uh, you can even pre-order a console, which many of you can't.
Spicy news first. So, Nintendo have indefinitely delayed Switch 2 pre-orders in the USA and Canada, and that's explicitly because of the tariffs. My Nintendo members are going to get invites from May 8th, but as for everyone else, well, literally no clue. According to Doug Bowser, who's of course CEO of Nintendo of America, the tariff costs were not factored into the pricing of the console. That is what he said. But according to analysts, that's likely just some PR spin. If you want evidence, you only have to look at, well, the Japan-lock Switch, because it has been priced more cheaply. This really is quite something. Now that is when tariffs would have been a comparatively minor impact. Now they're "something we have to address," and that may not just be a delay.
So, to get into the tariffs, Chinese Switch 2s—again, that's if these tariffs actually do end up fully being implemented at the full amount, which is, well, who knows, basically—but the Chinese Switch 2s could have an import tariff of 145%. Uh, Vietnam did get a reprieve, so Nintendo are basically going to spend the next 90 days trying to get as many Switch 2s into the US from Vietnam as is humanly possible. But in the worst case, analysts at DFC Intelligence are suggesting that Nintendo may not raise the price, but what they may end up doing is lowering the volume shipped in order to lower their risk in that market. Keep that in mind for later when we'll talk about the, uh, kind of shocking impact that that could have on sales. And of course, if you're worried about scalping, yeah, you really should be if you're in America. That would suggest that anyone wants to buy the console. And if you'd look online, you'd certainly think, "Wow, nobody wants the Switch 2." I don't think that's the case, but um, the backlash is fairly real, and in many cases, it's actually quite fair.
It's fair to say Nintendo have not had a backlash like this since the 3DS in 2011. And at the time, that was treated as a fairly monumental event, right, where they basically had to betray their initial purchasers. So, doing some sort of price cut after launch for the Switch 2 would be similarly brutal, right? If launch people, because of tariffs, had to pay a humongous amount for the console, then the tariffs go away, other people get it for cheap. Yes, that would feel bad. Even if it wasn't their fault, it would be a massive PR issue for Nintendo.
But here's the thing: Even without tariffs, people are saying that this console is too expensive. Not only the console, also the games. And really, they're they're not wrong. For many people, justifying $450 bucks and then $80 for a game is really goddamn hard. Now, if you go into the data, right, this is statistic data for the US, it suggests that over the last 7 years, you would have been taking home between 0.7 to 16.8% more than you were whenever the Switch launched. Obviously, there's a very high range there. It likely will be somewhere in the middle for you. Big picture: people are not feeling like wages are keeping up with inflation, and there are a lot of costs these days. That absolutely makes a Switch 2 sting. But regardless of any increase, it feels like you buy less. In our last video on the topic, as an example, we pointed out that the richest 10% of the US population is currently paying for 50% of consumer spending. That, um, is quite the stat. So, between inflation, the last recession, and a lot of other economic factors, the majority of people do seem to have less buying power. So, when Nintendo appears and says, "Hello, you should pay $80 for the new Mario Kart—33% more than for the last Mario Kart," that will hurt for people to hear. On an emotional level, it will feel like a bit of a betrayal. Quite literally, it will feel like they are being left behind by the economy broadly and, in this case, Nintendo specifically. And to the majority of people, that increase could be the choice between groceries and a video game, in some cases. That's pretty rough.
And it's not just in the US. Even in Japan, there was actually pushback. Regional analysts, like one we often go to, Dr. Serkanto, pointed out that the cost of games had gone up by 52%. That's really goddamn big. That's surprising even to me. So, even the region-locked console pricing could not balance that out. And if you weren't in the loop, basically the Japanese Nintendo Switch 2 is way cheaper. But to compensate for that, it's region-locked to Japan. That was supposed to make it make sense for the Japanese economy, but even in Japan, they're not particularly thrilled.
But to temper that ever so slightly, I, uh, do have a really interesting little tidbit. This was pointed out by Automation, where basically that conversation about the rising cost of games that's been, um, a little bit, uh, impacted by the relative cost of gacha games, right? So, apparently that is absolutely surging up, especially for parents wanting a game for their kids. But anyway, the core point is: cost of games going up, cost of the gaming hobby is going up. This is happening with Nintendo. It's a justifiable worry. Prices are up. Wages broadly are not. And now a moat is being placed around your hobby. You can't go to another castle with better performance and graphics here because, well, it's Nintendo. A lot of people are saying, "Wow, just buy a Steam Deck." I think it's fair to say that those are different audiences. So, for a lot of people, they are essentially being told that, uh, you can't play anymore.
And Nintendo's response to that concern reminds me of, um, the Xbox One and the internet requirement. Here's the big quote: "We recognize there are some people who may not be able to afford the Switch 2's price point. That's why we wanted to make the other Switch platforms available." This was from Doug Bowser talking to CBC. It really does appear to be all part of the business plan. And some people have compared this to the very disastrous Xbox One launch where CEO, um, Don Mattrick—one of one of the legends of gaming, it's fair to say—told the press that if someone didn't want the always-online Xbox, they could just go and purchase an Xbox 360. So that was not great PR for him. In this case, though, it's Doug Bowser simply acknowledging market trends because, uh, yeah, the economy is kind of different now. Console generations, in a way, are less real. There is less of a hard definition. People can't afford to move and often don't see the point of moving without meaningful exclusives existing.
And a factoid to sort of prove that is that we're only just starting to see PS5 sales overtake the PS4 proportionately over the last few months. So that is not humongous sector-wide growth, especially because the, well, PS5 and PS4 are the dominant thing. And, uh, Microsoft's position in the market's kind of slumped. It's kind of rough, actually. And what it shows is the last generation of consoles lasted a long time into the current generation. And a lot of those big first-party games, well, they still shipped on the PS4 for like 2 years into this gen. In fact, PlayStation aren't going to stop PS+ benefits for PS4 games until January 2026. It's kind of wild. For the third parties, the biggest games like Call of Duty still support the PS4 and the Xbox One, which again, mind-boggling to me, but it does make financial sense. That's the consoles that people own. You can't not sell games on old consoles when those games these days cost so much money to make and there's a big install base who will actually buy them. And what that means for the people who sell consoles is now they've actually got to play really quite the long game. The prior generation cannot just be abandoned in the way that it was. And that means Nintendo need to make it clear to people that the Switch 2 games are not just Switch 1 games. Despite there being backward compatibility, there has got to be a strong perception of value to draw people forward. And partially that's going to be exclusive games that will stay exclusive. But it's also about making those games seem more valuable. And that's why we've got to talk about perception.
Speaking to Gene Park at the Washington Post, Doug Bowser confirmed that, as an example, the $70 benchmark is for a game like Donkey Kong Bonanza. And that will be most premium games. He said, though, there will be "variable pricing across the line." And what they'll be doing is considering the development of the game and the expectancy that that game will give people long-term value, and then they will price accordingly, which basically means Mario Kart's going to be 80 bucks. If it's a sort of game that will become like a cultural institution that you'll be playing for a decade, it's going to cost 80 bucks. He says that otherwise they'll monitor audience trends to see what the future will look like, which, to be honest, implicitly sounds like them saying, if not enough people buy the 80-buck version, we won't do it again, but it's probably also him saying, if enough people buy the 80-buck version, we'll probably do it again. So we'll basically have to see, but you can be damn sure that broadly, if the industry can nudge those prices up, yeah, of course they will. You saw the whole discussion about GTA in that. But still, to a lot of people, a $60 game is just as out of reach as, say, an $80 game these days, which is something that's actually built into Nintendo's plan. What they say they're hoping for, right, is inelastic demand for their products. That basically means, well, they can justify that price. So that is the concept that regardless of the price, the quality of their product will ensure a consistent audience. And this is not a new concept for Nintendo. Their whole idea is that their console should be sold at a profit. Their games should be profitable. And we can see that perfectly encapsulated in one game, and it's one game that has sparked a lot of pushback. And that is Nintendo Switch Sports, because, uh, that welcome cost you 10 bucks.
Now, Nintendo's Bill Trinen argued that, uh, quote, "With the amount of care and work that they put in, they think it's a fair price for a mini-game collection," that also explains the details of the console. Of course, everyone—me included—we all just look at Astro's Playroom and we kind of say, "What the guys?" or say "Wii Sports." And based on both those two examples and the sheer fact that this is basically a thing that demos the console's features, that it should sort of be bundled with your console as a as a general thing. But here's the thing: Nintendo actually never really thought like that. We learned from Reggie Fils-Aimé's autobiography that both Iwata and Miyamoto had to be convinced over a period of months to give Wii Sports away for free, which, uh, is kind of wild. Here's the quote: "The ever-present smile and impish squint of Mr. Miyamoto's eyes were gone. 'Neither of you understands the challenges of creating software that people love to play. This is something we constantly push ourselves to do. We do not give away our software.'" It's a fun quote. I can absolutely see where Miyamoto is coming from with that. But from a sheer like marketing and cultural heft perspective, I think it's fair to say that like Wii Sports being there on every Wii was fairly pivotal to its success. They, though, may argue that that's just me doing a backwards rationalization, and that if it did go the other way and let's just say Wii Sports cost 20 bucks, maybe it would have been just as much of a cultural juggernaut, and people also would have bought it, thus netting Nintendo quite a bit more money. So Nintendo, in this case, are charging $80 because, quite frankly, they think they can. And right now, very many signs do actually point to them being right.
Sometimes data tells a more interesting story than you'd expect. This is one of those cases. So, according to VentureBeat analyst firm DFC, they downgraded their Switch sales forecast over time. Now, remember that's not because they're not expecting people to buy the console if, say, they're given the chance. It's because they're expecting Nintendo to ship fewer consoles. Now they've downgraded from 17 million to 15 million units sold, which, by the way, would still make it the fastest-selling games console ever, especially at launch, where basically it seems that it's kind of baked into people's expectations that the dedicated audience for the Switch will likely see Nintendo through. But that is assuming there are no further tariffs or price changes. Obviously, there could be chaos. And don't worry, we will be doing, and we're working on it right now, a full sort of deep dive impact on tariffs, impacts the game industry, all of that in a video that's less specific to Nintendo. But essentially, from our survey of the field, most analysts are assuming that unless something really drastic happens, the Switch 2 will not have a price increase. In fact, DFC, in their estimates, um, before the price reveal, they were estimating $500 for the Switch. So market expectations were that this would have been more of a premium thing. Basically, the thought there is anything more than 500 bucks would have simply been too much and it would have snapped the inelastic demand. But it's Nintendo. They have got strong inelastic demand. And they're in a very unique position because, on the one hand, they're launching a flagship at basically the worst possible moment. I mean, it really is a bad time. But also, they're Nintendo. They know that what they offer exclusively cannot be bought anywhere else. The people who will say, "Buy a Steam Deck." That's yes, a handheld game console, but it's not direct competition when you think about who Nintendo actually sells to and what their audience is. They have got one of the strongest—maybe the strongest—moats in the entire industry, and they're thinking in the long term.
So here's the thing: Nintendo can't raise your wages, but not raising game prices right now would effectively be reducing their game's value in their eyes, right? So, if they kept their game prices down to try and meet the economic problems of the day right now, they would seem to themselves to be setting up for a worse long-term situation. Instead, what they're doing here is setting their plan out for the future. And what they want to do is bank on a very deeply invested audience that will get them started. They think that their sales will be fine based on what they can actually ship, and that will be a strong enough install base, but importantly for them, still one that is profitable, which essentially means they're planning for die-hards right now and then for a healthier market to follow afterward, where all the rest of that demand will really come online and people will be able to buy the console. We will obviously, though, have to see how well that plays out. What's interesting to me is this is Nintendo trying to do this, and whenever they say 80 bucks for Mario Kart, they can basically get away with it. I might not be happy. You may not be happy. But it's Mario Kart. Where else are you going to get Mario Kart? Are you really going to go and play, like, flipping Crash Team Racing or some other kart game? No, you're not, right? So they think you can get away with it. There are few companies who can do that. Take-Two, I think, could do it with the next GTA, but it is very interesting. Whenever we saw the price increase up to $69.99, what did we see play out in the market? There are some games who, well, could actually get away with that, right? People were willing to buy. May not have been happy, but they did buy. But in those cases where a game's extra-extra did not justify its AAA price tag—I mean, Redfall's probably a good example—we saw seemingly extra-hard punishment. So, yeah, Nintendo could nudge up those prices. Take-Two will probably follow along. But anyone else who follows along, well, they better make sure they have the goods because if they don't, it'll be a very expensive mistake.