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As the world weathers a pandemic, Nintendo may just be recession-proof

By the time Yamauchi took over for his grandfather in 1949, Nintendo, founded some sixty years earlier as a playing cards company, had already weathered two wars and a global depression. When he ceded control to Satoru Iwata in 2002, Japan’s economy was just coming out of a historically stagnant 10-year period colloquially called “The Lost Decade.” Yet there Nintendo stood, solvent for over a century, and about to reshape its image again in an industry defined by the inexhaustible churn of advancing technology and the unpredictable whims of consumers.

Now, as the world’s population weathers a global pandemic, history stands to remind us that the toy company from Kyoto is not to be underestimated. After forecasting Switch sales of 18 million units and a net profit of 180 billion yen for the past fiscal year, Nintendo announced Thursday it had sold over 21 million consoles and made nearly 260 billion yen in profit. This March, they not only sold more units of their Switch console than during its launch in 2017, but sold the most consoles in a month for any platform in a decade. Another crisis, another unlikely victory.

But why, when many are losing their jobs and hoarding toilet paper, do people still find time for video games? Why, in moments of crisis, does everyone want to shelter in place in the House of Mario?

On Thursday, the answer had a lot to do with the release of Animal Crossing: New Horizons, the latest in a series of games that compel the player to plant flowers, catch bugs in nets and exist in a town inhabited by charming (and sometimes cranky) animal neighbors. During this unprecedented era of social distancing and stay-at-home orders, Nintendo put out a game that drops you on a deserted island with nothing but a tent and a few tools. The desire to escape and the need to be indoors combined perfectly; a marketing A.I. couldn’t devise a product better suited to this particular marketplace. In 11 days, New Horizons sold over 11 million copies worldwide. The game has already outsold every other Animal Crossing title’s lifetime sales.

But there’s more to Nintendo’s endurance than this lightning-in-a-bottle release. The company’s work has always pushed back against who can, or how they should, play games. They’ve been willing to experiment — and fail — because they’re fiscally responsible. More than anything Nintendo’s sustained success in times of crisis is due to the simple belief that joy matters.

Black Monday, but not for Nintendo

In 2017, four researchers published a paper in the National Bureau of Economic Research titled “Leisure Luxuries and the Labor Supply of Young Men.” Their findings hypothesize that the growing quality and accessibility of digital games had caused a growing cohort of the labor market to work less and play more. Games were used to being scapegoated for mass shootings or general amorality; weakening job growth was a new one.

Frode Stenseng, professor of psychology at the University of Oslo, has described leisure escapism as a duality: Self-suppression and self-expansion. We suppress the self when we engage in an activity (say, gaming) to avoid negative thoughts. But if our activity pushes us toward some positive achievement, this escape is less an exile from reality but a chasing after something that otherwise eludes us.

In moments of crisis, video games are uniquely suited to provide this kind of self-expansion. Games offer goals to overcome that require focus, patience, thought, or sheer coordination. It’s no surprise that, when met with an overwhelming sense of powerlessness as when panic strikes, so many turn to games to feel a moment of control.

And Nintendo is often there, waiting, its games a potent salve to the surrounding chaos. To the thankful shut-in, this success feels almost like charity. But it’s the result of opportunism, business savvy, idiosyncratic intuition and luck.

On Oct. 19, 1987, now known as Black Monday, the Dow Jones lost over 20-percent of its value in one day. The U.S. economy sputtered and American industries struggled to keep up with their counterparts abroad, stirring xenophobia and distrust. Yet the Nintendo Entertainment System was about to become the hottest toy in a generation.

Financial adviser Serkan Toto said this is no accident. “With the NES, Nintendo intentionally entered a vacuum that opened up after the Atari shock of the [early] 1980s in the U.S.,” Toto wrote in an email to The Post. The games industry’s crash predated the larger financial crisis by four years; games’ value had been decimated by cheap cash-ins and poor quality control. Consumers were not going to spend their hard-earned money without good reason. Nintendo gave them a few.

“[The NES] came with distinctly high-quality games, was priced right and famously designed to look more like a VCR than a gaming console in order to overcome the stigma video games had back then,” Toto said. Film and TV enjoyed a higher cultural cache and was less intimidating to the older population — the same ones whose stock options had just plummeted.

Not all companies thrived in the wake of Black Monday. Atari was selling a new system, the 7800, to an underwhelmed population. Japanese competitors Sega had released their 8-bit Master System in the States one year prior and could only pull two third-party studios — Activision and Parker Brothers — away from Nintendo’s draconian licensing rules. That Christmas, the NES was the holiday’s top item according to trade magazine Toy & Hobby. A year later, Nintendo owned over 80 percent of the market, with Sega and Atari splitting the remainder. Today, both are out of the console business.

“The recession is irrelevant to them”

“It’s not that Nintendo [is] strong in a recession,” says Masashi Morita, analyst at Okasan Securities, in Osamu Inoue’s book Nintendo Magic. “It would be more accurate to say that the recession is irrelevant to them … even in a strong economy, boring products don’t sell.”

By holiday 2008, a lot of people were selling something else: stock. The real estate market and mortgage industries had collapsed, dragging down with them the economy and causing the Great Recession. The world was changing again. And Nintendo, again, somehow shrugged off global disaster and thrived, selling five million home consoles that quarter on the strength of their still-novel Wii system and a focus on nontraditional gaming customers that were older or more casual than the usual demographic.

“With that device, Nintendo identified a totally new and hopelessly underserved target group,” Toto says. “That’s why it was a hit. But the year of release certainly was a coincidence.”

Not a coincidence was the concerted effort to appeal to those left behind by other studios. Japan’s population was and is one of the oldest in the world; software such as Wii Fit and Brain Age sought to aid and amuse those would-be players unimpressed by the latest power fantasy.

“I was always aware that the controller should be usable by anyone,” said Akio Ikeda, who helped design the Wii Remote. “It shouldn’t be seen as an enemy.” Competitors had doubled-down on their traditional interface being a multipronged joystick with a dozen buttons. Not only is this intimidating to non-players, it also limits new or inventive experiences. Then and now, Nintendo could afford to try something different.

“The company is one of the cash-richest in Japan, the world’s number-three economy,” said Toto. Right now, Nintendo is sitting on 1.4 trillion yen, or nearly 13 billion dollars in net assets, “enough to weather several crises back-to-back.”

Nintendo’s DNA

It’s 2020. The world is in the midst of a catastrophic health crisis. The Dow Jones witnessed its worst financial quarter since 1987 — and its worst first quarter ever. Over 33 million Americans have applied for unemployment in two months. Yet Nintendo just announced its strongest fiscal results in a decade. With more players stuck inside, people are buying Ring Fit Adventure, their peripheral-based exercise game originally released last October, for three times MSRP off secondhand sites. Even used copies of Wii Sports are being sold at brand-new prices.

Nintendo isn’t the only gaming company to benefit. Sony and Microsoft, each with aging consoles into their seventh year on the market, have both seen surging sales. The unique circumstances of our present moment — as of this writing, 41 states had issued stay-at-home orders — means more time in front of our gaming devices. Thanks to schools and workplaces being closed, it also means young kids sharing the living room with mom or dad. Here is where Nintendo offers something meaningful beyond a healthy bottom line: in a word, joy.

There’s an optimism and playfulness in Nintendo’s DNA that infiltrates everything from Mario’s goofy voice clips to the way the Switch UI icons animate. Nintendo had the gall, with launch game 1-2-Switch, to have us look our opponents in the eye and milk a cow. The company had the nerve, with Nintendo Labo, to turn corrugated cardboard into interactive DIY construction kits. They even named their latest controllers Joy-cons. There is a guileless wonder to Nintendo products that is increasingly rare. These are not traits a company can pivot to in a time of need and empathy.

“I’ve never once been embarrassed that children have supported Nintendo,” then-president Satoru Iwata told the Seattle Post-Intelligencer in 2005. “I’m proud of it. That’s because children judge products based on instinct. Everyone wants to appeal to people’s instincts. But it’s not easy.”

Nor is surviving as a company for over 130 years. Consistency in times of turbulence helps. So does the confidence, and stubbornness, to do your job when the world outside rattles with uncertainty. And the kinds of games that parents can play with their kids — the former now working from home, the latter now home-schooled — are the games Nintendo has always made.

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