With COVID-19 keeping us all at home, it’s no surprise that people are consuming more entertainment.[i] Whether it’s Tiger King on Netflix, cable news, or the rapidly growing Disney+, time spent with video has increased year over year.[ii] There is another form of entertainment that has also seen a surge due to the pandemic: video games.[iii] Nintendo’s latest console, Nintendo Switch, has witnessed a global swell in demand,[iv] challenging Nintendo and third-party retailer inventories and supply chains. While Nintendo is a clear winner due to the outbreak, there is one Nintendo Switch title in particular that, due to its strategy, has hamstrung its own potential success: the ever-elusive Ring Fit Adventure.
Nintendo Switch was released in 2017. Nintendo consoles, historically with their comparatively lower price tags ($299 USD for a Switch starter bundle), interactive/physical play, title selection, and ease of gameplay has positioned it as the kid-friendly game console. It has carved out a niche separate from the intense battle between Sony and Microsoft, which focus on higher-end, more complex gameplay.
IMPACT OF COVID-19
With families staying home, and parents working from home, the demand for Nintendo Switch has peaked as parents and their kids look to find ways to keep entertained. Stoking this demand is the release of the much-anticipated Animal Crossing: New Horizons, which is the general audience pastel-colored, escapist, feel-good game that we need in times like these.[vi] While I doubt that this universe building game is what Voltaire meant when he wrote in his famous work, Candide, that we must “cultivate our garden,” Animal Crossing has found a massive audience. In fact, it is one of the “fastest-selling games on Nintendo’s Switch console.”[vii] Like most Switch titles, the game is available for purchase by hard-copy or can be purchased as a digital download.
Due to the overall demand for gaming entertainment and the increased demand driven by this blockbuster new title, Nintendo is not able to meet the demand for new consoles.[ix] This billowing in demand is compounded by COVID-related factory closures and slowdowns.[x] The Switch console is sold out in many parts of the world, with supply rumored not to be restored until June 2020.[xi]
However, among its existing Switch user base, Nintendo is well positioned to increase its ARPU, since most titles are available by download (and you don’t need to go in person to a store, or order a game to be delivered online and wait for it to be ‘safe’ to handle after a few days sitting on the doorstep). The seamless approach stands to encourage Switch owners to increase their engagement with and spending through the console. Furthermore, digital downloads are not limited by physical supply or third-party retail supply chains. There is no marginal cost to supply the game when it is downloaded – a key component to Nintendo’s success as COVID hampers global supply chains and as demand peaks.
RING FIT ADVENTURE
However, there is one title released in mid-October 2019 that does not allow for digital download: Ring Fit Adventure. This active video game (AVG) uses peripherals and motion-based technology to gamify a largely pilates workout.
Due to the overall increase in gaming, as well as people’s need and desire to conduct their workouts at home, there is a surge in demand for this title. However, in addition to the shortage of Switch consoles, there is an even more severe shortage of this game. And, it is all caused by Nintendo’s strategy to tether the software (the game itself) with the accompanying hardware (the Ring-Con and Leg Strap accessories). That is, in order to get the game, one must buy the physical game which comes in a bundle with the two accessories.
The physical supply has fallen well short of demand for months, even before COVID-19 hit the United States. As Asian markets quarantined in Q4 2019, consumers exhausted the physical supply.[xvi],[xvii] This has led to significant arbitrage in the States, with resellers gouging on Amazon with prices well over 3x its $79.99 USD MSRP.
Nintendo is missing out on value capture here, with third parties price gouging motivated buyers. Furthermore, the shortage has led others to seek substitutes, with articles like “5 Alternatives To ‘Ring Fit Adventure’ On The Nintendo Switch”[xx] and “The Best Workout Games For Staying Active Inside That Aren’t Ring Fit Adventure”[xxi] cropping up. Because of the shortage of supply, Nintendo is not only missing out on the single game sales of Ring Fit Adventure, but also potential long-term revenue streams from these consumers who, had they been able to purchase the game, also might be consumers of other Switch titles.
There is a simple fix, here. Instead of bundling the digital and physical components of Ring Fit Adventure, Nintendo should instead allow for a digital download of the Ring Fit Adventure game. In doing so, while Nintendo will lose out on the likely high margin peripheral sales, it will at least capture the sales of the digital download. And, since the bundle is priced at $79.99 USD (with no breakout on the value of the game vs. the peripherals), Nintendo has leeway to play with pricing on the game itself. As for the hardware components necessary for the game, there are dozens of third-party options available on Amazon at reasonable price points:
Once the bottleneck of the physical game and accessories is relieved by the release of digital downloads, Nintendo would unlock greater value (through software sales) and consumer satisfaction (i.e., access, and not being taken advantage of by price-gouging resellers).
This strategy is not without risks. The primary risk here is that consumers may not understand that they need the accessories to correctly play the game. That is, if users do not understand that they need the Ring-Con and Leg Strap, they might attribute their inability to play/dissatisfaction with the gameplay to the title itself, and to Nintendo. This is why messaging about the need for and what type of accessories are needed to play the game is crucial. Furthermore, third-party accessories may be of poor quality, and Nintendo has no purview over their manufacturing/quality thereof. Again, Nintendo bears the risk of poor performance being attributed to themselves. Still, with proper messaging and branding, this is a controllable risk, and one that is dwarfed by the opportunity of digital sales.
IMPLICATIONS FOR LONG-TERM
While this explosion in demand for Nintendo Switch and its titles has benefitted the company in the short-term, its success is sustainable in the future. That is, users have already invested in the console and have been ‘locked in’ to the Nintendo ecosystem. It is a seamless user experience to purchase additional games digitally. The more consoles Nintendo can sell today, the better its long-term prospects are. For that reason, it is imperative to supply more consoles and to make available blockbuster titles to encourage adoption so that Nintendo may further monetize users in the future.