Why Nintendo discontinuing the NES Classic might be a good thing

Nintendo has announced that they are discontinuing the NES Classic, the $60 miniature game system with 30 of Nintendo’s best 80s era games, which has been going for $200+ on eBay (much higher when it first came out). This has a lot of would-be buyers pretty pissed off. I’m here to tell you why this might actually be a good thing.

TL;DR: NES Classic proved demand for classic games, and could be the catalyst for finally getting them as digital downloads for the Nintendo Switch, and possibly Apple TV.

Why The NES Classic Exists

The fact that the NES Classic exists at all is either a market test or (I think much more likely) an accident of timing. Either way, the fact that the demand was so much higher than the supply (ie, their expecte demand) that it will likely lead to bigger and better things in the near future. Follow my logic on this…

Last year, Nintendo was hard at work trying to put the finishing touches on their new flagship gaming system, the Nintendo Switch. By summer, it was becoming increasingly clear that they were not going to be able to meet the obvious “on shelves by Black Friday” launch target. I do not envy the product manager who had to break it to the Nintendo execs that the Switch wouldn’t be ready to launch until March!

That left Nintendo with a whole holiday season of nothing on the shelves, nothing to talk about in the media, and a whole lot of tech journalists speculating on what ever happened to the new Nintendo flagship system that had been rumored. At that point, the best thing they could hope for would be some other Nintendo product that would take very little time to get to market, but would keep the fans and media busy, while they devoted all their resources to getting the Switch out the door.

Game systems that put a bunch of old-school games onto a nostalgic piece of miniature hardware are nothing new. Atari released a series of Atari 2600 style controllers with classic games built into them in 2003, followed by a series of “Atari Flashback” retro consoles over the next 8 years. I haven’t been able to find sales numbers for these, but they don’t appear to have been a major cash cow. When they were initially released, I remember a few weeks of “oh, that’s cool!” reactions from folks, but no big rush to buy them. They were just another nifty thing to see on ThinkGeek, and something you currently see stacks of in the discount aisle at Staples.

You can bet that there have been no shortage of manufacturers pitching Nintendo on making a similar product with their games. But whether due to the poor sales of the Atari versions or Nintendo’s infamous protectiveness over their classic games, no Nintendo version of this had yet been approved.

So there they are, in the summer of 2016. They just found out Switch won’t be ready in time for the holidays. And their execs are probably fuming mad about it. Then some enterprising product manager pipes up. “What about that miniature NES system they were pitching to us years ago? Sure, it won’t sell a lot of systems. But it will give the fans and the press something fun to chew on while we concentrate on the Switch. We already have the prototype the manufacturer used to pitch it to us. Give me what we expected to spend on marketing the Switch in Q4, and I can get 50,000 of these on the shelf for the holidays. PR problem solved.” If this happened the way I imagine it did, I hope that person got one hell of a bonus.

Proving Demand For Classic Game Titles

Of course, Atari isn’t Nintendo. People still love Atari games out of nostalgia. But most of their games just don’t retain their value over the decades. But Nintendo games do. Even the games from the first generatio NES system are still incredibly fun to play today. And the characters franchises they launched are still popular in today’s games, so there’s the added pull of kids who grew up on Mari Cart and the much fancier Zelda games to want to go back and see where they started.

If they set their production numbers low because they expected Atari-level sales, you can imagine how pleased they would have been from the actual demand. They sold 196,000 units in the first month, and 1.5 million by the end of 2016. But all of their resources were dedicated to getting their new flagship Nintendo Switch ready for the March 2017 launch date. Any product managers or supply chain managers who might have been able to address the NES Classic supply problem were too busy with the Switch to do anything about it. If anything, they now had even more incentive to make sure the supply for the Switch would meet their now-inflated demand estimates. It just wouldn’t have made any sense to spend any more time than necessary on the stop-gap stunt, no matter how high the demand.

Discontinuing the NES Classic

The the Switch launched. They sold 2 million units in the first month, making it the fastest selling system they’ve ever made. And, more relevant to our speculation here, a lot of product management resources are now free to start thinking about something other than Switch. With an Apple partnership on the table, a new flagship game system on the market, and newfound appreciation for how high the demand for the classic Nintendo games are, what comes next?

Continuing to sell the NES Classic beside the Nintendo Switch would make no sense. They would be competing for shelf space and supply chain resources, it would be confusing to consumers, and they’d be limited to only monetizing those ~30 games that are burnt into the hardware of the Classic. Nope. Anyone with half a bit of sense can see pretty quickly that the NES Classic, as it exists now, absolutely needs to be retired, and take its place as a fun footnote in Nintendo’s history.

Paving The Way for Digital Downloads

BUT the thing most people love about the NES Classic isn’t its hardware. It’s the fact that they have a sleek, easy, (and legal) way to play their favorite classic games. And the fact that the NES Classic was as popular as it was will mostly likely give us far more of that than the NES Classic itself possibly could have.

People are currently willing to pau $200 for 30 NES games on the open market. Nintendo only sees $60 of that. That’s before taking out the cost of manufacturing, distribution, etc. And that’s limited to 30 games from their archive. Clearly, there’s a lot of money being left on the table.

The day the new Apple TV was released, with its wireless game controller, I said that I’d kill to be able to buy individual classic Nintendo games (and a NES style controller) from the Apple App Store. Price the headline titles at $5 and the less popular ones at $2 and they’d fly off the virtual shelves. And with Nintendo’s new partnership with Apple, this is undoubtedly what Apple is hoping for. But, of course, that would mean Nintendo giving Apple 30% of the revenue that gold rush would generate. So it’s a great solution for consumers, but not so much for Nintendo.

Ahh, but now they have their own brand new flagship console. Forget the Apple TV. Now there really isn’t any reason not to build their own version of the app store, sell the classic games directly to the Switch owners, and not only keep the whole revenue gold rush from the games, but use it as an additional feature to push sales of the Switch itself.

This isn’t a feature you’d want to include at launch. If you know there’s already going to be a high enough demand that you’ll be struggling to meet supply, you hold off on this. Let the hardcore gamers hankering for their new Zelda game get the first batch. The following holiday season, when supply has caught up, demand is tapering off, and you’ve had time to QA the living hell out of your new app store, that’s when you make every 80s era gamer’s dreams come true and release the back catalog for digital download (slowly, over time, so there’s always something new to pick up).

Then you wait about six months. By then, the majority of people who would be willing to buy a new game system just for access to the classic games have had a chance to buy a Switch, fill their library with their favorite games, and get locked into your higher-margin platform. That’s when you put them up in the Apple App Store as well, to extend the reach to the wider audience of people who aren’t willing to buy a separate game system, but would be more than happy to buy the games for their existing Apple TV.

This is what I expect is going through Nintendo product managers’ minds. I really, really hope I’m right. The time is ripe for Nintendo to open up their back catalog and kick of a resurgence of Nintendo fanaticism.

Originally published at rayhill.com on 16 April 2017

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