The video game market in America crashed in 1983 when consumers stopped buying video games. In the aftermath of the crash, most retailers deemed video games a fad that had run its course, and discontinued selling them. Now while video games flatlined in America, they were alive and healthy in Japan. The sole video game system in Japan was the Family Computer, shortened to “Famicom,” made by a company called Nintendo. The president of Nintendo, Hiroshi Yamauchi, saw in the video game market in America unexploited potential. So on October 18, 1985, Nintendo cautiously began selling the Famicom in a limited test market in New York City, under a new name: the Nintendo Entertainment System (NES). Nintendo then launched the NES in the 12 biggest American markets, before finally releasing it nationwide in September 1986, to prodigious success: the NES came to rule the video game, toy, and entertainment industries in late nineteen-eighties America. Yet despite its already formidable empire, Nintendo was not content; the company was bent on domination of the computer, consumer electronics, and communications industries as well. Disturbed by the Japanese company’s success and greed, American critics accused Nintendo of several unscrupulous business practices: cornering the video game market, intimidating retailers into compliance with abusive company policies, and manipulating both consumers and retailers by orchestrating shortages. However, this aggressive strategy was necessary to avoid repeating the fatal mistakes of earlier video game companies that had caused the crash. For many of us who grew up playing Nintendo video games, this penetrating analysis of Nintendo’s iron-willed campaign for domination of video games in America will reveal a fascinating, mature side of a significant, innocent piece of our childhood: Nintendo’s unscrupulous business practices were necessary, not only for the company to succeed, but also for the whole American video game industry to resurge and survive.
Nintendo’s invasion of America can hardly be exaggerated. By 1992 Nintendo had captured 80 percent of the burgeoning $5.3 billion video game market, according to The Intimidation Tactics of Nintendo, an online article written by Samuel Hart in 2000. “Nintendo” was synonymous with video games, Nintendo was video games, and the company had its eyes set on an even broader horizon. David Sheff brought evidence of Nintendo’s ambition to light in his 1993 book, Game Over: How Nintendo Zapped an American Industry, Captured Your Dollars, and Enslaved Your Children: on the underside of the NES was an inconspicuous gray panel, beneath which lurked a port, a two-way gate to the main processor, capable of receiving and transmitting information by telephone line. This port could have made the NES a terminal in the largest electronics network in America: by 1993 nearly 10 million more American homes had Nintendo systems than had personal computers (Sheff, 1993, p. 6). The seemingly innocuous NES, disguised and marketed as a toy, was actually a home computer, a Trojan horse smuggled into one in every three American living rooms by elated children, that harbored the potential to besiege and devour the computer, consumer electronics and communications industries, just as it had the video game, toy and entertainment industries (Sheff, 1993, p. 7). Even though Nintendo never actualized these ambitions, the company still ensnared our wallets—congressmen blamed Nintendo for nearly 10 percent of our trade deficit with Japan in 1992 (Sheff, 1993, n.p.). Nintendo also captured the collective consciousness of America’s youth: by 1990 more American children recognized Super Mario, Nintendo’s mascot, than Mickey Mouse, who had been an icon of American popular culture for generations (Sheff, 1993, p. 9). The Nintendo invasion was an insidious one.
Critics were accurate in their allegations that Nintendo held absolute control of the video game market, leaving no room for competing video game makers. The December 7, 1989 issue of the Schenectady Gazette reported that in the absence of competition, Nintendo was free to fix the prices of its systems and games, having no incentive to set competitive prices (Schenectady, 1989, p. 37). However, Nintendo’s monopoly protected the resuscitated video game industry in America from a second crash. One cause of the 1983 crash was an oversaturation of competing video game systems, with each competing system only compatible with its own library of games. For example, Atari software could not be played on Intellivision hardware. This confused and frustrated consumers. Nintendo prevented an oversaturation of hardware because its one system dominated the whole market.
Another cause of the 1983 crash was an oversaturation of low-quality software. In the pre-Internet era, a consumer had no way of knowing whether a game was fun until after it was already paid for. If the game was low-quality, the consumer began to lose confidence in video games, and lost more and more confidence with each disappointing game. Nintendo prevented an oversaturation of low-quality software by controlling all the software that ran on the NES. Any video game company that made an NES game had to submit it to Nintendo for approval first. Nintendo would then mass-produce the game with a special key chip inside every copy. Each NES contained a 10NES lockout chip that prevented games without the key chip from running. Up to this point, any video game company was free to make any game for whatever system. The 10NES lockout chip system gave Nintendo absolute quality control over software for the NES. Nintendo stamped all approved NES software with a golden starburst seal of quality. This seal restored consumer and retailer confidence in video games, confidence that had been shaken by low-quality software and the crash itself.
Nintendo's despotic quality control resulted in a defect rate of 0.25 percent for games and less than one percent for systems. This made their previous 90 day warranties seem unnecessary, so Nintendo assumed a new policy: no returns once a system or game was opened. Retailers, though outraged, were powerless to do anything but comply. Child World, the second largest toy retailer in the United States, was one company audacious enough to stand up to Nintendo’s return policy by discontinuing selling Nintendo products. But by 1989 Child World was suffering; with Nintendo products excised, sales had plunged 20 percent. Child World came crawling back to Nintendo, who agreed to resume selling its products to Child World as long as the retailer paid one year in advance (Hart, 2000). Nintendo monopolizing the market precipitated some unfortunate but inevitable repercussions like this one.
Before Nintendo took over the toy industry, the must-have toy was the Cabbage Patch Kid doll, made by Coleco. In 1983, the same year the video game market crashed, Coleco stirred up hysteria during the Christmas shopping season when the company shipped the dolls to stores in a supply that, by design, fell short of demand. Scalpers bought up all the Cabbage Patch Kid dolls they could lay their hands on, and the toys were so hard to find that desperate parents would buy them on the black market for $300 a doll (Friedrich, 1983, n.p.)—adjusted for inflation, over $700 in 2015. Some parents even fought each other for the rare Cabbage Patch Kid dolls that could be found on department store shelves. One grown woman wrenched a doll out of a little girl’s tiny hands. Newspaper journalists, television news reporters, and parents of heartbroken children criticized Coleco for creating hysterical demand for their product with artificial scarcity.
Investigative journalist John Stossel drew a comparison between Coleco and Nintendo in “Nuts for Nintendo,” a 1988 special on the ABC program 20/20. By deliberately limiting the supply of its own products like Coleco, Nintendo built up demand for them. In 1988 Nintendo staged a “chip famine” that lives on in infamy in the memories of many children of the eighties. The famine delayed the releases of two blockbuster games that were hotly anticipated by much of America’s youth: Super Mario Bros. 2 and Zelda II: The Adventure of Link. Nintendo of America’s vice president Peter Main denied orchestrating shortages: “Believe me, creating a shortage of this kind was nobody’s design. It’s just one of those combinations of demand that far exceeded our most optimistic projections and an inability on the chip supplier to fulfill it” (Nuts, 1988). Whether intentional or not, the often limited supply of Nintendo games prevented a final cause of the crash of 1983: a surplus of blockbuster software gathering dust on store shelves because supply grossly exceeded demand.
Nintendo’s practices, however unscrupulous, restructured the video game business. Like Super Mario jumping across bottomless abysses, Nintendo dodged the pitfalls—an oversaturation of competing hardware and low-quality software, an absence of retailer and consumer confidence in video games, and surplus copies of blockbuster software—that had swallowed the video game market in 1983. Was Nintendo a heroic knight who saved the video game empire from certain doom at the hands of a repeat of the 1983 crash? Or was Nintendo a greedy invader whose thirst for money and power equaled Agamemnon’s lust for the glittering citadel of Troy? Whether Nintendo’s strategies can be condoned or not, now we are old enough to contemplate the moral tale of its rise to power. When we were children, that story was more hidden to us than the secret codes and arcane caves in our favorite Nintendo games, traded on the playground in excited whispers.
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Topic: The Innocence of Nintendo
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