Switch Tax

Nintendo has been in the headlines a lot recently due to the introduction of upcoming Switch retail games with the words "internet download and microSD card required” prominently displayed on the front of the box. While 2K Sports' NBA 2K18 has become the poster child for this unpopular change – which might over time see you needing to invest in a larger microSD card for your Switch – it could become the norm as more and more third-parties opt to bring bigger, more ambitious games to Nintendo's hybrid system. In fact, it was only recently that we had a reminder of Capcom's Resident Evil Revelations 1 & 2 retail option for Switch; only the first game – which takes up 13GB of space – will be stored on a game card, while the sequel will require you to download it to your microSD card, taking up a whopping 26GB of space.

Our editor Thomas Whitehead did an editorial earlier this week on why mandatory memory cards for Switch retail games is a messy solution, and we thought we’d look into the issue in a bit more detail to weigh up the pros and cons for Nintendo’s use of game cards over a disc-based or all-digital solution. We called on the expertise of Daniel Ahmad who is an analyst at Niko Partners in the Asia region, to help clarify some of the details in this report, just to make sure we're not talking a load of hot air.

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Discs kept things nice and simple with the Wii U

The File Size Conundrum - Back to the Beginning

During the Wii U era, file sizes for Nintendo games were considerably smaller than their third-party counterparts. A few such examples are Mario Kart 8 (6.3GB), Splatoon (1.8GB) and Super Mario 3D World (1.6GB) – not only did these games impress visually and offer a wealth of content, but they came in at a compact file size. Third-party games such as Lego City: Undercover (21GB) were more bloated, but as Wii U optical discs had a 25GB capacity it really wasn't an issue – unless you chose to download Wii U retail games to your system's 32GB of internal storage, of course.

Moving to Switch, it made perfect sense for Nintendo to run with a storage medium such as a game card. While the most demanding 3DS games fit snugly on a 4GB game cart, Nintendo would no doubt have looked at the upcoming slate of Switch games in development and felt more than comfortable with 16GB being the typical game card size on which to distribute the system's games. After all, The Legend of Zelda: Breath of the Wild is a very impressive game technically, and clocked in at a surprising 13.4GB. Let's be real, too, the only alternatives in terms of format would be a disc-based solution (likely custom) which isn't a good fit for a portable device, or a 'download-only' approach, which wouldn't suit Nintendo's business or all of its customers.

As we know, Nintendo tends to favour compact file sizes when developing games, even if in the case of the Wii U it could have been a little more careless with compression. Third-parties – which are often developing multiple versions of the same game – often don't have the intimate knowledge of the hardware, or the incentive, to drive down file sizes. During the first few months of the Switch's lifespan we saw fun but unambitious projects come to the system, such as Konami’s Super Bomberman R, Ubisoft’s Just Dance 2017, Sega’s Puyo Puyo Tetris and Capcom’s Ultra Street Fighter II:The Final Challengers – all fun games in their own right, but definitely not ones which would be a challenge to fit on a humble Switch game card. In short, third-parties played it safe and were able to comfortably fit their games onto your typical capacity game card.

Sure custom media costs, but we love game cards and carts of all shapes and sizes

It Costs to Use Custom Media

Now we get to the harsh reality of the situation. Switch game cards cost Nintendo more money to produce when the capacity of the card is greater; of course, that's a blindingly obvious statement, but just think about it for a moment. Our understanding is that the available Switch game cart sizes are currently 1GB, 2GB, 4GB, 8GB, 16GB and 32GB. A 64GB option doesn’t even exist yet, which is a problem with games like NBA 2K18, which clocks in at a whopping 45.32 GB on the Xbox One. While the Switch version may not be quite that big, it gives you an idea of the sheer size of modern games.

Developers will tend to use the game card best suited for their product. So if your game clocks in at 3GB it would be stupid to ship on anything bigger than a 4GB game card. While the actual cost of the varying game cards is not public knowledge, it is known in industry circles that the price of Nintendo providing an 8GB game card (with associated packaging costs on top) to a third-party publisher is roughly the same as the costs which Microsoft and Sony charge for a Xbox One and PS4 Blu-Ray discs (again, including platform fee and packaging costs). 8GB is therefore "the sweet spot" for third parties, as it means they can sell at a cost which matches the Sony and Microsoft versions, in the case of multi-format releases.

Unfortunately, things start to get a bit more troublesome when shipping a game on a larger 32GB game card. In industry circles, it is said that these cards actually cost more than $20 per cart to the publisher. So the choice for the publisher is a bit trickier; assuming they wish to make the same margin that they would on PS4 and Xbox One, they would have to pass some (or all) of the extra cost onto you – the consumer. Which leads to the unfortunate term “Switch Tax” being used when it is announced that games like Rime will cost $40 on Switch and only $30 on other platforms. Following a bit of a backlash, Rime’s price will be lowered for the eShop download version while the retail version will include a soundtrack to add value, but it is easy to see the can of worms which this opens.

Of course, third-party publishers also have the option of lowering their margin of profit on Switch releases and swallowing up the additional cost should they need to ship the game on a 32GB game card. That is a business decision which could go one of two ways, depending on various factors. If the game finds a receptive audience on Switch then the resulting high sales could mitigate a loss of profit, but even so, third-parties are essentially being asked to take a hit on releasing their games on Switch – and this comes after any additional development costs incurred in porting games to Nintendo's console, or creating new content which makes use of the system's unique features.

Six years ago we were having a similar debate with Resident Evil: Revelations on the 3DS, which was being shipped on a 4GB 3DS card rather than the regular 2GB card. Capcom was planning to charge $10 extra as a result, but backtracked at the last minute and swallowed the costs.

As stated above, Switch game cards for titles which demand more than 32GB of storage simply aren’t available at the present time, and if a 64GB game card was to be made available one can only imagine the extra costs involved. You will have to download a large chunk of a game such as NBA 2K18, as presently there is no way around that reality. It's not an ideal solution, but would you rather download the data or pay extra for a bigger card? That's the issue publishers are facing at present.

But what about Nintendo games, you're probably thinking. How come they are always sold at a fixed retail price, regardless of the size of the game? Let’s not forget that Nintendo doesn't have to pay licensing fees or higher cart costs, because it controls the production and distribution process. As a result its profit margin is much higher. This has been the case since the days of the NES, and is equally true of Sony and Microsoft, too. If you're the platform holder, you enjoy an advantage over any third-parties who choose to bring their games to your machine.

No one thinks Nintendo should use UMDs, do they?

So Where Does This Leave Us?

As a hybrid gaming device the Switch cannot realistically use Blu-Rays for content delivery and nobody wants to see the compromise that the Sony PSP made with UMDs – excessive loading times on a handheld are not cool, and there's the added fact that game cards are now available cheaply in larger capacities than optical media. Unless Nintendo wanted to go download-only and cut out the physical retail sector, memory cards were the only viable option with Switch.

Thankfully, Moore’s Law does mean with each coming month the price of microSD cards and related flash media comes tumbling down. At the time of writing you can pick up a quality SanDisk 128GB microSD for £40.99 / $44.99. Those with money to burn can buy a 400GB microSD card for £224.99 / $249.99. So there are options whatever your budget, but the harsh reality is one way or another you will be paying for storage with the Switch. But you always have the option of being economical with your microSD card and archiving eShop purchases to free up space; this data can easily be downloaded again if you want to do so.

Falling memory prices will also impact the cost of Switch game cards, too. As time goes on the cost of producing these items will fall and Nintendo will be able to pass that saving onto publishers, enabling them to hit a price point similar to other formats. In time, we could see a 64GB game card retail for the same price as your typical PS4 or Xbox One disc. None of this solves the 'messy solution' we've highlighted before due to the system's miserly 32GB of internal memory, but it's the reality we're left with.

The Switch game card was the logical choice

The Final Word

Nintendo avoided too many bad headlines in the first six months of the Switch's lifespan, as the types of games it showcased had relatively compact file sizes. However, now that the console has gained momentum, third-parties are keen to bring more intensive games to the platform and this is causing some teething troubles. With future boosts in efficiency we’ll perhaps see a 32GB game card become a much more viable option for publishers, and in the long-term 64GB game cards are likely to become a reality – but both will come at a cost initially, so in the short-term you should expect to see more third-parties either charge more (the infamous "Switch Tax") for games or demand that players download additional data to their microSD card.

Nintendo is between a rock and hard place here, arguably of its own making but also in a drive to stick to its hardware philosophy in an ever-changing technological landscape. While it is desirable that the entire game would be contained on a game card, it will not always be viable for a third-party publisher to do this without losing its (necessary) profits. Modern console games are positively huge in scope, and large file sizes go hand in hand with that. Compression of game assets for the Switch version can only do so much, and most developers won't want to go through the additional effort when they've been perfectly fine dumping their data onto roomy Blu-Ray discs.

When we spoke to analyst Daniel Ahmad, he stated that he feels publishers using a 32GB game card are very unlikely to price a game lower than $40 due to their margins, but at the same time it is not like they will start attempting to charge exorbitant prices such as $70 or $80 either – we thankfully won't see a return to the days of the SNES and N64. $60 full price games will remain $60 full price games, because the margin is high enough. However, pricing less than $40 is felt to be a real challenge from a business point of view for publishers. Let’s not forget that another slice of the pie goes for the retailer’s cut for selling the games; it's a delicate balance.

On the plus side, most Switch game cards don't require mandatory installs and microSD cards are an easier way of doing external storage than bulky hard drives. Despite the complaints and that cursed "Switch Tax", there really is no way around it – game cards are the best choice of storage medium for a hybrid gaming device that has both home console and handheld style of games.

Back in March during a Facebook stream, Nintendo of America president Reggie Fils-Aime was asked why some games cost more on Switch and he simply said - “We don’t make that pricing decision. When you see those differences in prices, call up that third-party publisher and ask them.”

Of course, some of those publishers are simply trying to make a reasonable profit, just like Nintendo.

Thanks to Daniel Ahmad, Analyst at Niko Partners, for his assistance with this feature.