Game OverGame Over Chapters 13 & 14 Chapters 13 & 14

Chapter 13Chapter 13From Russia with LoveFrom Russia with Love

Nintendo almost completely saturated their Nintendo almost completely saturated their target market, this being target market, this being young boysyoung boys

Nintendo was surprise to find that Nintendo was surprise to find that young young girlsgirls six to fourteen years of age were six to fourteen years of age were primary players.primary players.

AdultsAdults enjoyed Nintendo games for enjoyed Nintendo games for example, Jeopardy and Trivial Pursuit example, Jeopardy and Trivial Pursuit

Surprises Surprises

American adults enjoyed playing other American adults enjoyed playing other adults and staying up late when their adults and staying up late when their children went off to bed so they could children went off to bed so they could surprise their children with their surprise their children with their improvements.improvements.

Initially the Japanese did not target adults Initially the Japanese did not target adults because in the Japanese culture they because in the Japanese culture they believed that leisure’s were a waste of believed that leisure’s were a waste of time time

Something for everyoneSomething for everyone

GameboyGameboy Gameboy took children and adults by Gameboy took children and adults by

storm storm Gameboy was everywhereGameboy was everywhere Gameboy could even be Gameboy could even be

seen flying first-class, nobody seen flying first-class, nobody

was leaving home without itwas leaving home without it

Nintendo began a searchNintendo began a searchfor an for an

"arcade type monster game""arcade type monster game"

What they found was a What they found was a "simple and hypnotic" "simple and hypnotic" game called "Tetris." game called "Tetris."

So the search began again So the search began again to find the owner of the to find the owner of the rights and buy them. rights and buy them.

Who created Tetris????Who created Tetris????

Alexey Pajitnov created a game that Alexey Pajitnov created a game that consisted of descending pieces; if the consisted of descending pieces; if the pieces fit perfectly together the row would pieces fit perfectly together the row would then disappear then disappear

http://www.ebaumsworld.com/tetris.html

Road Tetris traveled…Road Tetris traveled…

Vadim Gerasimov was the young computer Vadim Gerasimov was the young computer hacker that created a color version of Tetris. hacker that created a color version of Tetris.

Victor Brjabrin sent Tetris to the SZKI, the Victor Brjabrin sent Tetris to the SZKI, the Institute of Computer Science in Budapest Institute of Computer Science in Budapest where where Tetris (Russian Version) fell in the hands of Robert Stein.

Gilman Louie wanted to Stein to "put it (Tetris) Gilman Louie wanted to Stein to "put it (Tetris) in a red box and get the rights" from Russia in a red box and get the rights" from Russia with love. with love.

Who owns the rights?Who owns the rights?

Stein sold the rights of a game he did not Stein sold the rights of a game he did not own yet to Mirrorsoft and spectrum own yet to Mirrorsoft and spectrum Holobyte Holobyte

Stein tried to back track and claims that Stein tried to back track and claims that Tetris was Hungarian made and tried to Tetris was Hungarian made and tried to cut the Soviets out of the deal.cut the Soviets out of the deal.

Stein’s Tetris computer rights!Stein’s Tetris computer rights!

Finally a deal was made between Stein and Finally a deal was made between Stein and Elorg (Electronorgetchinica, ministry for the Elorg (Electronorgetchinica, ministry for the import and export of hardware and software.) import and export of hardware and software.) Stein finally was able to confirm his exclusive Stein finally was able to confirm his exclusive rights to sell Tetris for rights to sell Tetris for computers computers only.only.

1988 Arakawa wanted Tetris for game boy 1988 Arakawa wanted Tetris for game boy His plan was to sublicense a deal for His plan was to sublicense a deal for hand hand

held rightsheld rights with Henk Rodgers with Henk Rodgers Rodgers worked on Stein to bid for the Hand Rodgers worked on Stein to bid for the Hand

held rights held rights

On the search again, this On the search again, this time for answerstime for answers

After weeks of Rodgers never receiving After weeks of Rodgers never receiving an answer he decided to head to an answer he decided to head to Moscow. Not knowing that Stein and Moscow. Not knowing that Stein and Kevin Maxwell (now overseeing Kevin Maxwell (now overseeing Maxwell's electronic-media companies) Maxwell's electronic-media companies) unbeknownst to one another all headed unbeknownst to one another all headed to Moscow to find some answers.to Moscow to find some answers.

Chapter 14Chapter 14The “Tetris” SongThe “Tetris” Song

Language of the gameLanguage of the game

Pajitnov thought highly of Henk Rogers and believed he “spoke the language of games” and truly loved Tetris

Licensing Licensing

Rogers was very surprised by how naïve the Soviets were about licensing deals.

He walked the Soviets through the video-game business

Rogers never asked for anything in the deal and on February 21 the offer of the hand-held rights to “Tetris” was confirmed

Nintendo who?Nintendo who?

He showed the Russians the home video-game version of “Tetris” he was selling in Japan.

Rogers soon found out the Russians had never heard of Nintendo

Soon realizing that the license for home video game console (NES) he had bought from Atari Games/Tengen to market “Tetris” was a “sham.”

Rogers paid the Russians for all the games he had sold so far

He would soon return with his partners of Nintendo.

Robert Stein soon meet with Belikov who drew up an offer for the coin-operated and hand-held “Tetris” rights.

Elrog Elrog (Electronorgetchinica)(Electronorgetchinica)

Once Elorg signed the protocol agreement Once Elorg signed the protocol agreement guaranteeing Mirrorsoft the right to bid on all guaranteeing Mirrorsoft the right to bid on all remaining “Tetris” rightsremaining “Tetris” rights

Elorg would get the rights to publish in the Soviet Union Maxwell Communications properties, such as Collier’s Encyclopedia and other reference books. This was one demonstration of the Soviets effective ability to negotiate.

Tetris RightsTetris Rights

Maxwell commented that Mirrorsoft had not licensed home video-game rights to “Tetris” so the cartridge must be a pirated game.

A protocol agreement was signed guaranteeing Mirrorsoft the right to bid on all remaining “Tetris” rights, even though the coin-operated and hand-held rights were simultaneously being granted to Rogers and Stein.

The Russians were now back in control.

The judge decided there was no evidence that Tengen had ever been granted the video-game rights.

Nintendo was granted their request for a preliminary injunction.

Nintendo released its NES version of “Tetris” and it sold rapidly

Stein learned his lesson: if he found a great game, he would sew up all the rights BEFORE selling it.

The “Tetris” SongThe “Tetris” Song

Outcomes of VisitOutcomes of Visit Elorg in complete controlElorg in complete control Henk/Nintendo had hand held rights + Video Henk/Nintendo had hand held rights + Video

game console rightsgame console rights Stein has coin operated rightsStein has coin operated rights Maxwell admitted to piracyMaxwell admitted to piracy Now Mirrorsoft was up against Nintendo for Now Mirrorsoft was up against Nintendo for

biddingbidding

Who benefited?????Who benefited?????

Henk Rogers made more from “Tetris” than anyone besides Yamauchi. The Russian government made millions from the game. Nintendo did best of all. Tetris brought Nintendo at least $80 million. Pajitnov and Elorg made close to nothing. Although many believed he should be bitter, for Pajitnov it was important just having his game played everywhere.

Lawsuit between Tangen Lawsuit between Tangen and Nintendoand Nintendo

Tangen: has licensing rights for PC for TangenTangen: has licensing rights for PC for Tangen Tangen: alleges that NES is a computerTangen: alleges that NES is a computer Nintendo: alleges that NES is not a computer, it is a Nintendo: alleges that NES is not a computer, it is a

video game machinevideo game machine Verdict: Nintendo WonVerdict: Nintendo Won See pp. 337-338 of the bookSee pp. 337-338 of the book

Question From Ch. 13Question From Ch. 13

Q: Who eventually owned the computer Q: Who eventually owned the computer game rights for Tetris?game rights for Tetris?

A: Robert Stein finally was able to confirm A: Robert Stein finally was able to confirm his exclusive rights to sell Tetris for his exclusive rights to sell Tetris for personal computers only.personal computers only.

Question From Ch. 14Question From Ch. 14

What did Elorg receive in exchange for signing What did Elorg receive in exchange for signing the protocol agreement guaranteeing Mirrosoft the protocol agreement guaranteeing Mirrosoft the right to bid on all remaining “Tetris” rights?the right to bid on all remaining “Tetris” rights?

A: In exchange Elorg would get the rights to A: In exchange Elorg would get the rights to publish in the Soviet Union Maxwell publish in the Soviet Union Maxwell Communications properties, such as Collier’s Communications properties, such as Collier’s Encyclopedia an other reference books. This Encyclopedia an other reference books. This was one demonstration of the Soviets effective was one demonstration of the Soviets effective ability to negotiate.ability to negotiate.

Thank you!Thank you!

Game OverGame OverCh. 15,16Ch. 15,16

SONIC BOOM (CH.15)SONIC BOOM (CH.15)

1988: Nintendo was “fat and happy” as the 1988: Nintendo was “fat and happy” as the industry leaderindustry leader

Competition was only a nuisance, not a threatCompetition was only a nuisance, not a threat NEC (Japanese communications giant) NEC (Japanese communications giant)

became the only visible threat with $22billion became the only visible threat with $22billion in annual salesin annual sales Released Turbografx claiming a 16 bit system, but Released Turbografx claiming a 16 bit system, but

in reality it had 8 bitsin reality it had 8 bits Couldn’t compete with Nintendo because they had Couldn’t compete with Nintendo because they had

low game quality and they relied too heavily on third low game quality and they relied too heavily on third party game developersparty game developers

Nintendo recognized the need for a 16 bit Nintendo recognized the need for a 16 bit systemsystem

Sega enters market with Genesis system (16 Sega enters market with Genesis system (16 bit)bit) Games had better graphics and sound (arcade Games had better graphics and sound (arcade

style)style) Trendsetters (young teenage boys) were turning to Trendsetters (young teenage boys) were turning to

Sega because the 16 bit system was “cooler” than Sega because the 16 bit system was “cooler” than NintendoNintendo

Examples of Games: Altered Beast, Fantasia, Examples of Games: Altered Beast, Fantasia, Moonwalker (Michael Jackson), Joe Montana 2 Moonwalker (Michael Jackson), Joe Montana 2 Sports Talk FootballSports Talk Football

SONIC BOOM (CH.15)SONIC BOOM (CH.15)

SONIC BOOM (CH. 15)SONIC BOOM (CH. 15)

Sega becomes large competition, but Sega becomes large competition, but still lacked flagship game like Mariostill lacked flagship game like Mario Repetitive gamesRepetitive games

Nintendo develops Super Nintendo Nintendo develops Super Nintendo Entertainment system (SNES)Entertainment system (SNES) Launch of Super Mario WorldLaunch of Super Mario World

Purpose was to destroy SegaPurpose was to destroy Sega Sega launches flagship: Sonic the Sega launches flagship: Sonic the

Hedgehog, which became more popular Hedgehog, which became more popular than Mario Worldthan Mario World

SONIC BOOM (CH. 15)SONIC BOOM (CH. 15)

Backlash from parents of children that own old Backlash from parents of children that own old NintendoNintendo Didn’t want to buy whole new SNES system that is Didn’t want to buy whole new SNES system that is

not compatible with old gamesnot compatible with old games Avg. investment $1500 into old system and gamesAvg. investment $1500 into old system and games

Competition between Sega and Nintendo Competition between Sega and Nintendo allowed for greater licensing controlallowed for greater licensing control

SONIC BOOM (CH.15)SONIC BOOM (CH.15)

Nintendo didn’t want to fall behind Nintendo didn’t want to fall behind anymore, so they recognized that the anymore, so they recognized that the future lied with future lied with multimedia multimedia (CDs)(CDs) CDs allowed for increased storage (8-10 CDs allowed for increased storage (8-10

megabytes vs. 1 gigabyte)megabytes vs. 1 gigabyte) Cheaper for manufacturing ($12-$15 vs. $1-Cheaper for manufacturing ($12-$15 vs. $1-

$2 each CD)$2 each CD) Nintendo recognized the potential $3 trillion Nintendo recognized the potential $3 trillion

in sales by 2000in sales by 2000

SONIC BOOM (CH. 15)SONIC BOOM (CH. 15)

Nintendo entered agreement with PhillipsNintendo entered agreement with Phillips Sony retaliates by partnering with SegaSony retaliates by partnering with Sega

Sony thought they would get multimedia deal with Sony thought they would get multimedia deal with Nintendo who turned to PhillipsNintendo who turned to Phillips

By 1992 Sony and Nintendo work out By 1992 Sony and Nintendo work out differencesdifferences Phillips will still make multimedia unit for SNES Phillips will still make multimedia unit for SNES

attatchmentattatchment Nintendo would decide which software to put on Nintendo would decide which software to put on

Sony CD-ROMSony CD-ROM

BORDERS (CH. 16)BORDERS (CH. 16)

Nintendo (Yamauchi) believed that the future Nintendo (Yamauchi) believed that the future was based on computer networkswas based on computer networks

Nintendo NetworkNintendo Network US was supposed to be a large part of the US was supposed to be a large part of the

Nintendo global networkNintendo global network Had even greater potential than Japan with tons of Had even greater potential than Japan with tons of

households owning NES- thought they could link households owning NES- thought they could link these consumers inthese consumers in

Computers were only in 15% of homes, NES was in Computers were only in 15% of homes, NES was in 33%33%

BORDERS (CH. 16)BORDERS (CH. 16)

Online services that would be available on Online services that would be available on Nintendo network:Nintendo network: Electronic banking (bill pay online)Electronic banking (bill pay online) Stock and bond monitoring and purchasingStock and bond monitoring and purchasing ShoppingShopping Airline reservations, etc…Airline reservations, etc…

Failed in JapanFailed in Japan Additional features: gambling, postal services (stamp Additional features: gambling, postal services (stamp

purchasing), etc…purchasing), etc… Parents didn’t want to use a child’s toy to do businessParents didn’t want to use a child’s toy to do business

BORDERS (CH. 16)BORDERS (CH. 16)

Never launched in U.S. Never launched in U.S. Minnesota Lottery EpisodeMinnesota Lottery Episode Nintendo abandoned idea, never committed Nintendo abandoned idea, never committed

resourcesresources

Nintendo then segmented market specific Nintendo then segmented market specific products to specific groupsproducts to specific groups

Advertising and promotion (markdown Advertising and promotion (markdown money!) became key to strategy for growthmoney!) became key to strategy for growth

BORDERS (CH. 16)BORDERS (CH. 16)

Nintendo gradually grew profits to Nintendo gradually grew profits to become the most successful business in become the most successful business in any industry, in any countryany industry, in any country

(Throughout all of this they were still (Throughout all of this they were still worried about the lawsuit with Atari that worried about the lawsuit with Atari that was ongoing)was ongoing)

U.S. struggles in recessionU.S. struggles in recession Nintendo buys Mariners for PRNintendo buys Mariners for PR

BORDERS (CH. 16)BORDERS (CH. 16)

Nintendo branches into EuropeNintendo branches into Europe Game Boy becomes large contributor to Game Boy becomes large contributor to

Nintendo’s successNintendo’s success

Nintendo is found ‘Not Guilty’ in Atari Nintendo is found ‘Not Guilty’ in Atari case case

Nintendo continued to growNintendo continued to grow

BORDERS (CH. 16)BORDERS (CH. 16)

New president: ArakawaNew president: Arakawa 1992 was the biggest year yet, with 1992 was the biggest year yet, with

Nintendo pulling ahead of SegaNintendo pulling ahead of Sega Allied with Sony for multimediaAllied with Sony for multimedia

Nintendo’s Attitude:Nintendo’s Attitude: ““Anyone who chooses to underestimate us Anyone who chooses to underestimate us

will lose.”will lose.”

Key TakeawaysKey Takeaways

A company can’t stay #1 forever if it relies A company can’t stay #1 forever if it relies on old core strengths in a changing on old core strengths in a changing business environment.business environment.

Small and innocent competitors can turn Small and innocent competitors can turn into intense rivalries if left unchecked.into intense rivalries if left unchecked.

Choose a direction- but don’t stick it.Choose a direction- but don’t stick it.