Latest / Business Strategy Talks with Fexingo: Competitive Advantage, Market Positioning, and Growth Planning / How Nintendo Built a Moat in Intellectual Property
Transcript
- Lucas: There are maybe a handful of companies that could lose money for an entire console generation and still bounce back stronger than ever. Nintendo is one of them. Luna: And they did exactly that with the Wii U. That console sold about 13 million units. The Switch sold over 140 million. That's a comeback that doesn't happen without a very specific kind of moat. Lucas: Right. And that moat isn't about hardware. It's not about processing power or graphical fidelity. It's about the characters and worlds that Nintendo owns, outright, forever. Luna: If these conversations have moved your work forward in some small way, there's a simple way to keep them coming. We don't run ads — that's a deliberate choice. If you want to support that choice, the link is buy me a coffee dot com slash fexingo. Lucas: Exactly. No pressure, but knowing listeners find value in it is what keeps us going. Luna: So back to the moat. Lucas, you mentioned characters — but a lot of companies have characters. Disney has an entire universe. Nintendo's IP is different, isn't it? Lucas: It's different in a few ways. First, Nintendo creates its own IP from scratch. They don't acquire. They don't license in. Everything — Mario, Zelda, Donkey Kong, Pokémon — originated inside the company or through a very tight partnership. Second, they control the use of that IP with an iron fist. You cannot put Mario on a cereal box without Nintendo's explicit approval, and they often say no. Luna: That's why you don't see cheap Mario merchandise everywhere. They protect the brand equity. Lucas: Exactly. And that discipline is rare. Think about it: Mario first appeared in 1981 in Donkey Kong. That character is 45 years old. And last year, a new Mario movie grossed over a billion dollars. The value of that asset hasn't depreciated — it's grown. Luna: How do they keep these characters relevant across decades? Because the kids who played Super Mario Bros. on the NES are now in their forties. Their kids are playing on Switch. Lucas: That's the magic trick. Nintendo doesn't reboot its characters. They don't make Mario dark and gritty. They iterate on the core gameplay. The new Mario game might have a new power-up or a new art style, but the fundamental feel — the jump, the physics, the music — is recognizably the same. That's incredibly hard to do without feeling stale. Luna: And the games are still made by internal teams, many of whom have been there for decades. Shigeru Miyamoto is still involved. That continuity is rare in the game industry. Lucas: It's one of the few companies where the creator of a franchise from the 1980s is still actively working on new entries. That's unprecedented. And it leads to a specific advantage: Nintendo's development cost per game is often lower than competitors, because they're not reinventing the wheel. They're perfecting a known formula. Luna: Let's talk about Pokémon. That's not entirely owned by Nintendo — it's a joint venture with Game Freak and Creatures. But it's still part of the moat. Lucas: Absolutely. Pokémon is the highest-grossing media franchise of all time. Over $100 billion in lifetime revenue. That's more than Marvel, Star Wars, and Harry Potter. And Nintendo has a significant stake. The Pokémon Company is very protective of the brand — you don't see Pokémon characters in random mobile games. Everything is carefully curated. Luna: But Nintendo had a rough patch in the late 2000s and early 2010s. The Wii was a huge success, but then the Wii U flopped. How did the IP moat save them? Lucas: The Wii U failed because it was confusingly marketed and underpowered. But during that period, Nintendo kept releasing high-quality games for the 3DS and the Wii U itself. Those games didn't sell well on Wii U, but they built a library of exclusive content. When the Switch arrived in 2017 with Breath of the Wild and Super Mario Odyssey, those were games that had been in development for years. The IP was ready. Luna: So essentially, they used the downturn to invest in their moat. Lucas: Exactly. They didn't panic and start making mobile games or licensing Mario to casinos. They doubled down on what they do best: making great games with their own characters. And the Switch proved that if you give people a compelling hardware platform with Nintendo's IP, they will buy it in droves. Luna: Speaking of mobile — Nintendo initially resisted. Then they released games like Super Mario Run and Pokémon Go. Pokémon Go was a phenomenon, but Nintendo's own mobile titles haven't been huge. Lucas: That's deliberate. Nintendo never viewed mobile as a primary revenue driver. They use mobile to introduce their characters to a wider audience and then funnel people back to the console. Super Mario Run was a paid app with no ads — that's not a typical mobile strategy. They're protecting the brand. Luna: And then there's the theme park angle. Super Nintendo World at Universal Studios is a physical extension of the IP. It's not just a ride — it's an immersive experience. Lucas: That's a brilliant move because it deepens the emotional connection. When you walk through a pipe and enter the Mushroom Kingdom, that's a memory that lasts a lifetime. It reinforces the IP's value for the next generation. And Nintendo doesn't build these parks themselves — they license the IP to Universal. Low risk, high reward. Luna: But is the moat unbreachable? What if cloud gaming takes off and people stop buying consoles? Or if a competitor creates a new iconic character? Lucas: Those are real threats. Cloud gaming could make hardware irrelevant. But Nintendo's IP is so strong that even if the console disappears, people will still want Mario on whatever platform they use. And creating a new iconic character is extremely hard — it took decades for Nintendo to build that library. Microsoft has Halo and Forza. Sony has God of War and Spider-Man. But no one has the depth or longevity of Nintendo's catalog. Luna: Plus, Nintendo is experimenting with other media. The Mario movie was a huge success. There are Zelda and Donkey Kong movies in development. That expands the IP's reach without diluting the games. Lucas: Right. And they control the movie adaptations very tightly. The Mario movie was co-produced with Illumination, but Nintendo had approval over the script and the look. They're not just cashing checks — they're curating. Luna: So the moat boils down to three things: a library of beloved characters and worlds that have been cultivated for decades, a culture of internal development that prioritizes quality over speed, and a willingness to say no to easy money in order to protect brand equity. Lucas: That's the formula. And it's worth noting that over 60 percent of Nintendo's operating profit comes from IP that is over 25 years old. That's not a sign of stagnation — it's a sign of an asset that compounds in value over time. Luna: The question for investors is whether that moat can withstand the next technological shift. The Switch is getting old. What's next? Lucas: Nintendo hasn't announced the Switch successor yet, but we know they're working on it. The key is that whatever the hardware is, the games will be the draw. If they can deliver a new Zelda, a new Mario, a new Splatoon, and maybe a new franchise, they'll sell tens of millions of units. The moat isn't the hardware — it's the software that makes people want to buy the hardware. Luna: And that software is exclusive. You can't play Zelda on PlayStation or Xbox. That's the ultimate competitive advantage. Lucas: Exactly. And as long as Nintendo keeps making great games with those characters, the moat holds. It's a simple strategy, but incredibly difficult to execute consistently for over four decades. And they've done it.