Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / How Nintendo Prices Hardware and Software for Maximum Profit
Transcript
- Lucas: So Nintendo just confirmed that the Switch has now sold over 145 million units worldwide, making it the third best-selling console of all time, behind only the PlayStation 2 and the Nintendo DS. But here's the number that interests me more: the attach rate for first-party software. Luna: Meaning how many games each console owner buys? Lucas: Exactly. For the Switch, it's about 8.5 games per console over its lifetime. That's higher than the PlayStation 4 or Xbox One. And the key detail is that nearly three of those eight games are Nintendo-published titles, which almost never go on sale. This is the core of Nintendo's pricing power. Luna: Right, so they're not competing on hardware price cuts or massive game discounts. They hold the line. Lucas: And they've held that line for years. Let's take 'The Legend of Zelda: Breath of the Wild'. It launched in March 2017 at $59.99. As of June 2026, the base game still retails for $59.99 on the eShop. That's over nine years at full price. Meanwhile, a third-party game like 'Doom Eternal' launched at $59.99 in 2020 and can now be found for under $20. Luna: That's insane. I mean, my kid plays 'Mario Kart 8 Deluxe' — that came out in 2017, same price, still $59.99. It's like Nintendo treats their games as forever products. Lucas: And they have the brand power to do it. But let's go deeper into the economics. Nintendo doesn't make much money on the hardware itself. At launch, the Switch cost roughly $257 to build, and they sold it for $299. That's a margin of about 14 percent. Over time, component costs fall, but Nintendo rarely cuts the retail price. So their margin on hardware improves, but it's still not the big profit driver. Luna: The real money is in the software, where margins are huge. Lucas: A digital download has near-zero marginal cost. Even a physical cartridge, which Nintendo still produces, costs maybe $5 to $10 to manufacture and ship. So at $59.99, the gross margin on a first-party game is well over 80 percent. And since Nintendo publishes around 20 to 25 million copies of their big titles, we're talking billions in profit from just a handful of SKUs. Luna: So the hardware is essentially a loss leader, but not quite a loss — it's a break-even or low-margin gateway to the high-margin software ecosystem. Lucas: Exactly. And that's where Nintendo differs from Sony and Microsoft. Both Sony and Microsoft have historically sold consoles at a loss at launch — the PS3 reportedly cost Sony over $800 to build, and they sold it for $599. But they've also been more aggressive with price cuts over time, and they allow their first-party games to go on sale much sooner. Luna: Sony's 'God of War' from 2018 was $19.99 within two years. Microsoft's 'Halo Infinite' was on Game Pass day one — effectively giving it away. Lucas: Nintendo has never done a subscription service that includes new releases. They have Nintendo Switch Online, but it's mostly for old NES and SNES games. They don't put 'Zelda' or 'Mario' on a service where you can play it for $10 a month. They want you to pay full price for each title. Luna: And people do. I think part of it is that Nintendo games are seen as timeless. My kids will play 'Mario Kart' for years. You don't get that with a lot of third-party games that are more linear, story-driven, and done after 20 hours. Lucas: That's a huge factor. Replayability. 'Super Smash Bros. Ultimate' has a competitive scene that keeps people playing for years. 'Animal Crossing: New Horizons' had daily engagement loops. That creates a different kind of willingness to pay a premium. Luna: But isn't there also a 'Nintendo tax'? The perception that Nintendo games cost more than they 'should'? Lucas: Absolutely. And Nintendo leans into it. They know that parents will pay $59.99 for a game they know is safe, high quality, and will occupy their kids for hundreds of hours. That's a value proposition that a discounted, glitchy third-party game doesn't offer. Nintendo has also been very disciplined about not flooding the market with sequels. There are only two mainline 'Zelda' games on the Switch — 'Breath of the Wild' and 'Tears of the Kingdom'. That scarcity of big releases keeps demand high. Luna: And they rarely bundle hardware with games to push discounts. You can't get a Switch plus 'Mario Kart' for $299 — it's always separate. Lucas: That's changing slightly. They've done some bundles, but they're not aggressive. Compare that to Sony, which frequently bundles 'Spider-Man' or 'The Last of Us' with the PS5. Nintendo would rather sell you the hardware at a small margin and the software at full price separately. Luna: So what's the risk? If people start buying fewer games per console, Nintendo's profit margin shrinks dramatically. Lucas: That's the big risk. The Switch attach rate has been remarkably stable, but if the next console fails to replicate that, the whole model weakens. Also, Nintendo faces pressure from mobile gaming and free-to-play models. Kids today are used to 'Fortnite' being free and buying a $10 skin. That $60 game looks expensive by comparison. Luna: But Nintendo has mobile games too — 'Mario Run', 'Fire Emblem Heroes' — and they've been cautious there. 'Mario Run' was a $10 upfront purchase, which flopped compared to free-to-play competitors. Lucas: Right, they tried to bring their premium pricing to mobile and it didn't work. So they learned that mobile gamers have different expectations. But on their own hardware, they can enforce their pricing model completely. There's no competing storefront on the Switch. If you want to play 'Zelda', you buy it from Nintendo. Luna: That's a walled garden. And it's not dissimilar to Apple's App Store model, but with physical goods in the mix. Lucas: Exactly. And it's been incredibly profitable. Nintendo's operating margin in fiscal year 2025 was around 28 percent. That's higher than most consumer electronics companies and even some software companies. And it's almost entirely driven by their ability to maintain prices on a relatively small number of titles. Luna: So when you buy a Switch for your kid, you're not just buying a console. You're buying into a pricing system where the real cost comes later. Lucas: And that's fine — as long as the value is there. Nintendo's challenge is to keep that value perception high enough that people don't rebel against the pricing. So far, they've managed that better than any other game company. Luna: Alright, so before we wrap up, I want to circle back to something you mentioned about the attach rate. If listeners are finding these pricing insights useful, and they want to support us keeping the show free and ad-free, we have a simple page where you can do that. Lucas: Yeah, we deliberately don't run ads on these episodes. If you want to support that choice, the link is buy me a coffee dot com slash fexingo. Luna: And it genuinely helps us keep going. Now, back to Nintendo — one thing I've always wondered is how they decide which games get price cuts. Lucas: Great question. They do eventually cut prices, but only on certain titles and only after years. The 'Nintendo Selects' line re-releases older games at $19.99, but those are typically ports from the Wii U or older. The big Switch-era games rarely get a discount. 'Mario Odyssey' is still $59.99. 'Splatoon 3' is $59.99. They'd rather sell fewer copies at full price than more copies at a discount. Luna: That's the opposite of what most software companies do, where they slash prices after a year to capture late adopters. Lucas: And it works because Nintendo has a unique combination of factors: a loyal fan base, high-quality products that don't age, no direct competitors within their own ecosystem, and a hardware platform that they control completely. It's a textbook example of platform pricing power. Luna: So if I'm a business owner, what's the takeaway? Don't be afraid to hold your price if your product has that kind of differentiated value? Lucas: More specifically: if you can create a product that customers perceive as having ongoing utility — not just a one-time purchase — and you have a way to control the distribution, then pricing discipline can be a huge competitive advantage. Nintendo doesn't win on the best graphics or the most powerful hardware. They win on consistent, premium pricing supported by emotional brand loyalty. Luna: And that's a lesson that goes way beyond video games. Lucas: Absolutely. Next time you see a game that's still full price five years after launch, you'll know exactly what's going on.