Nintendo's Big Bet on Switch 2
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Bloomberg Audio Studios. Podcasts. Radio. News. Gamers, start your engines. Let's-a go! If that sound brings back memories, you're likely one of the hundreds of millions of people who's owned or currently owns a Nintendo gaming device. And this week, the company is hoping to add to that number when it releases the next generation of its most popular console, the Switch 2.

Nintendo Switch 2. Joy-Con 2 controllers that attach in a snap. The Switch has been a massive hit for Nintendo. Geroad Reedy is a Bloomberg Opinion columnist based in Tokyo.

Nintendo have made about $100 billion in revenue over the lifetime of the Switch. It has sold over 150 million units worldwide, and it has absolutely juiced Nintendo's stock price. The Switch launched back in 2017, and it's on track to become Nintendo's most successful device ever. Eight years later, the company is hoping to recreate some of that magic by dropping a new premium product.

Gerard, what's new about the Switch 2? It is everything that you love about the Switch 1 powered up. It has a much better and larger screen than the original Switch. I've seen it myself. It looks fantastic. It's going to have a whole host of new games, starting with Mario Kart World. It's only going to be available on the Switch 2.

To outsiders, it may seem like Nintendo is riding high. But Gerold says this is actually a risky period for the company.

That's because Nintendo's business is almost entirely reliant on this one device, unlike its closest competitors, Sony, who makes the PlayStation, and Microsoft with the Xbox. Nintendo right now would seem to be at the top of the world. Their stock is just off an all-time high. But this is also the riskiest time for Nintendo. They really need to make a success out of this, right?

If they don't, they don't have something else to fall back on like Sony or Microsoft. This is the Big Tech Asia from Bloomberg News. I'm Wan Ha. Every week, we take you inside some of the world's biggest and most powerful economies and the markets, tycoons, and businesses that drive this ever-shifting region. Today on the show, Nintendo's big bet on the Switch 2 and why it can't afford any missteps this time around. ♪

Brode, did you grow up playing video games? Do you remember your first video console? Absolutely. I've been playing video games almost for as long as I can remember. The first Nintendo console that I remember having was the NES, Nintendo's first console. And the first game that I remember playing on that was the original Super Mario Brothers. We were actually the first kids on the block.

who also had the original NES. This is the one that came with the robot. Maybe it was the second edition for the American market. Oh wow, you had the robot, robbed the robot, yeah. It was so cool. All the kids came to our house and I remember we were all dazzled by the robots. When I first heard about Nintendo in the early 80s, its products were cool and cutting edge.

Will you be the one to witness the birth of the incredible Nintendo Entertainment System? The one to play with Rob, the extraordinary video robot, batteries not included. We are talking about Nintendo's launch of the Switch 2 today. And I wonder, as we're talking, how much of its success is really about nostalgia? I'm not sure if nostalgia is really the right word so much as nostalgia.

connection to those characters. Nintendo, I think, has been uniquely good at being able to create characters and maintain them over the course of so many years. It's almost more like a timeless quality to these characters. Just as, you know, Disney has been able to do with Mickey Mouse, Nintendo has been able to do with Mario, Zelda, and so on across these franchises.

In the fiscal year of 2024, Nintendo sold more than 8 million units of Mario Kart 8 Deluxe, a game first released more than a decade ago.

And altogether, the company has sold more than 75 million units without giving any discounts. On top of that, the majority of the games sold on the Switch are created by Nintendo and played exclusively on the device. Nintendo's secret sauce is the intellectual property that they've built. That's a cold way to describe what is a very warm place.

collection of different franchises and different characters that so many people across different generations love. These are characters that, in this case, something like Mario or Zelda, several generations have now grown up with. And that, I think, is really the thing that separates Nintendo from its competitors, is that they're almost stewards now of these characters, of these franchises that are so beloved

Besides the games, Nintendo is also famous for its unique hardware designed to create new experiences, rather than just upgrading existing hardware with flashier graphics, something its competitors like Sony has done with the popular PlayStation.

with the PlayStation. You know, we went for the PlayStation 1, PlayStation 2, PlayStation 3. Each generation is broadly similar to the previous one. Of course, the hardware inside is very different and much improved from one generation to the next. But the main focus of the style of playing doesn't really change that much. The name doesn't really change that much.

Nintendo withdrew from that kind of way of doing things quite a long time ago and decided to focus more on play experiences.

They have generally gone into each new generation of product trying to do something new. From the Super Nintendo to the Nintendo 64, it has a different way of playing. They go from the Nintendo 64 to the GameCube. They went from the GameCube then to the Wii and yet with each one of these you're seeing the name changes, the philosophy changes, what they want to do with it changes and oftentimes

They have a hardware innovation that keeps users coming back for a new experience. That's why Nintendo takes its time with research and development, meaning fans often have to wait years for new products.

The late President Satoru Iwata talked about the need to surprise gamers and to give them something new. Much to the chagrin of shareholders over the years, they're not focused on extracting as much profit from their business as they possibly can. They're very much focused on the player. And for the most part, Nintendo's player-focused strategy has paid off.

One of its most successful breakthroughs was the Wii console in 2006. It was an instant success in Nintendo's best-selling game system for 15 years. It was on every late-night talk show. South Park had a whole episode around the kids trying to get it. There you are, Eric. What are you doing here? I'm waiting for the new Nintendo Wii to come out.

The controller did not look like anything that a traditional controller looked at the time. A lot of the games involved using motion sensing technology, and the idea was that they could bring in people who were intimidated by traditional game controller, which has lots of buttons and knobs and dials and stuff like that. It can be quite intimidating to people who don't know what's going on. I remember having dance parties with the kids using the Wii after it launched. It was fun. Absolutely.

It really broke the mold and pushed Nintendo back into the mainstream. And for a while, it was one of the most desirable products in the world. The Wii was a hit. But when Nintendo attempted to follow up with the Wii U six years later, it stumbled big time. People didn't actually know it was a new console. People thought that it was maybe just an add-on for the Wii.

Nintendo had three straight years of operating losses. Their stock was absolutely tanked, basically, by this. After its failure with the Wii U, Nintendo spent five years making the Switch. That combined two different lines of hardware, the home console, the controller that you play while sitting in front of the TV, and the handheld, like the Game Boy, into one device.

The Switch could do everything, right? If you want to have it as a home console, if you just want to have it under your TV, you can do that. If you want to take it out, play it in the park, bring it on a plane, you can do that as well. You're not really compromising on either one of those things. It's the same games. It's the same data.

data that's exactly the same device. And no one had really, to the best of my knowledge, thought of trying that. There's no device in the world, basically, that functions like a Switch does. The Switch generated some $100 billion in sales and propelled Nintendo's shares to record highs. It's one of the highest-selling consoles of all time, coming in a close second to the PlayStation 2.

With the runaway success of the Switch, Nintendo has been feeling the pressure to come up with an even better console with the Switch 2. And this time, Gerold says the company's trying to learn from its past mistakes. It's deviating from its traditional approach of delivering something completely new. This is the first time they've just...

basically taken the same concept and souped it up, put a 2 at the end of it and said, "It's everything that you love about the original device, but more." After the break, the Switch 2 comes to market. Will the change in strategy work?

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Nintendo Switch 2 officially hits stores on June 5th, but pre-orders for the console have already sold out despite the jaw-dropping price tag. At $450, the Switch 2 lands on the expensive end of what most analysts expected. But the real jolt is the price of the games. It'll cost $70 to get Donkey Kong Bonanza and $80 for Mario Kart World. That's a hike of as much as 30%.

And gamers are up in arms. No! Price dropped $450. That is not good. Absolutely not. Charging $80 for a video game isn't just ridiculous, but it's dangerous. That's too expensive. $449. Adding to the challenge on pricing is President Trump's tariffs. Hours after Nintendo revealed the price for the new Switch,

Trump announced sweeping tariffs on countries around the world, including China and Vietnam, where Nintendo produces most of their devices. And Geroad, the U.S. is the biggest market for Nintendo. How is that going to impact switch to sales?

It is impossible to tell right now what that actual impact is going to be. China and Vietnam, obviously both of those countries potentially in the line for tariffs or potentially not. However, I think it's very hard to believe that they would be able to sell the Switch 2 for much more than it's

What's for sure is that Nintendo needs to sell its latest console, and lots of it, because it has no plan B.

And typical year, anything from 93 to 95% of their revenue is coming directly from their video game business. They've had other successes over the past couple of years. They had the Mario movie, they have Nintendo stores in increasing number of cities. They have theme parks these days in collaboration with Universal Studios. They really need this to be a success and that primes them for success going forward.

That's a big reason why Nintendo is shifting its strategy this time around, building on what's worked so well with the Switch and avoiding a repeat of what happened with the follow-up to the Wii.

I think they definitely learned the lesson of the marketing of the Wii U. The Wii U was a very confusing proposition. So I think that's why they've gone this time with quite a conservative, by their approach, take on the Switch 2. It started with the name. You know, there was a lot of speculation over, you know, what were they going to call it? What was it going to look like? They've decided to keep the same baselines

basic form factor of the Switch. It has the monitor, it has the two controllers. Now this time instead of clipping on, they go on via magnets. But you can look at it and you just immediately know that is a Switch. And I think they are banking on that to avoid the confusion that they had with the Wii U.

Gouraud, it seems like there really isn't another hybrid machine on the market that can really compete with the Switch. Is that going to change anytime soon? There are rumors that both Microsoft and Sony are looking at doing some sort of portable device. I wouldn't be surprised to see one or either of those companies come out with a device that was a portable.

However, what I would say there is that Nintendo has... It has a moat that is very hard for any competitor to copy.

It's not the unique design of the Switch, which, you know, at this stage is nearly a decade since it was first announced. It is their incredible range of intellectual property. And I think any competitor who tried to go against Nintendo, even with something similar, does not have that range of games and experience to fall back on. And that's what investors and diehard Nintendo fans are banking on.

Nintendo spends a shocking amount of time and energy antagonizing the gaming community. And yet, I bought a Wii, I bought a Wii U, I bought a Switch, I bought an OLED Switch, and I'm gonna buy a Switch too. Why? Because nobody does what Nintendoo.

This is The Big Take Asia from Bloomberg News. I'm Juanja. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you like the episode, make sure to subscribe and review The Big Take Asia wherever you listen to podcasts. It really helps people find the show. Thanks for listening. See you next time.

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