Nintendo collects lockdown power-up as sales shift online

Nintendo sold almost half of its games digitally in the first three months of 2020 as the coronavirus pandemic pushed the Japanese company towards a historic turning point in its business model.

A record 48.5 per cent of its software sales were downloads in the quarter — a period in which schools and workplaces closed in most of its key markets, along with the electronics shops and outlets where Nintendo still makes many of its physical sales. 

The abrupt shift from physical to digital, should it persist beyond the current crisis, has arrived sooner than both the company and analysts expected. The ratio roughly matches the balance at Nintendo’s console rival, Sony. 

The sharp acceleration in Nintendo’s sales of downloaded games ended a strong year for the Kyoto-based company, whose Switch console sold more than 21m units worldwide during the period and whose family-friendly games such as Mario Kart and Super Smash Bros have been in hot demand as a lockdown antidote.

Of the 27 Switch games that have sold more than 1m copies, 18 are developed in-house by Nintendo.

Nintendo’s operating profits for the 12 months to March 31 were 41.1 per cent up on the previous year at ¥352bn ($3.2bn), beating even the most bullish analysts’ forecasts and further cementing the company’s reputation for providing lowball guidance. The company’s ¥1.3tn sales for the fiscal year were 9 per cent higher than the previous year.

In its guidance for the current financial year to March 2021, Nintendo said it expected about ¥1.2tn in net sales and ¥300bn in operating profit.

Widespread lockdowns, school closures and the desperate need for boredom relief also helped Nintendo achieve a 57 per cent sales spike in its playing card division — the business on which the Kyoto-based company was founded 130 years ago.

Serkan Toto, a Tokyo-based games industry consultant, said that while the coronavirus was forcing everyone to be cautious, Nintendo appeared to be deliberately underplaying the prospects for software sales in its forward statements.

“I do not think that Covid-19 is going to affect them in the massive way they imply,” said Mr Toto, noting that the Switch’s launch in China was only in December and that Nintendo did not appear to be factoring the huge potential of that market into its forecasts.

In mid March, the company launched Animal Crossing — a gentle, time-consuming game that has already sold more than 13m copies. Half of those sales, Nintendo told analysts on Thursday, were digital and reflected the fact that supply disruptions caused by the pandemic had created a shortage of the physical product.

But analysts cautioned that while it appeared to be benefiting from lockdowns and a global hunger for whimsical, home-based entertainment, the coronavirus could severely test Nintendo and its traditional approach to business.

The company warned that if the pandemic’s effects were prolonged, game development could suffer from the “difference in development environments between working from home and in the office” — a clear admission, said analysts, that like most traditional Japanese companies, Nintendo was neither practically nor conceptually prepared for remote working.

“The virus is impacting game development, particularly in Japan, where developers are likely to be working from home for at least two months and systems are not geared to handle that,” said David Gibson, a games industry analyst at Astris Advisory Japan.