Nintendo finally realizes the value of its Switch Online subscription

The Big Story

Nintendo is finally embracing Switch Online's future

Much attention is paid to Nintendo's hardware strategy, especially amid renewed speculation of a forthcoming Switch handheld with 4K support and with its OLED model shipping later this week. But the more interesting evolution within the game maker is not what type of screen or chipset powers its console now or next year. Rather, it's the transition of its subscription platform from what felt like an experiment into what is starting to look like a genuine competitor.

Nintendo is turning Switch Online into a tiered offering. Though it was perhaps overshadowed by news of the animated Mario film voice cast, Nintendo's Direct presentation last month included the biggest Switch Online news since the service launched in 2018.

• Nintendo, once content repackaging and reselling its classic titles à la carte, now intends to sell a pricier version of its annual Switch subscription service that will include classic Nintendo 64 games, including Super Mario 64 and The Legend of Zelda: Ocarina of Time.
• This marks a big departure for Nintendo's nostalgia-influenced release strategy. Though the company quite clearly intends to keep selling access to older games well into the future, it's now leaning on subscription bundles to lure in players and keep them subscribed. Switch Online is also required to access certain games' online multiplayer features.
• We don't know how much Nintendo plans to charge for what it's calling Switch Online + Expansion Pack, but the company is bundling it with Sega Genesis games, too, and plans to add fan favorites like Banjo-Kazooie and Pokémon Snap down the line. That suggests a potentially substantial price bump and not just a modest increase.

Switch Online has always been a peculiar outlier. Priced at $20 a year, the service has always felt more like an experiment in classic game distribution than a service Nintendo expected a majority of its player base to purchase. Now, it sounds like the company is catching up with the times.

• Few of Nintendo's biggest games require you to pay for Switch Online. So people who did buy it were often doing so for access to a small handful of NES and SNES titles in a deviation from Nintendo's eShop approach, in which the company sold individual classic games for high prices during the Wii and 3DS eras.
• Microsoft and Sony have long experimented with their annual game subscriptions, Xbox Live Gold and PlayStation Plus, the latter of which has nearly 50 million subscribers. Now, both companies have expanded their subscription offerings to markets like cloud gaming, while Nintendo has largely remained on the sidelines.
• Even Nintendo's die-hard fans complain about how onerous and expensive it is to enjoy the company's backlog. That has resulted in a massive and dedicated emulation community playing classics for free on their own hardware. To discourage emulation, Nintendo needs something more convenient and with enough value.

Nintendo's nostalgia play is central to its appeal. The company has sold retro consoles, retro controllers and remastered classics for years. But the company stands to make more money in the future if it can convince millions of Switch owners to sign up for its pricier Switch Online tier in perpetuity, either by constantly adding value or running limited promotions.

• Nintendo announced a new wireless N64 controller for $50, designed to be used with the pricier Switch Online tier and to cash in on its legion of older fans who grew up in the '90s playing classics like Mario and Zelda.
• Many of Nintendo's nostalgia plays involve limited runs, like its SNES Classic console and even its Super Mario 3D All-Stars compilation, which Nintendo kept on the market for only six months. The compilation sold 9 million copies.
• Nintendo could similarly release games for a limited time on Switch Online to juice subscriber numbers, following a model already used by Microsoft and Sony and, more broadly, by subscription video services as well.

Subscription models like Xbox Game Pass are poised to change how games are funded and distributed in the future, but Nintendo's Switch Online expansion is also a good reminder that such business models are coming for the classic game market, too.

Nintendo has a unique hold on both its fanbase and on its old library, having published so many of its biggest hits and therefore owning the rights to redistribute them as it sees fit. And because so many Nintendo fans have been conditioned to pay steep premiums to enjoy classic games, many will likely see the Switch Online price jump as a better deal than buying each game on its own. In this way, Nintendo can turn its subscription service into one of the more powerful and lucrative pillars of its business.

A MESSAGE FROM PROEDGE, A PWC PRODUCT

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Overheard

• "To ensure correct understanding among our investors and customers, we want to clarify that this report is not true. We also want to restate that, as we announced in July, we have no plans for any new model other than Nintendo Switch – OLED Model, which will launch on October 8, 2021."―Nintendo released a rare corporate response to Bloomberg's recent article on the existence of Switch 4K development kits and the company's apparent intentions to release such a device before chip shortage snags forced it to change plans.
• "While it was certainly our aspiration to welcome massive numbers of players into the game during launch week, we were frankly surprised by just how many adventurers washed up on Aeternum's shores. Over a million players entered New World on launch day. Each day after launch that number has increased, translating into long queue times for some of our more popular worlds." ―Amazon's New World team announced a key stat about the MMO's launch last week, in turn also revealing that not even one of the world's leading cloud computing giants can crack the code to releasing an online game without server hiccups and queue times.

Lootbox

• On Protocol: Electronic Arts' major mobile investments this year signal a broader sea change in the game industry toward cross-platform play, new audience growth and business models that turn games from products that sell at launch to services that live for months and even years.
• A new kind of video game publisher. Kepler Interactive, a publisher co-owned and operated by game developers, announced last week a $120 million funding round for its unique approach to game distribution. The collective comprises seven studios, all of which will co-publish games together under the same label. It's also managed in part by the team at indie game fund Kowloon Nights.
• Tim Sweeney opens up about the metaverse. In a wide-ranging interview with The Washington Post's Gene Park, the Epic co-founder and CEO gave his thoughts on the future of Fortnite, his concerns about Big Tech and what the next-generation version of the internet will look like, unless it all goes wrong.
• Microsoft says yes to app stores inside app stores. The Windows maker has taken another page from the digital marketplace playbook of Epic Games and opened its Microsoft Store to other app stores, starting of course with the Epic Games Store. Amazon will also launch its app store on the platform.
• On Protocol: Netflix, now quite public about its interest in developing video games, has acquired well-known indie studio Night School, which released hit games Oxenfree and Afterparty. It's not clear yet how Netflix plans to make use of the developer, which intends to release a sequel to Oxenfree in 2022.
• Sony makes its fifth acquisition in just the last four months. Bluepoint Games, known for its work remastering classic PlayStation hits like last year's Demon's Souls, is the newest member of the PlayStation Studios family. It's Sony's fifth purchase since June, and just weeks after it bought U.K. developer Firesprite, which this week acquired a studio of its own named Fabrik.
• EA executives shuffle. The game publisher is promoting longtime exec Laura Miele, who's been with the company nearly 15 years, to COO. She previously ran EA's entire studios division. Miele is replacing Blake Jorgensen, who held both CFO and COO positions and announced last week he would be departing next year.
• Bungie removes a controversial policy. The Halo and Destiny creator announced last week it would remove its mandatory arbitration clause from employee contracts amid a broader labor reckoning in the game industry over treatment of game developers and toxic workplace environments.

Look out for

Smash Bros. Ultimate's last dance

Later today, Super Smash Bros. creator Masahiro Sakurai will put to bed the latest entry in the fighting game series with the reveal of a final fighter joining the game's massive roster. Speculation as to which pop culture character it might be is now rampant, to hilarious effect.

I'm particularly fond of either Sora from Kingdom Hearts or Goku from the Dragon Ball franchise, though neither seem like anything but absolute long shots. (Master Chief, from Halo, seems like a more likely contender.) It'll be sad to see the end of development on Ultimate, the most successful entry in the series to date. But the notoriously hard-working Sakurai deserves a well-needed break.