JUNE 28, 2016 • DFC Intelligence believes the under-12 market may be the lost console generation and this demographic represents a significant opportunity for game console and software companies.  A large portion of the younger audience are Nintendo consumers.

Nintendo Co. Ltd. has tremendous opportunity to capitalize due to Sony Interactive Entertainment’s success with and focus on the PlayStation 4, Microsoft Corp.’s multiple missteps with Xbox One, plus poor support in leveraging the hit Minecraft with a younger market.

One of the ironies of the latest generation of console systems is how children under the age of 12 have been largely ignored. The Nintendo Wii U is the only dedicated system remotely targeted at kids and it has been a failure. Twenty years ago many casual outside observers viewed children as the ONLY market for video games. The fact that console systems can thrive without targeting a younger audience speaks volumes to how the industry has grown. However, it also highlights a major missed opportunity.

Sony’s PlayStation 4, and to a lesser extent the Microsoft Xbox One, have done very well targeting a core gamer audience this console generation. These systems have really been about game developers creating the type of games that they want to play. The audience for older game consumers has grown by an order of magnitude in recent years and can drive new hardware to record sales right out of the gate.

Arguably Sony and Microsoft don’t need younger gamers and can simply rely on the trickle down effect where kids come on board several years into the lifecycle. Really it is hard to point to major specific new generation games targeted for kids outside of Lego titles and toys to life products. Furthermore, these products play fine on older console generations and do not really justify an investment in expensive new hardware.

Of course, the company that has had the greatest success with targeting children is Nintendo. Nintendo is currently in a holding status until they can launch a new console system but the company has a real opportunity to reinvent the groundwork in the game space by introducing an easy to use system that targets the entire family.

The PlayStation 4 and Xbox One are targeted towards sophisticated gamers and as such in many ways have sacrificed ease of use. Microsoft seems to be moving away from a hardware-based ecosystem where games become a service via Xbox Live and the console becomes somewhat irrelevant. This strategy is causing a great deal of confusion about Microsoft’s long-term plans but it is also having an impact on the current industry trends. The Xbox One has become the most complicated game console system ever with a confusing interface and a constant need to go online for bug fixes and updates. It is really targeted towards the type of gamer that used to be found only on PCs, the consumer willing to tinker and not afraid of major technical challenges.

The original beauty of the console business was a kid could push a button and in seconds be playing games. In the current generation, that appeal has been lost and the immediacy of being able to play games is now found on Apple devices, the Nintendo DS and even PC games. Of course, it is not only kids that want to get in and out of games as fast as possible. Apple, Supercell, King Entertainment and other major growth stories are all about giving consumers quick access to games.

The current hole in the market for accessible high-end games that are NOT on Apple devices could be a real opportunity for Nintendo. Nintendo really helped pioneer the easy in and out accessibility that is a major appeal of Apple devices. Of course, saying there is an opportunity and doing something about it are two different things. The market is ready for an easy to use system that targets the family. The question is will Nintendo be able to capitalize on what is clearly a major vacuum in the game space.

The challenge with Nintendo is the company is based in Japan but has enjoyed its greatest success reaching an international audience. Game trends inside Japan are extremely different than the rest of the world. When major decisions come from Japan they often ignore the realities in markets like the Europe or U.S. On top of that Nintendo has just had a leadership change forced by the tragic passing of Satoru Iwata. One must ask how a Japanese company in such circumstance will be able to understand the complex reality of consumers in the U.S. and other major markets.

The partnership with DeNA in mobile is an example of how Nintendo can struggle to get outside its comfort zone. DeNA was a company that grew up over the past decade by providing mobile games and social services for feature phones in Japan. Basically in the partnership, Nintendo is working with a Japanese centric company to try and brand its franchises globally across mobile devices. Nintendo launched a free Miimoto app in March (of course in Japan first) and by the end of the month they announced 10 million unique users for the app. The thing is this is a drop in the bucket for the mobile space and Miimoto is starting to look like a dud. It is easy for a company like Nintendo to get a lot of people to get something for free but trying to get them to do something with it is a different story.

In short, Nintendo’s efforts in the world of generic smartphone and tablet apps is a minor distraction to the real issue. The opportunity for Nintendo is to create a quasi-mobile/console device that is easy to use for both children and adults alike. If the company can deliver on that equation there is a real opportunity. The PlayStation 4 and Xbox One have left a hole open in the ease of use department and it is up to Nintendo to seize the opportunity.

This is not to say Sony and Microsoft have not tried to target children. They have tried very hard over the years but that audience has simply not proven as easy to lock down. Sony does have some franchises like Ratchet and Clank and Little Big Planet that do appeal to a younger audience. A Ratchet and Clank movie was even released this year but unfortunately it was a dud. On its side, over the years Microsoft has made all kinds of efforts at targeting children with limited success.

There is one major exception to the statement that Sony and Microsoft have limited franchises targeted at children. Of course, that is Minecraft, which Microsoft acquired in 2014 for $2.5 billion. Minecraft is a multi-platform success story that is arguably the hottest kids IP in the market. The challenge is Microsoft is simply not targeting kids so Minecraft is somewhat of an odd duck.

Minecraft enjoyed great success on the PC and then became a huge hit on the Xbox 360. However there is no real incentive to upgrade to an Xbox One as Minecraft plays much better on many other platforms. Recently Nintendo released a Wii U version of Minecraft that features Mario characters (skins). Minecraft for Nintendo is a perfect fit even if Wii U Minecraft is a little disappointing.

For its part, Microsoft seems to want to distance itself from the popularity that Minecraft is a huge hit with school age children. The company has released statistics claiming that the average age of Minecraft is 29 and has focused on the game as a product for adults. This clashes with some DFC findings that Minecraft is having huge impact on children ages 6 to 12.

DFC research indicates that as of last year one out of three children in the U.S. had played Minecraft and the game accounted for a whopping 15% of all time playing games among kids age 6 to 12. Furthermore there is a huge untapped demand for merchandise that is currently going unfulfilled.

A concrete example can provide an indication of how the Minecraft IP is not reaching its full potential as Microsoft tries to target an older audience. For the end of the year school party for the son of DFC Intelligence analyst David Cole, the fourth grade class chose a Minecraft-themed party. Surprisingly parents were shocked to find that one could not go out and buy Minecraft merchandise and were instead forced to build their own crafts from Pinterest and other sites. This is a far cry from past Angry Birds and Pokémon-themed parties where there were all kinds of easily obtained party material. Luckily the school is located across the street from a company called Jinx that does have a license to do Minecraft merchandise. However, Jinx focuses primarily on teen and M-rated games with a specialty in clothing.

The reality is Minecraft would have been a much better fit for a company like Nintendo. Unfortunately, being based in Japan, the entire Minecraft craze passed Nintendo by and they were not able to take advantage of an opportunity that would have been perfect for their demographic. Meanwhile the Xbox One is a challenging system for an adult to operate, 10-year old kids may be tech savvy these days but even under the best of circumstances, a Minecraft fan is best with an Xbox 360 or other less powerful system.

Someone is going to come along and take advantage of the opportunity to make games simple again. Right now Nintendo is on the firing line of having a good opportunity. Sony is also a major player to watch, but they are currently so successful with the PlayStation 4 that they may not feel the need to make a major effort. Then of course there is Apple, a company that has been a leader at delivering easy to use hardware. A concerted effort by Apple in the game space would be a very interesting play.

The unveiling of the Nintendo NX will of course be the next major hardware news story in the game industry. Many observers are rightly skeptical of Nintendo’s chances. DFC also believes Nintendo is a dark horse. However, we truly believe that there is a major market void that creates a huge opportunity for Nintendo. Poor recent execution has not been encouraging but the opportunity to turn things around is clearly there.