Nintendo plays a dangerous game

When Nintendo Company’s managing director Howard Lincoln flew into London from Seattle ten days ago, few people knew the purpose of his visit.

By the time he stepped back on the plane two days later it was clear he was not making a social call. Lincoln told startled staff that Nintendo UK was effectively closing.

As of Friday, sales, marketing and distribution are to be moved out of Nintendo and outsourced to the John Menzies subsidiary Total Home Entertainment (THE). Nintendo is to shut down its Fareham and Eastleigh offices and move its headquarters to London.

Unfortunately for the 150 Nintendo UK staff, only three of them will definitely be moving with it. Joint managing directors Stephen Green and Alan Dickinson are to stay, together with company chairman Shinichi Todori, who it had been rumoured – before Lincoln’s visit – was preparing to return to Japan.

The rest of the staff have been made redundant and told that they can reapply to THE for their old jobs. Although THE is expanding and building a new distribution centre, there are not 143 jobs available.

“The majority of the people will not be offered alternative employment or will not want it,” says one Nintendo UK insider. There will be no more than ten people employed at the headquarters.

The decision to outsource came from the Japanese parent company. Insiders say none of the employees at Nintendo UK were aware of the move until Lincoln’s whirlwind visit.

The only reason given was in a carefully worded statement from THE and Nintendo, which talked of improving the “efficiency and breadth” of UK distribution.

Despite the company’s attempts to persuade otherwise, it is an implicit attack on previous marketing efforts. Nintendo’s UK market share has been proportionately lower than in other countries. But Mark Edridge, Nintendo director of marketing before the shake-up, says this has improved over the past year and UK distribution has been overhauled.

Nintendo claims its UK market share in the 16-bit games market has grown from 40 per cent by volume in January this year to 46 per cent in June. In the same period, its Gameboy machine has increased its 72 per cent share of the handheld market to 79 per cent. Nintendo also claims to be the UK’s leading software publisher, ahead of Virgin and Sega UK.

The decision to outsource also appears at odds with Nintendo’s past experience. It parted company with its previous distribution partner, Bandai, in February 1993 although it did hire some of its staff, including Green. The split affected Nintendo’s UK, France and Benelux operations and led to Nintendo creating its own in-house teams. It was claimed these would be more efficient than a third party.

At the time, Nintendo blamed the break-up on the fact that Bandai’s expertise was as a toy distributor and Nintendo’s business was directed beyond toys. THE, although a powerful distribution force, also has little direct experience in Nintendo’s key market.

It has had no dealings with Nintendo in the past and built its name in the audio and video sector. However, the firm does have computer links through its 37 per cent interest in Funsoft – a distributor and publisher of CD-Rom and multimedia software. It also has a 25 per cent stake in software publisher Gremlin Holdings.

But there is a big difference between marketing software and selling computer games.

The timing has also taken people by surprise. Nintendo is embarking on a series of crucial new UK launches so now would not appear to be the ideal time for a complete sales, marketing and distribution shake-up.

It is also unclear whether the move will affect Nintendo’s retained ad agency J Walter Thompson and its 5m (Register-Meal) account. This is under discussion, although Edridge says THE’s links with JWT Manchester should help the account stay in place.

Nintendo launched the 2m campaign for the coloured version of its handheld games machine Gameboy last weekend. This will be followed by campaigns for its 16-bit games such as Donkey Kong Country 2 and Donkey Kong Land.

Development delays mean Nintendo’s technology has fallen behind its rivals and it cannot afford any further setbacks. Nintendo is selling 16-bit games and handheld consoles while its rivals Sega and Sony will have their technically superior 32-bit machines ready for the sales boom of the Christmas season.

Sega is already in the shops with its Saturn machine, claiming sales of almost 10m in the first two weeks. Sony is expected to launch its PlayStation in September.

Nintendo had intended to launch its own next generation games machine – the Ultra-64 – by autumn, but has now pushed the launch date back to spring 1996 . As recently as May, Nintendo UK was recruiting for an Ultra-64 marketing team.

But as a result of the worldwide delay, the company has been forced to divert marketing spend away from the Ultra 64 and into older technology to maintain its position in the market. Falling PC prices and improving PC software means it will also face stiffer competition over Christmas from a plethora of quality, budget PC packages.

Nintendo claims launches will go ahead as planned, but a complete staff change is hardly the environment in which to launch new products.

Since Lincoln’s visit, Nintendo has shed little light on the situation. Those within Nintendo UK either know nothing or are too frightened to speak. A spokesman claims moves were not due to poor performance, but to a feeling in Japan’s parent company that Nintendo is under pressure and that future launches must succeed.

“Nintendo has come to the conclusion that to make an impact with its products in the autumn of 1995 and in 1996 it needs the best in the business to handle the sales, marketing and distribution. This is definitely not a retreat but an advance.”

Few people believe that. Nintendo’s rivals will see this as an opportunity to take advantage of possible indecision at a crucial time. Others will simply see it as cost-saving. Nintendo is taking a major risk with the timing of its marketing overhaul. It can only be assumed that its confidence in its UK operation had fallen to such a low that it believes the gamble is worth taking.

“It would be fair to say that staff were shocked at the announcement,” says Edridge. An entirely understandable feeling – about a not entirely understandable move.

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