The Nintendo Switch is arguably the most successful video game system ever. At least for Nintendo, if not for major third-party publishers. Of course, nothing lasts forever and inevitably Nintendo will need to release a new system. Given current market conditions, a major question is will a new Nintendo console with a strong online component for live service games make the PlayStation 5 obsolete?

Switch In Downcycle

Switch sales hit records in both 2020 and 2021. Nevertheless, the system is clearly entering its downcycle. In its latest earnings release, Nintendo lowered its fiscal year Switch sales forecast from 21 million to 19 million. This puts it more in line with the DFC Intelligence forecast for 18 million units in 2022. Even at these lower numbers the Switch should outsell the PlayStation 5 in 2022 and into early 2023. A new system is not expected until at least 2024.

Of course, PlayStation versus Nintendo is not an either-or situation. Many consumers own both systems. In the most recent DFC Intelligence survey of console gamers 54% of PlayStation 4 owners also reported owning a Switch (62% for PlayStation 5 owners).

NOTE: Console Cross-Ownership is from DFC 2022 Survey of 2000 console owners. Owning at least one console was a prerequisite and these results are not designed to be extrapolated.

Nintendo = 1st-Party; Sony = 3rd-Party

The big difference between the Switch and the PlayStation systems is that Nintendo consoles are focused on Nintendo-published products while the PlayStation platform is a primary money maker for third-party products like Call of Duty, EA sports titles, and Fortnite.

However, nothing is set in stone. The standard thinking is that Nintendo platforms are terrible for online third-party games. Nevertheless, Epic’s Fortnite, EA’s FIFA and Apex Legends are on Switch. In terms of being a live services game platform, Nintendo may not be as far behind as commonly believed.

Is Nintendo Pulling Ahead of Sony in Live Services Development?

In fact, Animal Crossings: New Horizon, Mario Kart 8 Deluxe, and Splatoon 3 are arguably live-service games and they have enormous sales figures. Add in Pokemon products and it does not take much to see Nintendo as a future leader in live service titles.

Meanwhile, Sony is clearly behind in the development of live service games. Horizon and God of War are mainly single-player titles that sell far less than top Nintendo IP. Early this year Sony paid a whopping $3.8 billion to acquire Bungie, mainly to play catch-up in live services. However, it can be argued that Sony has fallen behind even Nintendo when it comes to live service game development.

Nintendo is very much a Japanese company. All major strategic business decisions come from Japan. Nintendo’s North American and Europe subsidiaries are primarily sales and marketing, accounting, and legal divisions. The main goal of these subsidiaries is to take whatever product comes from Japan and make sure it is properly distributed and marketed in their respective region. They have minimal input on core business decisions.

Franchises From Japan Can Be Huge as Live Service Products

The challenge has been that North American live service games like Call of Duty are simply not as popular in Japan. With Nintendo, if it is not big in Japan it does not go global. However, live service games are starting to become big in Japan and with the recent success of Splatoon 3, it is likely that Nintendo decision-makers will finally take notice.

Splatoon 3 is a cartoon online shooting game that exploded this fall in Japan. Out of a total 7.9 million Splatoon 3 units sold in the first month of launch, 5 million were in Japan (usually Japan would be 20-25% of sales total).

Other Japanese companies have expanded into online products, most notably Square Enix with its Final Fantasy franchise. Recently Konami announced a partnership with Genvid Entertainment to make the normally single-player Silent Hill franchise a massively interactive live event (MILE) with the launch of Silent Hill: Ascension.

It can be expected that the success of products like Splatoon 3 will encourage Nintendo to focus more on both live services and possibly even more mature content. However, it could be a situation where Microsoft Game Pass, not Sony PlayStation, fills in the content missing from Nintendo platforms (historically sports and mature action games). This would be the worst-case scenario for Sony where the PlayStation 5 systems are left to collect dust.

DFC Intelligence is currently estimating the earliest a major new Nintendo console will launch is mid-2024. By this time the PlayStation 5 will be nearly 4 years old. Microsoft will have its huge library of products from Bethesda and presumably Activision Blizzard. A powerful new Nintendo system with a strong live services model is likely to attract many PlayStation 5 users.

Of course, this is all speculation. Nintendo may prefer to stick to its old ways. The Microsoft acquisition of Activision Blizzard may not go through. Sony may beef up its online development etc. It is this type of certainty that makes the video game industry such an exciting business.

DFC is addressing many questions on this subject going forward including:

Can Sony use Bungie to increase its first-party live services? If so how long will it take for Sony to catch up? Sony is looking to increase its investment in live service games from 12% in the year ended 3/31/20 to 55% by fiscal 2025. However, much of that depends on successfully integrating Bungie technology.

Will Nintendo really invest in delivering a solid online multiplayer environment?

Will consumers start to see a Nintendo platform as a solid option for online games? This is a topic addressed in DFC’s regular console game surveys and currently, the biggest complaint about the Nintendo Switch is its online capabilities and lack of solid multiplayer. Can Nintendo change that perception?

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