Console Wars (2015)
PART ONE
GENESIS
5.
THE HISTORY OF NOA
(A STORY TOLD IN 8 BITS)
On September 23, 1889, just weeks before his thirtieth birthday, an entrepreneur named Fusajiro Yamauchi opened a small, rickety-looking shop in the heart of Kyoto. To attract the attention of passing rickshaws and wealthy denizens, he inscribed the name of his new enterprise on the storefront window: Nintendo, which had been selected by combining the kanji characters nin, ten, and do. Taken together, they meant roughly “leave luck to heaven”—though, like most successful entrepreneurs, Yamauchi found success by making his own luck. In an era where most businessmen were content to survive off the modest returns of regional mainstays such as sake, silk, and tea, he decided it was time to try something new. So instead of selling a conventional product, Fusajiro Yamauchi opted for a controversial one, a product that the Japanese government had legalized only five years earlier: playing cards.
The history of Japan’s relationship with playing cards is as noble as it is bizarre. It began in the late sixteenth century, when visiting Portuguese sailors first introduced card games. This popular Western pastime quickly spread throughout Japan. At the same time as this frenzy was overtaking the nation, Japan’s military commanders were growing increasingly incensed by the rapid influx of European missionaries. To ward off this flood of Christianity, the Japanese government issued a series of edicts that effectively closed the country’s borders and banned many Western items, including clocks, eyeglasses, and, of course, playing cards.
As a means to circumvent the ban on cards, the Japanese obediently stopped producing Western cards with four suits and twelve numbers and instead constructed cards with the seasons (also four) and months of the year (also twelve). These new playing cards, which also featured altered illustrations and were intended for games with modified rules, became known as hanafuda cards and lent themselves to more complex games like bridge and mah-jongg. Eventually the government caught on and banned these as well, but even that wasn’t enough to deter the popularity of hanafuda cards, which survived into the nineteenth century by being played behind closed doors.
That all changed in 1885, when a more open-minded Japanese government withdrew several restrictions that had been imposed on gambling and the manufacturing of hanafuda cards. For the first time in centuries, people who had been playing this game illegally, like twenty-six-year-old Fusajiro Yamauchi, were finally able to do so out in the open. This led Yamauchi to spend more time playing the game, which led to a series of entrepreneurial ideas and eventually to the opening of that fateful Nintendo shop on September 23, 1889.
There, in the heart of Kyoto, he and a small team of employees crafted paper from the bark of mulberry trees, mixed these thin slits with soft clay, and then added the hanafuda card designs with inks made from berries and flower petals. Nintendo’s cards, particularly a series called Daitoryo (which featured an outline of Napoleon Bonaparte on the package), became the most successful in all of Kyoto. The fate of Nintendo looked very promising, until future success was threatened by that of the past. Because those early years had gone so well, all the region’s households seemed to already have a deck of hanafuda cards, and demand came to a halt. To overcome this issue, he set his sights on the one place where the demand never diminished: casinos.
In the smoky dens of Japan’s gambling parlors, the highest-stakes tables would open a new pack of cards for each game. Yamauchi recognized the incredible potential and signed contracts with nearly seventy gambling parlors. With each one going through hundreds of packs every week, Nintendo’s profits soared. Up until this point, Yamauchi had been selling his cards exclusively in Nintendo shops, but if he ever wanted to see Nintendo become a household name, he needed a way to reach more households. That path to pervasiveness came when he struck a deal with the Japan Tobacco and Salt Public Corporation, the state-run monopoly operated by the Japanese Ministry of Finance, which agreed to sell Nintendo cards in their many cigarette shops scattered throughout the nation.
After several decades of staggering success, Fusajiro Yamauchi retired in 1929 and was succeeded by his son-in-law Sekiryo Yamauchi, who ran Nintendo efficiently for nineteen years, but in 1948 he had a stroke and was forced to retire. With no male children, he offered Nintendo’s presidency to his grandson, Hiroshi, who was twenty-one years old and studying law at Waseda University. It didn’t take long for Hiroshi Yamauchi to make his presence known, and he earned a reputation for quick thinking and a quicker temper. Unsurprisingly, he soon fired every manager that had been appointed by his grandfather and replaced them with young go-getters who he believed could usher Nintendo beyond its conservative past. Also unsurprisingly, his keen insights and rabid efforts to modernize Nintendo accomplished their goal. In 1951, he consolidated all Nintendo’s manufacturing plants in Kyoto to greatly speed up the production process. In 1953 he introduced the first plastic-coated playing cards in Japan. And in 1959 he led Nintendo into its first licensing agreement, a potentially game-changing deal with the Walt Disney Company. The Disney playing cards were a stunning success and helped Nintendo reach a new generation of Japanese boys and girls.
Emboldened by this triumph, Yamauchi branched out into a number of other, less lucrative endeavors, including an instant-rice company and a pay-by-the-hour “love hotel.” These disappointments led Yamauchi to the conclusion that Nintendo’s greatest asset was the meticulous distribution system that it had built over decades of selling playing cards. With such an intricate and expansive pipeline already in place, he narrowed his entrepreneurial scope to products that could be sold in toy and department stores and settled upon a new product called “videogames.”
Yamauchi wanted Nintendo to aggressively get into the videogame business, which was really two separate businesses: home consoles and coin-operated arcade games. Yamauchi saw the potential in these industries and took the necessary steps for Nintendo to enter both. In 1973 he established Nintendo Leisure System, a subsidiary devoted to making arcade games. Despite middling results from titles like Wild Gunman and Battle Shark, Yamauchi remained committed to his new vision of Nintendo and continued to allocate a vast amount of resources toward videogames. In 1977 Nintendo released a shoebox-sized orange console called the Color TV-Game 6, which played six slightly different versions of electronic tennis and was met with a mixed reception. Though the console managed to sell one million units, it ultimately lost money for Nintendo because of the exorbitant R&D costs. Nevertheless, Yamauchi remained undeterred. Nintendo continued to put out arcade games (striking out with duds like Monkey Magic and Block Fever) and also continued to release home consoles (like the Color TV-Game 15, which offered fifteen slightly different versions of electronic tennis).
In the same way that, over seventy years earlier, Fusajiro Yamauchi had changed Nintendo’s fortunes by expanding its distribution network, Hiroshi Yamauchi saw the potential in a similar idea. By this point, Nintendo already had penetrated most of Japan, so the company would have to look overseas. With this logic, Yamauchi set his sights on the place where the videogame frenzy had started: America.
1. Arakawa
Yamauchi had already dipped a toe into this red, white, and blue pool of water a few years earlier and was encouraged by the results. In the late 1970s Nintendo had begun working with a trading company that would export arcade cabinets to American distributors, who would in turn sell these games to vendors in the United States. Though the profits from this arrangement were minimal, Yamauchi believed that if he could cut out the trading companies and send over someone he trusted to grow Nintendo’s business organically, then there was a lot of money to be made in the land of opportunity.
The American market would be risky, tricky, and perpetually persnickety. There appeared to be only one man properly equipped for the challenge: Minoru Arakawa, a frustratingly shy but brilliant thirty-four-year-old MIT graduate. Not only did Arakawa possess the insight and intellect to open a U.S. division of Nintendo, but he came from good stock (his family had been running a prominent Kyoto-based textile company since 1886), he was already living in North America (he was selling condominiums for the Marubeni Corporation in Vancouver), and had an incalculable fondness for America (some of his most cherished memories had come from a post-college cross-country trip he’d taken in a used Volkswagen bus).
In every way, Minoru Arakawa appeared to be the perfect candidate . . . except that he happened to be married to Yamauchi’s daughter, Yoko, who blamed Nintendo for turning her father callous. She simply refused to let her husband join Nintendo, as she did not want to watch history repeat itself.
Yamauchi initially proposed the idea to Arakawa in early 1980. Following a pleasant family dinner, Yamauchi spent two hours discussing his plans for the expansion of Nintendo and concluded by stating that the success of his plan hinged on Arakawa. The unusual plea intrigued Arakawa, as did the unique potential of Nintendo’s upcoming products (including small, calculator-sized handheld games, and a new console that would play interchangeable cartridges). Lastly, anticipating his daughter’s reluctance, Yamauchi explained that this American division would be a completely independent subsidiary. Arakawa wrestled with the decision as well as with the objections of his wife, who cautioned him that no matter what he accomplished, he would always be perceived as nothing more than the son-in-law. Perhaps that would be the case, but Arakawa decided that the opportunity was too good to pass up, and in May 1980 he and his wife left Vancouver to start Nintendo of America (NOA).
Despite her concerns, Yoko greatly loved and supported her husband. So after the family moved to New Jersey, she formally became NOA’s first employee and helped select a location for the new company’s office. Arakawa and his wife settled on a small space on the seventeenth floor of a Manhattan high-rise located in the center of the toy district at 25th Street and Broadway. They spent their days at the office and their nights observing games and players at local arcades. They learned a lot this way, but no amount of knowledge could make up for the fact that for Nintendo to gain a foothold in America, they needed to build a strong sales network. So Arakawa set up a meeting with a couple of guys who he thought might be able to help: Al Stone and Ron Judy.
2. Stone and Judy
Al Stone and Ron Judy were old friends from the University of Washington, where they had once lived in the same frat house and had been known to embark on promising get-rich-quick schemes together (like buying soon-to-be-discarded local wine cheaply and then reselling it to their college brethren with less sophisticated palates). After graduating, they each moved to separate coasts (Stone to the West, Judy to the East), but eventually the alchemy of their entrepreneurial relationship pulled them back together. Tired of working for other people, they started a trucking business in Seattle, because they liked the changes that were occurring in the transportation industry as a result of deregulation. After founding a company, which they called Chase Express, Stone and Judy proceeded to buy a handful of small trucking companies with the goal of rolling them into one midsized trucking company. Shortly thereafter, they learned the true meaning of “easier said than done.” The trucking industry turned out to be too political, too insular, and not quite what these two guys wanted to do for the rest of their lives. So while they continued to invest in Chase Express and hope for a turnaround, they also began looking for alternative business opportunities, ones that did not include five axles and eighteen wheels.
They eventually found their answer, though it still involved big rigs. But unlike their previous venture, this wasn’t about the trucks themselves, but rather about what they carried inside. Through a friend in Hawaii, Ron Judy had been informed that a Japanese trading company was seeking a distributor to sell some arcade games made by Nintendo Company Limited (NCL). Intrigued, he agreed to test the waters and received a crate containing a few arcade cabinets of Nintendo’s Space Wars. Though the game was little more than a shameless rip-off of Taito’s Space Invaders, Judy got his brother-in-law to place the games in some of the taverns he owned in south Seattle. Much to his delight, the machines were quickly overrun with quarters, which convinced him and Stone that this was their future. They formed a distribution company called Far East Video and used their assets from the trucking industry to travel around the country and sell Nintendo games to bars, arcades, hotel lounges, and pizza parlors.
After experiencing the nation’s unquenchable thirst for videogames firsthand, Stone and Judy believed they had caught lightning in a bottle. But despite the bottle full of lightning, their bank accounts weren’t roaring with thunder. The outrageous profits they were making from the arcade cabinets were being canceled out by the trucking company’s continuing losses. They decided that it was time to unwind the trucking company and go all in on videogames, but to do so they needed additional financing, and at the time banks were highly skeptical of this newfangled industry. This left Stone and Judy in an awkward position, not knowing where to turn next, until they got a call from a man named Minoru Arakawa and things came into focus.
From Arakawa’s perspective, Stone and Judy were a godsend: a pair of hard-nosed entrepreneurs who had already developed a network of sales contacts. He wanted them to stop working for the company that was selling Nintendo games and come work directly for him. For Stone and Judy, this was a no-brainer on a variety of levels: though their margins would be slightly reduced, this solved their financing dilemma, secured a steady stream of product, and would even get their travel expenses reimbursed. With so much upside for all involved, the only possible way this arrangement wouldn’t work out was if Nintendo’s upcoming games weren’t any good. And, unfortunately, that’s exactly what happened next.
Space Fever was followed by Space Launcher (underwhelming), which was followed by Space Firebird (disappointing), which was followed by a slew of unsuccessful non-space-themed games. After this string of mediocre misfires, Stone and Judy were ready to quit, and Arakawa couldn’t help but reconsider his new vocation. More than ever, Nintendo of America needed a megahit, like Pong or Pac-Man, to keep the dream alive. And just when it appeared time was running out, Arakawa believed that he’d found what he needed: Radarscope.
At first glance, Radarscope may have appeared to be just another shoot-’em-up space game, but it distinguished itself with incredibly sharp graphics and an innovative 3-D perspective. After receiving positive feedback from test locations around the Seattle area, Arakawa invested much of NOA’s remaining resources and ordered three thousand units. But a few weeks later, before the rest of the arcade cabinets even arrived, Arakawa felt an ominous chill upon revisiting the test locations, where he noticed that nobody was playing Radarscope. That foreboding feeling was validated after the three thousand units finally arrived and Stone and Judy found that operators had little interest in the title. Radarscope was fun at first, the consensus appeared to be, but it lacked replay value.
3. Miyamoto
With so much invested in this game, it would be too expensive to send all the bulky arcade cabinets back to Japan and then import something else. The last remaining hope was for a designer in Japan to quickly create a game that would be compatible with Radarscope’s infrastructure (and, when finished, send over processors with that new game to America, where NOA employees could swap out the motherboard and then repaint the arcade cabinets to reflect this new game). This task was given to Shigeru Miyamoto, a floppy-haired first-time game designer who idealistically believed that videogames should be treated with the same respect given to books, movies, and television shows. His efforts to elevate the art form were immediately given a boost when he was informed that Nintendo was close to finalizing a licensing deal with King Features, enabling him to develop his game around the popular cartoon series Popeye the Sailor Man. Using those characters, he began crafting a game where Popeye must rescue his beloved Olive Oyl by hopping over obstacles tossed in his way by his obese archenemy, Bluto.
Meanwhile, as Miyamoto set out to save NOA, Arakawa wanted to take precautions against something like this happening again. The major takeaway, of course, was to be more attuned to the fickle nature of arcade players, but there was another lesson here as well. Part of the problem with Radarscope could be attributed to the long shipping time (about four months) and the high cost of transporting the arcade cabinets. One way to cut back on both was to find an office closer to Japan, which prompted Arakawa to move Nintendo of America from New York to a warehouse with three small offices located at Seattle’s Segali Business Park.
Shortly after the cross-country move, shipments containing the code for Miyamoto’s new game began to arrive. Due to last-minute negotiation issues with King Features, Nintendo had lost the rights to Popeye, which forced Miyamoto to come up with something else. As a result, Arakawa, Stone, Judy, and a handful of warehouse employees didn’t know what to expect. They inserted the new processor into one of the thousands of unsold Radarscope machines and then watched the lights flicker as the words “Donkey Kong” came to life on the arcade screen. The initial impression was that this was a silly game with an even sillier name. Who would possibly want to play a game where a tiny red plumber must rescue his beloved princess by hopping over obstacles tossed in his way by an obese gorilla? Yet, with no remaining options, Stone and Judy set out across the country to sell this wacky thing called Donkey Kong.
Seemingly overnight, it turned into the hottest game of the year, and eventually it became the most popular arcade game of all time. Never before had there been a quarter magnet quite like Donkey Kong. It was so successful, in fact, that it eventually attracted the attention of a major Hollywood studio, whose high-priced legal team believed that the game violated copyrights, and they threatened to crush Nintendo. To avoid this potentially crippling blow, Arakawa turned to the only lawyer he knew in Seattle: Howard Lincoln, an elegant, imposing former naval attorney with the claim to fame of having modeled for Norman Rockwell’s painting The Scoutmaster when he was a child.
4. Lincoln
Lincoln had first crossed paths with Arakawa about one year earlier when his clients Al Stone and Ron Judy needed him to review their contract with Nintendo of America. After that, Lincoln slowly but surely took on the role of Arakawa’s consigliore, weighing in on any matter with legal ramifications, which in corporate America was just about everything. As Nintendo of America grew, Lincoln drew up new employment agreements (Stone became NOA’s VP of sales and Judy NOA’s VP of marketing), looked at various business deals (Arakawa was interested in buying the franchise rights to Chuck E. Cheese Pizza Time Theater), and handled some tough matters (like siccing the U.S. marshals on bootleggers to take down rings of Donkey Kong counterfeiters). Through it all, Lincoln and Arakawa had forged an unshakable lifelong friendship. Which is why Lincoln was the first person Arakawa contacted when, in April 1982, MCA Universal sent a telex to NCL explaining that Nintendo had forty-eight hours to hand over all profits from Donkey Kong due to the game’s copyright infringement on their 1933 classic movie King Kong.
To sort this out, Lincoln and Arakawa flew out to Los Angeles for a meeting with the movie studio. It didn’t take long for them to realize that this was a high-stakes shakedown. Though never explicit, Universal’s ultimatum was simple: Settle this, or we’ll make life at tiny Nintendo so difficult that the company will have to fold. With Nintendo’s fate once again on the line, the prudent thing to do was pay the ransom. But Lincoln believed he could win this thing—and not just win, but actually get Universal to pay damages to Nintendo. It was a risky call, but Arakawa was forever willing to gamble on Howard Lincoln. As a result, they decided to take on the movie moguls at MCA Universal and, in true Nintendo spirit, leave luck to heaven (and Howard).
As a trial neared, Universal didn’t just go after Nintendo but also went after those who had licensed the game. Unlike Nintendo, however, these licensees (Atari, Coleco, and Ruby-Spears) weren’t willing to take the same gamble, and all opted for settlement. Even with these threats plus a barrage of cease-and-desist letters from Universal, Lincoln remained confident. Part of this was personality, but a larger part was the ace tucked away up his sleeve: in all of his research, there didn’t appear to be a single document indicating that Universal had trademarked King Kong. There was no doubt, of course, that they had made the movie, but Lincoln believed that they had failed to take the necessary measures to own what they thought they owned, and that the famous gorilla belonged to public domain. And in early 1983, when both parties revealed their cards, Judge Robert W. Sweet sided with Nintendo. He concluded that they had not infringed and, as Lincoln had predicted earlier, he awarded Nintendo over $1 million in legal fees and damages.
The Donkey Kong fiasco-turned-feat caused many ripples, but three waves in particular were instrumental in creating the eventual tsunami that would be Nintendo. First, Lincoln became NOA’s senior vice president, officially making him the ying to Arakawa’s yang. Second these events foreshadowed an aggressive, litigious nature that many would say later defined the company. And third, the verdict kept the Donkey Kong cash flowing, which provided Nintendo with a war chest of funds at what would soon prove to be a very crucial time.
5. Borofsky and Associates
By the early 1980s, the videogame bonanza had become so lucrative that everyone wanted in on the action. This included companies that had no business entering the market (like Purina, whose Chase the Chuck Wagon was designed to help promote their Chuck Wagon brand of dog food), companies that didn’t quite understand the market (like Dunhill Electronics, whose Tax Avoiders allowed players to jockey past a maze of evil accountants and onerous IRS agents), and lowbrow companies that set out to polarize the market (like Mystique, whose flair for pornographic titles was highlighted by their 1982 anticlassic Custer’s Revenge, which follows a naked cowboy on his quest to rape Native American women). With games like these becoming more and more common, the marketplace was overrun by a glut of smut, muck, and mediocrity.
What once was hot now was cold, and just like that, the North American videogame industry ground to a halt. Hardware companies (like Atari) went bankrupt, software companies (like Sega) were sold for pennies on the dollar, and retailers (like Sears) vowed never to make the same mistake again. Meanwhile, as the gods of this golden age were thrown overboard, Nintendo quietly glided through the bloody waters on a gorilla-shaped raft. The continuing cash flow from Donkey Kong enabled Arakawa, Stone, Judy, and Lincoln to dream of a new world order, one where NOA miraculously resurrected the industry and Nintendo reigned supreme. Not now, perhaps, but one day soon.
In Japan, however, that time had already come. Yamauchi’s large investment in R&D had paid off once again, this time resulting in the Family Computer. The Famicom, as it was commonly called, was an 8-bit console that stood head and shoulders above anything that had ever come before. Since Japan’s conservative markets had avoided any sort of gaming crash, the Famicom was released in July 1983 along with three games: Donkey Kong, Donkey Kong Jr., and Popeye, which Miyamoto ended up designing after licensing negotiations got back on track. The Famicom stumbled out of the gate but was soon rescued by heavy advertising and the release that September of Super Mario Bros. (another Miyamoto brainchild). Things looked promising until it was discovered that some consoles contained a bad chip set, causing certain games to freeze. Instead of simply issuing fixes to customers with faulty systems, Nintendo issued a full product recall. Tens of millions of dollars were lost due to this approach, but Yamauchi believed it was a small price to pay to retain a peerless, quality-centric reputation. His gamble paid off, and soon Nintendo’s factory couldn’t keep up with the demand.
As sales soared to staggering heights, Yamauchi pressured his son-in-law to introduce the Famicom in America. Arakawa resisted, exercising patience. The U.S. market was still licking its wounds from the videogame crash, and releasing the right console at the wrong time would be a recipe for disaster. For this reason, he continued to rebuff the suggestion until 1984, when he was finally willing to consider the notion—but only if the console Nintendo of America sold looked nothing like a console at all.
This wolf-in-sheep’s-clothing logic led to the Advanced Video System (AVS). Though the guts of this machine were nearly identical to the Famicom’s, the AVS hardly resembled its foreign relative. Functionally, it came with a computer keyboard, a musical keyboard, and a cassette recorder; aesthetically, it was slim and sleek, with a subdued gray coloring that contrasted sharply with the Famicom’s peppy red and white palette. Nintendo’s AVS, the nonconsole console, was first introduced at the 1984 Winter Consumer Electronics Show, where it was accompanied by a brochure that proclaimed, “The evolution of a species is now complete.” Of the thousands of companies there who had rented booths to showcase upcoming products, Nintendo was the only one who wasn’t trying to sell theirs. Arakawa simply wanted to gauge the market reaction, which was as distressing as he had feared: nothing but scoffs, sighs, and sob stories. Nobody there wanted anything to do with Nintendo, except for a tanned man with piercing blue eyes who stared at the Advanced Video System as if it were the legendary sword in the stone. He then introduced himself with an understated sureness that would have made even King Arthur jealous. His name was Sam Borofsky.
Borofsky ran Sam Borofsky Associates, a marketing and sales representative firm based in Manhattan. The purpose of such a firm is, essentially, to serve as the go-between for suppliers and retailers, with the logic being that the commission they take is offset by the additional opportunities they create. And when it came to doing that for consumer electronics, Sam Borofsky Associates was one of the best in the business. Back in the late seventies, they became one of the first firms to represent videogames, and at the height of the boom they had been responsible for over 30 percent of Atari’s sales. If Nintendo of America ever wanted retailers to reopen their doors, then these were the guys who ought to do the knocking. From Borofsky’s end, the attraction was equally strong. Ever since Atari had imploded, he’d been scouring the country in search of the next big thing, and as he reviewed what Nintendo had to offer, he believed he had found it.
Arakawa, however, still needed convincing, which Borofsky was happy to provide. He spent months detailing Atari’s pitfalls (like oversaturation), coming up with solutions for those problems (always, no matter what, underdeliver on orders), and outlining plans for a proposed launch. Meanwhile, Nintendo of America put another new costume on the Famicom, this time dressing it up as an all-in-one entertainment center for kids. The result of the rebranding effort was a clunky gray lunchbox-like contraption and, along with that, a new lexicon to differentiate it from its predecessors: cartridges were now dubbed Game Paks, the hardware was dubbed the Control Deck, and the entire videogame console was rechristened the Nintendo Entertainment System (NES). And to round out the renovation, the NES came with a pair of groundbreaking peripherals: a slick light-zapper gun and an amiable interactive robot named R.O.B.
With all the pieces in place, Borofsky finally persuaded Arakawa that now was the time to strike and that he was the man to lead the charge. Upon receiving the green light, Borofsky begged, pleaded, and haggled with retailers all over New York. From Crazy Eddie and The Wiz to Macy’s and Gimbels, he reached out to them all. If and when a retailer was finally willing to consider Nintendo, Borofsky would head over there with his trusted associate Randy Peretzman, the man with the twenty-six-inch suitcase. Peretzman was Borofsky’s VP of sales, a gritty but graceful Bronx-born salesman who operated with an unwavering tell-it-how-it-is attitude. As the go-to guy for demonstrations and presentations, he was entrusted with Nintendo of America’s first prototype of the NES, which he gently packed into the soft foam cutouts of a twenty-six-inch hard-sided gray suitcase. With the suitcase in hand, he would pinball around the city visiting distrustful retailers, intent upon proving that his luggage would trump their baggage.
Eventually Peretzman, Borofsky, and his tireless associates persuaded retailers to gamble on Nintendo and to stock the NES in time for the coveted Christmas season. The orders came in dribs and drabs at first, but by late 1985 the numbers were slowly beginning to add up. Then it was time for Nintendo’s ultimate test: the product launch. If things went well, the NES would be rolled out nationwide the following year. But if things went poorly, then Nintendo of America would forget about consoles once and for all.
6. The Bruces
As the test launch approached, things did not look promising. Focus groups suggested that the NES would be a colossal flop, R.O.B. kept malfunctioning during Peretzman’s pitches, and the press showed no interest in covering Nintendo (leading one employee to suggest a publicity stunt that involved throwing a fleet of R.O.B.’s off the Brooklyn Bridge). Arakawa, however, remained undeterred. He temporarily relocated a handful of employees to the East Coast after leasing a warehouse in Hackensack, New Jersey, where Nintendo could house inventory, build in-store displays, and, most important, resemble a legitimate company to still-skeptical retailers. To keep tabs on the progress, Ron Judy made frequent visits to New York, often accompanied by Bruce Lowry, NOA’s bright and blustery VP of sales. After making a name for himself at Pioneer Electronics, Lowry had joined NOA in April 1981 to launch a new consumer division. Though arcade games were and would be Nintendo’s bread and butter, Arakawa wanted to supplement that income with Game & Watch, a line of wallet-sized handheld games that played on tiny LCD screens. Unlike the electronics Lowry had sold at Pioneer, the Game & Watch titles were targeted at children, which prompted Lowry to become familiar with the toy industry. Because of his entrée into that world and his understanding of its nuances (such as the fact that regardless of when toy buyers ordered products, they didn’t have to pay until December 10 of that year), Lowry was occasionally able to help Borofsky persuade the big toy chains. At the top of their wish list was Toys “R” Us, whose eventual decision to stock the NES provided Nintendo with much-needed momentum going into the launch.
On the morning of the big day, the Nintendo of America team gathered at FAO Schwarz, where Nintendo had paid for an elaborate window display and an attractive floor space that featured a small mountain of televisions with game footage playing. The moment of truth had finally arrived, and within moments of the store’s opening an excited customer eagerly approached the display, grabbing an NES and all fifteen of its games. The NOA team looked on, watching everything they had been working toward so suddenly come to fruition. It was a dream come true—until they were snapped back to reality upon learning that Customer #1 was actually just a competitor doing his due diligence. Nevertheless, that invincible feeling would soon come again, many times over.
That Christmas, the NES was available in over five hundred stores. Though no staggering success, Nintendo managed to sell half of the 100,000 units they’d stocked in stores, which effectively proved to the world that the videogame industry was not dead but had simply been hibernating. Nintendo of America was so overcome by the results that Lincoln paid Borofsky the ultimate compliment: For what you’ve done for Nintendo, you will be with us forever unless you commit a crime or we go out of business. Borofsky let this sink in, and then prepared to roll out the NES nationwide. Next up: Los Angeles. But that’s when things got complicated.
With Nintendo expanding, the company wanted to beef up its sales force and hire a handful of regional sales managers. Because New York was the center of the toy universe, the East Coast would be the most important region. Naturally, Nintendo wanted Sam Borofsky to take the role and come in-house, following in the footsteps of Stone, Judy, and Lincoln. Borofsky, however, wished to remain independent; he didn’t want to restrict himself to representing a single region or company. This came as no big surprise, but Nintendo still wanted someone who could handle the task, so they targeted Peretzman, who gladly accepted the opportunity. Borofsky understood Peretzman’s decision to leave his company for NOA, but it led to an awkward situation in which his former employee was now his client. The situation became even more tenuous when Arakawa hired Worlds of Wonder, the toymaker famous for Teddy Ruxpin and Lazer Tag, to launch the NES around the country. Borofsky was under the assumption that after New York his firm would get the full business, but Arakawa had interpreted the relationship differently. Feeling bad about the misunderstanding and trying to mend fences, Arakawa gave Borofsky much of the tri-state area. Though the situation was not ideal, this compromise was enough to satisfy both parties and prevent anyone from jumping ship.
The same could not be said, however, about Bruce Lowry. The spotlight of success in New York caught the attention of other Japanese videogame companies with an interest in following Nintendo’s lead. One of these would-be competitors was Sega, who had just released their own console on the heels of the Famicom’s success. After Nintendo had shown that the videogame market was still viable in America, Sega hired away Lowry to launch their 8-bit Master System and go head-to-head with the NES. To replace Lowry, NOA brought in a new Bruce, one they believed to be of equal or greater value: Bruce Donaldson.
Donaldson was a relentlessly affable former Mattel electronics VP who immediately provided a sage-like certainty and serenity to a young company that had been learning by trial and error. Having survived the boom and bust of the Atari age, he reveled in the chance to do it all again, but he vowed to get it right this time. He arrived at Nintendo in early 1986, when the company was enduring a fair amount of growing pains.
The New York launch had been a success and everyone agreed that expansion was in order, but the where, when, and how of pulling it off were constantly in flux. Originally the plan had been to leave New York and conduct similar “tests” in Los Angeles, San Francisco, and Chicago. The problem, however, was that some of the New York retailers (Toys “R” Us in particular) wanted to go nationwide right away. This was fantastic news, except that Nintendo didn’t have enough units to supply all their stores. As a compromise, Nintendo and Toys “R” Us settled on seven regions, but this new equation quickly became unbalanced when transporting the units to those specific regions got needlessly complicated. Situations like this caused political unrest among retailers, who viewed Nintendo as playing favorites. To compound matters, as NOA was tinkering with expansion at home, they were simultaneously looking abroad. Al Stone moved to Germany and initiated plans for European expansion; meanwhile, Ron Judy was beginning to lose his entrepreneurial itch and wasn’t sure if he should move to Germany as well or quit the videogame industry entirely. And to make everything more complicated, Nintendo now had competition on the horizon (like Lowry’s Sega) at a time when they were still fending off the ghost of Atari. Donaldson tried to fill in where he could, but as the company grew, so did the gaps (in personnel, logistics, marketing, etc.).
Heading into 1987, what NOA really needed was someone to ensure that at the end of this roller-coaster ride, Nintendo would wind up on top. Someone to prove that the NES was more than just this year’s Christmas fad. Someone who could exploit the potential for expansion and transform Nintendo from a niche sensation into a global juggernaut.
7. Main
That someone turned out to be Peter Main, though at the time he was dealing with matters much more pressing than corporate expansion: beef dip sandwiches and garlic butter buns. As the president of White Spot, a Canadian fast-food chain, Main was used to eating, sleeping, and breathing burgers, but in the summer of 1985 his mind went into overdrive when an outbreak of botulism swept through Vancouver. Health officials alleged that improper refrigeration of garlic oil concentrate was the likely cause and that Main’s restaurants were responsible for the epidemic. Following this horrifying news, he spent much of the next year doing damage control, ensuring that the issue had been resolved and defending the integrity of his beef dip sandwich. When the public outcry finally died down and White Spot’s reputation was restored, he stepped down from his post and took a long vacation to decide what he’d like to do next. That’s when Arakawa called and asked Main to join Nintendo of America.
Before Peter Main and Minoru Arakawa were ever colleagues they were friends, and before that they were neighbors, back when Main marketed toothpaste at Colgate and Arakawa sold real estate for Marubeni. They first met in 1977 when the Arakawas moved in next door to the Mains. For years Main had wanted the previous tenant to cut down a tree that was obstructing his view, but the owner had declined, so as soon as Arakawa unpacked, Main seized the opportunity to convince his new neighbor that the tree must come down. They were friends from that point on, and ever since Arakawa had left Vancouver to start NOA, he had been trying to recruit Main, claiming that if Main could persuade him to chop down the tree, then surely he could convince kids around the country to play videogames.
For years Main had declined these job offers. Videogames were a far cry from hamburgers, and a part of him feared that despite being a big fish in Canada, he might flounder in America’s big pond. But even though he turned down Arakawa, he often provided friendly advice on Nintendo of America’s strange yet profitable forays into the restaurant business (Arakawa had gone ahead and bought the British Columbia franchise rights to Chuck E. Cheese as well as a pair of seafood bistros in Vancouver). Main’s expertise as a restauranteur only fueled Arakawa’s desire to rope him in, but time after time Main declined the overtures—until that fateful call in late 1986. This time Main was open to a major life change, and it didn’t hurt that Ron Judy was planning to relocate to Europe, which would effectively make Main NOA’s number three. It seemed like a good opportunity, but there was still a lot that could go wrong, so Main decided to leave the decision to luck. For the holidays, he and his wife were headed to Asia for a much-needed vacation. Just before the trip, Main told Arakawa that if the U.S. embassy approved his application for an H1-B visa to work in the United States, then he would head to Nintendo; if not, then he would open a restaurant of his own in Canada. With the odds of securing such a visa being only about 10 percent, Main didn’t expect to be hocking cartridges anytime soon. But on the second night of his trip, Arakawa and Lincoln called his hotel room in Hong Kong and happily announced that the visa had been approved. And so in April 1987, Peter Main became Nintendo of America’s VP of marketing and sales.
Though Main lacked any videogame experience, his outsider mentality allowed him to look at the business not as an offshoot of the toy, arcade, or electronics industry but as something novel and spectacular. To spread this new gospel, he choreographed what he would later describe as Nintendo’s “storming of Normandy,” a full-out advertising, promotion, and distribution blitz that accompanied the rollout of the NES into stores nationwide. Meanwhile, Main provided a trustworthy-looking corporate (and Caucasian) face to a company that many in the outside world still viewed as nothing more than a foreign curiosity. Changing people’s perceptions of both videogames and Japanese business presented a variety of challenges, but Main always found a way, because above all else he was an expert charmer. And that charm, that talent for cultivating friendships, gained the company credibility with Wall Street, trust from retailers, and respect from parents wanting to know what they were buying.
Month after month, Nintendo of America grew stronger. They sold 2.3 million consoles in 1987 and 6.1 million in 1988. As staggering as these numbers were, sales of the hardware were nothing compared to the software: the company unloaded 10 million games in 1987, and 33 million more in 1988. With numbers like these, it didn’t take Main long to realize that, at the end of the day, it was the software that drove the hardware; the console was just the movie theater, but it was the movies that kept people coming back for more. This personal revelation led to a Hollywood-like title-driven business strategy, and his coining of the phrase “the name of the game is the game.”
Main’s approach to sales and marketing coincided with Arakawa’s overarching philosophy of “quality over quantity.” As Nintendo exploded, there were plenty of opportunities to make a quick buck (hardware upgrades, unnecessary peripherals), exploit the company’s beloved characters (movies, theme parks), or dilute the brand by trying attract an audience older than Nintendo’s six-to-fourteen-year-olds. But these kinds of things didn’t interest Arakawa. He wasn’t driven by making money, at least not in the short term. What propelled him, what kept him up at night, was a desire to continually provide Nintendo’s customers with a unique and flawless user experience. As proof of this never-ending obsession, he set up a toll-free telephone line where Nintendo “Game Counselors” were available all day to help players get through difficult levels, and he initiated the Nintendo Fun Club, which sent a free newsletter to any customer who had sent in a warranty card. Both programs were very costly and could have been offset by charging small fees or obtaining sponsorship, but Arakawa believed that doing so would compromise Nintendo’s mission. And to further safeguard Nintendo from the dangers of impurity, he and his team put into place a series of controversial measures:
1. The Nintendo Seal of Quality: Ron Judy had the novel idea of mandating that all games pass a stringent series of tests to be deemed Nintendo-worthy, ensuring high-caliber product and making software developers beholden to Nintendo’s approval.
2. Third-party licensing program: Howard Lincoln’s strict licensing agreement enabled software designers to make games for the NES but restricted the quantity they could make (five titles per year), required full payment up front (months before revenue from a game would be seen), and charged a hefty royalty (around 10 percent). In addition to these stringent terms, all game makers needed to purchase their cartridges directly from Nintendo. This ensured peerless quality but also allowed NOA to dictate price, schedule, and production allocation, which became a particularly touchy matter during the notorious microchip shortage in May 1988.
3. Inventory management: Heeding Sam Borofsky’s suggestion, Peter Main devised an incredibly rigid distribution strategy that purposefully provided licensees and retailers with only a fraction of the products they requested. The goal of this technique was twofold: to create a frenzy for whatever products were available, and to protect overeager industry players from themselves.
Though NOA’s methods drew ire from retailers, anger from software developers, and eventually allegations of antitrust violations from the U.S. government, there was no denying that whatever Nintendo was doing was working—so well, in fact, that Peter Main needed additional reinforcements as he inflicted Nintendo-mania on his adopted homeland.
8. Nintendo Power
Help came in the form of Bill White, a straitlaced marketing whiz whose smallish eyes and oversized, round-rimmed glasses emitted an eternally boyish vibe. Though he was only thirty years old (and, after a haircut, could have passed for thirteen), he spoke about brand recognition, market analysis, and strategic alliances with the expertise of someone twice his age. Part of that precocious nature was due to an almost religious belief in the power of marketing, part was due to his father’s history as a Madison Avenue ad man, and part was due to a chronic insecurity that could only be quieted by winning at everything he did. Peter Main saw the potential in White and hired him in April 1988 to become Nintendo’s first director of advertising and public relations.
When White joined NOA, the marketing department consisted of just three people: himself, Main, and Gail Tilden, an exceptionally smart brunette with an encyclopedic memory. The lack of manpower forced White to wear many hats (commercial producer, press secretary, Peter Main’s whipping boy), but his most important responsibility was to forge corporate partnerships. Though Nintendo continued the take the videogame world by storm, the rest of the world still didn’t know what a Nintendo was. To build the brand, White courted Fortune 500 companies, resulting in pivotal promotions, like Pepsi placing a Nintendo ad on over 2 billion cans of soda and Tide featuring Mario on the detergent maker’s giant in-store displays. His coup came with the release of Super Mario 3, when he negotiated for McDonald’s to not only make a Mario-themed Happy Meal but also produce a series of commercials centered around the game. By virtue of his efforts, White became Main’s right-hand man, something of a protégé. But as Main fed White’s ambitions and the young marketer swallowed up more and more responsibility, this left Tilden, the other member of the marketing equation, with less and less to do. This displeased Arakawa, who set out to find a better way to utilize one of NOA’s most dynamic employees.
If Bill White wore many hats, then Gail Tilden owned the hat shop. Tilden had joined the company in July 1983, back when the videogame fad was supposed to be on its very last legs. As Nintendo of America’s ad manager, working under Ron Judy and Bruce Lowry, she had to find new and exciting ways to promote Nintendo’s latest arcade games. Her creativity, resourcefulness, and nothing-is-beneath-me attitude impressed Arakawa, who later entrusted her to handle the marketing for New York’s test launch. She spent the summer living in the city, hiring an ad agency, picking a PR firm, and introducing the paradigm-shifting “Now You’re Playing with Power” campaign with Nintendo’s very first commercials. After shepherding the company through its formative years, she was disheartened to see her voice diminished, but didn’t see any logical way to raise the volume back up. So when she became pregnant with her first child in 1987, she began to consider converting her maternity leave into a permanent one. Arakawa, however, didn’t want to see her go. He had seen what Tilden could do and how quickly she could do it. But as much as she appreciated his desire to keep her there, the situation was what it was, and it wasn’t likely to change. Nevertheless, Arakawa continued to brainstorm after her departure, and a couple of months later finally found a solution.
Tilden was at home, nursing her six-week-old son, when Arakawa called and asked her to come into the office the next day for an important meeting. She was caught off guard but knew that Arakawa was not the kind of man to ever waste anyone’s time, so the following day she and the baby headed to NOA headquarters. After dropping off her son with some trusted coworkers, she went into a meeting with Arakawa and some Japanese colleagues from NCL in which they discussed the possibility of expanding the Nintendo Fun Club’s newsletter into something bigger. By 1988, the Nintendo Fun Club had over a million members receiving the monthly newsletter, and the company needed to hire over five hundred Game Counselors just to keep up with the more than 150,000 calls per week. The appetite for Nintendo tips, hints, and supplemental information was insatiable, so Arakawa decided that a full-length magazine would be a better way to deliver exactly what his players wanted.
Tilden was put in charge of bringing this idea to life. She didn’t know much about creating, launching, and distributing a magazine, but, as with everything that had come before, she would figure it out. What she was unlikely to figure out, however, was how to become an inside-and-out expert on Nintendo’s games. She played, yes, but she couldn’t close her eyes and tell you which bush to burn in The Legend of Zelda or King Hippo’s fatal flaw in Mike Tyson’s Punch-Out!! For this kind of intel, there was no one better than Nintendo’s resident expert gamer, Howard Phillips, an always-smiling, freckle-faced videogame prodigy.
Technically, Phillips was NOA’s warehouse manager. He had held that job since February 1981, but along the way he revealed a preternatural talent for playing, testing, and evaluating games. After earning Arakawa’s trust as a tastemaker, he would scour the arcade scene and write detailed assessments that would go to Japan. Sometimes his advice was implemented, sometimes it was ignored, but in the best-case scenarios he would find something hot, such as the 1982 hit Joust, alert Japan’s R&D to it, and watch it result in a similar Nintendo title—in this case a 1983 Joust-like game called Mario Bros. As Nintendo grew, Phillips’s ill-defined role continued to expand, though he continued to remain the warehouse manager. That all changed, however, when he was selected to be the lieutenant for Tilden’s new endeavor.
To name something is to make it real, so ideas for the magazine’s title were immediately tossed around. The leading candidate was Power Player (inspired by the “Now You’re Playing with Power” slogan), but that trademark had already been taken, and besides, Arakawa wanted the name Nintendo to be used. The brainstorming continued—Nintendo Now? Or maybe Playing with Nintendo?—until they finally settled on one that felt just right: Nintendo Power. From there, Tilden and Phillips began generating column ideas, and coming up with sections such as “Pak Watch” (which provided previews of upcoming games) and “Classified Information” (which revealed top-secret tips, tricks, and codes). They were pleased with what this was turning into, but agreed that something was missing: a more direct way to connect with their players, a way that said, We may be making a magazine, but we love these games as much as you do. They couldn’t quite figure out how to accomplish this yet, but they didn’t have time to chase their tails. They needed to keep moving and define the look, layout, and feel of Nintendo Power. To do so, they flew out to Japan and met with Work House, a small design company in Tokyo, who could help create a cross-cultural aesthetic that would please the parent company and appeal to kids from every country in the world.
Unsurprisingly, it was no cinch to sync up the cultural stylings of East and West. Work House liked ostentatious headlines, but Tilden liked understated. She wanted bright, sunny layouts, but they preferred pale, cloudy ones. It was hard to find common ground, but Tilden wouldn’t relent. This wasn’t about ego; it was about giving kids a reason to run to their mailbox each month and hide a flashlight under the bed so they could stay up late reading under the covers. To defuse the growing tension, Phillips jokingly suggested that it was no use arguing with Tilden because she was NOA’s “dragon lady.” His quip failed to lighten the mood at the time, but the nickname for Tilden stuck.
As Phillips was hard at work playing through games in order to rate them for the magazine, the Dragon Lady was struck by the fact that in a way, Phillips played videogames for a living. That was every child’s fantasy, wasn’t it? At that point she realized that Phillips was the key to building a bridge between Nintendo and its players. She approached Phillips with this vision, leading them to the creation of a comic strip called “Howard & Nester,” which featured a professorial version of Howard Phillips finding subtle ways to give game hints to Nester, a kid who needed advice but was too much of a know-it-all to ever ask. After fleshing it out, they loved the comic idea but felt it was still missing one thing. The two-dimensional Phillips character needed a telltale trait, something iconic like Superman’s S or Popeye’s pipe. The answer turned out to be rather easy. At the request of his wife, Phillips always wore a bow tie on special occasions, so it was decided that cartoon Howard would always wear one as well.
In July 1988, Nintendo of America shipped out the first issue of Nintendo Power to the 3.4 million members of the Nintendo Fun Club. Over 30 percent of the recipients immediately bought an annual subscription, marking the fastest that a magazine had ever reached one million paid subscribers. And as the magazine’s audience grew, so did the influence of Howard Phillips. If Nintendo Power gave kids a chance to step inside the candy factory, then he was their Willy Wonka, magically and eccentrically showing them how the sweets were made. Though Mario was Nintendo’s mascot, Phillips became the face of Nintendo. Peter Main took advantage of this, sending Phillips all over the country for press events and on-camera interviews. This miffed Bill White, who had been working so hard to present Nintendo as a royal kingdom, not the Magic Kingdom. After all, it was Michael Eisner who did Disney’s press interviews, not someone in a Mickey Mouse costume. It wasn’t that White wanted to stop exploiting Phillips—the guy was pure gold—but they needed some way to present him as Nintendo’s jester and not as the king. Main agreed, and found an elegant solution by turning to the beer industry. Ever since producing its first ale in 1759, Guinness has always appointed a spokesman called the Master of Brew, who supposedly inspects all aspects of the brewing process, from the purchase of barley to the experimental work conducted in the brewery’s lab. Following in that tradition, Main appointed Phillips Nintendo’s first Game Master. Shortly thereafter, Howard Phillips became a national celebrity, boasting a Q score higher than Madonna, Pee-wee Herman, and the Incredible Hulk.
The rise of the Game Master was just the latest sign of Nintendo’s unprecedented success. By 1990, Nintendo of America had sold nearly thirty million consoles, resulting in an NES in one out of every three homes. Videogames were now a $5 billion industry, and Nintendo owned at least 90 percent of that. The numbers were astounding, but Nintendo’s triumph went beyond that. Arakawa had proven that he was more than just the son-in-law, Lincoln had proven that he could take on anyone, and Main had proven that he could swim with the sharks.
Although Arakawa, Lincoln, and Main were at the top of the ladder, the unlikely triumph of NOA was a team effort from top to bottom. There was John Sakaley, the wild and crazy renegade who fought for every inch of retail space as if his life depended on it. He pioneered the industry’s first store-within-a-store by transforming ordinary retail spaces into magical, snow globe-like areas called the World of Nintendo. So mesmerizing were these interactive displays that kids couldn’t help but fantasize about accidentally getting locked in these stores overnight and staying awake to play Nintendo’s games. Sakaley also developed the Nintendo Fun Center, a mobile entertainment gaming kiosk that was popular with patients in childrens’ hospitals.
Then there was Don Coyner, the man behind Nintendo’s happy-go-lucky, game-footage-fueled commercials. Previously he had been an account director at Foote, Cone & Belding, where he created the famous slogan for Kraft’s macaroni and cheese, “It’s the Cheesiest!” He brought that same gift for innocent, well-crafted cheesiness to Nintendo, overseeing dozens of commercials for games like Dr. Mario and Metroid, as well as other products like Game Boy and the Power Pad.
There was also Lance Barr, who designed the iconic look of the NES and the feel of its heaven-in-your-hands controllers, and Don James, the product development guru who helped Barr with the design. (James, along with Arakawa, also named Nintendo’s pixelated plumber, Mario, after Mario Segale, the company’s mysterious landlord whom nobody had ever met.) There were hundreds of others at NOA whose unseen efforts backstage helped define and then refine the Nintendo experience.
Together, they had single-handedly resurrected an industry. And they did it all with only 8 bits. Imagine what they could do with 16 . . .