Nintendo I (1889-1989)
The lovable Nintendo that we know today is a 130 year-old a playing card company (i.e. gambling), forged in the shadowy world of the Yakuza forged by a four-generation cycle of bitter betrayal.
You may think you know the Nintendo story: a plumber named Mario, a princess named Zelda… and didn’t they buy the Seattle Mariners at some point? Ben and David thought they knew it too. And then they started researching and were blown away.
The lovable Disney-like Nintendo that we know today is a 130 year-old a playing card company (i.e. gambling), forged in the shadowy world of the Yakuza and shaped by a four-generation cycle of bitter family betrayal. And its unlikely transformation into a global multi-billion dollar media monopoly was led by an iron-fisted patriarch who — amazingly — never played a video game in his life! Get ready for one of their favorite stories Acquired has ever told — we couldn’t make this one up if we tried.
Kyle’s Review - 9/10
You gotta love any episode that starts in 1889, tracing Nintendo's incredible journey from Yakuza-linked playing cards to global gaming dominance through fascinating family drama and strategic brilliance. The deep dive into Nintendo's US market entry and Hiroshi Yamauchi's vision (despite never playing a video game himself) makes this one of Acquired's most compelling business transformation stories. This may be the first company on the show to hit all 7 of Hamilton Helmer's powers, making it both an entertaining listen and a masterclass in building an unbreakable moat.
Company Overview
Company Name: Nintendo
Founding Year: 1889
Headquarters Location: Kyoto, Japan
Core Business and Significance: Nintendo, initially a playing card manufacturer, became a global video game leader with iconic franchises like Mario and the innovative NES, transforming gaming into a mainstream cultural phenomenon through high-quality games and ecosystem control.
Timeline
1889: Fusajiro Yamauchi founds Nintendo in Kyoto, producing Hanafuda cards for gambling parlors.
1927: Hiroshi Yamauchi, the first male heir in three generations, is born to Shikanojo Inaba and Kimi Yamauchi.
1932: Shikanojo abandons the family; Hiroshi is adopted by grandparents Sekiryo and his wife.
1948: Sekiryo suffers a stroke; 21-year-old Hiroshi takes over Nintendo from law school.
1949: Sekiryo dies; Hiroshi purges all managers, consolidating control.
1959: Nintendo licenses Walt Disney characters for playing cards, entering the kids’ toy market.
1970: Gunpei Yokoi’s Ultra Hand sells 1.2 million units, shifting Nintendo to novelty toys.
1975: Nintendo licenses the Magnavox Odyssey, distributing it in Japan.
1976: The Color TV-Game 6, an Odyssey knockoff, sells 1 million units in Japan.
1977: The Color TV-Game 15 launches, selling 1 million units; Nintendo begins Famicom R&D.
1980: Minoru Arakawa establishes Nintendo of America in New York for U.S. distribution.
1981: Shigeru Miyamoto creates Donkey Kong for unsold Radar Scope cabinets, introducing Jumpman (Mario).
1983: The Famicom launches in Japan (July 15), selling 500,000 units despite a motherboard recall.
1985: The NES launches in the U.S. (New York test market), selling 50,000 units.
1986: NES expands to more U.S. metros, selling 1 million units and 10 million game packs.
1987: NES goes nationwide in the U.S., selling 3 million units.
1988: Nintendo sells 7 million NES units and 33 million game packs in the U.S. (~$1 billion console revenue, $1.5 billion software revenue).
1989–1990: Nintendo sells ~10 million NES units annually in the U.S., reaching 30 million households (1/3 of 90 million U.S. households); achieves 95% global market share.
Narrative
Nintendo’s journey is a tale of reinvention and strategic brilliance, transforming a Yakuza-linked playing card company into a global video game juggernaut. The episode celebrates Nintendo’s improbable rise, driven by Hiroshi Yamauchi’s vision, Shigeru Miyamoto’s creative genius, and Nintendo of America’s bold innovations. Spanning 1889 to 1990, the narrative unfolds in three phases: origins in gambling, a pivot to toys and early video games, and dominance via the Famicom/NES, reviving a collapsed industry.
Founded in 1889 by Fusajiro Yamauchi, Nintendo capitalized on the Meiji Restoration’s legalization of playing cards, supplying Hanafuda cards to Yakuza-run gambling parlors. This “shadowy” origin, as Ben and David note, contrasts with Nintendo’s later Disney-like image. Fusajiro’s success relied on the Yakuza’s need for fresh decks, building a distribution network that later proved critical. Family dynamics shaped the company: Fusajiro adopted Sekiryo Kaneda, who adopted Shikanojo Inaba. Shikanojo’s 1932 abandonment left Hiroshi Yamauchi orphaned, adopted by Sekiryo. In 1948, a 21-year-old Hiroshi took over after Sekiryo’s stroke, purging loyalists in 1949 to assert control, a move Ben and David describe as “burning the company to the ground” to make it his own.
The 1950s–1970s saw Nintendo pivot to toys, catalyzed by a 1959 Disney licensing deal for playing cards. This opened the kids’ market, giving Nintendo leverage over retailers to carry its branded toys. Gunpei Yokoi’s Ultra Hand (1970) sold 1.2 million units, cementing Nintendo’s toy focus. Ventures like bowling alleys and light gun ranges led to a Magnavox partnership, introducing Nintendo to video games via the Odyssey (1975) and Color TV-Game series (1976–1977), which sold 2 million units. These experiments, though sometimes “haphazard,” allowed Nintendo to learn from the U.S. market’s boom and crash, setting the stage for its video game strategy.
The Famicom (1983) and NES (1985) marked Nintendo’s ascent, as Ben and David narrate with excitement. Hiroshi’s long-term vision to build a programmable console, leveraging Moore’s Law and a Picture Processing Unit (PPU), produced a device years ahead of rivals like the Atari 2600, yet affordable at ~$110–$120. Miyamoto’s Donkey Kong (1981) and Super Mario Brothers (1985) introduced narrative-driven gaming, expanding the audience. In Japan, the Famicom penetrated ~50% of households (20 million units). In the U.S., post-1982 crash ($3.2 billion to $100 million), Nintendo of America’s lockout chip, Seal of Quality, and retail innovations (store displays, rationing) revived demand. By 1990, Nintendo’s 95% market share and $3 billion revenue matched the industry’s pre-crash peak, with Mario outshining Mickey Mouse. Ben and David call this a “masterclass,” though hint at future missteps.
Notable Facts
Yakuza Ties: Nintendo’s early success depended on Yakuza gambling parlors, a stark contrast to its family-friendly image.
Hiroshi’s Non-Gaming Leadership: Hiroshi never played a video game, yet his intuition for talent and products drove Nintendo’s dominance.
Miyamoto’s Breakthrough: Miyamoto, a non-engineer, created Donkey Kong under hardware constraints, pioneering narrative-driven games.
NES Lockout Chip: Nintendo of America’s lockout chip ensured only approved games ran, mirroring Apple’s App Store strategy.
Mario’s Cultural Dominance: By 1990, Mario’s Q rating among U.S. kids surpassed Mickey Mouse’s, reflecting Nintendo’s cultural impact.
Financial / User Metrics
Famicom Sales (Japan): in 50% of 38 million households.
NES Sales (U.S.):
1985: 50,000 units (New York, ~$5 million).
1986: 1 million units, 10 million game packs.
1987: 3 million units.
1988: 7 million units, 33 million game packs (~$1 billion console, $1.5 billion software).
1989–1990: ~10 million units/year, reaching 30 million households (1/3 of 90 million U.S. households).
Global Market Share of Gaming Consoles (1990): 95%.
Revenue (1990): ~$3 billion, matching 1982 industry peak.
Net Income (1989): $217 million on $1.84 billion revenue (~12% margin).
Operating Margins: ~30%, suppressed by R&D and global operations.
Game Sales:
Super Mario Brothers (1): 60 million copies.
Duck Hunt: 28 million copies.
Super Mario Brothers 3: 24 million copies.
Attach Rate: 11–12 games/console (vs. 7–8 modern consoles).
Nintendo Power: 6 million subscribers at $15–$20/year (~$120 million/year).
Grading
Ben grades Nintendo an A for 1970–1990, citing “perfect timing” and “masterclass” execution in capturing 95% of a market that grew from near-zero to $3 billion. The NES’s hardware, Miyamoto’s IP, and Nintendo of America’s strategies (e.g., Seal of Quality, rationing) were flawless. However, Ben deducts from an A+ due to post-1990 missteps (e.g., no backward compatibility), noting Nintendo “blew a lead” in a market that later reached $100+ billion, suggesting vulnerabilities despite their dominance.
David assigns an A+ for 1970–1990, focusing on Nintendo’s unparalleled execution. He highlights their 95% market share, potentially all 7 of the 7 Powers, and revival of a dead industry. David acknowledges Ben’s point about future errors but argues that, within this period, Nintendo executed “10 out of 10,” making it one of the greatest business stories, unmatched in scope and impact.
Tech Trends
Moore’s Law: Nintendo’s long Famicom development (1977–1983) leveraged cheaper silicon, pairing a basic CPU with a PPU for arcade-quality graphics at ~$110–$120, outpacing rivals. This shaped its market leadership, linking to scale economies and “fun-first design.”
Lateral Thinking of Withered Technology: Gunpei Yokoi’s philosophy used dated components (e.g., MOS 6502 CPU) innovatively, enabling affordable, fun experiences. The PPU’s cost-effective graphics reinforced Nintendo’s counter-positioning, driving market penetration and linking to process power.
Powers
Nintendo may be the first company on Acquired that hits all 7 of the Powers (though Ben and David debate whether or not branding should be included.)
Scale Economies: Nintendo’s large install base (20 million Famicom, 30 million NES units by 1990) amortized the significant R&D costs required to build a quality console, making the NES the most attractive platform for developers, as games reached more users, enhancing profitability.
Network Economies: A two-sided network effect drew top developers (e.g., Konami’s revenue grew from $10 million to $300 million) to the NES’s large user base, whose demand for quality games further attracted users, reinforced by the lockout chip.
Cornered Resource: Shigeru Miyamoto and Nintendo’s IP (Mario: 826 million copies across franchises) were unique. Yamauchi’s quote, “A handful of people can develop games everybody wants,” highlights Miyamoto’s irreplaceable talent.
Process Power: Miyamoto’s “fun-first design” process created intuitive, replayable games, difficult to replicate, as seen in Super Mario Brothers’ 60 million copies, driving Nintendo’s differentiation.
Counter Positioning: Narrative-driven games (Donkey Kong, Super Mario Brothers) and a curated game library contrasted with competitors’ “shovelware.” The “withered technology” approach prioritized affordability over expensive hardware.
Switching Costs: Households typically bought one console, locking them into Nintendo’s ecosystem, especially with high attach rates (11–12 games), though less critical due to limited competition.
Branding: The Seal of Quality assured parents of safe, quality content, but Ben and David note it’s the weakest power, as Nintendo’s IP and hardware differentiation were more significant.
Playbook
Mario as a Perfect Character: Mario’s minimal personality, as Ben explains, makes him universal, allowing players to project themselves onto him, unlike narrative-heavy RPGs. This expanded gaming’s appeal beyond teenage boys, with Super Mario Brothers selling 60 million copies. Nintendo’s exclusive licensing of Mario for merchandise built him into a Mickey Mouse-like mascot, enhancing cultural and commercial value, linking to cornered resource power.
The Name of the Game Is the Game: Peter Main’s slogan, per David, emphasizes game quality as Nintendo’s core strategy. Miyamoto’s “fun-first design” ensured high-quality, replayable games, driving consumer demand. However, Ben and David note the irony: distribution innovations (Nintendo Power, store displays, rationing) were equally critical, linking to network economies and counter-positioning.
Ecosystem Control: Nintendo’s restrictive licensing (30% royalties, five-game limit, exclusivity, lockout chip) and retail tactics (rationing, store-within-a-store) gave it control over developers, retailers, and consumers, ensuring quality and profitability, akin to Apple’s App Store.
Fun-First Design: Miyamoto’s focus on intuitive, replayable mechanics, rooted in “withered technology,” prioritized enjoyment over technical prowess, making games like Super Mario Brothers broadly accessible, linking to process power and counter-positioning.
Carveouts
Ben: Everything Everywhere All at Once – A couples and indie film with innovative VFX on a $25 million budget, using accessible software, paralleling Nintendo’s “withered technology.”
David: Michael Lewis interviews – (1) A Tim Ferriss interview for engaging storytelling; (2) a three-hour C-SPAN Book TV interview for deep insights, enjoyed via YouTube Premium.
Additional Notes
Episode Metadata:
Number: Season 12, Episode 3
Title: Nintendo's Origins
Duration: 3:25:48
Release Date: March 15, 2023
Related Episodes:
Atari (S5E5, 10/15/2019),
The Electronic Arts IPO (S4E7, 5/27/2019),
Nintendo: The Console Wars (S12E4, 4/11/2023).