Can Pokemon Save Nintendo?

Pokemon_Go_Comp - H 2016
Courtesy of Apple; iStock

Pokemon_Go_Comp - H 2016

The augmented-reality phenomenon may spawn new sales, even movies. But will it hurt console sales?

Nobody ever expected that throwing a virtual ball at Pikachu would reinvent a 1990s game franchise — never mind turn Nintendo into one of the world's hottest entertainment prospects. Since its July 6 launch, Pokemon Go has been downloaded more than 15 million times, transforming the augmented-reality game into a cultural phenomenon.

The effects have been immediate for Kyoto-based Nintendo, whose stock valuation more than doubled to $42.5 billion (catapulting it above the market value of Sony Corp.). Pokemon Go has become the biggest-earning app in all 36 markets in which it has been released, bringing in millions of dollars a day — and it could be set for sales well into the billions.

The question now is what this means for Nintendo, a game maker that has languished in recent years without much in the way of hits. Financially, it might not be as much as one would think. Nintendo owns a 32 percent stake in The Pokemon Co. and a reportedly similar stake in Niantic, with which it co-developed the app. Apple and Google also take a 30 percent cut on any revenue (the game is free, but players can pay for download add-ons). Analysts peg Nintendo's revenue share in the game at anywhere between 13 and 22 percent — not exactly worthy of the $20 billion jump in the company's stock price. "This is good branding and marketing, but it is not clear if it will be a huge revenue driver," says Wedbush Securities analyst Michael Pachter, predicting Nintendo might "profit to the tune of $50 million to $100 million."

The real opportunity for Nintendo is tapping into the changing dynamics of game-playing. The company, which first brought Pokemon to America on its Game Boy platform in 1998, relies mostly on profits from its core console business. But gamers quickly are migrating to playing on the go: Mobile gaming revenue is predicted to reach $36.9 billion in 2016, compared with $38.3 billion in global movie box office in 2015.

Serkan Toto, a Tokyo-based consultant to Japan's mobile gaming sector, sees this as only the beginning for Nintendo, despite the threat to its console business. "Although the success of Pokemon Go could accelerate the shift away from console gaming, the share-price rise is based on the potential for Nintendo as a whole in mobile gaming, including Pokemon, Mario and Zelda," he says.

Reviving some of Nintendo's storied intellectual property might even stretch beyond gaming. Legendary Pictures is said to be closing in on an agreement to buy film rights to Pokemon. Sources say the studio is in exclusive talks with The Pokemon Co. for a deal worth $5 million to $10 million.

But there's some concern the pivot — and reviving franchises — might backfire for Nintendo president Tatsumi Kimishima. "Nintendo manages by looking in the rearview mirror — they are waiting for a return to past glory," says Pachter. "It may accelerate the demise of the console."

This story first appeared in the Aug. 5 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.