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Edited by Jeff Muskus

Bloomberg Businessweek October 1, 2018

Nintendo finally has a gaming service driven by paid subscriptions.

It’s not going well

Online, Mario Looks Like a Lemon

◼ TECHNOLOGY Bloomberg Businessweek October 1, 2018

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Good things come to those who wait. Except, maybe, Nintendo gamers. The company that cre- ated the Super Mario Bros. and Legend of Zelda series premiered its first online subscription ser- vice on Sept. 18, charging $20 a year for users of its Switch console to play each other on the web. The move comes more than a decade after rivals Sony Corp. and Microsoft Corp. started similar services that today generate billions of dollars a year in sub- scriptions, digital downloads, and other fees. Switch Online seems unlikely to do the same for Nintendo Co. anytime soon.

Users have had 18 months to try the service for free, and they haven’t stopped complaining, even at that price. Built on the cheap, Switch Online lacks the must-have features for today’s multiplayer titles. Gamers also say it’s frustrating to use, prone to connectivity issues, and easy to hack, meaning it’s packed with cheaters. With the all- important hol- iday season riding on the success of Super Smash Bros. Ultimate, an online-driven fighting game, ana- lysts say improving the network is more critical than ever. “It works, but it is the minimum you would expect from an online service,” says Piers Harding- Rolls, head of games research at analyst IHS Markit. Compared with Sony and Microsoft, “Nintendo is at least five years behind, probably more.”

The company declined to comment for this story, beyond saying it’s monitoring criticism of Switch Online. In June, U.S. chief Reggie Fils-Aimé said Nintendo was still “learning about the techni- cal infrastructure” and gameplay design and prom- ised the issues would be resolved by now. “When we launch the game, it’s going to perform,” he said.

The venerable game maker has long ignored the internet for financial and philosophical reasons. It’s taken some big swings with the design of its consoles but remains financially conservative, relying for more than two decades on hardware a generation behind that of its rivals. And especially when times are good, as they are right now, true believers can be forgiven for thinking Nintendo doesn’t need online gaming. After all, it became a powerhouse thanks to series of games designed to be played alone (Zelda, Metroid) or face-to-face with friends (Mario Kart).

Nintendo has also long been skittish about mud- dying its family-friendly image with the kinds of hate speech and creepiness familiar to anyone who’s ever played Halo or Call of Duty online. You can imag- ine the discomfort in Kyoto after an advance excerpt of Stormy Daniels’s memoir on Sept. 18 compared President Trump’s genitals to Mario’s buddy Toad.

But Nintendo can’t afford to squander the Switch’s success by ignoring trends, and multiplayer gaming has become a huge—and still growing—piece

of the $138 billion games industry. Unfortunately for the company and its fans, it’s yet to spend the kind of money required to become truly competitive. To offer gamers a Sony- or Microsoft-level experi- ence, Nintendo will have to invest in dedicated serv- ers globally and constantly upgrade the network to ensure that speeds keep pace with the complexity of the software and the size of the audience.

Sony’s PlayStation network went live way back in 2000, but it’s evolved significantly over the past five years as the company spent aggressively on servers and other gear. During the fiscal year that ended in March, Sony’s network business, including cloud- based gaming and a web-based TV service, gener- ated more than $9 billion in revenue.

So far, in lieu of setting up its own servers, Nintendo is using a peer-to-peer design, relying on players themselves to host the games. P2P is cheaper to build and maintain—a key reason Nintendo is charging about one-third what rival services cost— but it has problems. The speed of the game is restricted to the slowest player’s connection, says Penny de Byl, founder of online games education provider Holistic3d. “If they have a bad internet connection, the entire gameplay scenario will run slow,” she says. “If Nintendo wants to address the needs of their gamers, then they will have to con- sider providing dedicated servers, or players will just go elsewhere.”

Games hosted on player servers are also much easier to hack. In July a player frustrated with ram- pant online cheating in the popular game Splatoon 2 hacked into the top of the game’s leaderboards and inserted, “Please Add Anti Cheat.” Nintendo banned the player and removed the message, but since then, multiple outlets have reported that it’s quietly imple- mented efforts to reduce cheating.

The company, which has traditionally been able to keep gamers on its side, has other criti- cisms to contend with. Switch Online’s matchup process is rigid, and adding friends requires an archaic, time-consuming code system. There’s no web-browsing or video-watching function, a seri- ous oversight in the age of Twitch. Nintendo’s ser- vice doesn’t come with built-in voice or text chat, so players can only communicate with one another via a companion smartphone app. And unlike on rival systems, not all games automatically back up in-game progress to the cloud, meaning that if play- ers lose or damage their Switch, all their hours of play can be lost. “You can see online isn’t really in Nintendo’s DNA,” says Serkan Toto, founder of Tokyo consultant Kantan Games Inc.

Despite the criticism, gamers are using the inter- net to buy and download games directly onto the

● Nintendo Switch Online subscription revenue forecast, according to IHS Markit

2018 2022

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0.5

0

◼ TECHNOLOGY Bloomberg Businessweek October 1, 2018

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THE BOTTOM LINE Switch Online badly lags rivals in terms of features, oversight, and basic playability, which may hurt word-of- mouth around Nintendo’s big holiday game if things don’t improve.

mesh scaffold a little more than an inch across and about 2 inches high. A doctor cuts the scaffold down to the size of the damage in the patient’s knee and through a small incision inserts it back into the knee to cover the damage. It’s glued in place, making stitches unnecessary. The whole process is called matrix-induced autologous chondrocyte implantation, or MACI (pronounced like Stacy).

● Biotech company Vericel uses a patient’s own cartilage cells to make more

Growing New Knees

① A small piece of healthy cartilage is taken from a non- weight-bearing area of the patient’s knee

② Chondrocytes are extracted from the cartilage and seeded onto a scaffold of biodegradable collagen

③ The scaffold is cut to size so it will fit precisely when implanted back into the patient’s knee to cover the damage

④ The implant is glued in place, and the chondrocytes gradually spur cartilage production

At first, Courtney Mannino blamed the dull ache in her left knee on a ligament she’d torn in high school. She ignored it as long as she could, but she had to cut her 4-mile runs in half, then to zero when the pain wouldn’t let up. Soon the young doctor cringed at the thought of even navigating some stairs to get to work. The diagnosis was unlucky: cartilage dam- age too severe to be treated with cortisone shots and over-the-counter painkillers, yet not severe enough to justify the kind of knee replacement surgery reserved for patients with advanced arthritis and way more years behind them than Mannino’s 29.

With few choices, the Cedars-Sinai pediatrician decided to try a first-of-its-kind treatment from bio- tech company Vericel Corp., which specializes in tissue engineering. By employing a sort of medical scaffolding made of collagen, Vericel takes some of a patient’s own cartilage cells, multiplies them in a petri dish, and inserts the new crop back into the damaged knee. About a year later, Mannino says the improvement has been dramatic, and she can handle stairs, a bike, and, at the gym, an elliptical machine. “It’s not perfect yet,” she says, but “my pain is so much better.”

Vericel’s procedure may seem a little weird. First, doctors perform a biopsy to remove a Tic Tac- size piece of the patient’s healthy knee cartilage. Next, technicians in the company’s Cambridge, Mass., lab extract cartilage cells called chondro- cytes and bathe them for about 10 days in proteins and nutrients to grow more. Over two days, the techs then seed millions of chondrocytes onto a sheet of biodegradable collagen, creating a living

Don’t Replace That Knee Yet MACI is less invasive than a typical operation:

Switch through the latest version of Nintendo’s digi- tal store. The company’s digital sales jumped 68 per- cent from a year earlier in the latest quarter, helping it top earnings estimates. Ending the free trial was the logical next step, says IHS’s Harding-Rolls. The recurring revenue could help Nintendo fund further development and address complaints, he says.

The company may have trouble doing so before Dec. 7, when Super Smash Bros. Ultimate comes out. Bryce Knox, a North Carolina gamer who

spent about 10 hours a week using the free ver- sion of Switch Online, says he’ll decide whether to pay for a subscription based on the reviews of that game’s online experience. For now, he says, com- paring Sony’s service to Nintendo’s is like compar- ing “an iPhone to a flip phone.” �Yuji Nakamura, with Matt Turner

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