Console Wars

by Blake J. Harris

  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 h
ocking 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.