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Once upon a time in the mid-1980s, “in a little kingdom, in the land of Hyrule”, Link first took up his sword and shield to save Princess Zelda. Now, after a series of video games that have sold 130mn copies and led to an animated TV series and manga comics, one of Nintendo’s best-loved creations is becoming a film.
News last week that the video game publisher and console maker would release a live-action Legend of Zelda film sent its shares up sharply and gave hope to investors wondering if the Kyoto-based group could finally take full advantage of the deep well of intellectual property represented by a host of popular characters from its hit games.
“It can probably be argued that Nintendo has the biggest pool of underutilised IP in the world,” said Robin Zhu, an analyst with Bernstein. “One of the debates around Nintendo is the extent to which they become more commercial . . . Do they find a way for these movies to matter more financially? Do these movies translate into more software sales in aggregate?”
Nintendo’s gift to Zelda fans — who were already burned by a fake trailer in 2008 — follows the unexpected success of this year’s blockbuster Super Mario Bros Movie.
Beaten only by Barbie at the box office, it provided tantalising hope that Nintendo could make money from the release of films and create new ways to boost sales of games and consoles, the outsized driver of profits.
However, evidence that such a strategy will work remains inconclusive.
Despite bringing in nearly $1.4bn at the box office since its April release, analysts have questioned the film’s impact on Nintendo’s profits. The company, they estimate, gave up more than half of the box office take to cinemas and distributors. Nintendo declined to comment on the Super Mario Bros Movie distribution deal with Universal Pictures.
“To the extent that investors are interested in the profitability of movies and other IP . . . they will be interested in whether Nintendo can be paying the distributor more like 20 per cent for the Zelda movie,” said David Gibson, senior analyst at MST Financial.
Perhaps more importantly, a flagship Mario game released in October has failed to generate the kinds of sales that would clearly show the movie has pumped up demand.
While there are the excuses of a glut of titles hitting the market following the Covid-19 pandemic and a cost of living crisis, analysts say the jury is out on the success of the film in helping sell games.
Nintendo has said the Super Mario Bros Wonder game sold 4.3mn units in the first two weeks of its release, compared with The Legend of Zelda: Tears of the Kingdom, which sold 10mn in its first three days.
“I think that increased interest in Mario helped lead to significant sales for Super Mario Bros Wonder,” Mario and Zelda creator Shigeru Miyamoto, who is producing the latest film, told analysts last Wednesday. But releasing a film “does not necessarily mean that sales of related software will increase as a result”, he added.
There is a bigger question over the failure of corporate Japan as a whole to fully monetise its intellectual property. This is commonly blamed on the historic strength of the domestic market and the way in which companies tend to think of the value of IP in terms of their hardware and manufacturing, rather than as something that can be exploited more widely.
That attitude is changing, say some investors, driven by The Super Mario Bros Movie but also by more middling releases such as Sega’s Sonic the Hedgehog.
However, Nintendo, which already has licensing deals for theme parks, has warned that it will not get ahead of itself and has sounded a cautious note.
“The use of Nintendo IP requires extremely careful supervision,” said Nintendo president Shuntaro Furukawa last week. “We do not believe that setting numerical targets such as revenue for the IP-related business is appropriate.”
The new Zelda film is therefore set up as a test case, both of Nintendo’s ability to ink a better distribution deal — the film is being co-financed with Sony, which will also look after distribution — and of what it can do as an advertisement for the core business.
Analysts at Jefferies remarked the deal with Sony was “a notable partnership after decades since their last project together” and could represent a strategic move to leverage its rival’s “strong distribution network and publishing track record”.
But much like playing a Zelda game, it can be all too easy to let the fantasy take over.
“There’s a tremendous desire to believe among investors. I worry it slides into wishful thinking,” said Bernstein’s Zhu.
“While there’s a lot of excitement about spreading the IP now, there could be a backlash if it is unsuccessful,” said investor Pelham Smithers of Pelham Smithers Associates.
“Commentators will be writing about how video game companies should focus on making video games and license out the IP [instead] to experts on film, TV and merchandise production.”
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