Practically every dev history that you do when you start a series, it's some version of this story, right? Because in the '80s and '90s, that's how it was. It's like, we don't have a ton of money. So, you're getting kids right out of college and it's like, hey, what are you passionate about? To your point, like, not only is it almost always some version of this story, the very best, most legendary game designer of all time, Shigeru Miyamoto, the one is this story. And I think it's that, like, this medium was so new and so there was no way to get into it as a, like, you know, there was no school for this yet. And so the people who were so passionate that were just like, I will do anything to be around this industry, they just wanted it so much. So that was it then. It's just the people that gravitated around this industry were the passionate people. And so if you just picked someone, the chances are, like, they were going to give it, cared so much that, like, they would make a good game, you know.
Welcome back to the State of the Arc podcast. My name is Kase and I am joined today by a very special guest. His name is David Rosenthal. Now David, please introduce yourself to the lovely people.
It's really fun to be here because I have been a listener of you guys for many years now and you've kept me company across so many drives and walks and runs and even inspired us and Acquired in a few things. So I really appreciate it. So yeah, my name is David Rosenthal. I also have a podcast called Acquired that I do with my best friend and partner Ben Gilbert. And Acquired, we tell the stories of the biggest and greatest companies in the world. So we do one episode a month. Every month we pick a company, whether that's Nintendo that we've done, or Sony that we've done, or we've done Rolex, or Hermes, or Costco, or Epic Healthcare, or Meta, or Amazon. We've done 200 of them now. And we make essentially what we call a conversational audiobook. Our episodes are four to six hours long and we tell the whole history of the company, its whole story, with a real goal of understanding why did it become so important in our world, how did it work, what can we learn from it. Yeah, and Ben and I started this show 10 years ago as a hobby and it slowly grew and grew and grew and took over our lives and the world and yeah, we're one of the biggest audio podcasts out there now.
Yeah. Well, that's awesome. Yes, everybody go check out Acquired. Although, you will notice very quickly when you do that you are not the only one checking out Acquired. They are, I believe, the number one or number two sometimes tech podcast in the business space basically. Is that more or less it?
Yeah. You know, we're in the technology category, quote unquote, on Apple and Spotify and, yes, we're usually number one in the tech category. We have been number one podcast overall, period, in the world, which is awesome. We're not that on a day-to-day basis, but...
Right. Right. Once a month, something like that. You'll do what, a five-hour dive into Facebook or something.
Exactly. And then we spike in the rankings. But you guys, what you and Mike do is truly magical. It brings joy to my life every week and it's just so fun to do this with you.
Well, thank you. I appreciate that and it means a lot to me and I'll speak for Mike here. Mike is not able to join us at the moment. But it means a lot that you would, you know, be able to come onto our show and grace us with your presence. So since you are the let's talk about companies and know everything about their history in eight-hour podcasts guy, we figured maybe we could talk about Nintendo or something like that. Is that because you mentioned you've done a podcast about Nintendo before?
So yeah, two years ago, I think it was two years ago, we did a two-part series on Nintendo. I think it was probably six or seven hours in total, the whole history of the company, current at least as of two years ago. And so when Mike and I first started talking about doing something together, I was like, well, you know, we did these episodes a couple years ago. You can go listen to them if you want, you know, the full deep history and me and Ben together doing it. But yeah, like, let's talk about that. The Switch 2 is coming out and I know Nintendo, man, you guys have talked a lot about Nintendo history. I thought it'd be fun to dive into it.
Yep. So, one of the things that I've in my research of Nintendo going back quite a ways, I suppose, is that what they started in like the 1890s. Like this is an old company. This is, dare I say, an ancient company. This is a relic of the 19th century that survives to us today in a quite different form.
The origin and first, you know, 90 years of Nintendo is kind of like a, it's like a cliché anime story. You know, it's kind of what it is. It's like the history of Nintendo itself should be an anime.
You know what, I wouldn't put it past them at this point. I mean, somebody should make that if it hasn't happened already.
Back in 1889 in Kyoto, Japan, which is still where Nintendo's based to this day, a man named Fusajiro Yamauchi took over a company which I believe was originally a cement company. And I believe he took it over because I think he was an employee of the company and the owner of the company died without a male heir. And this is, or at least was for several generations here in the Nintendo history. Like in Japan and Japanese businesses, if the owner or proprietor of a company died without a male heir, usually they would appoint somebody else. They would like adopt another younger man as their son. Often times it'd be if they had daughters, if they have female children, it would be the husbands of one of their daughters. I think the guy didn't even have anybody else. So he was just an employee of the company, Fusajiro, and he got adopted by the owner whose name was Yamauchi. So his original name was not Yamauchi.
Oh, no way. I didn't know that.
Yeah. Wild. So however it came to be, he comes to be running this company, not yet called Nintendo. And right around this time, playing cards, like, you know, like decks of cards, had just become legal again in Japan. So you guys know and your audience might know a bit about Japanese history. There's this whole like 300-year period where Japan was closed to the West, right? And I think it was like from the 1500s until the Meiji Restoration. Like if a foreigner, I don't know if it's all foreigners or just Westerners, entered Japan during that 300-year period, like set foot in Japan, it was punishable by the death penalty, like they would execute you. And similarly, if they found out that any Japanese citizens left the country and then came back, also punished by the death penalty. Like it was like the goal is like eradicate all Western influence on the country. And playing cards was like this ancient thing from, you know, the West had entered Japan before this, but then the government, the shogun, had tried to like stamp it out, but it was always like underground. And so then once the Meiji Restoration happened and Japan opened to the West again, playing cards became legal again. But in the intervening several hundred years, the underground version of playing cards in Japan had evolved into this thing called Hanafuda cards.
Which this might start sounding familiar here. Hanafuda is very similar to Western playing cards, but like with slight little differences. Like instead of four suits, there's four seasons. And I think, you know, like Western playing cards, there's 13 cards in each suit. I think Hanafuda cards only have 12. Maybe it's like the, might be the months of the year. I'm not exactly sure.
Ah, that would make sense. Like a zodiac maybe or...
Yeah. Yeah. Maybe something like that. But the purpose was like kind of, you know, the same as Western playing cards, which just for games, usually games of gambling, you know, money was gambled with these things.
Okay. So this was like their foray into gaming, just this was...
This is the foray into gaming, but it was, you know, you hear these rumors and you guys have talked about Nintendo was involved with the Yakuza and with organized crime in Japan. This was it. So when Fusajiro takes over the company, he decides now that Hanafuda cards can legally be produced that he's going to get into the Hanafuda card production industry, which he does. They end up becoming the leading manufacturer of Hanafuda cards in Japan.
Oh, see, that's something I had a question about, that whether or not they were like hugely influential in that space or whether or not they were just kind of like small time. So they were the biggest Hanafuda card, I believe.
Yeah, they became the largest Hanafuda card producer in Japan.
Well, they shot up there real quick and the biggest customer for them was the Yakuza, right? Because gambling had been illegal for how long?
And still was, I think, you know, mostly is being run in gambling parlors illegally by the Yakuza. So when you hear the like, you know, there's the Yakuza, the shady history of Nintendo, this is it. They weren't themselves Yakuza, but like their biggest customer was.
That's funny. But so, okay, like, I mean, look, the history of this company is so crazy on so many levels, but like this leads directly to the Nintendo we know today because fast forward a bunch of generations. So like I said about the crazy anime thing, the same thing about not having male heirs happens for three generations straight. So wait, so none of the Yamauchis are direct descendants of Fusajiro Yamauchi?
Yep. So, he adopts his son-in-law, his daughter's husband, before he dies. He becomes the next Yamauchi, even though he wasn't born a Yamauchi. Takes over the company. Then that happens again. And then by the fourth generation, there's finally a boy who's born and that is Hiroshi.
Hiroshi. Okay. So he is, this dude is like a...
He is a, like, OG. He is such a G.
Oh yeah. I'm going to put pictures of him up on the screen right now. He'd come in with those sunglasses. He looked like a Yakuza boss himself actually. Incredible. I mean, this guy...
Well, so, okay, he's born, short, he's born in 1927, I think. And then, of course, World War II happens. Like, he's a boy, right? In the lead-up to World War II, his father, who had, you know, been adopted, inherited the business, leaves the family. He walks out on the family and on the business. And so, Hiroshi, so the grandfather comes back. I guess the grandfather hadn't passed away yet. And, but he's not well. And then immediately after World War II, he dies. And so Hiroshi takes over the business as the fourth-generation Yamauchi. He's like 21 years old. Like, he's very, very young. And the first thing he does, he didn't want to have anything to do with the family business. I think he didn't...
You don't want the Yakuza ties or whatever.
He was like, I'm going to be, you know, straight-laced. He was in law school and then he gets the call from his grandfather, you know, from the family, be like, no, you're being summoned back to take over the family business. He, against his will, he comes back. He takes it over. He resents the whole thing. And then shortly thereafter his grandfather dies. And so now his grandfather's gone. The first thing he does when his grandfather dies is he fires every single manager in the business. It's like a massacre of like, I'm this whole old company, old way of doing things. I'm clearing house. I'm like decapitating all of you. I am now in charge. I didn't want to do this. I didn't want to take over the family business, but if I'm going to do it, like, this is my company. Damn it.
Now, dang. That's what happens. When you want a company to be strictly under your control, the first thing you do is fire everybody and install your own people.
Yes. Exactly. Exactly. And this is like legendary in Nintendo history. So he does this and, but the company's still in the Hanafuda card industry. So he's like, he's like, how can we, you know, how can I move this company into something else? He negotiates a partnership with the Walt Disney Company.
Wait, wait, wait. I didn't know this part. How so? Tell me the details.
So for Disney to enter Japan, he, like, this is now, we're in the '50s after the war. Japan is, you know, has recovered from the war, is now embraced in the fold of the West and no longer the enemy. And Disney's like, all right, there's a big market here, we want to enter. And the reason they do this partnership with Nintendo, oh, by the way, it was that first Yamauchi back in 1889, 1890 who took over, he renamed the company Nintendo. And you probably know better than me, the kanji. Nintendo is...
Nintendo. Yes. And it's like a double entendre.
Right. Is what it means in Japan because I think it translates as leave luck to heaven.
Leave luck to heaven. Yes, that's correct. Yep.
And it's sort of like the ten, the ten in Nintendo is heaven.
And so it's sort of like the double entendre, I think, is supposed to be because they're a gambling company. It's a playing card company.
That's right. That's so funny. Oh my gosh. That almost reminds you a bit of the double entendre between Final Fantasy, which some people dispute, of course, the name. It was also possibly their last game and so it actually had deeper meaning.
Yep. Exactly. So Disney partners with Nintendo because they have playing cards and they're like, oh, kids play with playing cards. So we will make Disney character playing cards, like playing card packs with Disney characters, you know, on the suits, and then Nintendo will produce them and distribute them in Japan for us. And that'll be the way that we'll enter, you know, get our IP, Disney IP, entering into Japan. And so they start this partnership and then Hiroshi is like, okay, great. This obviously becomes very popular and Disney, you know, like they do everywhere around the world, like kids love Disney and it becomes popular in Japan. Like, I'm going to leverage this power that we now have over, like, toy stores of distribution with the Disney deal to start making our own toys and pump our own toys into toy stores into Japan. And so this is how Nintendo becomes a toy company.
Wow. So he starts plucking guys off the factory lines making, who are making cards, being like, I need to design toys. Like, go make up some toys for me. Wow. And so do any of those toys still exist? Like, what kind of toys are we talking?
Oh yeah, you could Google. So like one of the most successful that they have, I mean, there are a few of them. A lot of them are like, you know, this is like fad, like hula hoop type stuff, like, you know, '50s, '60s, '70s, you know, kids' toys. But there's one called the Ultra Hand, which was like a, I think it was like a grabber, you know, it was like a hand on a thing that you could like grab and like play pranks on people.
Still to this day, that is a classic invention right there. Like, my kids love to have a little thing that extends their grabbing power and it's just so fun to use.
I mean, the type of stuff where, like, if you were to go to a toy store, you know, with your kids, like all the little, you know, gadgets and trinkets and stuff you see there. So he needs people to design these toys. And so one of the guys who's like just a factory line assembly worker who he plucks off to start doing is this guy named Gunpei Yokoi.
Oh, yes. Yes, I know the name.
He becomes a legendary Nintendo engineer, game developer. He becomes the guy who creates the Game Boy.
For the Game Boy. And then shortly afterwards when he retires from the company, if I remember correctly, he died a very unfortunate death in a... he got hit by a car, I think.
Right. Yeah. Well, he was on the side of a road, I think, and he was changing a tire and a car without the brakes just kind of swerved around the side and just like ran into him.
He also, we'll get to this later, but he's the one who discovered Shigeru Miyamoto, too. So we'll get to that later. But okay, so he's making toys. They're doing all this stuff. And Hiroshi Yamauchi, like, again, remember, he's like an anime character style, like grumpy, bitter, you know, gritty, chain-smoking, like...
Just looking at him, I just think chain-smoking.
Yes. Exactly. Like you look at this dude and you're like, gangster.
Absolutely hardcore. Also someone you do not want to cross. Do not cross this guy.
And he used that too, I think, to maybe soft power push other companies into doing what he wanted.
Yes, definitely. Definitely. But he's in the toy business here, like, so that's pretty funny. So he's, you know, he's also looking for other things to get into. And in the late '60s, Japan had had a craze, a fad across the country of bowling, like bowling alleys started popping up all over Japan. And it was like a short-lived phase. And then most of them go bankrupt in the late '60s, early '70s. And so Hiroshi's like, you know, oh, this opportunity, I'm going to buy up these old bowling alleys. And so then he directs his toy engineers like Gunpei to be like, all right, we got to like find some stuff for us to do with these bowling alleys.
Yeah. Here's figure it out.
Yeah, exactly. But Yokoi was brilliant. Brilliant. Brilliant. So what they start doing, this is the early days of the emergence of arcades and, you know, early video game arcades. Atari was coming up in America. And so Gunpei and the other guys are like, all right, well, can we turn these into arcades? And they do all sorts, they build some of their own technology. And there's, you know, this is early days of this stuff, so there's wacky stuff happening, right? And one of the things they do is they get into light guns. So like, you know, shooting...
Exactly, yes, literally Duck Hunt.
So they invent, like, Gunpei invents, like, the technology. So they invented the technology. They didn't just lease it or get a license, like they created. I mean, I think other people were creating similar type things, but Gunpei and Nintendo create a light gun-based technology for, you know, like virtual shooting ranges in these, you know, arcades that used to be bowling alleys.
That's so cool. That's so cool.
Well, okay, just wait till where we're going with this. So I told you all this stuff leads directly to the Nintendo we know today. Back in America, there's a company called Magnavox. I don't know if that company rings familiar to you or to listeners. It was a big... I mean, I remember when I was a kid, it was still a big consumer electronics company.
Magnavox. Magnavox, yeah.
Like, you know, they made TVs and, you know, radios and it was one of those classic American, you know, like RCA-type companies that are now long gone, but it was, you know, the heyday of the American consumer electronics company.
And as Atari was starting to succeed and Atari had introduced the 2600, the first Atari, you know, home video game, programmable cartridge-based video game console for the home that hooked up to TVs. And this was huge. There were dedicated video game consoles that had been coming to homes, but that was like a piece of hardware you would buy that played one game. Like you were buying the game and you hooked the game directly up to your TV. The 2600 was the first like swappable cart, you could play different games and stuff.
And so Magnavox is like, you know, they're a big TV manufacturer and they're like, oh, we want to get into this market too, you know, rather than just having Atari and others, you know, come in. And there was a company called Kenner, early video game consoles.
Who made the Game & Watch? Nintendo. Nintendo made it. Okay. Well, there you go. Okay. Okay.
But it was like that, you basically just buy the whole thing at once. It was just the game itself. Gunpei would create the Game & Watch later. That was one of the first...
His name is going to show up. He was a genius. People should know his name better.
Totally, totally, total genius. So Magnavox is like, we need to get in this game. So they start working on a Magnavox home video game console and they want to have a light gun, a shooting accessory for it. And so they contract Nintendo in Japan to take the technology that Gunpei had made for the light gun ranges and Nintendo makes the light gun peripheral for the Magnavox Odyssey, which is one of the first, you know, early home video game consoles in America.
How come I've never heard of the Magnavox Odyssey before? I mean, Magnavox, you know, I don't know if the whole company went out of business, but they certainly got out of the video game business. Like, it proved to be a dead end for them. Okay. Dang. It probably didn't sell well, but that's crazy.
I think it sold decently well. Well, so the whole, we're going to get to in a sec. In the early '80s, the American video game market had entered a, home video game market had entered a total bubble and had this huge crash. So you were, or folks might have heard of, you know, this legend of Atari cartridge E.T., the game E.T. for the Atari 2600, that it was so overproduced they buried them in the desert, like in Arizona somewhere. So this is like, we're about to hit this, but this is the run-up leading to that. So Magnavox does this deal with Nintendo. They get the light gun. In return, Nintendo licenses from Magnavox the right to rebrand and sell the Odyssey, the game console, back in Japan. So because remember, they're a toy company. So they're like, yeah. So they're like, okay, great. We're going to take this, you know, the Magnavox Odyssey. They rebrand it as the Color TV-Game.
Okay. Okay. That was big at the time.
And this is the first console that Nintendo sells in Japan, like home video game console that they're selling through their toy distribution arm. And this is in the mid-'70s in Japan. And it becomes like pretty successful in Japan.
Dang. Yeah. Wow. What kind of games were on it? Was it just like Atari port type games or did it have its own unique offering?
It was, I think it was all in-house developed games. I don't... the whole concept of a third-party game developer and publisher didn't really exist yet.
I guess that's a good point.
The first third-party game, the first like commercial entity as a third-party business game developer publisher was Activision. And Activision was a spin-out of a few employees from Atari in the kind of mid to late '70s that they were like, saw this opportunity to be like, oh, we've got a home video game console market that has different cartridges. Well, right now we Atari are making all the games and we don't have to make all the games. What if other people made the games too?
Huh. Well, that's fascinating. Wow. So Activision goes way back too.
Yeah. Activision is the OG third-party game developer publisher.
Wow. That's wild. So Nintendo was making their own games for this system?
No, at this point they're just, they just took all the Magnavox stuff and like they were thinking about this as like, this is a toy that we're going to sell just like the other trinkets that we sell toy stores in Japan. But they brought it over and it was a hit. And so Yamauchi's like, oh, okay. And he's seeing the market take off in America. He's like, great. Let's make our own console. We're going to, like, sees that this is a success, like we're going to now build all this in-house. So he's like, go, go make our own console.
Okay. Okay. Oh, so Gunpei is the one who designed the NES as well then, right?
No, he did not. He ended up, I don't know if Yamauchi told him to and he said other people in the company are better off to do it because like the NES, we'll get into, like the NES was like a very sophisticated machine and Gunpei is capable of doing really sophisticated stuff, but he's more of like a hacker type. So this is when he goes off and he makes the Game & Watch.
Here. Yes. There you go. That's it.
And the Game & Watch is like the precursor to the Game Boy, but they're dedicated handheld single games that you can play. So a different team in the company that's more technical starts working on this new programmable console. And I suspect the reason it probably needed like real engineers and technologists to make this is Hiroshi, he looked at the industry and he was like, he was so, this man never played a video game in his life, right? I mean, just look at him. He was, I mean, even well into like the NES, Super Nintendo era. I mean, he was making the executive decisions at Nintendo, but he explicitly did not play the games.
Right. Right. And I think that was the big difference after he passed and Satoru Iwata took over. Iwata was a lot more involved in the industry. Yamauchi, I think Yamauchi cared a lot more about the Seattle Mariners. We'll get into it.
Well, it's not that he didn't care. I think the amazing thing about this dude is he was a real visionary.
And but he was getting older by this point, right? He was getting older. But things like what he says about the Famicom, development of the Famicom and the NES, Famicom being the Japanese version of the NES. He says to the team, I don't like the way I see the other companies in this industry developing their consoles. Like Atari at this point in time had gotten bought by Warner Brothers. It was kind of a mess. The way Magnavox was doing this, the way Kenner was doing this, he's like, what these other companies are doing, they're selling the consoles at a loss and then, you know, making it up on the games, on the cartridges, the razor and blades model.
And that's the way, you know, Sony and Microsoft, you know, still believe, I believe. The PS3, at least I know that it maybe it didn't quite recoup its own losses. They hope to make up for that in the software sales.
Yeah, it's, I'm pretty sure it is kind of standard operating procedure for every company in the industry except Nintendo to sell the consoles at a loss.
Well, we'll hold on because one of the things that people often talk about when we're referring to Nintendo is we'll talk about the fact that Nintendo is way more likely to innovate on the console itself, the controller and the console and that space as opposed to just in the software and video game space. Could this maybe be part of why that they...
Absolutely part of why. Yeah. Yeah. Yeah. Because this is like a key part of the cultural DNA of Nintendo. Yamauchi is like, I don't want to lose money on the hardware. I want to make money on the hardware. And so if you're going to make money on the hardware and the consoles, like you need it to be, you need it to be different. Well, let me put it another way. Here's the reason why the other players lose money. Their philosophy is you want to pack as much cutting-edge technology, the highest-end, most leading-edge CPUs and eventually GPUs into these machines as possible to have the most graphical power such that consumers will want to buy it and then over time you make it up on margin on the games.
Nintendo under Yamauchi is, you know, that's a great strategy, but the problem is it's expensive. Like, if you want leading edge or even ahead of leading edge chips, it's going to cost you a lot of money, right? In your bill of materials. And so Yamauchi's like, I want us to make a console that is capable of being at par or even leading the market in graphical capabilities, but I want you to do it with like old chips. Old, you know, not current generation chips.
You know what? It almost sounds like Yamauchi was the kind of guy who would just think of an impossible situation and then point to some people and say, figure it out. This impossible thing happened. All right. Okay. My door's shut. Knock on my door when you have the answer.
I mean, literally, like if you're any kind of technologist listening to this, you're like, literally, he's asking for something impossible.
Right. Right. But like you mentioned before, he's a visionary and he was right. Like it's wild. He was right.
So what Nintendo ends up doing in order to accomplish this is the Famicom and the NES used a Ricoh chip. Ricoh, a Japanese company. They eventually got out of the chip business and more into like the camera business.
I was going to say, they make soda, the Roku... maybe they, I don't know, all these Japanese, you know, keiretsu conglomerates, company can start making cards and then video games. Like I don't know, anything can happen.
Exactly. Anything can happen. I mean, look at like Yamaha makes like everything from, you know, heavy construction equipment to keyboards.
Yeah. They make like pianos and stuff.
Yeah. Yeah. Yeah. Yeah. So the way they do this is the core processor, the CPU on the Famicom NES is this old Ricoh chip. But they add a secondary chip in there that is also a relatively cheap chip that they call it in Nintendo the PPU. I think the picture processing unit is what they call it.
And basically, this is totally wild. They invent the concept of a graphical processing, dedicated graphical processing unit as a chip, like a GPU.
Everybody talks about GPU style, like what Nvidia is as a whole company, you know, the GPU. Yes. That industry, what is Nvidia, like the most, the highest market cap in the world. Nintendo basically started their entire industry.
Yeah, basically. No, I mean, this idea would have been invented anyway and Nvidia sort of, you know, it was sort of separately and... This concept was taken and Nvidia sort of separately invented it for PCs. You know, we're talking about not PCs, video game systems, these early consoles. These are not, you know, general purpose PC computing. They are dedicated devices. However, so in some ways, Yamauchi didn't quite know what... around this constraint, this impossible task that Yamauchi tasked the team with. They came up with this concept that ended up becoming huge, which is don't make the CPU do everything.
Create, have a separate chip on the motherboard that is solely dedicated to handling the graphics.
Brilliant. Brilliant. Totally brilliant. And the NES was like the first example of this. Like that's just wild. That's just blowing my mind. I mean, Nintendo like has pioneered so much stuff. It's incredible. Wow.
So, okay, that is perhaps slightly getting ahead of the story because the Famicom, Famicom would come out in what, I want to say '83, I think, in Japan.
And then yes, it was '80... Yes, '83 it comes out in Japan and '86 in the US, I think.
Oh wow, three years. Wow.
Yeah. Well, that pause was because the American video game market totally crashed that intervening time.
I thought it was an international thing. The Japanese market was outperforming or was healthier than the American market. Is that it?
So basically here's what happened in the lead-up from the late '70s into 1982, 1983, the American video game market, home video game market totally boomed. It was like, I don't know, like crypto a few years ago or something like that, went from like zero to like billions and billions of dollars to this market, but it was kind of this toy-driven fad with the, you know, Atari and Magnavox, like these, you know, kind of crappy-ass consoles, right? Before the NES, home consoles kind of sucked, you know?
And so the market in America crashed. Meanwhile, the market in Japan wasn't as developed and then Nintendo released the Famicom and obviously that was like a big hit, but they had to wait to release it in the US until the market kind of recovered a little bit.
Anyway, to back up slightly, the other part of the video game market at this time that was actually the bigger part of the market was the arcade market.
So, and remember that's what Nintendo and Gunpei and the light range they got into with these failed bowling alleys, right? In America too, arcades were huge for a long, long, long time until, you know, recent history, like the 2000s. The arcade market was bigger than the home video game market. In America, like the profitability of arcade machines was huge. You know, you put an arcade cabinet in an arcade and it costs a quarter or 50 cents or a dollar for five minutes of play time, you know, and this thing is utilized on a weekend every... totally, like these things print money. Yeah. Yeah. And so as Nintendo had the arcade business and then they were starting to think about getting into the home console business as well, but...
The arcade business was the big thing. They wanted to come into America because other Japanese companies had had success coming into the American arcade business. So like Pac-Man, Space Invaders, these are all Japanese companies that had made those games and entered into America. And so Nintendo is like, 'Ah, we should get into this market too.' And so they established Nintendo of America. And it was actually Yamuchi's son-in-law...
Yes, I remember Minoru Arakawa, who established Nintendo of America. Now, why didn't he take the name Yamuchi? Was he not adopted?
Good question. And also, why didn't he end up taking over the company? This is a big one. This will... you can get to it later. This happens later. But it was fascinating to see the Yamuchi family step back from leadership at Nintendo. I actually don't know what happened to Arakawa. I wonder if he stayed in America. It might have been that he didn't want to come back to Japan, and his wife Yoko, who was Yamuchi's daughter, didn't want to come back to Japan. Okay. Also, I think Nintendo was a publicly traded company at this point in time.
Oh, when did that happen?
I don't know, but somewhere along this line, I'm pretty sure somewhere during Yamuchi's tenure, it went public in Japan. Yeah. And so probably that came with some more restrictions around this, like stop renaming your son-in-laws to your name. It's bad luck.
Exactly. Bad luck. You know, this anime storyline only goes so far.
Right. Right. The drama kind of eases up a little bit. Yep. Yep. Yep. So, okay, back to the arcade. Nintendo wants to get in the American arcade business. And Space Invaders, we're now in like the... what is this, like late 70s, very early 80s. So, pre-Famicom and NES, but in the couple years before. Space Invaders was the latest fad in the US. And so they... so Arakawa in the US calls up Yamuchi. It's like, 'Hey, I know what's going to work here. I know how we're going to enter the market. Let's make a Space Invaders knockoff. And make a bunch of arcade cabinets, just make a knockoff, have your engineers create something that looks like Space Invaders, ship it over, guaranteed going to work.' So, he orders 3,000 cabinets from Nintendo of Japan for a game called Radar Scope, which they had developed, which is a total Space Invaders knockoff.
Okay. Never heard of them.
By the time they show up, the Space Invaders craze was over in America. So, like, they missed the market by like a couple months. And now they've got 3,000, you know, useless, worthless arcade cabinets sitting there in the ports in America. And so they're in a scramble. They're like, 'Shit, this is like many millions of dollars of inventory. Like, this is gonna tank Nintendo of America. We got to find some way to utilize this inventory or like we're toast here.' And so Arakawa goes back, he's like, 'I need you to get me an engineer to reprogram Radar Scope, something that can use the dedicated chips that are in there for Radar Scope.' The same general technical engine, because a lot of this is hardware-based and actual chips, right? We're really far from the Unreal Engine here, but basically take the skeleton of Radar Scope and remake it into some other game, some other IP that we can have a chance of succeeding with this inventory here. And Yamuchi's like, 'I don't have any other engineers. All my engineers are busy. And you know, you have disappointed me, son-in-law. All I can give you... I will go to Gunpei and I will ask Gunpei to find somebody. It won't be an engineer, but we'll find somebody in the company that can try and do something for you.'
Okay. Since you can't... that's why he didn't get the name Yamuchi. That's why...
Ah, yeah, exactly. Like, this is it. You've gravely disappointed me. Maybe that was on the table and it's like, nope, disowned. Nope, nope. Okay, well, just wait till you hear what happens. So yeah, he goes to Gunpei and he's like, 'My dumbass son-in-law in America. He really screwed up. I need you to save him. Don't take any of your engineers. Just give me somebody, do something.' And so Gunpei's like, 'Well, we just hired this kid to design the artwork that goes on our cabinets. You know, like imagine old school arcade cabinets, Space Invaders, Pac-Man, got artwork on the sides to attract the kids to come play the games. Well, we just hired this kid out of art school. He's our first dedicated designer for the artwork on the cabinets. He says he wants to make games. We've never had anybody make games here before who isn't an engineer, but you're saying I can't have any engineers do this. So, he wants to do it. Let's give him a shot.'
Miyamoto. Shigeru Miyamoto was that art school student. So, how old was he at the time? What was he, like 24 or something?
Yeah. So, he was like straight out of art school. Like young. Super young. Maybe even younger than that. Yeah. Yeah, probably even younger.
Okay. So, I've heard this story so many times, especially with the early video game development history. We've done dev history for so many games. We haven't quite done one for Nintendo strictly yet. Which is why a lot of this stuff is like so cool and new to me. But so often they would just almost pick a young kid off the streets. Like it's almost on that level. Square did this so many times, right? Like just the coincidences are unreal. Like these are the best people in the world to do this kind of stuff and they were almost completely overlooked. We almost didn't get these people. What would the industry look like without them? It's just wild.
I think it's that... I've thought about this a little bit and yeah, I've heard you guys talk about it. I mean, practically every dev history that you do when you start a series, it's some version of this story, right? Because in the 80s and 90s, that's how it was. It's like, we don't have a ton of money. So, you're getting kids right out of college. And it's like, hey, what are you passionate about? To your point, like not only is it almost always some version of this story, the very best, most legendary game designer of all time, Shigeru Miyamoto, the origin is this story. And I think it's that like this medium was so new and there was no way to get into it as a... there was no school for this yet. And so the people who were so passionate that were just like, 'I will do anything to be around this industry,' they just wanted it so much. So that was it then. It's just the people that gravitated around this industry were the passionate people. And so if you just picked someone, the chances are they were going to give it. They cared so much that they would make a good game.
That's so cool though. That's... I love the energy. I can just almost imagine and almost feel the energy around something like that, you know? It's not the same anymore, but I've seen other things that are similar and it's like this was one of those moments, right? Almost like the Enlightenment or something, almost like the classic Greek...
Yeah, I think it would be a lot like being in Silicon Valley at the same time and like, you know, when Apple's getting started. Or I mean, hell, Steve Jobs freaking worked at Atari. That's how Steve Jobs got into the computer industry. Like this is all the same.
So Atari was the first company that Sequoia Capital funded. Sequoia would go on to become one of the biggest and most legendary Silicon Valley venture firms. Nolan Bushnell, who was the head of Atari, founder of Atari, he hired this young kid Steve Jobs. And one day went to Don Valentine, who was the head of Sequoia Capital, who was his investor, was like, 'Hey, you got this young kid Steve Jobs, he started a company, he has this crazy idea, you should talk to him.' And like, there you go, founding of Apple right there.
That's just wild. It's a similar story. So cool. So cool. It almost makes you wonder, like looking around you today, like what are the companies with that type of energy today?
Totally. Well, it's all gotten so industrialized and institutionalized now. Like there's venture capitalists everywhere looking to fund the next Mark.
Right. We're not the only people asking that question. Right. Right. Right. Right. Right. Right. I just almost just want to be a part of that energy wherever it is. You know, there's something special about that.
Totally. It was so... you know, I felt this way. Ben and I felt this way in the early days of podcasting. Like, you know, as we started doing this, we were like, 'Oh wow, this is really powerful. Like this is big and nobody realizes it.' But it was all ragtag, you know.
Yes, exactly. YouTube, podcasting, so same deal. So okay, anyway, okay, so this is the origin of Miyamoto. Dang, so he was just an artist.
So he was, yeah, he was like an artist, like literally to design the artwork to go on the arcade cabinets. Like that was what they hired him for. So he gets his chance to make a game and they got to make a game to save these cabinets in America, the Radar Scope. And what he designs, the game he comes up with is Donkey Kong. Donkey Kong, once it was out and obviously became a huge success, it earned in its first year in America, it earned $180 million in America.
That's today dollars or then dollars?
That's then dollars, like 1979 or whatever it was.
So MCA Universal, you know, like Universal Pictures Studios, owned the rights to King Kong. They made the King Kong movies and they sued Nintendo for copyright infringement for King Kong. They ended up losing the case.
I was going to say, it's like other than it's just a monkey throwing barrels at a Jumpman. Like that has nothing to do with King Kong.
And the lawyer that represented Nintendo in the US in this case was named Howard Lincoln. Howard Lincoln became the president of Nintendo of America when Arakawa retired. Yeah. So like if you met Nintendo in the 90s, 2000s, like Howard Lincoln was the... he was the president before Reggie.
Reggie. Okay, before Reggie. Yeah. But Reggie would have been maybe the spokesperson at the time. Oh, that's crazy. I didn't know that. So they just picked up their lawyer. They were like, 'Hey, you know about law, run our company.' It was ragtag. So cool, man.
So, Donkey Kong is what Miyamoto designs. I don't know if you remember Donkey Kong or played it or folks who are listening remember, or if you've seen The King of Kong, the documentary Fistful of Quarters, right? But Donkey Kong is not just Donkey Kong. It's called Donkey Kong. That's the game, right? What are the characters in Donkey Kong?
There's the monkey. Yeah. It's Mario. Maybe Peach, right? Maybe.
And Peach. Yeah, Peach was called Pauline. Original Donkey Kong. Mario was not yet named Mario. He was called Jumpman. He didn't have a name. But this is like... this is it. This is like in this game, in this crazy thing, Miyamoto designs Donkey Kong, Peach, and Mario. That's like the trifecta. That's the holy trinity of gaming. Later he would make Zelda, but you know, like that's it. You know, like sure he had Metroid that Gunpei did, or Kirby. Oh, one of the other lawyers involved, I think, in all this was named John Kirby, I think. And they later named Kirby after him.
That's the inspiration. Oh, wow.
But yeah, like the core Nintendo IP all comes from this. So, amazing. So, after this and the big success that Donkey Kong becomes, they set up a new R&D division in Nintendo. Yamuchi sets up and is like, 'Okay, Miyamoto, clearly you're a G.' Because that's the thing, like as much as Yamuchi is like this curmudgeon who doesn't play games, he knows a game when he sees it, you know. So he sees Miyamoto, he's like, 'You are now going to head your own division that is just going to make software, just going to make games.' So he recognizes and cultivates talent.
That's the job of a good CEO, basically.
Totally. And that division that Miyamoto leads becomes EAD, Entertainment Analysis and Development group, which is, you know, the legendary... it's where all the great first-party Nintendo games come from.
Yeah, that's where all the magic happened. I thought you were gonna tell me Duck Hunt. I thought we were leading up to Duck Hunt.
Duck Hunt. So then when the NES comes out, the Famicom and then the NES, the pack-in game is Duck Hunt using the same light gun technology, but on your own TV.
I actually never understood. I was even thinking about this like a week or two ago. How did that technology work?
You know, this is like the brilliance of Nintendo's engineering. And actually this becomes Gunpei's sort of engineering philosophy that explains a lot of Nintendo. He's called... maybe you can better translate this given your knowledge of Japanese. The literal English translation is 'lateral thinking with withered technology.' So basically the directive is like, we need to be profitable on the hardware we make. So we can't use leading-edge technology. We have to use old, withered technology.
Sure. Yes. Yes. Because otherwise you'd have to sell it at a loss and all that.
Exactly. And so we need to have lateral thinking, like we need to think outside the box with old technology to make great gaming experiences. So the way the Duck Hunt light gun works is they reversed the problem. They said, 'What if instead of putting the sensor on the TV and the pointer on the gun, we put the pointer on the TV and the sensor on the gun. When you squeeze the trigger on the gun, the screen flashes.' The flash from the screen then gets detected by a sensor in the gun. So it's not that the gun is firing at the TV, the TV is firing at the gun when you play Duck Hunt.
That's the coolest thing I've ever heard.
Yeah. So that's how you get around this. Like, oh, how else would you put a sensor on the TV and do all this?
Well, that's hilarious because the Wii kind of goes backwards, I guess, and they're like, 'Here's a sensor bar.'
Well, I mean, this is like the whole philosophy behind the Wii, right? And then ultimately the Switch is, we're not going to try and compete with Sony and Microsoft, literally like two of the biggest technology companies in the world who are perfectly willing to lose billions in hardware to put the leading-edge chips in their hardware and sell it at a loss. We're not going to do that as Nintendo. So we need to take older chips, older technology and do something interesting. And that appears to more or less be the direction they've gone for a long time now. This has always been their philosophy.
So yeah, so that's the story of the NES. To fast forward a little bit, once they do launch the NES, well, the NES crushes it in Japan. The Famicom, as it's called in Japan, gets 50% household adoption in Japan. So literally one out of every two households in Japan ends up buying a Famicom.
That's nuts. That's dream level. That is unreal. I mean, like I don't even know. I would imagine one out of every two households in Japan didn't have kids, like young kids, that would be like...
So this just becomes like a huge phenomenon. And then when they launched it in the US, it totally crushes it in the US too. I think the NES total ends up selling like 60, maybe 62 million units worldwide. Becomes like by far the most successful video game console of all time to that point. And meanwhile, Atari and the others had tanked. So Nintendo all of a sudden at the end of the NES lifecycle has like over 90% market share of the home console video game market.
Sounds a bit like Nvidia, actually.
Yeah. Right. Yeah. Nvidia and data center GPUs for AI. Exactly, like they had totally won.
Yeah. They just won. Like it's over. The battle's over.
And then along comes Sega.
So again, because Nintendo's pretty conservative on the hardware, the NES was an 8-bit machine. 16-bit technology and chips had been there for years, but Nintendo's like, 'We don't see any reason to go put more expensive chips in our machines and make a new generation of content.' Like, why would we do that?
Yeah. Well, the competition pushes...
So Sega comes out and they're like, 'We're going to leapfrog.' They get ahead. They launch a 16-bit Genesis, I think it was called the Mega Drive in Japan. And initially, it flops. Like, it can't break Nintendo's hold on the market. And then Sega of America, a guy named Tom Kalinske came in to run it. He was... where did he come from? I believe he might have come from Mattel, maybe. I can't remember. But he was also a total genius. And he was like, the way we're going to beat Nintendo... because I mean everybody knows Nintendo, and especially back then they were so controlling, controlling of the image. Especially in the heyday, there was a point in time in the 90s where... do you know what Q ratings are? Q ratings are like a measure of popularity, like celebrities have Q ratings, but...
Yeah, I don't know much about it.
Yeah, you could do like the Q rating of, I don't know, Tom Brady or Tom Cruise or whatever, and it's a way of ranking how well-liked or popular a person or a figure is by the American public. At one point in time in the 90s, Mario had a higher Q rating than Mickey Mouse. Like this is how dominant Nintendo was. But it was also like this very family-friendly, very controlled image. And so Kalinske and Sega come in, they're like, 'The way we're going to beat Nintendo is we're going to do what Nintendo don't,' which is, you know, do what...
Nintendo... as part of this strategy of like he's going to have attitude, he's going to be rebellious, and that's going to be the Sega brand. And like, gosh, I remember when just that word would sell. I remember being a kid in the 90s and just like that's what it was. It was like, 'Oh, he has attitude.' And I legitimately thought that that was cool. I was like, 'Yes, totally.'
It worked. I was a kid too. Like this was like I was like, 'Hell yeah, I want that.' You know, begging my parents like, 'I got to get Sonic.' But that's the thing. My parents, we didn't get Sonic. So then I had to hate Sonic.
Of course. No. Oh, you missed out.
We were Nintendo kids. Consoles are expensive, man.
