Monday 1 August 2016

Will Pokemon GO unlock IP value for Nintendo?

One of the more intriguing aspects of the current Pokemon GO craze is how it will affect the company's profitability. Nintendo has stated that it does not expect the game to materially add to the company’s earnings,least for the moment (see link below to, July 25th). This blogger does not wish to get into a discussion whether the company is being disingenuous about the ultimate monetary contribution that it
ultimately may enjoy from Pokemon GO, it apparently being Nintendo's first foray into the mobile phone market. What this blogger does find of interest are several observations that have been made about how the game may usher in a new area of successful exploitation on mobile of its IP more broadly, beyond the specifics of the Pokemon GO game itself.

Consider the following observations that were reported by Reuters on July 17th (“Success of Pokemon GO adds impetus for change at Nintendo”)--
1. “[T]he success of Pokemon GO - unforseen even by its creators - has shown the potential for augmented reality and for Nintendo to capitalize on a line-up of popular characters ranging from Zelda to Super Mario.”

2. ”Seth Fischer, founder and chief investment officer at Oasis Management, is one of Asia's best known hedge fund managers and has long been a small but loud shareholder…’My next focus with Nintendo is for them to focus on monetizing the rest of their 4,000 patents for mobile gaming, multi-player gaming, et cetera. I think they could be making 30 to 60 billion yen ($290 million to $570 million) annually from licensing.' "

3. “A Nintendo spokesman, asked about its mobile strategy, said last week there were three main objectives: ‘To maximize exposure of Nintendo's intellectual properties to consumers, to make profits on mobile devices, and to create synergies with the console business.’ "
Several days later, on July 25th, Reuters reported (“Nintendo shares dive as company plays down Pokemon GO’s earnings impact”) included the following observation—
“Yasuo Sakuma, portfolio manager at Bayview Asset Management, said he still saw the company's shares as cheap given the potential for Nintendo to reap rewards from other strong character franchises as it forays deeper into mobile gaming.

‘Nintendo is well-placed to boost its earnings with its other characters, such as Super Mario and Zelda and their potential is unknown,’ he said.”
With all due respect, this blogger remains skeptical about these several expressions of seemingly limitless optimism for Nintendo’s IP potential on mobile. He can never forget the valuation of nearly $2.5 billion dollars or more that was coming from the investment community in 2011 regarding the Kodak patent portfolio, here. When the dust settled in the court-managed proceedings, the patent portfolio was sold for only approximately $500 million dollars, here. This blogger has not deviated from the sense that the initial estimate was as much (or more) about hope, prayer, and investment house spin as an indication of genuine market value.

For that reason, when Mr. Fischer suggests that the company can unlock IP licensing revenues—of company patents-- ranging from $290 million to $570 million, this blogger needs to ask: What is there in the company’s patent portfolio (separate apart from licensing of the character rights), that supports such an amount? Indeed, how is the value of this estimate range reached?

Second, what is the basis for the confidence that the company will be able to monetize, as suggested, other characters on the mobile platform? At the least, it raises the question of whether the Pokemon GO phenomenon rests mainly on a set of sui generis factors, many of which are not related to the company's IP position, or whether the company's success has also provided a firm foundation for unlocking other IP assets of the company via the mobile platform.

The mantra—"unlocking IP value", is widely used (bordering on overuse), sometimes out of founded belief, sometimes out of serendipity, sometimes out of ignorance, and sometimes out of knowing disregard. This blogger will discount the last possibility, but it still leaves the overarching question—just how much the Pokemon GO portend a golden era of IP exploitation on the mobile platform by Nintendo.

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