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Like a lot of gamers who got their start back in the 80s and early 90s, I’ve always loved Ninteno. It’s got the best games and consoles for kids, and has captured a market of adults who grew up with it. These days in the videogame industry, it’s practically got its own market where it doesn’t have to compete with other home consoles, PCs or iOS games, and the majority of its games are exclusives. The company hasn’t had to compromise with business partners ever since it beat out Sega, and while that’s allowed them to take risks and push gaming technology and design theory forward, it’s also done a lot over bad for the company and its fans.

There’s a long history of Nintendo not playing nice with others, but the latest development has been the Nintendo Creator’s Program, a way in which Nintendo generously allows Let’s Players and other Youtubers posting Nintendo related content to keep a portion of the ad revenue they are already receiving.

It’s been no secret that Nintendo doesn’t like YouTube, or, more accurately, they don’t like that they’re not the ones getting the money from it. For the last few years, they have been active in putting out copyright claims on YouTube videos, even on content from trailers that are given to the press to distribute, and claiming the ad revenue from them. After significant backlash, the company backed off slightly, but has not returned with the Nintendo Creator’s Program. If you’re a Youtuber wanting to post Nintendo gameplay, you either sign up to this program, post footage only from an approved list of games, and let Nintendo have 30%-40% of your ad revenue, or you take your chances on a copyright claim.

Now, in the past week this has gotten a lot of attention, most of it bad, and I just wanna milk a little website traffic out of it share my thoughts on it. Yes, Nintendo is stupid, but that doesn’t mean they’re wrong. They’ve made a move that even EAs PR division has known better than to do, but ultimately I think it was their mistake to make, and not unethical.

Here’s the thing, the YouTube gaming culture is not one that can just remain as it is. It’s a profit earning market, in what should be a highly competitive industry. We’re gonna get all economics here, but I’ll try to be clear. There is, in Industrial Organization, something called the Structure-Conduct-Preforms paradigm, which explains the causes and eventual affects within an industry, on four levels. First, the underlying conditions, which deals with the nature of the product, supply, and legal framework. Second is the structure, the number of buyers and sellers, what barrios there are to entry and the amount of competition. Then there is the conduct, referring to things like pricing and business strategies. And finally, how well the industry ultimately preforms, its efficiency, employment long-run growth, etc. This is generally a one way street, from underlying conditions to performance, but can sometimes go backwards if firm(s) have enough market power to influence things like barrios to entry or supply chains.

The Let’s Play industry is a fairly simple case here: the underlying conditions are that supply is practically limitless, LP’s can be made extremely cheap, and once you have the initial capital (recording equipment, editing software, etc.) the only cost to increasing production is your own time, and most LPers enjoy what they do, so that’s a pretty low cost to them. The structure is pretty much ideal for what we’d want in a market, thousands of sellers and millions of buyers, the only barrier to entry is the equipment cost, and Nvidia Shadowplay has dropped that even further for PC gamers. Pricing for LPs is free, and there’s not a lot of product differentiation. By all means, this should result in a near perfectly competitive market. But it’s not.

In a perfectly competitive market, zero economic profits are earned. But economic profits are earned; people are making more from YouTube LPs than they would from something else. And when and industry that should be competitive has these kind of economic profits, other players will come in to get some.

Now, what’s going on here is a lot more complicated than just that; there’s customer loyalty, economies of scale, bandwagon effects (all of these can be seen among big youtubers), and typically economic profits go down to zero because of new entry (more LPers starting to make videos, which is also happening), not because a related industry gets involved. But this is a new and chaotic industry; it hasn’t reached a steady state, and the underlying conditions (mostly legal copyright stuff) aren’t fully understood. The point is, there is economic profit, Nintendo sees a way to get in on that, so they do.

As far as ethics here, I think Nintendo isn’t in the wrong –they’re not in the right either, but they have some right to their content. LPs are not derivative, they are transformative. The commentators and players add a lot to the game, so much so that I often watch LPs where I don’t care at all about the game, just the commentary. But the commentary is helped by the game, typically about the game, and in responses to the game. If Egoraptor just talked against a black backdrop for ten minutes a few times a day, the commentary would be less entertaining and Game Grumps would not get the views it does.

And no, LPs are not wholly covered under Fair Use. Fair Use allows from limited use of copyrighted work for parody, criticism, journalism, commentary, etc. Though the word “commentary” is used there, it doesn’t mean commentated LPs, it means social/political commentary or commentary on the style of a work (eg: most articles written about Bioshock are not reviews or criticism, but commentaries on the meaning behind the game, or how well it utilizes player agency in game design). Most other uses of “commentary” here would be more broadly understood as criticism or review.

But the main thing here is “limited”. Posting a short clip of Hyrule Warriors just to show off massive combo is fine, but full play-throughs composed of several hours of content is beyond reasonable. You can’t profit off that and then hide behind the shield of fair use.

In cases like Phoenix Wright or visual novels it’s particularly egregious, because the gameplay is scares, and if you do a full walkthrough of a VN, that’s essentially the entirety of the content given away for free.

Look at this from another perspective. Earlier today the game LEGO Jurassic World was announced, and it’s not like Traveller’s Tales (the developer) just decided they’d make the game and sell it. There are several arraignments in a deal like that, and you can bet Michael Crichton, the creator of Jurassic Park, is getting a cut. Could you imagine if Traveller’s Tales tried to call fair use on that? And making a LEGO based game that’s more than twenty years separated from the original book is a hell of a transformative work.

If people are gonna make lucrative businesses out of LPing, they can’t pretend it’s just a little art project that falls under fair use.

That said, Nintendo is asking for too much. You can go into how much ad revenue YouTube takes, and MultiChannel Networks for people involved with them, but that’s a separate issue. The bottom line here is that Nintendo is asking for 30% from all your videos if you sign up your channel with them, and 40% from individual videos you register. That is ludicrous, but it doesn’t even stop there.

“It can regularly take up to three business days for your registered content to be reviewed and finalized.” (https://r.ncp.nintendo.net/guide/) Meaning you can’t keep up to date with time sensitive things, like gaming news. And since Nintendo has repeatedly made copyright claims on journalistic content (which it shouldn’t be doing in the first place), this means if you are a games journalist working through YouTube, you will always be behind Kotaku and other sites when it comes to Nintendo related news, and Nintedo themselves will happily vet your content.

“This rate may be changed arbitrarily.” So basically Nintendo gets to choose what cut of the revenue you get.

The transaction with go through PayPal as well, so that’s another portion of the revenue lost, unless Nintendo agrees to pay the transaction cost, which seems unlikely.

And the most frustrating, “When you register a channel, you will be eligible to receive a share of advertising revenue from Nintendo…” Nintendo is presenting this program as a gift.

But as seemly cold and business-calculated as this move is, it’s probably going to go badly for Nintendo. First of all the bad PR from it is already apparent, but more importantly, this will decrease the amount of Nintendo content on YouTube, decrease the company’s exposure, and decrease their sales. People won’t want to make Mario videos when they can earn more off of Titanfall.

In the end, this was kinda inevitable. There are profits, and publishers want a cut. It will hurt Nintendo now when they’re the only ones doing it, but you think EA isn’t watching enviously? Other companies will get in on this, and simply not LPing Nintendo’s games won’t be an option; any game you play will have studios taking their own cut of the revenue. There are two real issues as I see it, how much? And what content?

Right now this affects Journalists and critics when it really shouldn’t. Fair use is important and needs to be preserved. The problem isn’t just Nintendo here, though their universal application of copyright is unfair. The problem is YouTube, a private company, responsible and able to exercise absolute power over the content that you upload; take it down, take the revenue, make deals like this one with Nintendo, etc. You agreed to the terms of service so they’ve got you by the balls. And the site is just too big to properly manage all the content on it; sure, you can say they suck at it, but evidently they believe it’s just not worth the cost to fix the website’s problems. Like Nintendo, they’re a dominant firm in their market; they’ve practically got a monopoly.

As for how much, as I said, Nintendo is being ridiculous. If other companies come in asking for a standard of 30%-40%, they’ll crush the market, lose the free advertising they’re getting, and earn 30% of 0. But the current pushback isn’t helping. LPing can’t continue to use content without consequence. If LPers can’t reach some reasonable agreed upon share, tension with studios is gonna cause problems, videos well be taken down, and LPing could cease to exist.

Right now LPers are in a dominant bargaining position over Nintendo. They can stop making Nintendo videos, or keep ignoring the company’s Creator’s Program, and Nintendo will lose money. Larger LPers with a voice, and MultiChannel Networks have to use this opportunity to discuss a more reasonable arrangement. Simply complaining about your lost revenue isn’t gonna help create a sustainable market.

Don’t Lose Your Way