Nintendo Entertainment System - Third-party Licensing

Third-party Licensing

Nintendo's near monopoly on the home video game market left it with a degree of influence over the industry exceeding even that of Atari during Atari's heyday in the early 1980s. Unlike Atari, which never actively courted third-party developers (and even went to court in an attempt to force Activision to cease production of Atari 2600 games), Nintendo had anticipated and encouraged the involvement of third-party software developers—but strictly on Nintendo's terms. To this end, a 10NES authentication chip was placed in every console and another was placed in every officially licensed cartridge. If the console's chip could not detect a counterpart chip inside the cartridge, the game would not load. Because Nintendo controlled the production of all cartridges, it was able to enforce strict rules on its third-party developers, which were required to sign a contract by Nintendo that would obligate these parties to develop exclusively for the system, order at least 10,000 cartridges, and only make five games per year.