This reminds me of the Mugen Street Fighter games and it's amazing how Capcom haven't asked for all the videos to be taken down.
I think the simple point Nintendo are missing here is, these videos build the Nintendo brand, they add towards keeping Nintendo a strong and relevant brand, they build a following and usually they create dedicated groups that follow and support Nintendo.
Yes, there is a question about legality, but the only thing Nintendo had achieved here is bad publicity for the better part of it, upset certain groups that support the brand and lose out on free promotion.
It's not like people who emulate games won't stop emulating, but it does mean those people who would have watched those videos and would have got interested in buying a Mario game won't.
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