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Wii and DS Turn Also-Ran Nintendo
Into Winner in Videogames Business
By
NICK WINGFIELD and
YUKARI IWATANI KANE
April 19, 2007; Page B1
A year ago, Nintendo Co. looked like the videogame industry's biggest also-ran.
The Japanese company's new game console, due out in time for the holidays, was a technological laggard compared with more-powerful systems from
Microsoft Corp. and
Sony Corp. And the machine's goofy name -- Wii (pronounced "we") -- earned it ridicule from some game fans and critics. Nintendo's dominance of the portable-game market, meanwhile, was under assault by a new product from Sony.
But against the odds, Nintendo has become the company to beat in the games business, as the Wii flies off store shelves nearly as quickly as the company can make them. The buzz about the Wii has overshadowed the even greater success Nintendo has had with the Nintendo DS, a portable game player that is still selling briskly more than two years after its introduction.
The Kyoto-based company's unexpected strength is prompting broader changes throughout the industry as game makers that were caught off guard by Nintendo's strength -- including powerhouses like
Electronic Arts Inc., the world's largest publisher of games -- hurry to beef up development of games that take better advantage of Nintendo hardware. "This has been a honeymoon with consumers like Nintendo hasn't had in a decade or more," says John Taylor, a veteran games analyst at Arcadia Investment Corp. in Portland, Ore.
Nintendo's strength underscores how transitions to new generations of game consoles, an event that occurs every five years or so in the industry, can shake up the existing balance of power among hardware makers. Nintendo dominated the industry during the 1980s and early '90s, with hardware like the Nintendo Entertainment System and iconic game characters like Donkey Kong and Mario Brothers. The company, founded over 100 years ago as a maker of traditional Japanese playing cards, eventually lost its leadership in consoles to rivals, finishing in third place with its GameCube system behind Sony and Microsoft in the last wave of game hardware.
"I would say that this time last year, people were underestimating or discounting us pretty universally throughout the industry," says George Harrison, senior vice president of marketing for Nintendo's U.S. division.
But since going on sale in November, the Wii has become the hottest-selling product among the latest generation of game consoles designed to be hooked up to TV sets, a group that also includes Sony's PlayStation 3 and Microsoft's Xbox 360. The product lacks the ability to produce sophisticated graphics on par with the Sony and Microsoft machines. But it has an innovative motion-sensing game controller that lets players swing tennis rackets, golf clubs and swords within games. The Nintendo console's $249 price, too, has made it more appealing to some consumers than the Xbox 360 and the PS3, which start at $299 and $599, respectively.
In February, U.S. retailers sold 335,000 Wiis, compared with 228,000 Xbox 360s and 127,000 PlayStation 3s, according to NPD Group Inc., a sales-tracking firm in Port Washington, N.Y. Microsoft, of Redmond, Wash., still leads the overall market with more than 10 million Xbox 360s shipped to retailers world-wide since it went on sale in November 2005, a year earlier than the Wii and PS3.
It isn't clear how durable Nintendo's current momentum will be with the Wii. An array of coming titles this year based on blockbuster game franchises could give big boosts to the Sony and Microsoft machines, including
Take-Two Interactive Software Inc.'s Grand Theft Auto IV and Microsoft's Halo 3.
At EA, based in Redwood City, Calif., executives concede that Nintendo sold more consoles than they expected over the holidays. "Luckily for us, because of our scale and scope, we've got the ability to adjust pretty quickly and deploy some additional development teams," Executive Chairman Lawrence Probst said in an interview in February.
To take better advantage of the Wii's growth, EA moved quickly to ramp up game production for the system, acquiring Headgate Studios, a developer in Utah focused entirely on making titles for Nintendo hardware, and shifting resources in other EA development groups to Nintendo projects. The company released four titles for the Wii in March, including a version of its Tiger Woods golf game in which players swing the Wii controller like a club. EA is also working on a line of consumer guides for the Nintendo DS that will be aimed at older players in Japan.
Majesco Entertainment Inc., a small publisher in Edison, N.J., is betting the farm on Nintendo's success. Majesco found itself increasingly unable to compete with deep-pocketed rivals to create the splashiest games for PS3 and Xbox 360, for which budgets can run in the $10 million to $30 million range.
Simpler games for the Nintendo DS and Wii, in contrast, can cost under $2 million and $5 million, respectively, to make and can be completed far more quickly than titles for PS3 and Xbox 360.
Late last year, Majesco said it would focus nearly all of its development efforts in the future on Nintendo DS and Wii games. One of the first titles it published was a version of a Japanese game called Cooking Mama that lets players practice virtual culinary skills.
Jesse Sutton, interim president and chief executive officer of Majesco, says Nintendo is targeting its hardware at the fastest growing audience in the games business -- "casual" gamers who are more interested in fun, simple games rather than the deeply immersive titles that most hard-core gamers prefer.
Nintendo's performance in the portable-games business is causing similar ripples. The company long dominated portable-games hardware with the GameBoy. Its strength seemed in jeopardy, though, when Sony introduced the PlayStation Portable, or PSP, in late 2004 -- a more powerful portable machine with a dazzling screen on which users could also watch movies -- to compete with Nintendo DS, which lets users play games through a touch-sensitive screen.
Analysts believe Nintendo has largely vanquished the PSP threat. Nintendo has shipped more than 35 million DSs world-wide to Sony's 25 million PSPs. Recently, Sony cut the price of the PSP in the U.S. to $169 from $199 to help boost sales. The Nintendo DS sells for $130.
The popularity of DS has affected strategy for hard-core game publishers like
Square Enix Co., the creator of the popular Final Fantasy role-playing game series. While Square Enix is planning to launch several titles for the PSP this year, it currently has more than twice as many existing and planned titles for DS than for PSP, including travel guidebooks and a gardening tutorial.
Square Enix CEO Yoichi Wada says he realized the need for nontraditional games about a year ago when he saw how well a Nintendo brain-training game was selling. "We anticipated that portable games would take off before next-generation consoles," says Mr. Wada. "What we didn't expect was that the DS would attract new users who use the device in a brand new way."
