Game Over for Nintendo

For the last few years Nintendo (NTDOY.PK) has enjoyed undisputed dominance in the video game industry. Sales of the Wii game console have outsold its competitors, Microsoft (MSFT) Xbox 360 and Sony (SNE) PlayStation 3. It's no secret, but true gaming sophisticates have known for a while that the Wii is actually inferior to the Xbox 360 and the PlayStation 3 which both have better graphics and gaming engines.

The games are considered inferior as well. According to a recent issue of Electronics Gaming Monthly, most of the best selling games are not from Nintendo. They scored some big winners with games like Mario Galaxy and Wii Fit, but most on the best selling list are for competing consoles.

Nintendo, however, never intended to market the Wii to gaming sophisticates. After several years of losing market share to its competitors, Nintendo created the Wii to target traditional non-gamers such as women and the elderly. The Wii is actually nothing much more than a Nintendo Gamecube (last generation's technology) with motion sensors built in. In fact, old Gamecube games will work just fine on a Wii (sans motion control). This also provided game manufacturers with a library of hundreds of existing Gamecube titles that could be cheaply ported over to the Wii by adding in the motion sensor technology.

It was a gamble that paid off in spades, rocketing Nintendo to first place in console sales. Everyone wanted a Wii, but few could get them. Despite denials by Nintendo, I firmly believe this was part of their strategy – to artificially keep supply low to fuel demand. How many people do you know who wanted a Wii simply because no one else could get one?

A few days ago, Microsoft announced what will likely be a major blow to Nintendo and Sony. Microsoft has unveiled Project Natal, a ground breaking accessory for the 360 that is reminiscent of Nintendo's own wireless sensor bar.

I admit, I own a Wii myself having got caught up in the hype as well. And it is fun, but I always found it to be overrated. I even have the Wii Fit which I used a whopping one time. In the end, who has time for video games? I don't, not since my first son was born. Or at least that's what my wife says whenever I get close enough to even think about turning it on. And the excuse that playing the Wii was a form of exercise got old fast. Right around the time I figured out that I could play Wii Tennis just as effectively with a flick of the wrist... while sitting on the couch with a bag of potato chips in my other hand.

But all that could change with the Natal. Far more than just a camera and microphone, the Natal Sensor can capture full-body 3D motion, and has both facial and voice recognition capabilities. The sensor will actually recognize who you are and understand players' voice commands. Best of all, Natal replaces any need for a controller. Instead it turns your own body into the controller. Kick, punch, steer a car, whatever you do, so will your onscreen virtual counterpart. This is truly a revolution in gaming.

Even though Nintendo may have been the first to nudge the door open with this technology, Microsoft seems perched to blow the door right off the hinges. Natal is the kind of technology gamers have been fantasizing about for years, maybe even since the dawn of Pong. You can watch an amazing demo on Microsoft's site here though you may have to download Microsoft's Silverlight web-browser plugin for it to be viewable. No prices for the Natal accessory have been set yet but it could reportedly cost $200, more than a new Wii. But if Microsoft lives up to its promises, who cares? The Wii was so last year anyway.

Is this truly "Game Over" for Nintendo? Only time will tell, but it certainly seems like it. Recent innovations like Sony's PlayStation Eye or Nintendo's Motion Sensor Plus (a peripheral for increased accuracy) do not come close to what Microsoft managed to pull off. Introducing a black colored Wii won't help much either. If Nintendo's only response to this threat is that it is "flattered" Microsoft is pursuing motion control, stockholders should be worried that its management might be asleep at the Wii wheel.

Disclosures: None

Comments

[cirej2000:]

C'mon guys...do a little real analysis. $200? It can't launch for that much and be a mainstream option for gamers! The price will have to come down and be bundled with new xboxes. I won't pay that much for it and I've got all three consoles (I bought the PS3 in early 07 at the $600 pricepoint, so I'm not averse to spending for tech).

Secondly, what developer outside of Microsoft is going to develop games that require the tech? Maybe Microsoft, but if this tech only appeases the techies, then how is that going to expand the userbase at an additional $200?

Third - Nintendo has, for the first time since before launch, gotten some of the jaded core gamers who bashed the system to begrudgingly acknowledge that they might need to get a Wii. As low-energy as their E3 Presser was (my gawd, "Vitality Sensor"?), games like Super Mario Brothers, Super Mario Galaxy 2 and especially Metroid Other M have energized the Nintendo Game fans.

Fourth - Third Parties are taking risks. You don't think that the black Wii in Japan will make a diff? How about the Monster Hunter 3/Black Wii Bundle? What about EA and UbiSoft bundling WiiMotion Plus with EA Sports and Red Steel 2 respectively? What about the buzz generated by High Voltages (Left 4 dead like) game The Grinder?

I think that Microsoft and Sony cannot afford to put new systems out anytime soon. These are (and this is totally speculation on my part) pieces in an overall strategy (along with video and game downloads, plus the renewal of exclusivity deals) to extend the life-cycles of these systems. They can't afford to put out another generation of money losing systems. Not even deep pocket MS. It's time to recoup the losses.

Nintendo, on the other hand, is going to have to put some dough into their console market and go HD to some extent in the next couple of years. They won't lose money (as is usual for them) and they'll have to make it backward compatible to the Wii. But they're sort of in the driver's seat. Funny how those who ridiculed motion-controls as a "gimmick" are now slobbering over the prospect. Personally I can't wait to use motion controls in an HD FPS like COD modern warfare.

Jun 05 05:37 AM

[Barry Blogs:]

The author has it exactly right and I couldn't disagree more with cirej2000. If Natal does everything it claims to, I would easily drop $200 on it. People dropped $150 on the wii fit which does only a fraction of what the Natal does (yes, I know the retail price was $90 but since Nintendo likes to keep stock levels artificially low as. mentioned in the article, you couldn't buy it for less than $150).

Also, you are looking at this all wrong cirej2000. You have to think about it like this: every few years, the big 3 console makers come out with a new, better system. Gamers trade in their old ones for the new one with better graphics. I traded in my PS1 for a PS2 and then my PS2 for a PS3. When I was a kid I traded in my old 8-bit NES for the Super Nintendo and so on. But Nintendo GAMECUBE gamers didn't quite do that, did they? They traded in the Gamecube for a Wii, which is nothing more than a Gamecube with motion sensor joysticks. No graphics upgrade at all.

What will happen here is Microsoft is doing the same thing. Instead of investing in an all new system with better graphics like Sony does, they are taking a page out of Nintendo's book and are adding better motion sensors to its existing system. Had they not, Xbox gamers would be trading in their units for the next Microsoft console and probably be paying a lot more than $200. Instead they'll shell out some extra cash to transform their current system into something better. The question is will Sony and Nintendo fans be willing to buy an Xbox 360 AND the Natal. That gets pricey.

But it is all pretty irrelevant.The $200 price tag is a rumor and isn't set in stone. I'm sure they will have professionals doing a lot of research to set the proper entry price. Rest assured what ever price they choose, chances are people will buy it even if you personally don't think it is a good idea. For instance, I thought Apple was crazy for setting an original price tag of $500 for the iPhone. Who the hell needs to pay that much for a souped up phone locked to AT&T? Yet people were lined up to buy them weren't they? Fans do strange things. Even pay $200 for a peripheral.

Jun 05 07:00 AM

[cirej2000:]

Interesting points. But even though for the first time this generation, I broke down and got all three consoles. Most people aren't more than one console. With Natal still being a ways off and MS and Sony committing to a longer lifecycle for their systems, this will pay off eventually.

But better technology hasn't helped overall up to this point. Say what you want, about you yourself spending $200 (rumored $200) on Natal. People who buy an iphone or ipod or a blackberry aren't the exclusively the group of folks who buy the 360 and the PS3.

Without games out there, I doubt people are going to jump with the dollars to the Natal for just controlling their avatars. I'm sure they will jump when you start seeing killer apps for the Natal.

Personally, I'm all over the PS3's wand. And I think that it'll bear games that work with it alot sooner.

Microsoft has momentum right now and they'll do fine without Natal being a system seller tomorrow. They've got Xbox Live and they get the best of the best when it comes to Cross Platform games. And they've got a few exclusives here an there. But SONY is coming on strong.

And whoa? Who said that I thought that Natal was not a good idea? I said, that I would not pay $200 for it. It's a peripheral, and right now there is no killer app for it. The iPhone was an awesome concept, everybody has a cellphone and people use cellphones instead of landlines. Plus the iphone has killer apps, killer hype and people can justify the practicality of it.

If you already have a 360, then you're already part way there for the Natal. Then you just have to go through whatever criteria list you use to make the next step for purchase (does it have games, do I like the hell out of it enough to be an early adopter, is the price right?).

If you don't have a 360 is the Natal going to be enough for non-owners to make the jump? I would doubt it. Especially for the next year or so. Games will sell people on the console, maybe a price drop or bundle offering here and there. But not an add-on.


On Jun 05 07:00 AM Barry Blogs wrote:

> The author has it exactly right and I couldn't disagree more with
> cirej2000. If Natal does everything it claims to, I would easily
> drop $200 on it. People dropped $150 on the wii fit which does only
> a fraction of what the Natal does (yes, I know the retail price was
> $90 but since Nintendo likes to keep stock levels artificially low
> as. mentioned in the article, you couldn't buy it for less than $150).
>
>
> Also, you are looking at this all wrong cirej2000. You have to think
> about it like this: every few years, the big 3 console makers come
> out with a new, better system. Gamers trade in their old ones for
> the new one with better graphics. I traded in my PS1 for a PS2 and
> then my PS2 for a PS3. When I was a kid I traded in my old 8-bit
> NES for the Super Nintendo and so on. But Nintendo GAMECUBE gamers
> didn't quite do that, did they? They traded in the Gamecube for a
> Wii, which is nothing more than a Gamecube with motion sensor joysticks.
> No graphics upgrade at all.
>
> What will happen here is Microsoft is doing the same thing. Instead
> of investing in an all new system with better graphics like Sony
> does, they are taking a page out of Nintendo's book and are adding
> better motion sensors to its existing system. Had they not, Xbox
> gamers would be trading in their units for the next Microsoft console
> and probably be paying a lot more than $200. Instead they'll shell
> out some extra cash to transform their current system into something
> better. The question is will Sony and Nintendo fans be willing to
> buy an Xbox 360 AND the Natal. That gets pricey.
>
> But it is all pretty irrelevant.The $200 price tag is a rumor and
> isn't set in stone. I'm sure they will have professionals doing
> a lot of research to set the proper entry price. Rest assured what
> ever price they choose, chances are people will buy it even if you
> personally don't think it is a good idea. For instance, I thought
> Apple was crazy for setting an original price tag of $500 for the
> iPhone. Who the hell needs to pay that much for a souped up phone
> locked to AT&T? Yet people were lined up to buy them weren't
> they? Fans do strange things. Even pay $200 for a peripheral.

Jun 05 07:19 AM

[Barry Blogs:]

cirej2000, you couldn't be more wrong about your comment: "Secondly, what developer outside of Microsoft is going to develop games that require the tech? Maybe Microsoft, but if this tech only appeases the techies, then how is that going to expand the userbase at an additional $200?"

If you recall, those that dissed Wii in the beginning as a gimmick said the same thing. It was too risky and what game manufacturers would want to make games for such a system. Well, that's the funny thing about manufacturers, they like to make money. And whatever the demand is they'll fill. When the Wii became a hit, they fell all overthemselves trying to manufacture games for the system.

You also forget something else. The Wii was a Gamecube with motion control. So manufacturers didn't need to design new games. Almost all the early Wii games were actually Gamecube games that were ported over. The manufacturers just took the same games and built in motion control (i.e. instead of the A button making the player jump, the sensing of a certain motion would make the player jump). This was much faster, cheaper and easier than designing a brand new game from scratch. It will be the same thing for the Natal. All the existing games will be ported over in a short period of time creating a large selection of games that no new system, say a PS4, could possibly hope to beat!

Game Over. Winner: Microsoft.

Jun 05 07:31 AM

[I.H.:]

Great article and an awesome sound product! I think I was salivating during the Natal demo. Good Discussion as well.

Cirej2000 is probably right about Microsoft tyring to extend the life cycle of the XBox 260 but I think it is for the reasons the author stated -they did a complete flip flop and are now copying every aspect of Nintendo's strategy. If they don't have some big secret in the work, the company is in trouble.

Cirej, you had some interesting points and though I disagreed with much of it, I was confused about one thing - Who cares about a black Wii? I mean if you really wanted it in black, they were already selling silicone skins of every color for a few bucks on ebay. Sure it might tip the balance for someone who doesn't have a system yet but do you really think someone will now ditch their PS3 or XBox for a wii just because they can get it in black?

I have a Wii so upgrading to an XBox AND a Natal would be pricey for me, but still less than I think buying a PS3 would have been when it first came out. Even so I am incredibly tempted. But I'll wait for others to test it out first before I buy one. Even then I might get a used XBox cheap, I saw plenty for sale once the Wii became so big. Now people will want them back.

I think Microsoft won this round but that's the nature of this game. Who will win the war will never be clear until its too late. But in the meantime I think I'll take the authors advice, its time to buy Microsoft and short Nintendo.

Jun 05 07:59 AM

[I.H.:]

I meant to say "an awesome sounding product" in the 1st line of my previous comment. Sorry.

Jun 05 09:31 AM

[Danielle:]

Very cool article! If Natal can live up to the hype, it will change everything.

Jun 05 10:41 AM

[cirej2000:]

Japan is very, very big on different colors of systems. PSP for example. But the big thing about the black system that I thought I pointed out is that it's being bundled with Monster Hunter 3 over in Japan (huge franchise for Japan, mainly on PSP...but we'll see on the console front).

And as far as ditching the 360 and PS3 and jumping to the Wii? You guys must think that I'm some sort of HD hater! LOL! I never implied that people were jumping ship to the Wii. I know that some people are actually starting to look at the Wii and go...hmmmm this year for the first time this gen. But I know of NO 360/PS3 fans who are "jumping ship" to the Wii. I would call that setting one's self up for failure. It doesn't have the same experiences that you can get on the 360/PS3. This is why for the first generation I got more than just a Nintendo console as in my PS3 and 360. Nintendo's casual strategy left me hungry after I got tired of WiiSports, so I broke down and bought the other two in early 07.

People are still interested in WiiFit and will be in WiiSports Resort. Personally, WiiFit isn't for me (I actually go to this thing called a Gym)...but I understand that it's got appeal.

People who aren't gamers still won't necessarily see the need to get the 360 or PS3 because of Natal. I have seen quite a few non-gamers get a Wii, then get 360 because of something like Gears or Halo3 (but not the soccer mom's and grannies). But still that's just adding on to what's already there.

Is it possible that MS will have more 360s sold by the end of lifecycle than the Wii at that same point? Maybe. Especially if the 360 is looking to last until 2015 like many have rumored. If that's the case, then Natal is an awesome tool to extend the lifecycle without having to invest R&D money on a new great tech for the next console. However, will Nintendo have moved on to the next console by then? Probably. And we'll all benefit as gamers for the battles that went on this generation.


On Jun 05 07:59 AM I.H. wrote:

> Great article and an awesome sound product! I think I was salivating
> during the Natal demo. Good Discussion as well.
>
> Cirej2000 is probably right about Microsoft tyring to extend the
> life cycle of the XBox 260 but I think it is for the reasons the
> author stated -they did a complete flip flop and are now copying
> every aspect of Nintendo's strategy. If they don't have some big
> secret in the work, the company is in trouble.
>
> Cirej, you had some interesting points and though I disagreed with
> much of it, I was confused about one thing - Who cares about a black
> Wii? I mean if you really wanted it in black, they were already
> selling silicone skins of every color for a few bucks on ebay. Sure
> it might tip the balance for someone who doesn't have a system yet
> but do you really think someone will now ditch their PS3 or XBox
> for a wii just because they can get it in black?
>
> I have a Wii so upgrading to an XBox AND a Natal would be pricey
> for me, but still less than I think buying a PS3 would have been
> when it first came out. Even so I am incredibly tempted. But I'll
> wait for others to test it out first before I buy one. Even then
> I might get a used XBox cheap, I saw plenty for sale once the Wii
> became so big. Now people will want them back.
>
> I think Microsoft won this round but that's the nature of this game.
> Who will win the war will never be clear until its too late. But
> in the meantime I think I'll take the authors advice, its time to
> buy Microsoft and short Nintendo.

Jun 05 11:17 AM

[cirej2000:]

If Natal is truly backward compatible with existing games. Then I might just break down and early adopt to play gears, Cod 4 and Modern Warfare2, Halo3 and the like. Yeah baby!! I'll retract a good portion of my caveats about this article if they can get going and get the developers to buy into it at a low pricepoint!

If my wife would just let me bring my unloaded rifles and shotgun into the office to play...hehehehe! Could you imagine?


On Jun 05 10:41 AM Danielle wrote:

> Very cool article! If Natal can live up to the hype, it will change
> everything.

Jun 05 11:39 AM

[Judo_Orange:]

Nintendo game over? Not quite, I guess. Why?
1. Nintendo was not always in No.1. Actually they was in No.3, and then another No.3, but they've never been a money-loser. They have solid franchises, which are sold and will be sold this Christmas and next Christmas. In fact, they are now market leader and trend setter.
2. Indeed Wii's controller is a differentiator but that is not all the story. Nintendo's strategy focuses on E-rated titles. Sony and Microsoft, regardless their intentions, have seen M-rated titles dominated their platforms. (Take a look at Amazon, among top 10 bestsellers in each platform, 360/7 M-rated, 3 T-rated; PS3/8 M-rated, 2 T-rated; Wii/10 E-rated)
As a result, the demographic gap between Wii and the other two differed, widely. True, gaming sophisticates make more purchases, pushing up attach rate, but they should never be the target audience Sony and Microsoft go after, at least not entirely, if the Big 2 want their consoles as ubiquitous as TV, ever. True, Wii's name suffered as gaming sophisticates dominates game forums/blogs, but month after month, Wii enters more family than 360 and PS3 combined.
3. The demographic difference is becoming clearer to third party developers. Therefore, increasingly, they are not making choices among three platforms or between Wii and 360, or between Wii and PS3, they are making choices between Wii and 360/PS3. That is not bad news for Wii. That is certainly not good news especially for Sony, the No.3 in this generation.
3. MSFT was good. Good at "Copy and Conquer". They beated apple in GUI war and they killed Netscape in browser war. They are aiming Nintendo because they are jealous of Wii's demographic. They did get the white, cheaper and non-HD arcade console out and they did bring more casual games to Live. But when your core franchises and audiences are more M, it's quite difficult to shift. But you are right, MSFT is a different kind of animal therefore Ninty had better not to be "flattered", whether the Natal is good or good-hyped.

Jun 05 02:24 PM

[cirej2000:]

I meant into the "home office" not the work office!!

Ya know?


On Jun 05 11:39 AM cirej2000 wrote:

> If Natal is truly backward compatible with existing games. Then
> I might just break down and early adopt to play gears, Cod 4 and
> Modern Warfare2, Halo3 and the like. Yeah baby!! I'll retract a
> good portion of my caveats about this article if they can get going
> and get the developers to buy into it at a low pricepoint!
>
> If my wife would just let me bring my unloaded rifles and shotgun
> into the office to play...hehehehe! Could you imagine?

Jun 05 03:20 PM

[susansong:]

I think this article hit the nail ont he head, IF Microsoft can deliver. To "JudoOange:" Um... he never said Nintendo was always No. 1. On the contrary, he said they were #1 only for the last few years (since the Wii came out) and that Nintendo was losing market share to Xbox and Playstation.

Second of all, Nintendo has always focused on E-titles to try to position themselves as the family fun and safe alternative. That strategy bombed for them - as you said, they fell from 1st place to last among the big 3. Focusing on E-titles did not get them to the top spot, that's nothig new. It was the change to the Wii's motion control. That's what captured the family demographic. If anything, Nintendo has been moving away from E-Titles and have been embracing more Mature titles as of late. They even have some gore-fest titles like Manhunt 2 (though they blurred out some of the worst scenes).

But I do agree with you that when Microsoft sets their eyes on something, they go after it to win. They don't always succeed (the Zune didn't do much to topple the ipod) but they are definitely after Nintendo's lucrative demographic. And yes, Nintendo better wake up and smell the coffee. They better have something big up their sleeve or the company may be finished.

On Jun 05 02:24 PM Judo_Orange wrote:

> Nintendo game over? Not quite, I guess. Why?
> 1. Nintendo was not always in No.1. Actually they was in No.3, and
> then another No.3, but they've never been a money-loser. They have
> solid franchises, which are sold and will be sold this Christmas
> and next Christmas. In fact, they are now market leader and trend
> setter.
> 2. Indeed Wii's controller is a differentiator but that is not all
> the story. Nintendo's strategy focuses on E-rated titles. Sony and
> Microsoft, regardless their intentions, have seen M-rated titles
> dominated their platforms. (Take a look at Amazon, among top 10 bestsellers
> in each platform, 360/7 M-rated, 3 T-rated; PS3/8 M-rated, 2 T-rated;
> Wii/10 E-rated)
> As a result, the demographic gap between Wii and the other two differed,
> widely. True, gaming sophisticates make more purchases, pushing up
> attach rate, but they should never be the target audience Sony and
> Microsoft go after, at least not entirely, if the Big 2 want their
> consoles as ubiquitous as TV, ever. True, Wii's name suffered as
> gaming sophisticates dominates game forums/blogs, but month after
> month, Wii enters more family than 360 and PS3 combined.
> 3. The demographic difference is becoming clearer to third party
> developers. Therefore, increasingly, they are not making choices
> among three platforms or between Wii and 360, or between Wii and
> PS3, they are making choices between Wii and 360/PS3. That is not
> bad news for Wii. That is certainly not good news especially for
> Sony, the No.3 in this generation.
> 3. MSFT was good. Good at "Copy and Conquer". They beated apple in
> GUI war and they killed Netscape in browser war. They are aiming
> Nintendo because they are jealous of Wii's demographic. They did
> get the white, cheaper and non-HD arcade console out and they did
> bring more casual games to Live. But when your core franchises and
> audiences are more M, it's quite difficult to shift. But you are
> right, MSFT is a different kind of animal therefore Ninty had better
> not to be "flattered", whether the Natal is good or good-hyped.

Jun 06 04:41 PM

[Nintendo Freak:]

Great article. I love the Wii but the Natal sounds way better!

Jun 08 04:19 PM

[Tony Roberts:]

why is a seeking alpha employee running up the fastest climbers . these list should be outside contributors and not insiders.

Jun 10 08:45 PM

[H.J. Huneycutt:]

Two words: Power Glove

en.wikipedia.org/wiki/...

$200 is expensive. No guarantee that Natal doesn't become the next "power glove." That is to say, it could be an overly ambitious piece of techno-crap that sounds good, but is truly a disaster once people actually start to try to use it. There were very few games designed to work with the power glove --- what's going to bring in game designers in on this technology? (Keep in mind, most mainstream game developers still haven't fully embraced the Wii --- Nintendo makes a lot of the games themselves)

The big problem is --- the XBox 360 has been out for several years. To simply create a new device for it and sell it for $200 isn't exactly a great strategy. Developers won't want to change just for the device unless they know they'll sell a much higher number of units for their efforts. People won't want to buy the device unless the developers create games for it.

Same issues with the power glove for the original Nintendo. Plus,it didn't work well.

That said, I'd still prefer to keep away from Nintendo's stock. The momentum behind the Wii is slowing. What's Nintendo's encore? I'm not sure that they have one coming.

Jun 12 05:43 AM

[Barry Blogs:]

There are quite a few SA employees on the leaderboards. And why not? Readers want to read who's good and the leaderboards are a good indication of that.


On Jun 10 08:45 PM Tony Roberts wrote:

> why is a seeking alpha employee running up the fastest climbers .
> these list should be outside contributors and not insiders.

Jun 14 08:26 AM

[Tracey Turner:]

A great read! Thanks.

Jun 28 09:57 AM

[Tracey Turner:]

I can't wait to get one of these for my son!

Jun 28 09:58 AM

[Dan Katz:]

Very cool article!

Jul 22 08:06 AM

[Tidy 1:]

Kudos to Seeking Alpha employees who have the time to also provide some interesting analysis of their own to the benefit of the Seeking Alpha community - Nice work Boaz!

Aug 05 06:22 AM

[cirej2000:]

Hey! Monster Hunter 3 and the Black Wii bundle has released. Wii sales are up 4 times this week in Japan.

Wii Sports resort has bumped up Wii sales by about 70% world wide!

You guys were right.

Aug 07 12:31 PM

[Dan Katz:]

Wow, you really predicted this one correclty. Wii sales are down 40%:

seekingalpha.com/artic...

And it looks like most analysts are now predicting that Xbox will be the #1 console. Wish I listened to you when this article first came out!

Nov 16 03:25 AM