Nintendo's Competitive Advantage

Includes: MSFT, NTDOY, SNE
by: Bruce Everiss

When I was working at Codemasters in the mid eighties Richard Darling was considered to be a gaming god with a string of number one titles at Mastertronic and then Codemasters to his name. So it was really interesting that the game machine he had at home was a dated Atari VCS 2600 console when he could easily have used a far more powerful and modern machine like a Commodore Amiga or Atari ST instead. The reason he gave was that gameplay was the most important thing, not graphics. And that the VCS 2600 had finely crafted and polished games in which the gameplay was paramount.

This is a debate that has cropped up again and again over the years. Always the platform makers give us ever higher graphics capabilities. And nearly always game developers throw ever increasing resources at utilizing those graphics capabilities to the maximum. What a game looks like has become the most important thing.

Yet talk to serious gamers about their favorite games. Often you hear the names of titles like Elite, Goldeneye and Super Mario 64. Games with quite miserable graphics compared with more modern offerings.

And this seems to be something that Nintendo (NTDOY.PK) understand better than Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT), which has given them a massive competitive advantage. Basically Nintendo did not go HDTV with the Wii whilst their competitors did with their latest consoles. This looks relatively sensible as the vast majority of homes do not have HDTV and the adoption rate will be relatively slow because non HD TVs do a perfectly good job.

The advantages to Nintendo are firstly that it makes their console cheaper to manufacture. This means that they can sell the base console at a profit whilst their competitors have to subsidise the retail price. It also gives Nintendo far more room to manoevre when it comes to using the price mechanism to take on that competition.

The second advantage is that games are a lot easier, quicker and cheaper to develop. In fact they are more comparable with PS2 games in this area. This, obviously, has a massive effect on what appears on the game shop shelf and when it appears. Quite simply, it should be far easier for a publisher to make a profit on Wii, which explains why so much development resource has been directed at it.