This story has been corrected from an earlier version. Previously it said Nintendo hasn't announced plans for a successor to the GameCube. In fact, the company has suggested that it would have a new machine ready in the next couple of years.
Nintendo, the biggest seller of video-game consoles 15 years ago, once again faces a tough street fight against Sony, the upstart that stole much of the video-game business with its PlayStation. This time, the fight is over handheld video-game machines, and if Nintendo loses, it could be in serious trouble.
The battle will take place next week at the E3 video-game conference, the industry's biggest trade show. Nintendo is expected to give peeks at its next-generation handheld system – code-named the DS – while Sony will release more information about its PSP. Both companies will be vying for the hearts and minds of gamers and – more importantly – software developers.
Right now, Nintendo commands 98 percent of the $1.1 billion market for handheld game devices and relies on its Game Boy Advance for a big chunk of its revenue and profit. In fact, the Game Boy Advance is carrying a lot of water for the company, since the GameCube, Nintendo's flagship gaming console, is rapidly falling behind the PlayStation and Microsoft Xbox in sales. That's why the company needs the Nintendo DS to be a big hit. But the early betting is on the Sony PSP.
"Right now, the Game Boy Advance has a firm hold on the portable category," said Richard Ow, an analyst with NPD Group, a market research company. "If the DS flops, that means they would go from (owning) almost all of the category to almost none."
In case you haven't been in close proximity to any 12-year-olds in the past five years, the Nintendo Game Boy Advance is a $100 portable game device the size of a slice of bread. It plays games on cartridges, which sell for about $40. Up until September 2003, Nintendo had sold 42.2 million of the devices around the world. The company pitches them primarily to people under 20.
Next week, Nintendo is expected to debut the next version, the DS, in Los Angeles. The DS would feature dual processors and two 3-inch screens that fold together like a clamshell, wrote American Technology Research analyst P.J. McNealy in a research report. He also wrote that the DS would have two directional pads and a stylus, which "will be used for gaming, instant messaging and other multimedia functionalities."
Nintendo declined to comment about the DS.
Like the DS, little is known about the PSP, but the concept Sony has laid out is more intriguing. The PSP (short for PlayStation Portable) reportedly would have graphics capabilities close to that of a PlayStation 2. Unlike the Game Boy Advance, the PSP would play games from a small CD, opening the possibility of playing music and movies on its 16:9 ratio screen. And Sony is gunning for young adults, a far larger and more lucrative market than the kiddies.
Sony also declined to comment.
"It's clear that the PSP and the DS are going to be overlapping" in trying to get buyers in the same age groups, said McNealy, "and there are limited dollars available in that market."
Many analysts said they think the older demographic is ultimately more lucrative.
"People are excited about the older demographic," says Billy Pidgeon, a senior analyst at Zelos Group. "That's a group with a lot of disposable income."
David Cole, president of DFC Intelligence, agreed.
"Kids are fairly limited in terms of numbers," he said. While Nintendo has the 16-and-younger crowd locked up, it's going to face a big challenge keeping that group as they get older, since the PSP has features that would appeal to an older audience.
"Pretty much any major developer you talk with, they're either doing something for the PSP or looking at it," said Cole.
Nintendo needs the DS to be a big hit. The Japanese game hardware and software maker has suffered a poor showing in recent years. For the year ending March 31, 2003, handhelds accounted for 26.2 percent of its $4.2 billion in sales. But that ratio soared in the six months ending Sept. 30, 2003, jumping to 42.2 percent largely on the popularity of a new, slightly revamped Game Boy Advance, but also because of slowing revenues from GameCube.
Nintendo has faced a big threat from Sony before. In the 1980s, Nintendo ushered in the second renaissance of the video-game industry and dominated sales for years – until Sony came out with the PlayStation in 1995. Sony's power in the market grew as older gamers flocked to the PlayStation. But Nintendo chose to stick with the market it knew best – kids – focusing on squeaky-clean games like Mario Bros. and Pokemon.
As a result, when Nintendo introduced the GameCube a few years ago, adult gamers – who now outnumber kids – chose the PlayStation 2 and Xbox instead for the edgier fare they offered.
If the DS flops too, Nintendo could lose the confidence of software developers who write games for its platforms, said Robin Hunicke, a games researcher at Northwestern University.
Still, Nintendo commands a lot of loyalty from customers. And no matter how well Sony designs the PSP, the upstart would have a long way to go to catch up to the Game Boy.
"Nintendo knows their customers; they know how to market," said In-Stat/MDR analyst Brian O'Rourke. "Until that's proven different, I'm just going to assume that the DS is going to be a success, because their track record proves that they know what they're doing."
Mike Wallace, a managing director at UBS Investment Research, said he thinks Nintendo will do whatever it takes to protect its reputation as the 800-pound gorilla of handheld gaming.
"I can't see any scenario where they get out of the handheld market," he said. "A lot of people are writing Nintendo off, but I wouldn't do that. They've owned this market, and they're not going to let it go without a fight."
