Game Wars, Act Wii

25 Sep 06

If the battle between Sony and Nintendo were a videogame, instead of a business rivalry, it would undoubtedly be a long-time best seller, already into the third or fourth round of sequels.  Except, unlike most sequels, this game would keep getting better, and the stakes higher.  

These companies have been battling in the videogame business for decades now (Microsoft’s Xbox is a relatively recent entrant).  In last year’s handheld game installment, Nintendo’s DS handily beat Sony’s PSP.  Since its launch in November, 2004, the DS has become the hit portable gaming system, while the PSP, technically superior and about twice the price, lags behind.

The last several weeks have brought significant news in the game console wars from both Sony and Nintendo.

·        For Sony, the world looked a little bleaker after it announced on 6 September that the scheduled November launch of the PS3 would not involve very many actual PS3 consoles.  Sony can’t yet manufacture them in volume because it can’t get enough components for its innovative blu-ray HDVD player.  As a result, Sony expects to sell 2 million of them during Christmas 2006, which is all that it can produce.

·        Nintendo announced on 17 September that its new game system, called the Wii, will ship in the US on 19 November.  The system will come bundled with four games, and will sell for $250.  For comparison, Microsoft’s Xbox 360 sells for around $400, and the estimated price for the Sony PS3 will be about $600.  Nintendo expects to sell 4 million Wiis to the US in 2006, and another 2 mm by March, 2007.

Even with Sony’s ongoing problems, a number of analysts continue to believe that the PS3 will eventually triumph.   Yuta Sakurai, an analyst at Nomura Securities in Tokyo, told BusinessWeek that he expects the PS3 to sell 71 million units by 2011, compared with 40 million units for the Wii.  If so, Sony’s triumph would be a remarkable recovery.

Sony and Nintendo consistently emphasize that they are addressing “different markets,” and in a way, this may be true.  The people I see carrying a PSP are usually boys, aged 14 to 30 or so.  The people I see with the Nintendo DS are everyone else. 

             Surprisingly, the videogame industry has been declining over the last several years.  Sales at game maker Electronic Arts, for example, declined 7 percent in its FY 2006, and Standard & Poor’s predicts a sales increase of only 2 percent for FY 2007.

Only part of the reason for this decline is the fact that everyone’s waiting for the new consoles. 

Nintendo’s management sees the problem as a more profound one:  most of the videogame industry has not expanded beyond its core market of boys and young men.  

“The fact is … that demographic is shrinking and the next cohort, their younger brothers, is even smaller.”

Nintendo EVP of Sales Reggie Fils-Aime, Feb 06

Nintendo has been developing games and systems that appeal to a wide range of people.  On September 9th, for example, the Nintendo Store at Rockefeller Center in New York sponsored the “NintendoWorld BrainAge GrandParents Gaming Tournament.”  The winner got a couple of DS game systems.  Here is a picture of the “Coolest Grandparent of the Year.”

Nintendo’s Coolest Grandparent 2006

Perhaps this approach is paying off, because Nintendo is doing pretty well right now.  Sales were up 85%, and profits up eightfold, in the third quarter. The company’s stock, trading around $23 right now, is up from around $14 in April.  Nintendo attributes this improving performance to its efforts to get more people involved with its games. 

            Sony hasn’t been doing too badly either.   It has returned to profitability, after a loss in last year’s second quarter, and overall sales are up as well.   Over the last 12 months, its stock has gone from around $34 to around $42 now.

            But the PS3 hasn’t launched yet, and its success or failure will play a major role in Sony’s fortunes over the next several years. 

More Information:

1. This Update builds on a previous Update on Gameboy Wars, 2006, written back in March 2006.  That’s here.
2. Sony’s misplaced approach to blu-ray technology, discussed here in my 22 May ICE Update, and the results, reported here in BusinessWeek.
3. An evaluation of Nintendo’s strategy is in BusinessWeek’s 20 Sep 06 issue. It’s available to subscribers here.
4. Pictures from the NintendoWorld BrainAge Grandparents’ gaming tournament are here.   As you’ll discover if you look at the flickr pictures, this grandmother is a bit of a ringer – she is doing a reality TV show with MTV, and they flew her to New York for the tournament.   That’s show-biz, I guess.