Nokia's foray onto the mobile entertainment market, the N-Gage gaming deck, was dealt a blow this week when hackers were able to crack the security codes protecting its games from being pirated, with illegal copies being posted on the Internet.
This means the games can now be downloaded by anybody and will work on any handset running Nokia's Series 60 software platform, used in N-Gage and its 3650 and 7650 camera phones, as well as some models made by Siemens and UK-based Sendo.
Nokia played down the event, saying it had been anticipated and that the company was working to curb the illegal distribution of its games.
"This is a very common occurrence in the games industry, and we have expected it from the beginning," said Damian Stathonikos, a Nokia spokesman.
Analysts, noting that the download is actually quite difficult and cumbersome, said the loss of the codes was more of a humiliation than a financial loss to Nokia.
"It's an embarrassment, and in the long-term this has to be solved," Mika Paloranta, an analyst with investment bank Carnegie, noted. "In the short and medium-term, it's hard to believe that this will be so drastic that it would have any major implications."
"It was likely to happen sooner or later," Erkki Vesola, an analyst with Mandatum bank, said. "And it's better sooner when there is just a few devices out, than later when there are millions of them."
Nokia said that due to the complexity of the process to get the pirated games to work on Series 60 phones, the practice would not become widespread.
"This is not something an average consumer can do. One needs special skills in programming and special software tools not generally available to the public to do it. And overall it takes time and malicious intent," Stathonikos noted.
But the embarrassment factor remains, especially as the group hopes to make more money from the marketing of games than on the N-Gage device itself.
"They expect the games will create more sales than the gadgets itself in the future, and from that viewpoint it is embarrassing," Vesola noted.
Until the security breach can be fixed, Nokia's only option is to pressure national authorities and Internet firms hosting the Web sites where illegal copies are offered to close the pages down.
"We are working with authorities and Internet service providers to ensure that we stop this illegal activity," Stathonikos said.
Analyst noted however that the incident did not improve their already low expectations of Nokia's much touted entry onto the mobile gaming market, with many doubting the whole venture altogether.
"In the big picture, this incident is not such an important issue for Nokia, it doesn't improve the sentiment and it doesn't erase the doubts that have been around N-Gage in the investor community," Vesola noted.
While Nokia claimed to have shipped 400,000 N-Gage devices to wholesalers during the first two weeks after its launch last month, the signs are that consumers are giving it the cold shoulder, analysts said.
"There are indications that it has not sold so well, and the amount of deliveries to the distribution channels doesn't say anything about end-user demand," Vesola pointed out, saying that distributors have cut the price of the device heavily.
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