Tue, Sep 13, 2011 page11

• Market shift shakes Nintendo

  NOT-SO-SUPER MARIO: The evolving game market has hit Nintendo hard, as sales of its consoles slump and it lacks the software that smart device users are craving

  • Reuters, TOKYO
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  In a world of booming smartphones and tablets, social game providers will take the spotlight at the Tokyo Game Show this week, while champion Nintendo Co, criticized for being too centered on hardware, struggles to win back fans.

  As sales of conventional games sputter, Japanese mobile social gaming company GREE Inc and rival DeNA Co are well placed to benefit in the local market, given their success with previous generation feature phones.

  GREE marks its debut at Japan’s annual game show, which runs from Thursday until Sunday, with one of the largest booths.

  GREE, which makes money from selling virtual items to its more than 26 million users in Japan and DeNA, which boasted more than 29 million local users, have seen dizzy growth rates.

  GREE is 49 percent owned by 34-year-old Yoshikazu Tanaka, who was named Asia’s youngest self-made billionaire in 2009 by Forbes magazine.

  Japan’s social gaming market, often involving simple games played on mobile devices with anonymous online contacts, is expected to grow to about ￥400 billion (US$5.1 billion) in 2013, from ￥106 billion this year, extending its rapid growth, Mitsubishi UFJ Morgan Stanley analyst Masato Araki said.

  Nintendo, which does not take part in the Tokyo Game Show, holds its own event today.

  The Kyoto-based company is expected to unveil new 3DS software featuring its 25-year-old character Mario and there is also market chatter about a joystick accessory, already dismissed by analysts and bloggers as unlikely to boost sales.

  Japan’s software publishers are shifting resources into developing the new generation of social games, but Nintendo is effectively excluded because any attempt to make the leap to providing content for other companies’ gadgets would risk further damaging already weak sales of its Wii and 3DS.

  “Nintendo has done some pretty awful things — no software, poor pricing, poor PR [public relations], no sign of a sustainable turnaround, software support dropping like flies,” JPMorgan analyst Hiroshi Kamide said of the failed 3DS launch.

  Software provider Konami Corp, by contrast, had done something relatively straightforward, but with great execution, Kamide said.

  “You can make serious returns with social games in Japan if done well — and that is exactly what they have done,” Kamide said.

  The change of fortunes is no less marked in terms of share price, where Nintendo, which long dominated the industry by appealing to everyone from pre-schoolers to pensioners with its Wii and DS hardware, has slumped 41 percent since April 1, hit by the flop of its new handheld gadget, the 3DS.

  Shares in GREE have soared 83 percent, DeNA is up 28 percent and Konami has jumped 84 percent.

  Looking to boost video game sales ahead of the holiday season, Sony Corp cut the price of its basic PlayStation 3 gaming console by nearly a fifth in the US.

  Many casual gamers are flocking to devices such as Apple Inc’s blockbuster iPhone and iPad, eating into Nintendo’s share of the market, while Facebook and Google Inc are also making a big push into games.

  “Nintendo needs to be more social and digital and it’s going to struggle to do so as it won’t give up its hardware/software combination strategy,” said David Gibson, head of research at Macquarie Capital Securities.

  Highlighting the industry’s downturn, physical sales of games hardware and packaged software in the US fell 23 percent last month from a year ago, according to research firm NPD.

  Nintendo sold only 710,000 units of the 3DS from April to June, compared with 3.6 million in the month following its launch, and a tiny fraction of its 16 million unit target for the year to March next year.

  Slashing the price of the 3DS by about a third has boosted unit sales, analysts say, but it is unclear how long the effect will last, leading some to call on Nintendo to pull out of hardware altogether.

  However, the example of Sega Corp is increasingly being cited as a reason for Nintendo to stick to its current structure.

  Once a force to be reckoned with in video games and boasting the popular Sonic the Hedgehog character, Sega dropped out of the home console hardware market a decade ago.

  Sega clung on as a software publisher for other platforms, but two years later, its creative drive apparently fading, it was taken over by pachinko pinball parlor firm Sammy Corp.

  The withdrawal did little to improve Sega’s financial position and company employees said the exit made it harder to recruit and keep talented staff.

  Some games industry experts say Nintendo may successfully fight back as it has done in previous crises.

  “Nintendo has fallen into a slump twice in the past,” said Osamu Inoue, an author of a book on the secretive giant.

  “It almost went bust after diversifying in the 1970s,” he added, pointing out that the launch of the DS and Wii saved the company again after years of losing out to Sony’s PlayStation.
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