Nintendo Aims for Next Age Level
Carlton Smith has two Nintendo Co. GameCubes -- and both are stashed in a closet.
The 32-year-old Los Angeles set builder bought the spare console for his son, but 9-year-old C.J. wants to play sports games only on PlayStation 2 and Xbox like his dad.
“GameCube is a kid’s box,” said Smith, who has owned more than a dozen different game consoles since 1984, when he bought an Atari 2600. “I haven’t played it for a year, and my son just wants to play what I play.”
Once the undisputed leader of the video game industry, Nintendo has tried without much success to reverse the persistent impression that its flagship GameCube is more a toy than a serious game machine. It has lost much of the 90% market share it once enjoyed to Sony Corp., which makes PlayStation, and Microsoft Corp., which makes Xbox.
Nintendo now holds 19% of the console market. But the Japanese company, which also makes the popular Game Boy hand-held players, will attempt to regain some momentum at the Electronic Entertainment Expo in Los Angeles today when it is expected to unveil plans for its next-generation console.
Perhaps as important as the technical specifications of the console code-named Revolution, though, is the revolution inside Nintendo as it reaches out to older gamers who grew up playing Nintendo games but then outgrew Mario.
“Nintendo needs to figure out early on what they want to be when they grow up,” said P.J. McNealy, an analyst at American Technology Research Inc. “Granted, they’re the oldest and most storied company in the sector but they have yet to truly scale up as the market gets older.”
The company has sponsored headbanging concerts, held hip celebrity parties and produced ads featuring the rock band Good Charlotte. Nintendo also tapped Reginald Fils-Aime, a 42-year-old marketing whiz from Viacom Inc.’s MTV, to head its North American operations in Redmond, Wash.
Fils-Aime had no experience in the games industry before he came to Nintendo 18 months ago, but he had a long resume of marketing products to young, hip consumers. At MTV, he helped beef up young audience viewership of the VH1 channel and boost overall ratings by 30% from 2001 to 2003. Fils-Aime, born in the Bronx borough of New York, also worked in marketing at Pizza Hut Inc., Guinness Import Co. and Procter & Gamble Co.
“We believe the 16-to-20-year-old demographic is the right one to shoot for,” Fils-Aime said, “because they drive not just the spending within this category but also the image.”
The company plans to give its next console -- due out next year -- a sleek design to replace the GameCube’s toylike look. It will also campaign hard for outside developers to make more mature games for the new box.
That’s crucial because many gamers who, like Smith, cut their teeth on Nintendo’s Mario and Zelda games have grown up and moved on to more mature titles such as “Halo” and “Grand Theft Auto.” Sixty percent of PlayStation 2 owners, for instance, are over 18 years old. For GameCube, it’s 40%.
“The average gamer is over 20 and getting older,” said Michael Pachter, an analyst at Wedbush Morgan Securities.
McNealy noted that Nintendo lacked titles for older players early in the life of the GameCube. By the time mature games such as “Resident Evil 4” and “Metroid Prime” were released for GameCube, the kiddie image was cemented in people’s minds.
Nintendo has had trouble persuading independent game developers to make mature titles for the GameCube. Take-Two Interactive Software Inc., for example, released “Grand Theft Auto: San Andreas” on PlayStation 2 and Xbox but not GameCube. For Nintendo, the New York publisher put out “Dora the Explorer: Super Spies” for Game Boy Advance.
“It’s remarkable to me how many games are made for PS2 and Xbox but not GameCube,” Pachter said. “If they don’t reverse that trend, they will have a problem.”
Nintendo executives say those problems are overblown.
“Nintendo is a very profitable, very healthy company,” said Perrin Kaplan, Nintendo’s vice president of marketing. “We don’t sell our hardware at a loss. And we certainly don’t sell any of our software at a loss.”
Nintendo’s 21% profit margin in 2004 was more than triple that of Sony’s PlayStation business, whose margins were 6% last year. Microsoft has not made money from its video game venture.
Much of Nintendo’s profitability stems from its formidable army of in-house developers who are responsible for making many of the company’s most popular titles, such as “Mario Party,” “Star Fox: Assault” and “Donkey Konga.” The company can also dip into a well of exclusive franchises known to most gamers, including Zelda and Pokemon.
That has added to Nintendo’s cash hoard of $7.5 billion. Although some of that money will be spent in preparation for the launch of its new console, the company is likely to retain much of that cushion.
“Nintendo is a world-class rich company,” said Yuta Sakurai, an analyst at Nomura Securities Financial & Economic Research Center.
Nintendo’s other stronghold has been its hand-held console business. It has sold 48 million Game Boy Advance consoles since launching the device in 2001. In November, it started selling its Dual Screen, or DS, device and has shipped 5 million units.
“You can’t talk about Nintendo without considering its dominant position in the hand-held market,” said Doug Lowenstein, president of industry group Entertainment Software Assn.
But even that dominance is in danger of being chipped away by Sony’s recent entry, PlayStation Portable. In the U.S., for example, sales of the PSP and the DS are in a dead heat, with 1.7 million DS units shipped as of March 31, compared with 1.5 million PSPs. Here, the challenge for Nintendo is similar to the one it faces in home consoles: appealing to older gamers.
“Nintendo wants the DS to skew older,” McNealy said. “But they still need to back that up with an appropriate array of titles.”
At the Game Developer Conference in March, Nintendo President Satoru Iwata highlighted the challenge facing his company as he discussed a game released this year in Japan called “Nintendogs.” The game for the DS hand-held allows players to buy, feed, walk and train a virtual puppy using the device’s microphone to voice commands or the touch screen to pet the animal.
“Nintendogs,” created by Nintendo developer Shigeru Miyamoto, showcases the company’s innovative take on games, but the concept is far from the sort of violent fare that makes up most of today’s most popular games.
“We believe in the end it’s going to be provocative ideas that will win consumers,” Fils-Aime said.
Players such as Smith, who’s willing to give Nintendo the benefit of the doubt because he has positive memories of growing up with its games, are waiting to see whether those ideas are strong enough to win them back.
“I’m definitely going to check out the Revolution,” Smith said. “But if it’s just another GameCube remake, I won’t get it.... It’s got to have the right games.”
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Naoko Nishiwaki of The Times’ Tokyo Bureau contributed to this report.
