Nintendo Accused of Unfair Marketing

While visions of Super Mario Brothers dance through the heads of millions of children this holiday season, the maker of the Nintendo home video system is playing unfair games with consumers, the chairman of a congressional antitrust panel charged Thursday.

Rep. Dennis Eckart (D-Ohio) urged the Justice Department’s antitrust division to investigate Nintendo of America, the U.S. subsidiary of the Japanese electronics firm that revived the electronic games industry and now controls 80% of the $3.4-billion market.

Eckart’s complaint, outlined in an 11-page letter, contends that Nintendo has engaged in “unreasonable tactics to restrain competitors” by exercising rigid control over production of the game cartridges played on Nintendo consoles sold in America.

Eckart, whose House small business antitrust subcommittee has investigated the video game industry, would like Nintendo to allow more companies to produce software for its machines with fewer strings attached.

“The key is that software drives sales in this area,” Eckart said in an interview. “Nintendo’s dominance of the home video game market and its tight control of software production has led to an unprecedented level of control over the marketing end of the industry.”

Nintendo officials angrily denied Eckart’s charges that unfair marketing practices have created their near-monopoly and accused the congressman of not giving them an opportunity to defend themselves.

“He is just grandstanding,” said Howard C. Lincoln, senior vice president of Nintendo of America, which is based in Redmond, Wash.

In raising the issue less than three weeks before Christmas, Eckart could strike a chord with millions of parents across the country who are trudging to toy stores to buy Nintendo games and software--and often finding them in short supply.

Nintendo game systems and software have been among the biggest draws for toy retailers for two consecutive years, said Michael Karr, store manager at Toys R Us in Santa Ana. Altogether, video games account for as much as 25% of all toy sales.

“There’s quite a bit of traffic in that area,” Karr said. “The software is doing quite well and is more than living up to sales projections.”

Popular software--such as Super Mario Brothers, Legend of Zelda and Teen-Age Mutant Ninja Turtles--sometimes is hard to find, he said.

Nintendo’s game-playing units retail for $80 or more, and game cartridges range in price from $30 to $60 each. Nintendo officials estimate that the company will have its systems in 20% of all U.S. households by the end of the year.

Only games licensed or sold by Nintendo can be played on Nintendo consoles. That practice ensures that independent software publishers cannot break into the Nintendo market, inflating the cost of games to consumers by 20% to 30%, Eckart said.

The Ohio congressman contended that Nintendo has created artificial shortages of some games sold by licensed software producers and accused Nintendo of intimidating retailers to keep competitors’ games off toy store shelves.

Lincoln said that Nintendo’s business agreements and practices have been reviewed in depth and cleared by the company’s attorneys.

“We are confident that (our business practices) fully comply with U.S. laws,” he said. “They were designed to and have succeeded in restructuring a dead industry in the U.S.--to the benefit of numerous small and large businesses from coast to coast, as well as retailers around the nation.”

Nintendo requires the installation of a patented computer chip, or “lock-out chip,” in each game cartridge sold in the United States to ensure that only licensed cartridges can be used in Nintendo consoles. Lincoln said the chip is a security device aimed at preventing the sale and use of pirated, counterfeit or poor-quality games.

Eckart disputed that claim. “If it were a question of quality control, they would use a lock-out chip in Japan--which they don’t.”

Eckart compared Nintendo’s use of exclusive software arrangements and computer chip barriers to control the market--known as bundling--to a practice halted by International Business Machines in 1968 after a threat of Justice Department intervention.