Nintendo Co., the computer-game maker whose ubiquitous machines have penetrated one in five American homes, announced Tuesday a strategic tie to a leading U.S. research institution to probe the future of child learning, artificial intelligence and information media.
Nintendo President Hiroshi Yamauchi said the company will contribute $3 million over five years to the Massachusetts Institute of Technology's Media Laboratory, specifically to support studies of how children learn while at play.
Sponsorship of work in progress at the media lab, though limited in scope, will give Nintendo access to a wide range of cutting-edge research in related areas such as electronic publishing, advanced television, computer music and holography.
The research alliance comes at a time when Nintendo is enjoying phenomenal success, dominating the U.S. computer-game scene with an 80% market share.
At the same time, Nintendo has come under attack from some parents, who worry that their children are virtually addicted to the games to the detriment of learning. The company has also been the target of accusations that its business methods are anti-competitive. Its chief American rival, Atari Corp., has filed an antitrust suit alleging that Nintendo unfairly restricts its outside software developers.
Separately, Nintendo has said it plans to diversify outside of home entertainment in the United States sometime this year and establish a communications network for its Nintendo Entertainment Systems hardware. This would give users the ability to shop, trade stocks, conduct banking transactions or make travel arrangements--as well as play long-distance computer games. Home brokerage services have been offered to Nintendo customers in Japan for the past two years.
Nintendo's $3-million commitment to MIT will help support the work of Seymour A. Papert, a pioneer in artificial intelligence who is using computers in a curriculum-free setting to teach children at a public elementary school in Boston. Papert developed a computer language for children that is standard in the field, and his students are writing computer programs to control machines they build out of Lego blocks.
Yamauchi said Nintendo's contribution to MIT reflects a sense of responsibility--as the world's largest computer-game maker--to provide educational opportunities through its machines.
"We teamed up with MIT's Media Lab because we want to go beyond entertainment," Yamauchi said in an interview at Nintendo headquarters in Kyoto. "We think children ought to learn while they're having fun."
Nicholas Negroponte, director of the Media Laboratory, said Yamauchi was reluctant when Negroponte approached him in February to propose the research sponsorship, accompanied by Papert and Marvin L. Minsky, another pioneer in artificial intelligence, who was awarded the prestigious Japan Prize in April.
"At first, Nintendo didn't know what to make of the idea," Negroponte said. "But I think they're following their instincts."
Indeed, Yamauchi said, he has built Nintendo into a multibillion-dollar corporation by "trial and error."
Founded 101 years ago by Yamauchi's great-grandfather as a modest manufacturer of traditional hanafuda playing cards, Nintendo now projects sales of 400 billion yen, about $2.6 billion at current exchange rates, and after-tax profit of more than $360 million in the fiscal year that began April 1.
"We simply followed the computer revolution and found out what people really wanted," Yamauchi said.
Exports to the U.S. market of Nintendo's 8-bit NES home system, its new hand-held Game Boy computer game and software cartridges for both lines account for nearly 75% of the company's sales.
Nintendo, which makes all its products in Japan, ships 850,000 units of the NES to the United States each month, according to Minoru Arakawa, president of Redmond, Wash.-based Nintendo of America Inc. Arakawa said he plans to travel to Frankfurt, West Germany, at the end of the month to start a new, wholly owned subsidiary that will market Game Boy in Europe, where sales have lagged because of "cultural differences."
Meanwhile, Nintendo holds such a commanding lead in the American computer game market that it is occasionally accused of monopolistic practices. Last December, for example, Rep. Dennis Eckart (D-Ohio) asked the Justice Department's antitrust division to investigate Nintendo's "significant intimidation in the retail market," which supposedly stifles competition.
"I suspect Mr. Eckart is seeking publicity," Yamauchi said. "Nintendo doesn't consider this as a problem."
Likewise, Yamauchi said the company's lawyers will have no difficulty defending against Atari's antitrust suit, which he expects to go to trial in federal court in San Francisco in about a year.
At issue is the company's practice of demanding tight contracts with its outside software developers, which prevents them from selling their computer games to other hardware vendors, such as Atari. Also controversial is Nintendo's strategy of pricing its hardware very low (about $100 a set) and reaping huge profits on subsequent sales of software game cartridges.
"Nintendo's system of controlling its software developers has caused an awful lot of resentment," said Colin Mills, a securities analyst for the brokerage firm of W. I. Carr in Tokyo. "But it's really a brilliant move. Who cares if you have enemies when you're making money like this?"
Nintendo, which recently shifted its fiscal year, reported sales of $1.4 billion and net profit of $178 million for the seven months ended March 31. Annualized, this represents sales of $2.4 billion, a dramatic jump of about 25% over the company's performance in its latest full fiscal year.
Yamauchi said the structure of the computer-game industry naturally tends to create one manufacturer who takes all the spoils, because most families cannot afford more than one set of hardware. And Nintendo's software subcontractors are free to go elsewhere if they like, he said.
"If our terms are so strict they make people unhappy, they're always free not to accept them," Yamauchi said. "But so many companies are satisfied because they see the merits of doing business with us. It's always their choice, not ours."