Japan’s video-gaming champion branches out in search of growth

CRUSHING competitors while racing past obstacles is the basis of many video games. Nintendo, the most successful of the three big games-console makers, has done just that in the past few years. Cumulative sales of its Wii console, launched in 2006, recently surpassed 50m—about as many as Sony’s PlayStation 3 (PS3) and Microsoft’s Xbox 360 combined. The Nintendo DS, meanwhile, is the bestselling hand-held games device. Over 100m have been sold—more than twice as many as Sony’s PlayStation Portable.

With both the Wii and the DS, Nintendo has prospered by promoting simple, accessible games that have far broader appeal than the more elaborate titles typically found on rival consoles. As a form of cheap, stay-at-home entertainment, gaming is one of the few industries to have done well during the recession. But now there are signs that things are about to get much more difficult for Nintendo.

Though Nintendo’s sales remain strong in America and Europe, they are starting to sag in Japan. Sales of Sony’s PS3 surpassed those of the Wii in March, and Wii sales have been on a downward trend for a year. This is ominous, because Japan’s gaming market is often a harbinger of global trends. “The Wii is in its most unhealthy condition since it hit the Japanese market,” admits Satoru Iwata, Nintendo’s boss.

The worry is that the new gamers Nintendo has lured into the market with its easy-to-use consoles—the DS uses a touch-screen and a stylus, and the Wii uses motion-sensitive controllers—are less committed to gaming when times get tough, and buy fewer new games. The success of the Wii and the DS may also have saturated the market. If so, new must-have software titles or hardware features will be needed to entice buyers back.

To revitalise Nintendo in the short term, Mr Iwata is banking on new games such as “Wii Sports Resort”, due in June (and in July outside Japan). A follow-up to the Wii’s popular sports games, it lets players ride jetskis, play Frisbee with a dog and fence with virtual swords. It will come with an accessory that increases the accuracy of the Wii’s motion-sensitive controller and will open up new possibilities. Big games publishers are increasing their budgets to produce titles for the Wii, notes Atul Goyal of CLSA, a broker.

Looking towards the longer term, meanwhile, Nintendo is shifting its strategy by moving beyond gaming. It plans to launch a video-on-demand service for the Wii. And this month the DSi, the latest version of the dual-screen gadget, went on sale in America and Europe, selling 600,000 units in the first two days. More than 2m have been sold in Japan since November. The DSi incorporates two cameras, a simple music-player, a web browser and the ability to download software. Nintendo is quietly testing it for use as a museum guide and an educational tool. Instead of selling one unit per household as with the Wii, Nintendo wants to sell one DSi per family member, explains Shigeru Miyamoto, the firm’s game-design guru.

Branching out beyond gaming will be risky. Nintendo will face competition from makers of mobile phones, music players and other consumer-electronics gear. But it may not have much choice. Multi-function “smart phones” are proliferating, and Apple’s iPhone is becoming increasingly popular as a portable gaming device. Mr Iwata hopes integrating the Wii and the DS will give Nintendo an edge: it will be possible to transfer downloaded video from a Wii to a DS, for example. Nintendo will remain strong in gaming, says Hirokazu Hamamura of Enterbrain, a market-research firm. But moving beyond its core market will be a different game entirely.

Thank you The Economist

Comments welcome!

I really don't see how Japan is a harbringer of world trends in the video game market in any way now days.

"Branching out beyond gaming will be risky. Nintendo will face competition from makers of mobile phones, music players and other consumer-electronics gear. But it may not have much choice. Multi-function “smart phones” are proliferating, and Apple’s iPhone is becoming increasingly popular as a portable gaming device. Mr Iwata hopes integrating the Wii and the DS will give Nintendo an edge: it will be possible to transfer downloaded video from a Wii to a DS, for example. Nintendo will remain strong in gaming, says Hirokazu Hamamura of Enterbrain, a market-research firm. But moving beyond its core market will be a different game entirely."

Well, they have a point there. So far MS seems best positioned as far as home consoles and Apple for handhelds when it comes to multimedia (meaning Sony got outplayed in both markets). It'll be interesting to see how Nintendo approaches multimedia in the months and years to come.

They were the first to jump on the Nintendogs/Brain Training craze and they've always been a kind of precursor to worldwide trends but I think Nintendo have plenty of time before the west shifts towards the HD consoles with their buying habits. The downstream market will be very satisfied in the coming months with EA Sports Active, Grand Slam Tennis, Virtua Tennis 09, Tiger Woods 10, Punch-Out!! and Wii Sports Resort all launching.

Wii will continue strongly through the rest of the year off the back of these titles along with Wii Fit, Wii Play, Mario Kart Wii and all the titles in the second half that are looking to be major sellers. It's been a fairly shaky year for Wii from Q3 2008 til now and it's beginning to look like the days of drought are officially coming to an end. Sales are only going to explode even further.. Hopefully Nintendo has the stock for a truely massive holiday season this year. 

Is there even a shred of evidence to support this paragraph? The fact that the Wii still sells so well in so many territories (including Japan) when it hasn't released key software for months indicates that new gamers are perfectly willing to buy games, even in a down market, but you have to release new stuff for them to buy.

I'd also like to point out that while the PS3 outsold the Wii in Japan last month, that was a month where the PS3 released Resident Evil 5 AND Yakuza 3, two big-name games. The Wii's biggest release, by contrast, was...New Play Control Pikmin? I guess?

In spite of that, the PS3 only sold (I believe) 26,000 units more.

Long story short, the new gamers are here to stay, and they seem to be just as voracious about buying software as traditional gamers.

Wait, when were FPS games extremely popular in Japan? I'm just wondering, because FPS games have basically molded the way most of the developers work in western culture.

I will never believe that Japan is the be all future of other markets, as that has hardly been the case from the way I see it. I really don't understand why so many analysts and other people cling to the "Japan = rest of the world in a few years" thing. Does this only stretch in the video game market? Magically?