It's hard not to notice that Nintendo (7974.T) is targeting the mainstream. The company had made that message the focus of its annual game showcase last year, and this year's event, on Oct. 10, was no different. Alongside its grey-on-white logo, Nintendo displayed towering ads showing trim, smiling kids and adults in different action poses while playing with the Wii video game console's latest accessory, the Wii Fit board. And when Nintendo Chief Executive Officer Satoru Iwata strolled onstage, he made sure to reinforce the point for his audience of journalists, bloggers, game developers, and TV cameras. "The Wii has brought change to the industry by appealing to a wide range of users," Iwata told the gathering at Makuhari Messe, a convention hall just to the east of Tokyo.
But this year Iwata also took aim at a sector that Nintendo hasn't had much success with lately: hard-core gamers. To the surprise of many, the Nintendo chief revealed that the Wii would soon add to its library Capcom's Monster Hunter series and two new titles in the Final Fantasy Crystal Chronicles series from Square Enix. Capcom and Square Enix are both traditionally Sony (SNE) allies.
Tearing Down the Wall
Landing those titles could help change the Wii's image as a machine that's too low-powered to handle the industry's most advanced games. "Monster Hunter represents the cutting edge of gaming technology," says Hirokazu Hamamura, president of Tokyo-based game market research firm Enterbrain. "It's symbolic. I didn't think the Wii could handle this type of game. Everyone in the room today saw that it can."
Iwata is offering more to ordinary consumers as well. Nearly a year after being released last November, the console—whose motion-sensing remote lets players swing it like a tennis racket or point-and-shoot it like a gun—is still in short supply at many stores in Japan, the U.S., and Europe. So Iwata offered them something to look forward to as well. He declared that Nintendo would "tear down the wall" between games for ordinary consumers and the hard-core community.
That means coming up with games that don't necessarily require dexterous digits but still have complex inner worlds. Making a game that is so fun it's addictive won't hurt either. Iwata said demographic data for Legend of Zelda: Twilight Prince, which went on sale last November, suggests that the game is appealing to both casual and serious gamers.
Praise from Analysts and Developers
Appealing to both types of gamer is a contrarian approach that wins points with many developers. "I have only the utmost respect for Nintendo's marketing strategy," says Yoshimi Yasuda, CEO of Tokyo-based developer Tecmo. Analysts praise Nintendo, too, using the kind of superlatives that seem fitting for a company that now has the second-largest market capitalization in Japan, behind automaker Toyota Motor (TM). In recent months, NikkoCitigroup raised its earnings forecasts for Nintendo, saying it now expects the company's operating earnings to soar 82%, to $3.5 billion, on a 51% jump in sales, to $12.5 billion this fiscal year through March, 2008. On Oct. 10, Nintendo's shares closed up nearly 5%, at a record high of 65,800 yen ($562).
Nobody doubts that Nintendo's Wii is a game changer. In the past, consoles targeted mainly die-hards. Nintendo's Wii (and its portable DS console) were arguably the first to be successfully marketed to ordinary consumers. That move to the masses is expected to help swell the $30 billion market in the near future. It's also helped counter Nintendo's image as a company that's propped up by gamers in their teens or younger—something the company's own market surveys in Japan have found to be true. Over the years, the core 18-to-35 male gamer crowd mostly had migrated to the machines of Nintendo's rivals, Sony and Microsoft (MSFT), which offer edgier games and more realistic graphics.
One reason Nintendo now needs to reach out to die-hard gamers is that there are risks to a strategy heavily favoring ordinary consumers. For instance: Casual gamers won't aggressively buy up game software. Like other game companies, Nintendo earns the bulk of its profits off games, not consoles. Eiji Maeda of JPMorgan Chase (JPM) estimates Nintendo's profit margins on games exceed 80%, vs. less than 5% for consoles, and that the average Wii owner will buy more than six games over the next three years. To keep raking in the money, Nintendo needs to attract the die-hards who are sure to be repeat buyers.
A Whole New Game
Whether Nintendo or any other game developer can repeat Zelda's success with gamers of all stripes is open to debate. "We'll have to see if it's even possible to do what Nintendo says can be done," says Kai Tanaka, a midlevel manager at Namco Bandai Games.
For developers, attempting the impossible is just a by-product of what might be called "the Wii effect." Most developers would never have guessed that a fitness-oriented offering like Wii Fit, which peddles yoga and hula hoops and will cost $75 when it debuts Dec. 1, would be a big draw. But the fact is that Nintendo has rewritten the old rules—and in the process it's become too influential to ignore. Plenty of other developers are following suit. Rocket Co. plans to come out with its own fitness game for the Wii Fit board next year. The high-tech board will also work with Konami's Dance Dance Revolution Hottest Party. Recently, Electronic Arts (ERTS) released Boogie, which lets players sing, dance, and star in their own videos. "Wii Fit shatters the image that video games are unhealthy and that anyone playing them needs to get out more," says Tecmo's Yasuda.