Imagine walking into a classroom, an art museum, or a mall and switching on your gaming console to take a test, learn more about a Picasso painting, or find a shop that sells sneakers. It's not such a far-fetched idea. Nintendo's (7974.T) top video game creator, Shigeru Miyamoto, is now exploring ways of turning the company's hit portable DS gaming console into a gizmo that can act as a guide, map, reference book, and coupon dispenser. "We're putting as much energy into building such a system as we would for any game," Miyamoto told reporters in Tokyo on Apr. 9. "We have received a lot of requests."
This week, Nintendo began selling an updated version of its best-selling portable DS in North America and Europe. The new DSi, which went on sale in Japan last November, features the same two-screen layout as earlier versions but the machine is thinner and comes with a built-in camera and music player. The idea of remaking the DS into an all-purpose gizmo is enticing: It could help Nintendo add to the nearly 100 million DS units sold globally since the machine's first version launched in 2004. And Nintendo's target audience of casual gamers, who don't typically spend a lot on new games, would have more reason to carry around their DS.
Nintendo isn't the first gaming company to try location-specific services. Sony (SNE) has used its PlayStation Portable in Japan to hold contests at museums, offer maps at festivals, and even double as patient charts at hospitals. But those have mainly been short-lived marketing campaigns. Nintendo's DSi lets users access an online store to download games and other items onto a removable memory card—similar to the way Apple's (APPL) App Store offers free and low-cost games and other software—so it's not a big technological leap.
No Monthly Fee
The company didn't provide many details about the services rollout. Nintendo has said it has no plans to make the DS into a phone-like device that requires users to pay a monthly subscription fee. Miyamoto said his crew is developing easy-to-use tools for institutions to come up with services, and that later this month a Kyoto museum will begin beaming information to visitors carrying a DS. "What's important is that you can access these services without having to carry around software cartridges," said Miyamoto, who is a senior managing director at the Kyoto company.
You wouldn't want to bet against Miyamoto. The creator of Mario Brothers, he is one of the industry's most renowned video game designers and the brains behind many of Nintendo's best-selling games, including Nintendogs and Super Mario Galaxy. But persuading analysts about the merits of adding services to the DS won't be easy.
After more than two years of big sales gains, Nintendo's Wii living-room console appears to be losing steam in Japan. That's a worry because Nintendo's home market tends to be a leading indicator for global video game sales. Nintendo's Wii console has outsold Microsoft's (MSFT) Xbox 360 and Sony's PlayStation 3 worldwide. While Wii sales gained in North America and Europe in the three fiscal quarters through December, they dropped 37% in Japan. And in March, Sony's PS3 outsold the Wii for the first time in 16 months, according to Tokyo market researcher Enterbrain. "It's a fact that Wii sales aren't strong in Japan," Nintendo President Satoru Iwata told reporters.
The company has forecast record operating profit of $5.3 billion on sales of $18.2 billion—also an all-time high—in the fiscal year ended Mar. 31. So far the global recession hasn't hobbled the company's earnings. That's because of the low price of Nintendo's consoles and the Wii's innovative motion-sensing wand-shaped controller. Even so, some analysts think that Nintendo's best years may be behind it. Deutsche Securities' (DB) Satoru Kikuchi wrote in a report in March that Nintendo's earnings could fall 17% this year and then "enter a sustained downward trend." He sees both Wii and DS sales declining as well.
Nintendo is eager to prove the skeptics wrong. In June the company will release a new version of its Wii Sports series, called Wii Sports Resort, in Japan, and in other markets a month later. Nintendo games tend to top industry best-seller lists, and robust sales of Wii Sports Resort, which has Frisbee-throwing contests and jet-ski races, could give the Wii a second wind. Last year, four Nintendo-made games were among the top five hit games in the U.S.
Services for the DSi could do even more to help Nintendo keep its profit streak alive. The company has sold 2 million units of the updated DSi in Japan since last November, and 300,000 in both Europe and the U.S. in the first two days of the machine's release. It's unclear whether Nintendo will ask for royalties for helping create a DS network for malls, museums, and schools. That might not matter if the strategy makes the DSi a must-have gadget. Since the Wii's debut in late 2006, some schools in Japan have tested the console as a teaching tool. But getting teachers to adopt gaming machines for lessons could be pie in the sky. "Most junior and middle schools in Japan ban game devices outright," KBC Securities Hiroshi Kamide wrote in a report. "We find it difficult to envisage this scenario taking shape."
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