Nintendo Goes for the Hard Core with Its 3DS

In Nintendogs, a series of games for the Nintendo DS, players train, groom, and feed a virtual puppy. Neglect your Nintendog, and it gets filthy and runs away; care for it properly, and the pup frolics and paws at the screen. With more than 23 million copies sold, it is one of Nintendo's most popular series. It also helps explain the company's current difficulties.

Nintendo became a runaway success as the gaming company for non-gamers. The motion-sensing Wii console and the handheld DS featured beginner-friendly fun with titles such as Mario Kart and DJ Hero in addition to Nintendogs. Nintendo kept the technology simple and the prices low—the Wii made its debut in 2006 at half the price of Sony's (SNE) PlayStation 3—to attract casual players. The trouble is that casual gamers, by definition, don't play or buy a lot of games. While Nintendo isn't forsaking those customers, its new 3DS, due out in Japan in February and in the U.S. a month later, is an effort to win over the players who prefer their games to feature commandos, not canines. "The company has taken a U-turn and is focusing more on core gamers," says Atul Goyal, senior research analyst at CLSA Asia-Pacific Markets in Tokyo. "They understand that the casual market is crowded."

It's a shift born of necessity. Nintendo needs to reverse a sales decline that has caused its stock price to fall 21 percent since 2008. In September the company forecast net income for next year of $1.1 billion, the lowest level in six years. The problem, says Nintendo President Satoru Iwata, is that the company is competing "with anything that demands people's attention and energy." That includes the PlayStation and Microsoft's (MSFT) Xbox, as well as new motion-sensing consoles that Sony and Microsoft are introducing this fall. They'll go up against Nintendo's popular Wii. The company must also compete with popular online games such as Zynga's FarmVille and Mafia Wars. Apple (AAPL), too, is a threat. It has sold 120 million iPhones, iPod touches, and iPads in the past three years and now promotes them as handheld gaming machines that render a second device like the DS unnecessary.

The 3DS, which Nintendo announced in March, will feature wireless Web access, multiple cameras, and accelerometers to sense motion, just like Apple's iPhones and iPod touches. As its name suggests, the 3DS can show three-dimensional images—without the need for special glasses. Nintendo is working with studios to bring streaming, 3D movies to the device. To make it easier to play high-end games such as Activision's Call of Duty: Modern Warfare, the 3DS will house a more powerful processor and a higher-definition display than its predecessor.

Hardware specs are only part of the effort. Nintendo is unique among the big console makers in that many of its best-selling titles, such as The Legend of Zelda and all the Mario variants, are produced in-house, and Iwata says they often outperform games from third-party studios. Yet the titles high-end gamers love to play are typically made by outside developers. At a promotional event in Tokyo in September, Iwata pledged more support for outside game developers. Of the 75 titles already announced for the 3DS, only nine are from Nintendo's in-house studio. During the event, he chose Konami's Metal Gear Solid and Capcom's Resident Evil to demonstrate the graphical capabilities of the 3DS.

The 3DS was one of the hottest new products at the annual E3 game confab in Los Angeles in June, where lines of eager developers wrapped around Nintendo's booth waiting to test out the new system. Activision Blizzard Chief Executive Officer Robert A. Kotick says the device could be "a game-changer" for the industry.

The question is whether the 3DS will appeal to hard-core gamers. A lifelong Nintendo fan, Tetsuo Suzuka, a 37-year-old visual artist in Tokyo, waited in line to buy a Wii when it debuted in late 2006, only to end up selling it a year later. "The Wii is great for entertaining people at a party or for families," he says. "But it feels futile to be swinging arms around in a room all by yourself." Suzuka says he won't be waiting in line for the 3DS. "Even as the hardware gets more advanced, the contents are still the same light fare."

The bottom line: With the new 3DS, Nintendo is trying to appeal to hard-core gamers and the studios that make action-packed hits like Resident Evil.

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