Nintendo Brings 3D to the Really Small Screen

For 122 years, Nintendo has been all about the game. After dominating Japanese card games, it moved on to toys, coin-op arcades, and finally video games, creating memorable characters named Mario, Pikachu, Zelda, and Donkey Kong.

Satoru Iwata, Nintendo's current president, is trying to keep the streak from ending. On Mar. 27, the Kyoto-based company will begin selling a $250 device in the U.S. called the Nintendo 3DS, the first portable game console to show three-dimensional images without the need for special glasses. Until recently, the company relied on the Nintendo DS and newer DSi to dominate the portable business. They accounted last year for 57 percent of Nintendo's hardware sales (the company also sells the Wii game console) and 79 percent of $1.7 billion in U.S. portable sales, according to researcher NPD Group. However, the popularity of those handhelds has slipped since last April, and Nintendo, which began working on the 3DS two years ago, could use another hit. "This will have to be a platform that is at least as well accepted as the DS, or we would consider it a failure," Iwata said in an interview on Jan. 9.

Nintendo faces new competitive threats. Sony (SNE) as early as Jan. 27 will announce it's working on a new version of its PlayStation Portable, and follow that with a game-playing phone in February, according to two people familiar with the company's plans. Sharp and LG this year will sell their own glasses-free 3D smartphones that can play games. Apple (AAPL) is winning over developers with its pitch that iPhone, iPad, and iPod touch offer the best in casual games.

Nintendo tried to master 3D technology 15 years ago with its Virtual Boy 3D headgear, introduced in 1995 and discontinued a year later. The new device creates a 3D effect by alternately flashing images to the left and right eye. (Some gamers in Japan have become dizzy playing the 3DS; the company warns that children under six should avoid playing it because of potential eye problems.) A slider on the handheld can make the effect more intense or shut it off. The 3DS costs 67 percent more than the $150 DSi and its games may cost twice as much. It has only half the battery life. "The features of 3DS have to be tried; they don't lend themselves to traditional marketing media such as TV and Internet," Iwata says.

Nintendo hopes to offer Hollywood movies and content from ESPN, the NBA, and NFL on the 3DS as early as this year. The player will also come bundled with cards that, when placed on a table and used with the device's rear-facing camera, generate games or other events on the screen with the real world as the backdrop.

"Nothing [else] is going to deliver 3D videogames, 3D video, and 3D photography all in the same package," says Nintendo of America President Reggie Fils-Aime. Nintendo has been heavily courting Activision and Electronic Arts (EA) to create exclusive 3DS games that take advantage of the device's fast processing and improved graphics. About 30 games will be available before June. Iwata says the company learned its lesson after a dearth of non-Nintendo games for the original DS got sales off to a slow start. So far, most developers are choosing to offer versions of existing games rather than devoting resources to new properties. "We are watching closely how it is received by consumers," says John Schappert, Electronic Arts' chief operating officer.

The bottom line: With competition intensifying in portable games, Nintendo hopes to set itself apart with its new 3DS handheld device.

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