Nintendo whets GameCube appetites
P.J. McNealy, analyst, Gartner
Looking a few years ahead, however, Nintendo could face new and uncertain threats to its long dominance of portable gaming. The proliferation of games on cell phones and handheld computers threatens to move handheld gaming beyond Nintendo's niche. And competitors Sony and Microsoft may try to spin off portable versions of their TV game consoles.
Game Boy is widely regarded as one of the biggest success stories in the history of video games. The original Game Boy model and the subsequent Game Boy Color have sold a combined 110 million units since the line was launched in 1989. Game Boy Advance is on the same track, selling 1.6 million units in the first five weeks since it hit store shelves in Japan on March 21.
Nintendo has accounted for more than 90 percent of the global handheld game market for years, with a few competitors at most able to carve out niche markets in Japan. Game Boy hardware and software accounted for 23 percent of total worldwide revenue for the video game industry last year.
Numbers like that are bound to attract the attention of potential competitors.
"There have been rumors for a long time that Sony was going to come out with a portable game device. But so far, we've heard nothing of substance," said James Lin, gaming analyst for investment firm Jefferies. "It'd be a tough market to break into--they'd have to spend a lot to get anywhere."
Reports also have surfaced that Microsoft is considering a portable companion to its upcoming Xbox console, most likely a game-focused adaptation of the personal digital assistants (PDAs) based on its Pocket PC operating system.
Executives at Sony and Microsoft have declined to discuss whether they have plans for portable gaming.
"I'm sure (handheld gaming) is on the minds of these companies," said Richard Ow, account manager at researcher NPD Intelect. "These companies are well aware of what they need to combat Nintendo, though. You need a product to go with some awesome software that's going to draw a kid's eye, and that's a real challenge."
The challenge stems largely from Nintendo's dominance with game players 12 years old and younger, which the company has fostered through child-friendly games based on Nintendo-owned characters such as Pokemon and Mario. Two Pokemon titles were the top-selling video games of 2000, easily outpacing titles for Sony's much-hyped PlayStation 2 and every other set-top console.
"If you look at the Pokemon games, then it looks like Game Boy is a very kid-centered market," said George Harrison, vice president of marketing for Nintendo of America. "The reality is about 40 percent of Game Boy owners are over the age of 18. There has always been a very healthy adult component."
Games for grown-ups
But the older customers get, the more likely they are to carry around a cell phone or PDA rather than a Game Boy. Established software companies such as THQ and start-ups such as ZioSoft are counting on those devices to fuel a new market for portable games.
Morgan Hill, Calif.-based ZioSoft develops games for cell phones and for PDAs that use the Palm and Pocket PC operating systems. Marketing director Eric Young said that, for now, the company's games appeal to a very different market from the Game Boy crowd.
The average ZioSoft player is an affluent male in his 20s or 30s with a few minutes to kill. That means instead of character-driven games, the company focuses on adult-friendly titles such as a "Tiger Woods PGA Tour" golf game that can be digested in 5 or 10 minutes.
"Time killers--that's what our games are used for now," he said. "Right now, we try not to create a game that someone's going to have to sit down for hours to get through."
Young sees that changing, though, as PDAs become cheaper and more widespread. Once color-screen devices dip below $200, he expects them to catch on with a younger crowd and shift some of the handheld gaming market away from Nintendo.
"I think the handheld computing market will hit the younger demographic very hard once the prices get down," he said. "They'll have something that's able to play MP3s, store pictures, download all their textbooks--and play games. I think that will be pretty compelling."
Eric Goldberg, president of New York-based developer Unplugged Games, sees similar changes for cell phone games, his company's specialty. Currently dominated by 25- to 34-year-old males, phone games will filter down to teenagers and children as handsets proliferate. And youths may find they prefer a cell phone to other devices for playing games.
"Look at the advantages of a mobile phone--it's portable, it's ubiquitous, it's networked and it allows for voice communication," Goldberg said. "And how many devices are you going to carry with you? People want one device that does everything."
While Game Boy owners in Japan have accessories that allow them to communicate via cell phones, Goldberg says Nintendo has been slow to pick up on multiplayer gaming and may fade in significance as consumers expect greater interaction.
"The Game Boy is brilliant for what it does, which are single-player games to take with you when you're away from your home machine," he said. But "I think it will be very interesting to see if the Game Boy survives as a networked device of any consequence. Nintendo has really fumbled around with the idea of networking because it's not their culture. I think the Game Boy Advance has a good chance of being marginalized as a kid's toy."
Nintendo's Harrison said his company understands what its audience wants as far as portable gaming, which is why it has focused on direct rather than remote connections. The Game Boy Advance allows up to four players to link their units together via special adapter cables.
"We take a different perspective with multiplayer?-we're focusing on the live aspect, the social aspect," he said.
As for competition with other devices, consumers primarily interested in playing games will continue to buy devices that do just that, Harrison said.
"Clearly, cell phones and PDAs and those kinds of devices are designed for other purposes," he said. "When you give them a secondary purpose like games, they just don't do it as well."
Peter Main, executive vice president of marketing for Nintendo of America, recently pointed to controllers as one area where Nintendo has the edge. Despite some valiant efforts by hardware makers, cell phones just aren't as thumb-friendly as the Game Boy's array of control buttons.
"The controller is really a critical part of this. In order to really enjoy gaming, you have to have intuitive control elements," Main said. "For somebody to be so presumptuous as to think they're going to get the consumer to figure out the keypad to control a game, they're really missing a fundamental aspect of what video gaming is.
"What that means is you're going to see games that are pretty basic, pretty perfunctory in these environments. And that's reflective of people who don't really understand what the gaming business is all about."
THQ, the top third-party publisher of Game Boy titles, recently formed a separate division to create games for cell phones. CEO Brian Farrell said the company sees the two as separate markets, although some titles--such as wrestling games based on the company's WWF franchise--are likely to cross over.
"We see the cell phone as an extension of what we're already doing with handheld gaming," Farrell said. "It's a totally different revenue model and really a different audience."
Lin agreed. "It's really two very different markets," he said. "The Game Boys are mainly bought by kids who are just interested in playing games. Cell phones are for adults, and the games are just an add-on, a bonus."
Ow said it's too soon to tell how the market for PDA and cell phone games will develop, but Nintendo has little to worry about now.
"It's a market that still needs to be established," he said. "It's very much like where the online industry is at now--only very few people are gaining anything out of it now. There's a long way to go before it's a threat to anyone."