Nintendo keeps handheld gaming under its thumb

While some of the biggest names in video games and computing are struggling to take over your TV, Nintendo continues to rule virtually unchallenged in handheld gaming.

Despite numerous attempts by competitors to break into the market, Nintendo's Game Boy still accounts for more than 95 percent of the portable game player market, according to recent figures from NPD Group and other researchers. The original Game Boy and the upgraded Game Boy Color have sold more than 100 million units since the device was introduced 11 years ago.

And although some of the major players in set-top game consoles have hinted at handheld plans, actual products are unlikely to appear for several years.

This gives Nintendo clear skies as it prepares for the U.S. release in July of Game Boy Advance, a souped-up version of today's handheld. Among other advantages, Game Boy Advance will let consumers transfer games between the device and the Gamecube, Nintendo's upcoming set-top competitor to Sony's PlayStation 2.

"Obviously, Nintendo got out there and built the market, and no one's willing to spend the money to beat them back," said Stephen Baker, analyst at research firm PC Data. "It would be expensive and hard to go after them in that business. It's more expensive and difficult to develop on those cartridges, and that's helped keep other people out of the market."

Even executives at Nintendo expressed surprise at the company's place in handheld gaming. "We're sort of amazed ourselves as each year goes by," said Perrin Kaplan, vice president of corporate affairs at Nintendo. "The normal life cycle of a product just hasn't applied to the Game Boy. It's definitely one for the books."

No small market
The Game Boy has allowed Nintendo to control a significant market. Handheld players accounted for 36 percent of the more than 20 million game consoles sold last year, according to data from research firm IDC, making handheld consoles a $576 million market.

Game Boy software is no small market, either. Game Boy titles "Pokemon Gold" and "Pokemon Silver," the latest installments of the children's entertainment phenomenon, sold a record 1.4 million combined units in their first week on the market last month.

Pokemon also has helped prop up Nintendo's seesaw finances. The company last week reported a 51 percent increase in profit for the first half of its fiscal year, compared

Coulda been a contender Game Boy has dispensed a number of would-be challengers during its 11 years of life. Here are some of the high-profile attempts to cut into Nintendo's market share. All of them failed. Lynx: Introduced in 1989, the same year as the Game Boy, video game pioneer Atari's Lynx was the first handheld game unit with a color screen. A relatively high price helped consign the Lynx to niche status for its five years of life. GameGear: Sega's attempt to bust into the handheld market in 1990 was similar to the Lynx. Still, a sharp screen and technical superiority proved no match for the Mario Brothers. Game.com: Released four years ago by Tiger Electronics--the folks behind talking toy sensation Furby--Game.com included an address book and other organizer functions apparently designed to meet the needs of ambitious 7-year-olds. NeoGeo Pocket: SNK, a Japanese maker of arcade games, came out two years ago with a handheld version of its failed NeoGeo set-top player. Although gamers were impressed with the NeoGeo Pocket's sharp color screen and other technical advances, the device never gained a toehold in the American market. SNK recently left all foreign markets for Japan-only sales.

with the same period last year. That translates into a net income of $235 million for the first half, despite a dramatic drop in sales of software for the Nintendo 64 set-top player. Game Boy software sales rose to $405 million in the first half, from $298.5 million in the same period last year.

Baker said Pokemon and older characters such as the Mario Brothers have been a major factor, if not the deciding one, in Game Boy's success with the 12-and-younger audience that dominates handheld game sales.

"I suspect a big portion of it is having the right games, especially since this is a very kid-oriented product," he said.

Although Pokemon has far outlived the usual life cycle of a child icon, Nintendo's future isn't tied to the animated blobs. "We're thinking of Pokemon more like a hall of fame product, like Mickey Mouse or a Mario--they're pretty much timeless. But we also have a lot exciting new stuff in the works," Kaplan said.

Accessory sales slow
Nonetheless, the luster of Nintendo's handheld dominance has yet to spread. Sales of Game Boy accessories such as printers and digital cameras have been weak, and there has been minimal connection between Game Boy and the Nintendo 64, the company's current set-top game player.

"It doesn't feel like they've done much to leverage that dominance," Baker said. "The Game Boy products tend to be viewed as a very separate market from the set-top boxes. A lot of the loyalty is to specific games or characters, not the platform."

IDC analyst Schelley Olhava agreed.

"I think Game Boy does help create loyalty to Nintendo. But people largely go to the console that has the games they're interested in," Olhava said.

That may change, however, with the next generations of Nintendo's game consoles. The Game Boy Advance--whose development has been slowed by industrywide component shortages--will connect with the set-top Gamecube that Nintendo will introduce around the same time. Players can transfer games between the two products and use the Game Boy as a control pad.

"Being able to merge those two products really gives more value to the consumer," Kaplan said. "It's kind of a whole new way to have digital entertainment."

The two systems are likely to benefit Nintendo's lagging fortune in the more lucrative set-top market. "Nintendo wants to benefit from whatever synergies they can build to keep customers when they decide to move up," Baker said.

Competition growing
Meanwhile, there are signs Nintendo may not have an open field with the Game Boy for long, with competition among makers of set-top game players likely to spill over to handhelds.

A representative for Sega, maker of the Dreamcast set-top console, said the company will announce details over the next few months on plans to develop games for cell phones, handheld computers and other portable devices.

Paul Gross, senior vice president of Microsoft's mobility group, has said a mobile, wireless-equipped game device could be a natural companion to the company's Xbox set-top console, set to debut next fall.

Sony, meanwhile, has said the closest it plans to get to a portable game player is the PSone. A slimmed-down version of the original PlayStation, PSone is meant to be carried on vacations but still requires an electrical outlet and, for now, a TV set.

"I keep hearing rumors around that other companies are looking at the portable gaming space, but nothing so far that I can quantify," Olhava said.

For now, the only noticeable handheld competitor is the WonderSwan from Japanese toy giant Bandai, best known for its Power Rangers action figures. The WonderSwan has carved out about 8 percent market share in Japan, mostly at Nintendo's expense. Bandai has said it may market an upcoming color-screen version in the United States next year.

From its unfathomable name to a software roster heavy on dating games and mah jong titles, the WonderSwan is clearly geared at Japanese consumers, however, and seems unlikely to pose much of a threat to Nintendo in other regions.

"I think handheld games are a really hard market to penetrate because Nintendo has such great mind share in the market," Olhava said. "It's a pretty tough market to crack, but I don't think it's impossible."