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As the Handheld World Changes, Nintendo Strikes Back

Between iOS, Android, the impending release of Vita and cursed by its predecessor's success, 3DS struggles to position itself.

Dusty and with a dead battery, the current state of most people's 3DS machines. Including mine.

No one can say Nintendo isn't taking the tepid response to the 3DS seriously. The cost of buying a brand-new 3DS will drop from $249.99 to $169.99 on August 12, slashing the retail price $80 almost five months after launch.

"At $169.99, the 3DS is now an incredible value to both gamers and consumers," said EEDAR analyst Jesse Divinich over email to me today. "I think it is safe to say we are unlikely to see another 3DS price cut anytime soon, and the fate of the 3DS hardware will now solely rest on the quality of content. Content, I believe, will shine this holiday season."

The DS launched on November 21, 2004. By the end of March, Nintendo had sold 5.27 million units worldwide. Nintendo has pushed 4.32 million 3DS units in roughly the same timeframe, but it's crucial to note that's without the benefit of the holidays.

3DS' future will be better judged after Christmas.

The biggest release so far has been a remake, while the next major release is...the same thing.

In the meantime, content is something 3DS has been sorely lacking. The no-glasses 3D trick was not enough to convince consumers en masse that 3DS was worth picking up at $249.99, with games like Pilotwings Resort and Super Street Fighter IV leading the software charge. Last month's The Legend of Zelda: Ocarina of Time 3D was the first substantial release from Nintendo since the hardware's late March launch.

Sluggish hardware sales have prompted publishers to start quietly pushing content back, in fact. Sega had planned to release both Crush 3D and Shinobi in September, then suddenly announced both would be pushed back several months, with Crush 3D not arriving until 2012.

Alongside the price cut, Nintendo confirmed release months for Super Mario 3D Land (November) and Mario Kart 7 (December).

"Nintendo plans to release some of its best content for the 3DS this holiday season and as long as consumers agree," said Divinich, "I foresee no reason to doubt a Nintendo turn-around this holiday season."

"As long as consumers agree" is the key issue. Nintendo can get away with charging $39.99 for its releases, thanks to brand recognition for its characters and franchises. The problem third-parties have always struggled with on Nintendo platforms in the modern age is competing with Nintendo's tent-poles.

Complicating matters is the rise of the smartphone as a reliable on-the-go gaming machine. Consumers expect to pay less for mobile entertainment now. Dollar games are plentiful on Apple's App Store, and some of them are terrific.

Epic Games made $10 million off Infinity Blade and nothing off BulletStorm. Guess which was cheaper to make?

There may be more substance to Nintendo's creations, but what's the threshold of "good enough"?

The race to the bottom was challenged by Nintendo president Satoru Iwata at this year's Game Developers Conference, where he encouraged developers to continue to assign value to their work.

“The objectives of smartphones and social network platforms are not at all like ours," he said.

At the same time Iwata was speaking, Apple CEO Steve Jobs was literally across the street announcing the iPad 2, and revealing Apple had paid developers more than $2 billion through App Store sales.

Iwata asked developers to avoid the race to the bottom common on iOS and social platforms.

"What I wanted to argue most was that video game developers need to be careful about 'preserving the value of video games' so that the video game industry, regarded as valuable by many people, can be sustainable," said Iwata, reflecting a few months later.

Combined with Facebook's games explosion, the expectations from consumers for games has changed completely.

"Consoles used to be 80% of the industry as recently as 2000," said Electronic Arts CEO John Riccitiello in an interview with Industry Gamers. "Consoles today are 40% of the game industry, so what do we really have? We have a new hardware platform and we’re putting out software every 90 days. Our fastest growing platform is the iPad right now and that didn’t exist 18 months ago."

Nintendo has been slow to encourage development on the eShop, mostly relying on its existing DSiWare catalog and a steady release of revamped "3D Classics." Nintendo's storefront is a better experience on 3DS, but it's hardly the App Store in breadth or ease of use. There are rarely sales on the eShop, let alone demos. Many iOS games happily play with price points to spur attention, and if you're just looking to download a bunch of apps to play with, there's an entire free section to explore.

Free doesn't exist in Iwata's wheelhouse (unless you're talking about Virtual Console games to early adopters, anyway).

I'd love to download a bunch of experimental 3D projects for a buck on my 3DS, wouldn't you?

On WiiWare, Nintendo at one point made a big deal because a small slice of games were honored with the ability to have a demo--temporarily. They eventually disappeared. That's not a way to encourage people to experiment with their dollars.

One of the more immediate questions outside of Nintendo's financial sphere is how the 3DS price drop will affect Sony's PSP successor, Vita. The industry welcomed Sony's decision to price match 3DS at $249.99 for the cheapest Vita model, and it's unclear whether Sony will be able to adjust any lower.

Sony did not return my request for comment on the 3DS price drop.

Sony found a way to price VIta at $249.99, but will they find a way to slice away at the price more?

"This price cut does put the Vita in a tough position," said Divinich. "Not to sound like a broken record, but it all comes down to the content and if the Vita can deliver a library of high quality entertainment products, it should be able to thrive at the $249 price point."

The reason Nintendo dropped to $169.99 specifically may have more to do with margins. Bloomberg Japan reports that Nintendo will be taking a loss on each 3DS sold going forward. One of Nintendo's hallmarks is its ability to turn a profit on all hardware on day one, so whatever the sales outcome of the platform, at least the company is making money. Not anymore.

"I would suspect that the 3DS is now being sold at near break-even for Nintendo," said Divinich.

Given that Nintendo's reporting a massive quarterly loss, all bets are off.

And while no one will question whether Nintendo's move today was bold, will it be enough?

Iwata traditionally speaks to investors right after a financial report. We should know more about what Nintendo's thinking soon.

Patrick Klepek on Google+
157 Comments
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Posted by GGear0323

the success of the DS was never sustainable. it was inflated due to the influx of many casual gamers, which is why it sold over 150 million units. but the thing is, outside of the initial launch of the Game Boy and the DS, handhelds were never reliant on casual gamers. the PSP was never marketed towards casuals and it sold almost 70 million units. the GBA sold about 80 million units. and even with that initial influx, the Game Boy and Game Boy Color, over a decade, sold about 118 million units. portables may never hit that 150 million mark ever again, but they don't have to in order to be successful. you may see a bigger software slide towards smartphone gaming, but until developers can prove that a sizable number of those gamers are willing to pay more than 10 bucks for a game, they will never ignore the tens of millions of potential customers that are accustomed to spending between 20-40 dollars for a game. gaming as a whole is still a niche market, portable gaming as well, but in the past, no one bothered looking at the large number of casual gamers out there (the ones playing Snake and Tetris and Bejeweled on their dumbphones for hours on end). now we are looking at those people and they far outnumber the people that are willing to purchase a portable console, but that has always been the case. i don't see the core handheld market going away anytime soon. 

Posted by Rekt_Hed

As the App market grows at blinding speed and is so easy to use for customers its obvious that more 'casual' gamers would want to be part of the new thing especially when its so simple to use.

Nintendo really shot themselves in the foot by having such a long drawn out opening launch. The lack of sexy software coming out and SO MANY REMAKES of old games for full retail price I'm really not suprised the 3DS isnt selling.

This is what happens when you build a console on a gimmic and expect that to carry the console without any decent eshop or software.

Posted by Volgin13

Thanks to lack of 3DS software I started playing FarmVille, on my iPhone. That is the most heinous crime of all.

Posted by Sykosis

I really love these editorials guys. keep them up.

Posted by apoptosis61
@Phoenix87 said:
Nintendo is the new Sega. Its only a matter of time before they are software only.
i love nintendo but i think the time for a nintendo-sony fusion has come , oh plz god
Posted by BitterAlmond

I'm just not on-the-move enough for portable games. As a general rule, sit-down console or PC games are more complex, better-looking and generally more fun and lengthy. Add on the fact that I'd much rather look at a big, friendly screen than suffer neck strain looking down at something in my hands for a long period of time, and I doubt I'll ever buy a handheld gaming system. They just don't make sense for me.

Edited by mariokart64fan

By the end of March, Nintendo had sold 5.27 million units worldwide well looks like they hit that mark , because 3ds has sold 6 million according to the last report , world wide, -just a month shy of dses record , oh well ,

the games are coming=good sign @jetforcgemini, apple aint gonna do nothing ,but release countless ipads no one uses for games they use them for music ,

get a grip , ipad has no future in the gaming market , its only shoved a side as a after thought look at those games if its not a port of a 10 yr old-caugh gta 3 , game , its some little flemsy angry bird type game which you can play for free in the google chrome browser haha now i bet you feel ripped off even paying 2 dollars andchange for a free game !

sucks for ya, that will keep happening for as long as you support one of the most overrated companys in history of making companys, they are even behind mr coffee . im sure your aware of what that is ,