Can Nintendo Keep 3DS Sales Hot After Reaching Core Gamers?

Launch of 3-D Device Was Biggest in Company's History, but Marketing to Masses Poses Challenges

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If your child has a Nintendo handheld game, get ready to be pestered for another one -- this time in 3-D.

Nintendo's 3DS, unlike current 3-D TV and movie screens, can be played without wearing special glasses. Players can also personalize the technology by taking 3-D photos and inserting those images into games.

Its sales so far are not only record-breaking, but a lot of the devices are being bought by people who already own a DS.

Analysts estimate Nintendo will have shipped 4 million 3DS machines by the end of March, just weeks after its Japan launch, and only one week into its U.S. debut. By comparison, the instant sellout Nintendo Wii console shipped just 3 million units in 45 days.

Nintendo did not release numbers yet, but characterized sales as a best-ever launch in the U.S. "U.S. day-one sales numbers for Nintendo 3DS were the highest of any Nintendo handheld system in our history," the company said in a statement.

According to an Interpret analysis, 3DS sales may initially be to the choir, that is, the core gamers who already own handheld devices. It found that 79% of people who said they intend to buy a 3DS already own at least one handheld device: 61% own a Nintendo handheld; 36% own an iPod touch or iPad; and 33% own a Sony device.

David Cole, analyst with DFC Intelligence, agreed that pent-up demand by gamers for the innovative technology as well as a dearth of new gaming hardware ensures an early spike in sales, but the question is whether it can be maintained. "The challenge is the long-term, once all the early adopters have bought one," he said. "That's really when marketing will come in and it will be especially important for holiday. ... Explaining 3-D without glasses will be key, and you'll see demos everywhere."

Nintendo declined a request to discuss its 3DS marketing initiatives as company policy, but industry insiders agree that marketing will be important -- and challenging, in traditional media at least, where showing the 3-D experience in a TV or print ad requires a 3-D TV or computer that most consumers don't have. Nintendo is currently airing a TV spot in the U.S. that tries to show the 3-D experience by putting objects at different depths.

"Nintendo has launched a great number of programs to get the devices into the hands of the consumer for that personal experience," said NPD analyst Anita Frazier.

Nintendo used a similar "Wii ambassador" program that gave Wii units out to moms, families and even nursing homes for trials.

Analysts expect Nintendo will also address the important holiday season in part by releasing 3DS versions of its successful first-party games, such ones from the Mario and Pokemon franchises, which have been lacking at launch.

The product's success "over the longer term will be about the games and how they make use of the 3-D technology as well as other forms of entertainment that the 3DS will support," said Ms. Frazier.

Marketing should also address price and value, as the 3DS costs $250, or about $100 more than its other DS models, and games are priced around $40, about $10 more than regular DS top titles. Consumers still being careful with discretionary spending will need compelling reasons to spend more, Mr. Cole said.

But its coolness factor alone might override price considerations, at least in the beginning among early adopters. "Like the Wii before it, the 3DS is the first of its kind and has the potential of revolutionizing the handheld market," wrote Interpret analysts Stephanie Sutton and Michael Cai in a recent white paper. "The no-glasses 3-D experience immediately broadens its audience by including consumers who have not previously enjoyed their 3-D experience because of [the glasses.]"

Said Ms. Frazier: "While I normally say technology for technology's sake is irrelevant and that it's all about content, in the case of the 3DS -- at least for launch -- it really is all about the 3-D technology. It's just that cool."

Another challenge facing Nintendo is the changed competitive landscape. The rise of casual gaming on phones and other multipurpose portable machines since the initial launch of the DS system in 2004 means there are many more options for gaming. "Wallet share is important, but so is time share and even pocket share. Most people can only carry so many devices," said Mr. Cai. "The question is how many consumers are looking for that engaged gaming experience on the go, or are they just looking to kill some time when out and about, and will the iPod touch be fine for that?"

Reviews have been generally good as well, extolling the 3-D technology, although complaints about short battery life and a weak title launch portfolio of games have also been noted.

One well-known technology writer, John Dvorak, even asserted that the 3DS could be the catalyst to widespread 3-D adoption, and predicted an Apple 3-D iPhone that would benefit from Nintendo's breakthrough success.

WATCH OUT, NINTENDO, THESE GUYS ARE LOOKING TO TAKE YOUR SPOT

Nintendo holds the title for top-selling handheld gaming device with more than 140 million DS sold worldwide since its debut in 2004. However, its newest product, the 3DS, while innovative and already selling briskly, faces a swath of competition, some of which didn't even exist seven years ago.

SONY NGP The-end-of-year-promised next version of Sony's PlayStation Portable's, codenamed NGP (for Next Generation Portable), could be a big threat to DS. Its quad-core processor, faster than any current mobile device, promises big power. NGP features also include a touchscreen and touchpad, PlayStation Network access, WiFi and 3G wireless connectivity.

IPOD TOUCH, IPHONE AND IPAD We lumped Apple's iOS devices together because they're from the same company with the same strategy. And that strategy values gaming as a key driver. The social and multiplayer Game Center app, a kind of Xbox Live for Apple products, speaks directly to that. While Apple hasn't added 3-D, the iLine-up could be "good enough" gaming for casual players.

MICROSOFT XBOX An Xbox handheld device remains only a rumor, but Microsoft does offer some Xbox gaming on its Windows Phone 7. Xbox Live is built into the phone and users can access their accounts easily on the go. While probably not a big threat to DS, diehard Xbox-ers may defer.

3-DTV MAKERS While today's 3-D TVs require glasses to view 3-D movies and shows, manufacturers such as Samsung, Sony and LG are among the top TV makers working on 3-D technology without glasses, coming sooner rather than later. (Toshiba has two sets already out in Japan.) That means 3-D console games that play without glasses will follow. The risk is that consumers who are content with 3-D gaming at home might not pony up for a handheld.
-- Beth Snyder Bulick

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