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Tuesday, March 10, 2009
Nintendo secret: It's all in the game
Even in hard times, the maker of Wii and DS finds ways to thrive
It's a common belief that the video game industry is recession-proof.
That may well be true for video game giant Nintendo Co. even during the current global financial crisis, arguably the worst since the Great Depression.
Many blue-chip firms, including Sony Corp. and Nissan Motor Co., are struggling to survive the upheaval by cutting costs, including via layoffs.
In sharp contrast, Nintendo marked a record ¥1.54 trillion in sales and ¥501.3 billion in operating profit in the nine months to December.
In business 2007, the latest full year for which earnings figures are available, the company posted a record ¥257.3 billion in net profit, up 47.7 percent from the previous year.
Following are questions and answers on the secrets to Nintendo's success:
What factors contributed to the company's recent performance?
The company's main source of revenue is video game consoles, particularly the highly popular Wii and the hand-held DS, accounting for two-thirds of Nintendo's sales.
Nintendo's April-December earnings report released in January showed the firm had sold 44.96 million Wii units since its December 2006 debut and 96.22 million DS units worldwide since it hit stores in December 2004.
More than 20 million of both products were sold in the April-December quarter.
Some media reports say global DS sales may hit the 100 million mark by the end of March.
Game software revenue accounts for the remaining one-third in sales — ¥567.5 billion in April-December — further fueling Nintendo's profits.
"Because there were many million-sellers in this period, we sold 164 million software (units) worldwide" for the DS, the company said in its earnings report.
In his book on Nintendo, journalist Yukinobu Mizoue wrote that the company is not only a leading maker of video game hardware but also is Japan's top game software developer.
Games based on characters Super Mario and Pokemon are among the many titles that have been million-sellers.
Why is the DS popular?
Mizoue writes that the Wii and DS are remarkable because they have cultivated new users with new styles of games.
These machines shattered the concept that video games are just entertainment outlets for young people. Their debut expanded the use of games for studying and even physical exercise.
Many megahit DS software titles have study applications, including English language, kanji, history and science.
Some schools even use the DS as a study tool in the classroom.
Tokyo Joshi Gakuen all-girls junior high school in Minato Ward uses the DS in English classes. Students learn the language by writing words on the DS screen.
What about the Wii?
Like the DS, the Wii has cultivated new users by deviating from conventional gaming styles.
Before its debut, video gamers normally sat virtually still.
But the Wii's wireless remote, which detects users' motions, requires physical action to operate.
This turned the Wii "Fit" into an instant success. Users can engage in more than 40 kinds of physical games, including skiing and yoga, on a special board that detects body motion.
The board can also check players' balance and calculate body mass. The data can be saved, so players can check their condition daily.
When did Nintendo start making video games?
Fusajiro Yamauchi, grandfather of Nintendo's former president, Hiroshi Yamauchi, founded the business in 1889 originally as a maker of the Japanese Hanafuda card game.
In 1902, Nintendo became the first company to produce cards in Japan and later began to make toys.
It was not until 1983, when Nintendo introduced the hit Family Computer, called the Nintendo Entertainment System for the U.S. market, that the video game industry started to gain global popularity.
The Family Computer prompted rivals in the industry to attempt their own original video game machines, but few could match Nintendo until Sony launched its PlayStation series in 1994.
What's special about Nintendo?
Masashi Morita, a senior analyst at Okasan Securities Co. who closely monitors the game industry, pointed out Nintendo's philosophy for success: provide something new and cultivate a wide range of users.
"Although the company seems to try to present products in new ways, I think the concept has basically remained unchanged. This is to target a wide range of users," Morita said.
"The concept especially seemed to have worked well (with the Wii and DS) under the current social climate and considering various factors," he added.
Before the DS, many video game makers put all their energy into creating high-technology hardware with improved graphics and sophisticated content.
Is Nintendo expected to continue performing well?
Morita said Nintendo is likely to continue to lead the industry because the DS and Wii are running so far ahead in terms of unit sales compared with the Sony PlayStation 3 and the Microsoft Xbox 360.
The newest "Dragon Quest" game, one of the most popular game series, will soon be released for the DS, he said, noting the key to gaining users of hardware is to continuously provide popular software titles.
Sony, however, will meanwhile keep trying to score its own hits, including offering the latest "Final Fantasy" title for the PlayStation 3 as well as the recently released "Biohazard 5."
Also, Sony's hand-held PlayStation Portable saw unit sales surge for the first nine months of fiscal 2008, selling about 12 million in that period.