Gaming and Culture

Sinking sales and a price cut for the Wii knocked Nintendo's first-half earnings by 52 percent.

On Thursday, the game maker reported a profit of 69.5 billion yen ($767.8 million) for the six-month period ended September 30, compared with 144.83 billion yen for the same period last year.

Sales for the period also tumbled, falling 34 percent to 548 billion yen.

Nintendo blamed the shortfall on weak sales of its Wii combined with its recent price cut for the game console. In September, the company trimmed the cost of the Wii in the U.S. by $50 to $199.99. Nintendo said it sold 5.75 million Wii machines globally during the first half of its fiscal 2009, a huge decline from the 10 million units that flew off the shelves for the same period last year.

The Wii continues to face competitive pressure from both Sony's PlayStation and Microsoft's Xbox, which have benefited from their own price cuts.

Nintendo was also hurt by a lack of hot new games for the Wii and portable DS game console. For the Wii, the company's only major releases were Wii Sports Resort in July and Wii Fit Plus in early September. As one of the few bright spots, Wii Sports Resort has enjoyed brisk sales.

The weak earnings fell short of Nintendo's earlier estimate of a 100 billion yen profit for the first half and prompted the company to lower its forecast for fiscal 2009. Nintendo now expects annual earnings to fall to 230 billion yen, lower than its May estimate of 300 billion yen, and down from the 279.1 billion yen it earned in 2008. This would mark the first annual earnings decline in six years.

Nintendo also slashed its sales forecast for the full year, now expecting revenue of 1.5 trillion yen, down from its prior estimate of 1.8 trillion yen, an 18.4 percent drop from 2008.

The game maker is hoping for a brighter holiday season when gift-seeking shoppers may take advantage of the Wii's lower price. Nintendo is also eager to see whether its upcoming New Super Mario Bros. Wii game proves to be a hot seller.

Reports have even surfaced that the Wii may follow in the footsteps of Sony's PlayStation 3 by offering a Netflix streaming option.

Nintendo president and COO Reggie Fils-Aime talks about the company's latest iteration of its motion-sensitive controller, the Wii Motion Plus, at its E3 press briefing in Tuesday in Los Angeles.

(Credit: Daniel Terdiman/CNET Networks)

LOS ANGELES--Although the video games industry has begun to take some hits--suggesting it may not be recession-proof after all--Nintendo has managed to maintain a solid financial performance.

Its sales are up 19 percent year-over-year, according to the company, which would be impressive in any year, but is particularly so in the current economic climate.

At E3 here this week, Nintendo made a few bold moves, but tended to play it relatively safe. It unveiled a new version of its mega-hit exercise game, "Wii Fit Plus," and showed off the next-generation of its motion-sensitive controller, the Wii Motion Plus.

Nintendo President and COO Reggie Fils-Aime

(Credit: Daniel Terdiman/CNET)

Overall, however, there was the impression that the company was sitting on its lead. For while Microsoft has had some very impressive sales numbers and Sony has picked up its pace over its early PlayStation 3 stumbles, Nintendo's Wii has managed to stay on top of the sales charts. Similarly, the Nintendo DS has also had sky-high sales, and continues to defy expectations, more than four years after its launch.

At E3, CNET News' Daniel Terdiman had a chance to speak with about the video game industry as a whole, and about how Nintendo plans to go after the few demographics it hasn't already captured with the Wii and the DS.

Q: What's your feeling about where the video game industry is right now?
Reggie Fils-Aime: The video games industry is not just at the center of the entertainment industry, but is driving the entertainment industry, not only economically, but from a cultural impact standpoint. Having said that, consumers are having to make tough economic choices today. Nintendo's in a very fortunate place. The industry through April is down about 4 percent, but we're up about 19 percent. So consumers are voting for us with their wallets, which is a great place to be, especially when so much of our best content will be coming in the second half of the year.

Can Nintendo sustain that performance if the economy worsens?
Fils-Aime: Consumers are looking for ways to entertain themselves. In tough economic times, certain parts of the entertainment business have always done well. Whether or not the industry or Nintendo can sustain where we are really comes down to the experiences we're offering. And based on E3 and the smiles I see from people playing Wii Sports Resort, or Zelda DS, or Mario vs. Donkey Kong, I believe that as long as we continue to bring great, innovative entertainment, consumers will continue to choose us.

Speaking of Donkey Kong, I was thinking about the attempt at E3 on the world-record Donkey Kong score, and about how well the game and other classics like Pac-Man and Frogger and others from that era have held up. Are there current games that 20 or 30 years people will still be playing and appreciating?
Fils-Aime: It would be wonderful to see. If you look at something like Super Mario 64, that was a launch title for DS, 53 months ago, and continues to sell exceptionally well, as does Super Mario Galaxy for Wii. I do think there will be some key titles that folks will look back on 10 or 20 years from now, and say, "Boy, I would have loved to be a gamer when these games were launched."

Was there a design philosophy in the 1980s that designers could learn from today?
Fils-Aime: I think actually (Nintendo president and CEO Satoru Iwata) touched on this during our press conference. He talked about games like Donkey Kong or Space Invaders presenting an incredible challenge but also being inviting at the same time. And that duality is something that is really tough to do from a game design standpoint, and as we think about Wii Sports Resort, or Super Mario Galaxy 2, we're also trying to find that great balance.

Nintendo is currently selling both the DS Lite and the DSi. Is that not confusing to some consumers?
Fils-Aime: I don't think so, because a consumer walking in the door is going to be compelled by the plethora of great titles for DS. Then it's going to come down to, "Do I want a DS Lite or a DSi?" The first thing they'll see is that there's a price difference, so that will drive people one way or the other. The other thing they'll say is, "How important is it to me to download games. How important are the two cameras. And as we showed yesterday, with a million DSis sold in two months, and 400,000 DS Lites. And I think consumers are making their choice based on a number of factors. We have some who are saying, "I want pink." To little 8-, 9-, 10-year-old girls, features don't matter, It's, "I want the pink one." And having that available just for DS Lite is driving it that way.

Do you think all the innovation we're seeing in accessories for Wii, Xbox, and PS3 is making a rush to the next generation of consoles unnecessary?
Fils-Aime: We certainly believe there's a lot more Wii volume to be done, and a lot more games for the Wii. And that's not just what we've been able to do with accessories like the Balance Board, or future accessories like the Vitality Sensor. It's also what we're able to do with Wii Motion Plus, from an archery standpoint, or what we're doing with ping-pong, in putting this big spin and curve on the ball. Who would have thought that possible three or four years ago? Nintendo's driving a focus on innovation that maybe wasn't in our industry four or five years ago. I think that's where the major difference is.

One of the things that has driven the mystique of the Wii has been how hard it has been to buy one. But now it's available anywhere, anytime. Does that take away the mystique?
Fils-Aime: I don't think so. From the start, we wanted to reach out to people who did not consider themselves gamers. The only way to reach them is for the product to be readily available, because they won't sleep out in front of a store to buy a Wii. We had to get to the point of having massive availability. We're selling 300,000 or 400,000 units a month, 30 months after launch, and that's never been done before. We've blown past the PlayStation 2 sales rate after 30 months.

How did you solve the availability issue?
Fils-Aime: We've been manufacturing it at a rate that's never been seen before.

But why were there still shortages last holiday season?
Fils-Aime: The fact is, we've been producing at this rate for a year. It's taken us that long to satisfy all of that pent up demand. Now we can do some outreach to people who in the past were saying, "I might be interested in the Wii, but I'm not going to go sleep out in front of a retailer."

With their announced new motion-sensitive control systems, Sony and Microsoft seem to be planning to aggressively go after the elusive mainstream audience. But perception-wise, at least, Nintendo maybe has the opposite problem: You've got the mainstream. How do you reach that core gamer?
Fils-Aime: We have near-term, mid-term and long-term opportunities. The near-term opportunity is the consumer who owns an PS3 or an Xbox 360 and has been bad-mouthing Wii to their friends. We can reach that consumer with games like The Conduit or Tiger Woods with Wii Motion Plus. The mid-term opportunity is the more mainstream consumer who saw Wii at a friend's house but just needs a little extra incentive to get into our game. That's what Wii Motion Plus and Wii Fit Plus and new Super Mario Bros. Wii will hopefully achieve. And the long-term opportunity is that person who currently says, "I don't play video games and I have no interest in playing video games."

What about the Halo audience?
Fils-Aime: We think we win over the Halo audience with something like The Conduit, a multi-player, online, shooting experience, or Dead Space Extraction. And you know what? Once those people buy into Wii, they'll go buy Mario Kart or Wii Fit Plus. We're not going to be satisfied just picking up that existing gamer. We have to reach beyond and get that consumer who doesn't game. That's the only way we'll be able to continue growing as a company and as an industry.

That's not an unlimited audience, right?
Fils-Aime: It's not. And actually the challenge increases the further you dip into this group. Two years ago, theoretically, there were ten consumers who said, "I would never play video games." We picked them off one at a time with Wii Fit or Brain Age 2. Now maybe there's five left, but now the bar is substantially higher for how to get them. Which is why we're looking to push the envelope with something like the Vitality Sensor, and why we have to make current gamers say, "Huh? What is that?" But that's exactly the type of reaction we got a couple of years ago when we first talked about "Wii Fit," and look where we are now.

You just announced the multi-player Super Mario Bros. Wii. How important is that for broadening your Mario audience?
Fils-Aime: I think Super Mario Bros. Wii will first appeal to the traditional Mario fan. But I think we'll also appeal to the consumer who first bought a Wii to play Wii Fit or Wii Fit Plus, who maybe has felt that platforming games are a little too challenging. We'll get that consumer because it's Mario, and because they can play with other people, whether competitively or cooperatively. That's exactly what happened when we launched Super Mario Bros. DS. Initially it was the Nintendo fan. But the only way it's been able to stay in the top ten month after month is because we've reached beyond the Nintendo fan into the brand-new consumer who's picked up a DS for the first time.

Can you talk about what you saw from Microsoft and Sony when it comes to the motion-sensitive controllers. It will be a sort of a new arms race.
Fils-Aime: The only thing I'll say is a rhetorical question. Is it fun? If it's fun, then I tip my hat and say, "Well done." But what's happening sounds to me a lot like, "Who's got the prettiest picture. Who's got high-definition. Who has the best processing power?" It sounds like technology, when the consumer wants to be entertained. Our focus is how do we take active play and make it entertainment. And that's what we're going to continue to focus on. And I think we've done a great job with Wii Motion Plus, and the Balance Board. And we're going to continue to push the envelope in ways to make it more fun.