Bad Strategy: At E3, Microsoft and Sony Put Nintendo On the Defensive

Nintendo (NTDOY) is headed to a crisis point on the eve of the Electronic Entertainment Expo, or E3, America's largest video game conference. It is still the number one video game company, but past successes, dated technology and lost loyalties are deteriorating the lead.

First, from Tom Ivan at EDGE Magazine:

The Wii and DS markets have "collapsed", according to Namco Bandai's VP of sales, marketing and publishing Olivier Comte.
The executive believes that consumers have lost faith in the quality of software for Nintendo platforms, which have also been held back by rampant piracy.
"It's a tough market," Comte told MCV. "We had a lot of product, and the average quality of a game on DS and Wii is very, very bad. So in the mind of the consumer today, to buy a DS or Wii game is to buy a game that isn't very good.

Ouch. Namco Bandai is one of the largest and oldest Nintendo supporters, and equally important third-party developers have expressed concerns over the low-cost, but dated Wii platform. It is technologically inferior to the Sony (SNE) PlayStation 3 and even the older Microsoft (MSFT) XBox 360, so creating a cross-platform title is usually impossible.

Instead, developers make a separate, low-budget offshoot specifically for the Wii platform while having the fully-realized title available simultaneously for the PS3, XBox 360 and PC platforms. It is often a worse situation when developers try to create the same experience on the Wii -- which some developers claimed was a souped-up version of Nintendo's decade-old GameCube -- and critics and players rip it apart for paling compared to the other, superior versions.

Unfortunately, Nintendo's biggest advantage -- the unique motion controls -- comes to an end this week. Sony has already successfully cloned the Wii controls with the Sony Move, giving the PS3 DVD, Blu-Ray, rich graphics and Wii-inspired experiences. Microsoft has the critically-acclaimed Kinect (formerly Project Natal) which removes the joystick altogether by observing the players' movements. Kinect is truly a revolution and Move, for all the criticism, is an evolution of the Wii. Accessories to the XBox 360 and the PS3, respectively, Kinect and Move will be playable by early consumers this week and on sale by this holiday.

The Nintendo Wii is still the number one system at some 71 million sold worldwide, compared to approximately 40 million XBox 360s and 30 million PS3s, but the company has become comfortable and complacent, and even Nintendo recently acknowledged its future sales are looking mighty soft. The Wii came out in 2006 -- ages ago in video game years -- and yet the only technological improvement has been a critically-panned joystick add-on that was suppose to add more precise movement, something that, ironically, Sony is actually creating with its Move controllers.

It's a difficult decision for Nintendo. It could release a HD version of the Wii, but that would require launching another console (which the two competitors are not) as well as convincing the budget-conscious Wii audience to pay a higher price tag for the next gen system. Remember, the Wii is now $200, which makes it around the price of the technologically superior XBox 360 and a little cheaper than the much more advanced PS3. Nintendo may have new controller technology to show off at this week's expo, but it's held back by the dated system and probably could not do anything for the Wii comparable to Project Natal. Finally, unlike the Wii launch in 2006, the mobile space with Apple (APPL), Google (GOOG) and other players make the video game options that much more plentiful.

Last year's E3 would have been the perfect year for Nintendo to unleash a new control system worthy of its significant headstart. Instead, on the night before Sony and Microsoft give consumers the post-Wii experience, the long-time winner finds itself behind the 8 ball.

Photo courtesy of JfromtheUK.

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