Your Move, Nintendo

If there is a theme to this week's E3 video game powwow, it's that consoles are getting cheaper. Two days after Microsoft (Nasdaq: MSFT  ) announced a $50 price cut on its entry-level Xbox 360, Sony (NYSE: SNE  ) is coming through with a $100 chop on its high-end PS3 system.

Does this mean that Nintendo (OTC BB: NTDOY.PK) will be knocking down the $250 price on its Wii systems in the light of $300 360s and $400 PS3s? Are you nuts? Nintendo hasn't had to flinch since rolling out the Wii two years ago. Microsoft and Sony have gone through several price cuts and hard-drive upgrades in that time, but Nintendo is still selling the same box at the same price.

Why fix what isn't broken? The Wii may lack the spec sheet, the DVD or Blu-ray playback functionality, and the chunky hard drive capacity, but that hasn't held Nintendo back. Month after month, the Wii is outselling its rivals by a wide margin.

This still doesn't mean that Nintendo can ignore its price-slashing competition. As Sony and Microsoft position their gadgets as home theater appliances, lower prices make them that much more attractive, since they’re more than just gaming consoles. They are now conduits of celluloid. The Wii, meanwhile, can do things like surf the Web or check the local weather, but it is still primarily a family friendly video game system.

Game on, Mario
Nintendo will want to keep a close eye on this month's sales trends. Cheaper Xbox 360 and PS3 consoles will be great news for retailers like GameStop (NYSE: GME  ) . They are likely to see an uptick in hardware sales, and that usually inspires higher-margin software title sales as new gamers begin building out their libraries.

Nintendo's Wii has sold briskly. The units rarely last long on the shelves before being plucked down by fans won over by the company's motion-based controller and clever games. But Nintendo can't assume that it will be perpetually immune from fending off the cutthroat pirates riding the S.S. Xbox and the Good Ship PS3.

The irony here is that Nintendo is the company with the most pricing flexibility. Since most of the Wii's most popular titles are made by Nintendo itself, it's doing more than simply collecting royalties from third-party developers. It's profiting from the actual games and even the characters, through licensing deals with companies like 4Kids (NYSE: KDE  ) and the occasional movie deal.

By the same token, that also means that Nintendo has the most to lose if it lets rival systems close the gap through price breaks and aggressive marketing promotions.

Coming soon
Nintendo isn't resting on its laurels. Its E3 announcements include a sequel to its popular Wii Sports title, a Wii Music franchise to cash in on the growing popularity of music-oriented games, and an exclusive Grand Theft Auto game from Take-Two Interactive (Nasdaq: TTWO  ) for its handheld DS platform.

The Wii's lack of optical disc playback and skimpy flash-based memory may not make Nintendo a video-downloading monster, but it's having no problem selling smaller-sized games through its online store.

Objects in the mirror are closer than they may appear
Nintendo is the company that everyone is chasing. That is a great place to be, for now. The future will likely be more competitive. It's not just marked-down consoles, either; Nintendo's DS is the planet's portable gaming device of choice, but that may change if Apple (Nasdaq: AAPL  ) has a say in things.

This past weekend's debut of the Apps category within Apple's iTunes is built for giving iPhone and iPod touch owners a library of games that they can play on their devices. Sure, companies have been selling cellular games for ages. The difference here is that Apple has momentum on its side. It doesn't hurt that some of the top-selling Apple apps are games like Super Monkey Ball and Crash Bandicoot that are already familiar to video game players.

Nintendo's saving grace is that the DS skews toward younger gamers. You are unlikely to find too many elementary schoolers and pre-teens trading in their sturdy DS systems for costly iPhones with monthly tabs. However, it's just one more threat to consider, since cell phone games are typically much cheaper than conventional handheld video game cartridges.

Either way, Nintendo can't get cocky. The invaders are coming in from all sides of the boat. Let's see what it can do with those cannons.

Nintendo plays here too:

Microsoft is an active stock pick for Inside Value newsletter subscribers. Nintendo, GameStop, and Apple are Motley Fool Stock Advisor recommendations. Take-Two Interactive is a Rule Breakers pick. Want to play? Give any of the newsletters a trial run with a free 30-day subscription offer.

Longtime Fool contributor Rick Munarriz is a fan of all three consoles but finds himself spending way too much time with the family on the Wii at the moment. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy, always there to make sure that Fools don't overheat.


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  • Report this Comment On July 16, 2008, at 3:11 PM, all4this wrote:

    "Nintendo's saving grace is that the DS skews toward younger gamers. You are unlikely to find too many elementary schoolers and pre-teens trading in their sturdy DS systems for costly iPhones with monthly tabs."

    However, you forgot the iPod touch is the same OS, and platform as the iPhone, and kids LOVE the ipod!

  • Report this Comment On July 17, 2008, at 2:54 AM, luscious25 wrote:

    i used to work for nintendo and i know first hand they can't whip out the games fast enough what makes nintendo a force to be reckoned with is that they cast their net farther than microsoft in sony. both companies left a HUGE untapped market women. all my female friends have the wii the games are friendly and there is not blood constantly splashing against the screen. it's also family friendly.

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