After playing from behind for the past few years, Microsoft (Nasdaq: MSFT) and Sony (NYSE: SNE) may have finally made the right moves to surpass Nintendo (OTC BB: NTDOY.PK).

The holiday season is an important time for the video-game industry, as Nintendo of America President Reggie Fils-Aime emphasized at the BMO Capital Markets Annual Digital Entertainment Conference in New York this week. "The holidays are more important to Nintendo than to other manufacturers," he said. "Almost half of all Nintendo hardware sales in 2009 occurred in November and December, with rivals accounting for just over 40% of all sales during the same time period."

Microsoft, with its Xbox 360, and Sony, via the PlayStation 3, have both trailed industry leader Nintendo for the past few years. Displaying current sales figures for all major consoles, Fils-Aime showed that the Nintendo DS led the way at 43.1 million, followed by the Wii at 30.4 million. The Xbox 360, meanwhile, has sold 21.9 million units and Sony has sold 13.5 million PlayStation 3 units.

This holiday season, Sony and Microsoft are banking on motion-sensor-controlled add-ons to their consoles to change the landscape. Microsoft introduced the Kinect at the E3 2010 conference this past year in Las Vegas, while Sony unveiled the Move controller at the same event.

The PlayStation Move is a physical controller, much like the one Nintendo uses for the Wii. Kinect is controller-free and uses 3-D motion-capture cameras. When a player steps in front of the sensor, his or her on-screen character moves as he or she moves.

"Both Microsoft and Sony are doubling down on motion tracking for the mainstream shopper," said Scott Steinberg, video-game analyst and host of the Web series Game Theory. "They are technically following Nintendo to some degree, but they are banking on not only active gaming or motion gaming, but a more advanced version than the one Nintendo has been able to carve out."

Thus far, Steinberg says the Xbox 360 and PlayStation 3 have appealed only to enthusiastic gamers. The introduction of the Kinect and PlayStation Move, he says, are the respective companies' attempts to move into social gaming with more advanced technology.

"Kinect transforms entertainment and introduces Xbox 360 to millions of new people -- families, friends and people of all ages," said Don Mattrick, president of Interactive Entertainment Business at Microsoft, in a statement.

Microsoft unveiled the Kinect in a special event in Times Square, and the company says the device has done well already. At the BMO Conference, Dennis Durkin, chief operating and financial officer of Microsoft's Interactive Entertainment Business, cited reports from GameStop and Toys "R" Us that said the standalone Kinect accessory has been sold out at most retailers.  

However, spokespeople for multiple GameStop stores in New York City said they have the Kinect available. One sales report from industry tracker VGChartz says Microsoft has sold just shy of 500,000 Kinect add-ons in the first week. Official sales figures have yet to be released.

One thing is clear: The technology behind the Kinect and Move and, to a larger extent, the Xbox 360 and PlayStation 3, is more advanced than that of the current-generation Wii. Analysts say Nintendo's lack of high-definition quality has definitely made it look older by comparison.

"The Wii is looking long in the tooth," Steinberg said. "They have no HD graphics card. Four years ago that was fine, but HD is a standard nowadays."

Michael Pachter, video-game analyst at Wedbush Securities, said Microsoft and Sony are catching Nintendo at a vulnerable time.

"Nintendo is in decline not because they've done anything wrong, but first, because they are a victim of their own success," Pachter said. "They've sold an inordinately high number of consoles, and nothing stays up forever. But they are also in decline because their two competitors have innovated a lot more recently -- Sony with the Move, giving PlayStation what the Wii has, and Microsoft has truly innovated with the Kinect. If you haven't bought a console, you're probably buying something other than the Wii, and that hurts Nintendo."

It goes beyond consoles. The analysts say Microsoft, with its Xbox Live, and Sony, with the PlayStation Network, have done better jobs than Nintendo of reaching out to the online gaming community.

At the BMO Conference, Durkin said Xbox Live has 25 million subscribers. Furthermore, he said, Xbox Live subscribers use it for gaming only 60% of the time. They also use it for consuming streaming content via Netflix or Zune or while browsing the Web.

"Nintendo has a poor online strategy," Pachter said. "While Xbox has Xbox Live and Sony has the PlayStation Network, Nintendo doesn't have anything. They have the Wii channel with some arcade games or Netflix, if you have it. The other two guys recognize people with consoles like to play online and stay connected, Nintendo does not think it is important."

Steinberg says that because both the Xbox 360 and PlayStation 3 pack so much into them, they are better values for the customer. He says this is especially the case for the PlayStation 3, because it has the ability to play Blu-ray discs.

Despite all of this, Pachter and other analysts are still confident that Nintendo will wind up on top at the end of the holiday season. He says Nintendo's retail partnerships, such as the one it has with Wal-Mart (NYSE: WMT), will allow it to continually thrive.

"Wal-Mart will probably promote the Wii as their feature console and offer a $50 gift card with it," Pachter said. "I still see it selling 1.5 to 2 million consoles. I don't think Microsoft will sell more 360s. Right now, when the numbers come out, Microsoft will be a little bit ahead by a couple of hundred thousand. By the end of the holiday season, I think Nintendo outsells them."


Internationl Business Times, The Global Business News Leader

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