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The Potential in Nintendo's DSi Foray

It’s not hard to see the Apple influence in Nintendo’s latest hardware.

The Nintendo DSi, which went on sale Sunday, lets users play games, listen to music, take photos, surf the Web and wirelessly download applications. It’s not on a 3G network and you can’t use it to make phone calls, but it does offer a Nintendo spin on many features that define Apple’s iPhone and iPod touch.

That spin, though, makes the DSi more than a derivative product. Borrowing just as liberally

Nintendo
CNBC.com
Nintendo

from the company’s own Wii and incorporating the best parts of its predecessor, the DSi is a solid upgrade to the industry’s top selling handheld gaming system.

At $170, it’s not a cheap one, though. That’s a $40 premium over the DS Lite, which is still a strong seller in the U.S. and will remain on shelves.

The DSi comes equipped with two cameras and remarkably easy to learn photo-editing software. Pictures are saved either in the system’s internal memory or on a SD memory card. The system no longer offers a slot for Game Boy Advance titles, but its new operating system allows users to connect to an online store, which will regularly offer new games.

Nintendo has sold 75 million DS units since the product launched in 2004 (and relaunched, with a streamlined version, 18 months later). Since then, the company has further broadened its audience base with the Wii, which quickly became a pop-culture phenomenon.

That audience seems to trust Nintendo. DSi pre-orders at GameStop, a leading chain of video game specialty stores, were roughly double what the DS saw at its debut. The store held midnight launch events at over 3,000 locations nationwide.

Analysts say they’re not surprised by the strong initial sales. The momentum behind Nintendo these days is phenomenal. However, with the ongoing recession showing no signs of wavering, they’re more cautious about how the DSi will fare once the initial surge is over.

“I do think there’s a question about how long the legs are, given the cost -- especially since there’s a lower cost DS platform on the market,” says Colin Sebastian, senior vice president of equity research for Lazard Capital Markets. “I think since retailers are going to push the DSi it will have some impact, but I don’t think it will [appeal to] the mainstream audience until Nintendo has more games that are specific to the DSi available – that you can’t play on the regular DS.”

Those DSi exclusive titles aren’t likely to crowd store shelves anytime soon, though. With the installed customer base for the existing DS so large, third-party publishers have little incentive to build games for the DSi’s much smaller audience.

Instead, the real push will come via the DSi Shop, where users can download applications (almost exclusively games at present) directly to their systems. Prices run from free to $8 presently. Nintendo has announced that no DSi Shop title will exceed $20.

New offerings will be available weekly. And while Nintendo has not made any announcements, it’s quite likely it will revive old Game Boy and Game Boy Advance games, as it has done with classic games on the Wii’s downloadable games service. To get people used to downloading from the shop, the company is offering a $10 DSi Shop credit to anyone who buys the system by Oct. 5.

Though Apple has seen success with the flood of user-created content in the App store, don’t expect Nintendo to emulate that. As it does on the Wii’s virtual console, the company is strictly controlling what is offered in the DSi Shop. Analysts, however, say this might work in Nintendo’s favor.

“I think Nintendo really has the opportunity to improve upon the Apple experience as far as the online marketplace is concerned,” says Billy Pidgeon, a videogame analyst at IDC. “Certainly there will be more apps out that deserve to be there.”

While the ability to download new games and software will hold appeal, it may ultimately be something else that draws in the tween users that Nintendo courts so vigilantly. The DSi’s multimedia abilities could be enough to actually distract that group from cell phone texting.

Whether it’s altering pictures or manipulating sound files of friends’ voices, tweens can put an even more personal spin on messages to each other.

“I like the mash-up potential,” says Pidgeon. “I think when it gets in the hands of tweens, there could be some excitement around that. … There’s more creativity involved and more self-expression involved than simply sending words.

“I think that’s really where the potential lies with this.”