Nintendo's Big Bet: High Hopes for 3D Gaming

With increasing competition from Apple,and a customer base that's more price-conscious than ever, Nintendo has a lot riding on the 3DS.

Nintendo 3DS
Source: Nintendo
Nintendo 3DS

The new handheld device, which launches Sunday, represents a leap of faith on the publisher's part. With cheap and free games available on so many other platforms, will eye-popping effects and the lure of the strongest collection of franchises in the video game industry be enough to keep consumers interested?

At $250, the 3DS is more expensive than the previous DS handheld, but not prohibitively so. The games, which average $40, are also a bit pricier than the last generation. Given that the system allows players to see stereoscopic 3D images with no glasses necessary, those bumps aren't too surprising.

Consumers, so far, seem eager to try the 3DS out. The Japanese launch was a virtual instant sellout. Amazon UK has reported that pre-orders for the system there are more than double what the Wii achieved in 2006 — and five times that of the Nintendo DS in 2009.

U.S. retailers say they, too, are seeing a surge of interest.

"We are seeing very strong demand for the 3DS," said Tony Bartel, president of GameStop on an earnings call Thursday. "We've been working very closely with Nintendo to maintain our reservations — to keep them open — and Nintendo has been very good with providing us with additional supply. But demand has been so strong that we are working literally every day with Nintendo to ensure we have sufficient product."

While the system is shaping up to be at minimum an initial hit for Nintendo, it may not be a windfall for the rest of the gaming world. Analysts note that, as with other Nintendo systems, it's first-party games (those made by Nintendo itself) that people will likely gravitate toward.

"I don't know that any of the third-parties (independent publishers) are particularly well-positioned," says Colin Sebastian of Lazard Capital Markets. "I think companies that have traditionally done well on Nintendo platforms — Ubisoft and THQ — but any spoils of war will go to Nintendo rather than the other companies."

The expected warm reception at retail is certainly encouraging for Nintendo, but it won't erase the growing threat presented by increasingly versatile smart phones. The market for dedicated handheld gaming machines has been shrinking over the past couple of years, driven in part by the rise of Apple's iPhone.

To counter this, Nintendo is positioning the 3DS as more than just a gaming device. It comes equipped with a 3D camera — and the company has hinted broadly that it will add 3D video recording in a future update. It will allow 3D movie fans to watch previews of upcoming 3D theatrical features. And Nintendo plans to run a content channel that features 3D programming, such as music videos and comedy clips. (A video by viral sensation band OK Go will be the first feature on that channel.)

Future updates will also allow the system to stream films from Netflix, and the multiplayer functionality on the 3DS is the more robust on any Nintendo platform.

Eager to capitalize on the growing excitement over the device, retailers plan to offer a slew of specials in conjunction with the launch. Kmart, for instance, is offering a $25 credit to people who buy a 3DS before April 2. And Toys R Us is offering a buy one, get 50 percent off the second sale for 3DS software on launch day.

Some might view the launch day discounts as a troublesome sign, but Sebastian believes stores are simply taking a page from their holiday playbook to get a boost during what traditionally is a dry period.

"I think it's retailers trying to drive foot traffic into stores," he says. "I think they've seen that strategy work in Europe and at Amazon . Walmart, during the holidays, was unilaterally discounting products to get people into the stores, and did so pretty successfully."