Avoiding the Performance Trap

Recently, Nintendo’s Shigeru Miyamoto hinted that his company may be working on an HD version of the popular Wii console. He said,

I don’t think there’s anything wrong with pretty graphics, and if I’m a consumer that has an HDTV, I’d want to be able to play my games with nice graphics too. And I think as we’ve seen the penetration rates for HDTV increase, we’re going to see video games and Nintendo’s games move along in step with the progression of technology.

According to Michael Pachter of Wedbush Morgan Securities, Nintendo has no other option if it wants to maintain its lead. In Innovation and Marketing in the Video Game Industry: Avoiding the Performance Trap, we come to a similar conclusion. Where we sometimes disagree is on the reasons for such an upgrade.

Let’s first look at what we do agree upon.

1. As more homes get HD, they will demand HD quality video and graphics.
2. The experience will be more enjoyable in HD.
3. Sony and Microsoft have motion sensing controller alternatives in development.
4. “Third party games tend to be made ‘for’ the Wii, and they’re just not as good as the Xbox 360 or PS3 versions.” Developers don’t want to be limited by narrow hardware specifications.

Where we disagree is that “the Wii audience will grow more sophisticated, and will want games like BioShock and GTA.” This is only partly true. Nintendo’s target market is very different, even if there is some overlap. The ability to play traditional shooters and adventure games would be an asset, but it is not a key selling point.

BioShock on the Wii? Probably not.

Other reasons not mentioned by Pachter:

1. The Xbox 360 and PS3 are beginning to offer casual games that are as good as, or even better than, Wii games.
2. Home entertainment consoles offer much more than gaming, but the Wii is limited in its non-gaming abilities. It does not even play standard DVDs. Device integration will become more important in the future.
3. Online gaming and social networking are becoming key differentiators and the Wii falls short in these areas.
4. Downloadable content is increasingly important, but the Wii does not have any significant storage capacity.

Does Nintendo have other options?

The Wii is very inexpensive to make. Nintendo could conceivable drop the price to below $100 and still make a profit. That could help extend the life of the console by several years if people decide to buy it as an entry level system or as a complement to more capable alternatives.