Tokyo Game Show to highlight rise of social games

TOKYO Mon Sep 12, 2011 1:02pm IST

Employees at an electronic store unpack Nintendo's new 3DS game consoles as they prepare for the launch in Tokyo February 26, 2011.  REUTERS/Yuriko Nakao/Files

Employees at an electronic store unpack Nintendo's new 3DS game consoles as they prepare for the launch in Tokyo February 26, 2011.

Credit: Reuters/Yuriko Nakao/Files

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TOKYO (Reuters) - In a world of booming smartphones and tablets, social game providers will take the spotlight at the Tokyo Game Show this week, while champion Nintendo, criticised for being too centred on hardware, struggles to win back fans.

As sales of conventional games sputter, Japanese mobile social gaming company Gree and rival DeNA are seen well placed to benefit in the local market, given their success with previous generation feature phones.

Gree marks its debut at Japan's annual game show, which runs from Sept. 15-18 this year, with one of the largest booths.

Gree, which makes money from selling virtual items to its more than 26 million users in Japan as of end-June, and DeNA, which boasted more than 29 million local users, have seen dizzy growth rates.

Gree is 49-percent owned by 34-year-old Yoshikazu Tanaka, who was named Asia's youngest self-made billionaire in 2009 by Forbes magazine.

Japan's social gaming market, often involving simple games played on mobile devices with anonymous online contacts, is expected to grow to about 400 billion yen ($5.1 billion) in 2013 from 106 billion yen in 2011, extending its rapid growth, Mitsubishi UFJ Morgan Stanley analyst Masato Araki said.

Nintendo, which does not take part in the Tokyo Game Show, holds its own event on Sept. 13.

The Kyoto-based company is expected to unveil new 3DS software featuring its 25-year-old character Mario, and there is also market chatter about a joystick accessory, already dismissed by analysts and bloggers as unlikely to boost sales.

GRAPHIC on Nintendo: click link.reuters.com/muq63s

Japan's software publishers are shifting resources into developing the new generation of social games, but Nintendo is effectively excluded, because any attempt to make the leap to providing content for other companies' gadgets would risk further damaging already weak sales of its Wii and 3DS.

"Nintendo has done some pretty awful things - no software, poor pricing, poor PR, no sign of a sustainable turnaround, software support dropping like flies," said JP Morgan analyst Hiroshi Kamide of the failed 3DS launch.

Software provider Konami, by contrast, had done something relatively straightforward but with great execution, Kamide said. "You can make serious returns with social games in Japan if done well - and that is exactly what they have done."

The change of fortunes is no less marked in share prices, where Nintendo, which long dominated the industry by appealing to everyone from pre-schoolers to pensioners with its Wii and DS hardware, has slumped 41 percent since April 1, hit by the flop of its new handheld gadget, the 3DS.

Shares in Gree have soared 83 percent, DeNA is up 28 percent and Konami has jumped 84 percent.

Looking to boost video game sales ahead of the holiday season, Sony Corp cut the price of its basic PlayStation 3 gaming console by nearly a fifth in the United States.

CASUAL GAMERS

Many casual gamers are flocking to devices such as Apple's blockbuster iPhone and iPad, eating into Nintendo's share of the market, while Facebook and Google are also making a big push into games.

"Nintendo needs to be more social and digital and it's going to struggle to do so as it won't give up its hardware/software combination strategy," said David Gibson, head of research at Macquarie Capital Securities.

Highlighting the industry's downturn, physical sales of games hardware and packaged software in the United States fell 23 percent in August from a year ago, according to research firm NPD.

Nintendo sold only 710,000 units of the 3DS in April-June, compared with 3.6 million in the month following its launch, and a tiny fraction of its 16 million unit target for the year to March 2012.

Slashing the price of the 3DS by about a third has boosted unit sales, analysts say, but it is unclear how long the effect will last, leading some to call on Nintendo to pull out of hardware altogether.

But the example of Sega is increasingly being cited as a reason for Nintendo to stick to its current structure.

Once a force to be reckoned with in video games, and boasting the popular Sonic the Hedgehog character, Sega dropped out of the home console hardware market a decade ago.

Sega clung on as a software publisher for other platforms, but two years later, its creative drive apparently fading, it was taken over by "pachinko" pinball parlour firm Sammy.

The withdrawal did little to improve Sega's financial position and company employees said the exit had made it harder to recruit and keep talented staff.

Some games industry experts say Nintendo may successfully fight back as it has done in previous crises.

"Nintendo has fallen into a slump twice in the past," said Osamu Inoue, the author of a book on the secretive giant. "It almost went bust after diversifying in the 1970s," he added, pointing out that the launch of the DS and Wii saved the company again after years of losing out to Sony's PlayStation.

($1 = 77.45 Japanese Yen)

(Editing by Anshuman Daga)

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