Will the Apple iPhone 5 kill Nintendo?

By Jonny Evans

No matter how you see it, Apple [AAPL] is growing its slice of today's games market. And no matter how Nintendo management feel about it, they are going to have to put their titles up for sale to iPhones, iPads, iPods and the Apple TV sooner, not later, if they want to avoid a shareholder rebellion. Nintendo's future hangs on strong 3DS sales this Christmas, but with iPhone 5 set to hit market at the same time, is it curtains for Super Mario?

[ABOVE: If you need an iPhone rumor fix, here's one from France.]

Apple ain't just playing

Apple's adventures in gaming are well known at this point. Games are the biggest App Store category. This has led a coterie of games developers to jump into Apple's iOS embrace, and generated some incredibly cool moments, such as Bungie's decision to release insanely groundbreaking game, Marathon, for free via the store.

What this means is that Apple now has a far better relationship with games developers than ever before -- except with Nintendo, where management steadfastly refuse to make their games available through iTunes. They want to use their hit titles as inducements to get gamers onto their platforms, and while the company remains a big business, revenue is falling and shareholders are in dissent.

"Nintendo has no intention or plans of publishing its IP on non-Nintendo platforms," the company insisted last month.

Smashing down the castle

What's at stake? This is a platform war. Apple has a four-square strategy at play: the computer; the phone; the tablet and the television set (though the Apple TV hasn't yet lived up to its future console gaming promise). How can Nintendo compete with this?

Look at the console market today, it is changing so much. Sure, consoles still retain their own inherent advantages, but when it comes to a combined mobile/sedentary gaming experience, its multi-function devices such as the iPhone which hold the promise.

Nintendo 3DS sales have not impressed as a result.

Super Mario, Zelda, Donkey Kong and Pokemon. These classic titles have trailblazed Nintendo's reputation, but up-and-coming new arrival, Zynga, already has a matching market value.

Nintendo has not been swift to jump to new sectors, such as social networking. Even the Wii could easily be emulated by an imaginative developer using Apple's iOS 5 development tools and an Apple TV. The result? Nintendo lost $328 million in its most recent quarter.

Deep catalog

It isn't just about devices. Take the iPhone: the App Store offers a huge selection of games, a far more extensive catalog than that proffered to the 3DS. Also if you look at the kids who constitute most of the company's market, you'll see them just as likely to play with an iPhone as they are with a DS. And they all know what an iPad is -- you can see it in their eyes when you pass it across.

This is war. Nintendo has slashed the price of the 3DS, but angered early adopters when it did. Investors are demanding company management bring more titles to the iPhone, but this isn't happening. Others want the firm to acquire new developers in order to enter new markets, Facebook games, for example.

[This story is from Computerworld's Apple Holic blog. Follow on Twitter or subscribe via RSS to make sure you don't miss a beat.]

"The rift highlights the dilemma President Satoru Iwata faces as consumers shun Nintendo devices to play games on iPhones, iPads and Facebook Inc.'s website. The flop of the 3DS debut prompted the company to slash prices 40 percent in Japan starting today, the first time the games developer has resorted to such a move within six months of a product's debut," writes Bloomberg.

Mobile, mobile, mobile

Apple already has a successful smartphone platform. However, Nintendo remains under strong pressure to make a move to penetrate this market, or to create its own smartphone alternative.

Again from Bloomberg: "Smartphones are the new battlefield for the gaming industry," said Ohki, a fund manager at Tokyo-based Stats Investment Management Co. "Nintendo should try to either buy its way into this platform or develop something totally new."

Could Nintendo develop its own smartphone platform? Potentially, but does the company have the stomach to enter such a complex and competitive market? Could it secure the carrier alliances and component supplies such a plan would require, while grabbing significant marketshare?

The next option will be alliances. Nintendo could perhaps maintain its own integrity by offering its titles on smartphone platforms, including Apple's, Android and Windows.


[ABOVE: Nintendo is fighting this.]

Consolidation is coming

Alternatively in exchange for as much money as it could get it could ally with just one platform. Another more extreme plan could see the firm reach a deal with Facebook, in which it offers games on that's company's promised future mobile device platforms. Or the firm could put itself up for acquisition.

Apple could -- but won't -- conceivably acquire Nintendo (market cap: $20 billion) today and still have the kind of change the US government can only dream of. Nintendo shares slipped 4.47 percent on trading yesterday.

All these patterns suggest some interesting high-level meetings between Nintendo and other players in this space are likely going on.

Ultimately the fate of the firm will be decided by 3DS sales during the Holiday season: if the device flops -- as well it might in the face of the iPhone 5, new iPod touch, iPad and other Apple products, then Nintendo executives will be under the most immense pressure to change their approach. After all, Super Mario won't be so super once the next generation of gamers forget he exists.

Let me know your thoughts. And please follow me on Twitter so I can let you know that score and when I post new reports here at Computerworld.

Copyright © 2011 IDG Communications, Inc.

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