No One Is Buying Nintendo's Cautionary Tale About Mobile and Social

Leaders in the gaming industry reacted negatively today to controversial comments made by Nintendo’s President Satoru Iwata at the Game Developers Conference this morning.

Iwata, who presented the show’s only keynote, said he fears today’s emphasis on mobile and social is going to hurt the industry.

Later in the afternoon, critics said his statements only prove his ignorance and point to the company’s own weaknesses.

“Long-term, Nintendo is doomed,” said Michael Pachter, equity research analyst of Wedbush Securities. “He’s under full frontal assault by Apple.”

In the keynote, Iwata explained the games industry is no longer focused on building the highest quality experiences, but rather is narrowing in on free or very low cost titles.

“The majority of people here are creating games for social and mobile. I fear our business is dividing, and that threatens the employment for those of us who make games for a living,” he said.

Iwata also addressed Apple’s impact on the industry, but without every naming the iPhone and iPad-maker.

The lack of acknowledgment felt particularly strange given that his comments were being made at the exact same time that Steve Jobs was across the street, unveiling the iPad 2, which has all the hardware capabilities in place to become a serious gaming device.

The closest Iwata got to talking about Apple, and probably Facebook too, was when he said that “these platforms have no motivation to maintain the high value of video game software. For them content is something created by someone else.”

For emphasis, he added: “The value of games does not matter to them…The fact is, what we produce is value, and we should protect it.”

[A video of Iwata's entire speech can be viewed on Nintendo's web site.]

Iwata gave the impression that he was oblivious to the burgeoning mobile and social sectors around him, which despite being in their infancy, are generating significant revenues and attracting large audiences. Together, they both have the ability to define the future of gaming.

“He may be right, but then the 200 to 300 million people who play games on Facebook are wrong,” said Jeff Brown, the VP of corporate communication for Electronic Arts  ”Social gaming as a whole aggregates into a business that is undeniably big money.

“When it’s that big you are forced to pay attention,” he added.

Among the large publishers, EA’s ahead of the game when it comes to preparing for the day when consumers switch from paying $60 for an Xbox title to paying a few bucks or nothing at all for an iPhone or Facebook game. Yesterday, it furthered its commitment by expanding its third-party publishing platform into social and mobile through its acquisitions of Chillingo and Playfish.

So far, it’s paying off.

EA’s digital business was up 39 percent in 2010 and its on track to hit three-quarters of a billion in revenues this year.

Zynga, the undeniable leader on Facebook, also took offense to the statements.

Zynga’s Chief Game Designer Brian Reynolds, who came from the traditional games business and was lead designer on the big hit Civilization II, was especially baffled by the comments about being able to make a living in social.

Last year, Zynga hired more than 800 people and today has more than 1,500 full-time employees in 13 offices, spanning six countries.

“I expected better from Nintendo. They are missing the point of what we are doing,” he said. “We are making games that everyone can play and socialize on while playing.”

What’s more, Zynga is doing a great job monetizing, he said.

Sources tell BoomTown’s Kara Swisher that it’s close to completing a funding round of $500 million, valuing the company at $10 billion –making it worth more than EA’s $6 billion market cap. In 2010, its revenues were rumored to total $850 million.

“We do it in a microtransaction way, and it’s free to play, but they’re wrong that they don’t make a lot of money,” Reynolds said.

The gaming industry has always been fraught by disruption.

In the past, the storyline has been about the consoles wars with Microsoft, Nintendo and Sony all going head-to-head to be the gaming leader. Now, it’s about the platform wars with consoles vs. mobile and social.

How quickly do things change.

It was only a year ago at GDC that Zynga seemed to piss off everyone when accepting an award on behalf of Farmville for best new social/online game.

In a similar manner as Nintendo today, Bill Mooney, the general manager for Farmville at the time, used his acceptance speech to make the argument for why everyone should leave console gaming for social games. He even solicited resumes at the podium.

Mooney’s overtness was translated as lack of respect for the traditional games business, which is what seemed to bother people the most.

What’s different with today’s platform wars vs. yesterday’s console wars is that this time, it’s not about one beating another. It’s about expanding the market opportunity for gaming. Ultimately, if you give people a choice of platforms to play on, more people will play.

Reynolds said while Zynga has made huge gains since last year, it still hasn’t been fully recognized for its work.

“What we’ve done has permeated everywhere, but we don’t have the recognition from the old guard. The young guys — they get it, but the forces of the industry are living in the past. The longer it takes them to realize that, the more it will cost them to buy your way back in.”

As for whether Nintendo is wrong or right, and whether it will have to pay heavily down the road to get back in, we’ll have to wait and see.

The rest of Iwata’s hour-long keynote was spent promoting its upcoming 3DS launch at the end of the month.

Today, Nintendo’s North American President Reggie Fils-Aime announced a partnership with Netflix to offer streaming video.

It also formed a partnership with AT&T to give internet access to the handheld gaming devices wherever it operates WiFi hotspots.

Webush’s Pachter said despite the pressure from Apple, he believes the 3DS is novel and has the ability to sell tens of millions of units, but it will face competition from the iPod and iPhone, which have similar games and much lower prices.

EA’s Brown also wouldn’t count them out. “The instant you stop thinking they are relevant, they turn the industry upside down.”


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