Nintendo's Wii Is Flying Off Store Shelves

Retail tracking firm NPD Group recently confirmed what shoppers have plainly seen first hand: Wii is a hot ticket. Last week NPD said 476,000 Wiis were sold in the U.S. during the month of November. That's not bad considering the Wii wasn't available here until Nov. 19. Microsoft's (MSFT) Xbox 360, which has been out for over a year, sold 511,000 units during the month. Meanwhile, the former champ of the gaming console space Sony (SNE), which released its PlayStation 3 two days before the Wii, has only sold 197,000 units after being plagued with production delays and shortages.

"The Wii is more than just a fad," declares Todd Mitchell, an analyst at investment bank Kaufman Bros. "Going forward, it's not likely that Sony will dominate this cycle like it did the last cycle."

Sony's PS2 once claimed more than two-thirds of the gaming console market as its own. In this latest battle among the next-generation consoles, Sony won't win so handily. This time, Nintendo will actually take a chunk of Sony's audience, albeit a small one. Analysts expect the Wii to grab 17% to 19% of the market over the next several years. The rest of the market will be split between the Xbox 360 and the PS3, with the PS3 not expected to regain its leadership position until 2011, according to independent research firm Yankee Group.

But I digress. What's interesting here is that Nintendo is back in the game. The Japanese company's last two console launches were, as one analyst describes, "best left forgotten." The Wii has changed all that. "I think Nintendo has found an attractive market segment that is halfway between the last generation and next generation consoles from a price perspective," says Kaufman's Mitchell.

It's hard not to point to the Wii's price tag as a reason for its early success. The Wii, which costs $249, is a bargain compared to its competition. Sony's high-end 60-gigabyte PlayStation 3 carries a lofty $599 price tag while its 20GB console costs $499. Microsoft's Xbox 360 is a little cheaper with a high-end version that retails at $399 and a "core" version that goes for $299.

Wii owners get what they pay for. The Wii, while innovative, is less technologically advanced than its brethren. Many analysts and gamers alike argue that the Wii isn't even in the same playing field as the Xbox and PS3, which both have high-powered processors, cutting-edge graphics and the ability to play high-definition DVDs, among a slew of other perks.

But the Wii's simplicity is exactly why it's so appealing. The Wii doesn't play DVDs, high-def or otherwise. Its graphics are lackluster compared to those of the Xbox or PS3 and its game selection more kid-friendly with titles like "Ice Age 2: The Meltdown" and "Super Monkey Ball: Banana Blitz." What the Wii is proving at this point is that not everyone needs 3D graphics and complicated role-playing to enjoy videogames.

The controller has been a hit. People are already telling their Wiimote stories. Some claim they've lost weight while playing the Wii. Other overzealous users have even suffered injury, claiming "Wii elbow" and black eyes from an errant controller that slipped out of a sweaty palm. So rigorous has the playing experience been for some gamers that Nintendo is replacing 3.2 million of its original wrist straps with more durable straps in hopes of preventing further injuries or damage to property from a flying Wiimote.

"They have changed the way you interact with the game and that is resonating with consumers," says Michael Gartenberg, a research director at JupiterResearch. He says Nintendo has accomplished something revolutionary with the Wii: Attracting both young and old, gamers and nongamers. Taking on new recruits in the gaming world is an admirable feat. According to a recent JupiterResearch forecast, households with gaming systems will grow at a sluggish 2% compound annual growth rate over the next five years.

However, there's a reason why the markets the Wii is reaching haven't been tapped into, argues Michael Goodman, a program manager in charge of digital entertainment research at Yankee Group. He says the casual gamer tends not to be willing to spend money on videogames and accessories. They're more content to play friends' games or stick with the one or two games that they initially bought. That's a problem for the console makers who make their profits, not from the consoles they sell, but from royalties paid by third-party game makers.

As with any gaming console, the true test of the Wii's firepower will come after all of the so-called early adopters have come and gone. "The battle doesn't begin until you sell your first five or six million units," says Goodman. "That's when things start getting interesting."

Reaching that critical point may not be so farfetched for Nintendo. Kaufman's Mitchell expects 4.5 million Wiis to be sold world-wide by the end of 2006. After that it's anyone's guess. But if Wiis continue to fly off store shelves as fast as Wiimotes are flying off gamers' wrists, then Nintendo should have a lucrative franchise on its hands for years to come.