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SAN FRANCISCO (CNN/Money) – Nintendo dropped the first hints about its next generation video game console Thursday, joining the growing battle for pre-emptive consumer awareness.

President Satoru Iwata, in a keynote speech at the Game Developer's Conference, said the new machine, currently code-named Revolution, will be backwards compatible. That is, it will be able to play all existing GameCube games, as well as ones specifically designed for the new system. Revolution will also be wi-fi enabled, allowing owners to play others around the country for free.

"The next generation is a place where the best idea, not the biggest budget will win," Iwata said.

Powered by an IBM (Research) processor and featuring a graphics chip designed by ATI (Research), the Revolution is not expected to hit U.S. stores until middle of 2006, or later.

Reggie Fils-Aime, executive vice president of sales and marketing for Nintendo of America, said the company has decided not to launch alongside Microsoft's next generation XBox machine, which is expected this year.

"We think that Microsoft's decision to move early in this next cycle is a mistake, and it doesn't make sense for us to follow," he said in an interview following the keynote.

Microsoft discussed some of its plans for its next generation machine on Wednesday.

Nintendo will unveil more details about Revolution in May at E3, the video game industry's annual trade show. However, Fils-Aime said, it's too early to expect the company to discuss launch prices or dates. Nor will it reveal all of its plans with Revolution.

"This year's E3 is not Revolution's coming out party," he said.

The GameCube was criticized by some during its launch for not having any backward compatibility. (The argument was somewhat muted by the fact that the system utilized an entirely different storage method than its predecessors.) Nintendo, though, has seen tremendous success by allowing the Game Boy to play older titles, something that influenced the decision on the Revolution.

"We are good learners from history," said Fils-Aime. "Backwards compatibility helped with the Game Boy. It helped with the DS. And it certainly has helped out competition."

(Sony's decision to make the PlayStation 2 backwards compatible is credited with giving it a large boost in the early days of this generation's console wars.)

Revolution, according to Nintendo, will not be a machine that focuses heavily on improved graphics and processing power. Instead, the company has long said it hopes to reinvent the way games are played. Iwata reiterated those points in his speech.

"We (as an industry) are getting smaller in how we define progress," he said. "Making games look photorealistic is not the only way to define success. ... Some day, our games won't look any better. What do we do then?"

He also chided the industry for failing to innovate in recent years.

"When is the last time we invented a new genre," he asked. "Our race tracks, our bosses, our heroes are all starting to look alike. ... We spend more time and money chasing the same players, but who are we leaving behind? Are we making games only for ourselves?"

Iwata also discussed future plans for the Nintendo DS, which was a hot seller during the holiday season, but has seen sales fall sharply this year. (To date, the company has shipped 4 million DS units to the U.S. and Japan.)

The company plans to offer free wifi communications to DS owners in coming months. Developers will receive the tools allowing them to begin programming wifi enabled games starting in May.

Basically, with wifi DS gaming, users will be able to connect to local wireless hotspots at no charge, said Iwata. Using that internet connection, the player will be able to challenge or play cooperatively with players around the world. One of the first games that will take advantage of this is the Ds version of "Animal Crossing," which has been a hit for the GameCube.

Though Iwata did not discuss future plans for the Game Boy, Fils-Aime said despite recent analyst reports he "wouldn't expect" any sort of new Game Boy system to go on sale this year.

"We look at the GBA SP and believe it's still a sexy, strong device," he said. "We think the SP has some more time before its successor comes out."

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Morris is Director of Content Development for CNN/Money. Click here to send him an email.