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No price cut for the Gamecube
Nintendo unveils online strategy, but says it has "no plans" to reduce console price.
May 17, 2002: 2:10 PM EDT
By Staff Writer Chris Morris

NEW YORK (CNN/Money) - Nintendo's taking the Gamecube online. But it's not planning to drop prices.

The Japanese video-game company unveiled its online plans Monday, announcing that both broadband and 56k modem adaptors will go on sale this fall for a retail price of $34.95 each. In a follow-up call with CNN/Money, company officials said there are no plans to reduce the console's retail price.

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The timing of the news comes as something of a surprise. Next week, the video-game industry will hold its annual trade show, the Electronic Entertainment Expo (E3). Traditionally, all major announcements come at that time (though with this announcement, it's quite likely Microsoft (MSFT: down $0.32 to $55.42, Research, Estimates) and/or Sony (SNE: up $1.72 to $58.20, Research, Estimates) will speed up their online announcements).

"We've seen stories over the past week or two that said we would have a big announcement at E3, but we thought expectations were being set too high," said George Harrison, senior vice president of marketing for Nintendo of America. "So we thought we'd get the word out early."

Among those expectations was a price cut on the Gamecube. Harrison, though, says the time is not right for that, even though the company expects Microsoft to reduce the price of its Xbox console. He stopped short of saying the company would not make any reductions before the holiday season, however.

"We don't plan to announce a price cut," said Harrison. "We're going to see how our product is received at E3 and then assess the market. We're pretty confident in our software library and plan to go forward with the $199 price."

Nintendo has frowned on online gaming in the past, saying it did not see the financial advantages. The company did not deviate greatly from that opinion in Monday's announcement.

"The profitable part of the online business is very likely several years away. Entering the business because it's the hot topic of the day doesn't make a profitable business nor satisfied customers," said Satoru Iwata, director, corporate planning, Nintendo Co. Ltd. "That's why it will be a part of Nintendo's strategy, not the mainstay, as other companies are attempting to do. There still are too many barriers for any company to greatly depend on it."

Gaming industry analysts, though, say the potential of online gaming is tremendous - and creates a larger user base for the company.

"(Online gaming) is additional revenue streams," said P.J. McNealy, research director at GardnerG2. "It's a stickiness factor. It's community building. It's brand management and marketing opportunities. It gets (the user) really hooked into a platform."

The first game to take advantage of Nintendo's online gaming initiative will be "Phantasy Star Online Episode I & II," developed by Sega. Nintendo said it is currently in discussions with several developers to create online games and has several of its own internal development teams researching online projects, but none will be demonstrated or discussed at this year's E3.

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Nintendo plans to be flexible on whether its online initiative will be a pay-to-play model. Instead, Harrison said it will let developers decide whether they want to charge for online play or not. In either case, Nintendo will not take a percentage of any online fees.

A GardnerG2 study shows substantial interest in online console gaming. A survey of 750 online teenagers (ranging in age from 12-18) found that 66 percent were either "very" or "somewhat interested" in online console gaming, despite the fact that very few hard facts about how that would take place have emerged. McNealy predicts online gaming subscriptions will begin to develop this year, reaching $138 million. By 2005, though, he estimates the subscription market will hit $2.3 billion in the U.S. - with the average gamer spending $157 per year on subscriptions.

Not all analysts are quite as confident about the online market at this point, however.

"Online games to mass market consumers are appealing if they're free," said John Taylor, managing director and analyst for Arcadia Investment Corp. "But if it's truly an exceptional game for hobbyists, you can get a crowd."  Top of page