Seize the Day Nintendo... Seize Nintendo Apple

Tonight I decided to stop into a GameStop [GME] store not far from my house in suburban New Jersey to see firsthand the battlefront in the ongoing video game wars. When I got there I saw two display kiosks. One featuring Nintendo's[NTDOY.PK] new Wii and the other featuring Sony's[SNE] new Playstation3. There was a crowd of teens mesmerized by someone "steering" the Wii's remote control wand as he drove an SUV over a rough road course. Next to the Wii display there was a sole youngster playing the new PlayStation3- a basketball game, I think EA's NBA 2007. He was slam dunking the ball, but no one was paying any attention to him. It was the same old sports game, only with a much crisper high def image.

With everyone lined up behind the Wii, at first I didnt even realize that the other kiosk contained the new PS3 until the Wii game ended and I looked more closely at the PS3 display. Same old black box, compared to Nintendo's pristine white vertical wedge shaped console. The picture was great.

I asked the store manager if I could buy a Wii and he said, only those with pre-orders could get them when they begin selling tomorrow. But in two weeks he promised me that they would be shipped more. I then asked how many Nintendo would be there for launch and said 36. I asked him how many PS3's they got and he said 10, and he didnt know when Sony would ship more.

Ten PS3's is just pathetic and 36 Wii's is also pretty bad, but theoretically Nintendo will be shipping more soon. They have said that they will deliver 4 million units this year. I polled some of the youngsters in this particular GameStop and no question, all of them were wishing for PS3's. But when pressed, none thought they could afford the $500 or $600 it will cost. It was those same kids who want the PS3, who were standing mesmerized in line to play Nintendo's new Wii console.

I asked one 20-something playing the PS3 what he thought he would do. He said, " I already got my Xbox360 with the graphics and I am going to buy a Nintendo. That is all I need an Xbox and Nintendo. To me, Nintendo is into making games that are good to play and Sony is into making good graphics."

Here is a bold prediction. Just as Apple [AAPL] had been left for dead in the pc business as Windows machines from places like Dell [DELL] gobbled up market share through the 1990's, Nintendo has recently been viewed as an also ran in the video game console business. But thanks to Job's brilliance, Apple has re-emerged as a force in digital lifestyle products. Job's iPod has charmed the globe and put the joy of music into everyone's pocket. His elegant line of Apple MacIntoshes now do everything a Windows machine can do, typically more easily and elegantly, and they are agnostic to operating systems. Mac's can now easily run Windows. With proprietary hardware and software and innovative design Apple is changing consumer behavior. Sit back and watch as MacIntosh computers and iPods sell like hotcakes this holiday season and Apple gains market share.

President Saturo Iwata has a similar game-plan for Nintendo. Intelligent design and innovative gameplay will help Nintendo recapture its prominance and expand the market for video gaming. And I am not just talking about hardware like the Wii or Nintendo's DS Handheld which is a big success. It is also the company's innovative games, BrainAge, Nintendogs and a 20 plus year old Mario Brothers franchise that seems to get stronger with each new release.

Remember a few years ago when Apple was repeatedly poo-pooed by analysts and others as "a great computer for designers or musicians." Just a niche player. Nobody looks at Apple as a niche player anymore. It has a market cap bigger than Dell's and it's positioned smack in the center of our Digital Future.

Similarly, Nintendo is often dismissed as a "video gaming system for kids." I think a year from now people will be singing a similar different tune about Nintendo much the way they are for Apple currently. Nintendo wants to be a video gaming system for everyone.

Over a year ago I told a friend of mine who used to be very high up at Activision [ATVI] that I thought Apple and Nintendo would be a good merger. He kind of look at me as though I was a bit off.

The Japanese have a respect and reverence for Steve Jobs and Apple. Also, Apple and Nintendo have similar buiness models. Apple has a market cap of $70 billion and Nintendo abotu $30 billion. I have said before that video gaming is an important part of digital entertainment that Apple has yet to really crack. Nintendo would solve that. Then they could hook up with another company in Job's portfolio, Disney [DIS], which bought his Pixar animated movie company. I can see the Donkey Kong and Mario Brothers rides being very popular at Disney World. Or how about a Legend of Zelda movie by Pixar. In the meantime I'll just hold on to my shares in Apple, Nintendo and Disney and dream.

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Amazing Video Game Stocks - Except Sony

Have you been watching the action in video gaming stocks since early July? Activision [ATVI] is up 41% %, Electronic Arts, up 35%, Take Two Interactive, up 66%, retailer GameStop up 34%, and THQ up 43%. Even behemoth Microsoft is up 24% which is more than double the return of the S&P 500 over the same time period.

Unfortunately one video gaming company, Sony has been left out of the party and its shares are actually down since July. As many of us have been hearing, Sony's launch of its new console PS3 looks like a disaster in the making. I am reading reports that at least one analyst at Lazard Capital is saying Sony will deliver only 200,000 PS3's on launch day November 17th and by year end may only ship 750,000 unit in the U.S.

So, not only is the console pricey at $500 to $600 a pop, but they will be scarce as hen's teeth. Get ready for lots of dissappointed kids, teens and shareholders this holiday season. There is even more bad news. Apparently the new PS3 is not delivering on the backwards compatibility it promised. In other words many old Playstation and PS2 games like the popular Guitar Hero from Red Octane aren't working right on the new PS3. This gets worse when you consider that there may not be a lot of titles immediately available for the PS3. So what are you going to play on that new $600 system?

I have been bullish on Nintendo for some time and own shares currently. Still, the Wii console, which will make its debut two days after PS3, is looking like a big winner. At $250 each, Wii's will fly off the shelves of stores like GameStop, Best Buy and Walmart. Analysts are expecting at least 1.2 million units sold in the U.S. this year. I think they will beat that number. Nintendo, which is trying to expand the gaming market via innovative gameplay will also have brisk sales of its DS handheld and games from its Mario franchise and the Legend of Zelda, which is finally due out in the coming weeks.

Another great way to play this year end boom in video gaming is via the game makers, otherwise known as software providers. I own Electronic Arts because it is the blue chip name of the group, but Activision also stands to do benefit as does Take Two Interactive, maker of Grand Theft Auto and a new violent schoolyard game that is apparently great but not for younger kids, named Bully.


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Will Scrybe Jump Aboard the Google Express?

I was just looking at the Web site, Ajaxian.com and I noticed several very cool new applications that could be disruptive to the current software establishment.

If you go to www.iscrybe.com, you will see a video for a new Ajax application called Scrybe which is a Web-based organizer/daybook which combines calendars with notes and seems to have a gazillian smart features including the ability to work on it offline and then sync up later. It also has a feature that formats your calendar and notes perfectly for printing and folding into your wallet. Those drunk on the Web 2.0 kool-aid shouldnt underestimate the power of such cross platform capabilities, especially when they involve old school standby's like folding paper and putting it in your wallet.

Now I know Google already has a calendar attached to Gmail and that it just introduced Google Docs and Spreadsheets, but I can see either Google or Apple purchasing this smart application. For one thing it seems to better than what they have now. Also it would piss off Microsoft to no end because it would seem be yet another potential blow chipping at MSFT's' core. Google certainly isnt averse to spending money on such apps even if it has been developing similar platforms in house. Youtube is being purchased for $1.65 billion despite the fact that Google had already built its own video platform. Will Scrybe attract the attention of mighty Google or even Apple which has yet to introduce any neat ajaxian Web based applications? Stay tuned.
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In-Game Advertising Tidal Wave Coming

I was watching CNBC last week and a report came on about how Nielsen Media Research was introducing its well known "ratings" tracking to video games in a service called GamePlay Metrics. An article I read in Brandweek said that in-game advertising would reach $730 million by the end of the decade, but I think the number could be much greater. I am eager to see how well these new ratings are received by advertisers.
I have watched my son and others play video games and I can tell you that the hours spent on these games often blows away TV because there is no channel surfing. My son pops Madden NFL 2007 from Electronic Arts into his GameCube and then three hours later he emerges from the basement bleary eyed. We have played some of the racing games together, like Need for Speed Most Wanted and I can already see the billboards for "Best Buy" along the road while I drive by.
Once advertisers see proof of how sticky and targeted these games are, I think more and more will move to this medium. And of course these games have the added benefit of being interactive and often online, so there is the added possibility of direct response advertising. This comes into play much more when you consider all of the handheld and cellphone gaming going on. Add in GPS and I can see someone playing Madden on his handheld and as he approaches a nearby Dicks Sporting Goods, his preferences and the GPS figure out that he is a Steeler's fan. He then sees an advertisement for Steeler's football jersies on sale at Dicks. In short, advertisers should be able to wring more ROI from these games than traditional tv spots. I have heard Eric Schmidt, Google CEO speak of this possibility and I am certain Google is planning this capability with cellphones and handhelds. Google doesnt seem to have cracked the video gaming market. It will be interesting to see if they move in this direction.

Of course the challenge for video gaming companies is to cleverly integrate ads so as not to junk up or slow down the game playing experience. The last thing they want to do is piss-off their core audience.
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Nintendo's Wii is the Belle of EA's Ball

About a week ago I was invited to attend a Midtown Manhattan party hosted by Electronic Arts [ERTS] showcasing some of their upcoming video game titles for this holiday season. However what struck me most were not their cool games like Need For Speed Carbon, or great graphics in games like FIFA 2007 but the fact that there was crowd formed around the sole Nintendo Wii console that was set up to showcase Madden 2007.
Everyone seemed to want to try this new gaming experience. I sat down to play Madden and I can tell you that within 5 minutes I was fairly proficient in kicking field goals and throwing receptions using its remote control like wand. This is a sharp contrast to my experience playing Madden with my 10 year old son, who becomes frustrated easily because I cant seem to navigate the many buttons well enough to kick off or complete passes. "Your no fun Dad, You Stink!" is his most common gripe. This holiday season, when we get the Wii, he will be in for a surprise.
Unlike its bigger console biz rivals, innovative little Nintendo is hell bent on expanding the video gaming audience by changing gaming's interface and by introducing inclusive and unique games, like BrainAge and Nintendogs. No one in the room seemed to care that Nintendo's Wii didn't display the game in high definition. It's not the quality of the image that gamers care about, its the quality of the gameplay.
As a matter of full disclosure I own American Depository Receipts in shares of Nintendo [NTDOY.PK] so I do have a vested interest here. I also own shares of Electronic Arts. That said, I am more confident than ever that I made the right move buying Nintendo's stock (in fact I am already sitting with a tidy profit in just a few months). I believe Nintendo will have an exceptionally strong holiday season. It has the most innovative console out there at the right price ($250 versus $400 for Xbox and $5-600 for PlayStation3) and it has a host of big games coming out including The Legend of Zelda - Twighlight Princess, which fans have been anticipating for years.

Sumner's Folly

Many moons ago I interviewed Tom Freston and Sumner Redstone for a story I was doing on Viacom for Forbes Magazine. It was clear then as it is now that Freston was an unorthodox executive who fostered creativity in his colleagues, including Gerry Laybourne, who was then building Nickelodeon. Under Freston's watch most of Viacom's most valuable franchises were created, from MTV to Nickelodeon to Nick at Nite. As I sit here typing this my daughter is watching an episode of Sponge Bob, who is the "Bugs Bunny" of our day.

I guess Freston is being blamed for missing out on doing deals for MySpace and YouTube, but it seems to me that Viacom has done pretty well "building" rather than "buying." So to clip someone who helped make Viacom the media giant it is today seems crazy to me. Freston has built so many great Viacom assets that I am sure that he would have similar success on the Internet. I guess Sumner cant stand to see Rupert beating him in any arena.

Unfortunately for Viacom shareholders Sumner is a classic example of a business owner who is afraid to let go and obviously has trouble sharing the limelight. Biondi and Karmazin know this all too well. In fact when I interviewed Biondi, Sumner was sitting right next to him breathing down his neck. And I'm sure Sumner's kids could tell us a thing or two about his control freakishness. Freston is probably better off now, as is Biondi and Karmazin. Viacom shareholders? I'm not so sure.

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Microsoft, Tony Soprano and Steve Ballmer

Fans of HBO’s Sopranos have had a front row seat to what can happen when a strong central power is suddenly weakened or removed. After being shot by his demented Uncle Junior in the season premier, Tony, boss of the North Jersey’s crime family, wound up in a coma on life support during episode two. As it sinks in among his crew that Tony’s survival is in jeopardy, a number of his key capos start to consider other options and as the episode unfolds we witness his once poweful mob family “ecosystem” begin to unravel.

After watching these Sopranos episodes, I couldn’t help but think of mighty Microsoft and its once impenetrable role as leader the world’s personal computing ecosystem. At the heart of Microsoft’s strength has always been Windows and its ubiquitous operating system which supports its own cash cow software, MSOffice and countless other programs written for Windows. Microsoft’s ecosystem is vast and has thousands of members from giants like Intel and Dell to thousands of small developers who earn their living work on or supporting Windows software.

Like Tony Soprano in episode two, Microsoft Windows would seem to be in a bit of a coma these days, and I believe we could soon see signs of its ecosystem unraveling. A few weeks ago Microsoft announced that its long awaited new version of Windows, dubbed Vista, would again be delayed until late 2006. It also said that it would restructure its Platforms & Services Division – the group responsible for Windows Vista- and place Steven Sinofsky head of Windows Live a top the group. Windows Live, currently in beta, is Microsoft’s scramble to preserve its desktop software monopoly by moving its platform in a hurry to a Web-based model.

This successful Web-based approach is being marshaled by Microsoft’s new nemesis Google which offers a host of smart Web server based software packages, from its Gmail email client, with over two gigabytes of free storage, and Google Maps, to a newly acquired Web-based word processing program called Writely. However Google is merely the biggest and most visible proponent of a revolution going on in software that is upsetting Microsoft’s ecosystem. The open source community, consisting of thousands of enterprising developers collaborating to produce new and more useful software represents the biggest long-term threat to Redmond’s power and monopoly profits.

Open source programs like alternative browser Firefox have beaten Explorer in a number of user tests including its ability to keep out viruses and spy ware. And because Firefox works so well and is freely downloaded, it hs ripped into MSFTs browser stronghold. In 2004 Microsoft’s Internet Explorer controlled an estimated 85% of the browser market, today its share has been cut to about 65%. Open source FireFox now accounts for 25%.

I suspect that many of the same developers who are now embracing and in part responsible for the open source software revolution are also card-carrying members of Microsoft’s ecosystem. Like foot soldiers and capos of the Sopranos, it is these developers that give Microsoft its power. Given the turmoil, bureaucracy and delays at Microsoft, you can bet there is unrest is growing among Microsoft’s foot soldiers. Check the most recent issue of Indutstry Week, a magazine directed at IT professionals. It’s cover is on “Champion’s of Open Source,” and it is filled with anectdotes of IT departments abandoning Microsoft software and other proprietary platforms.

I believe that Microsoft is in a real crisis now, just like the Soprano family was with Tony out of commission. Of course in these types of families, its all about money and here again there is some solid proof that the current scene is more than just a blip in MSFT’s technology dominance. One need only look at the relative stock performances of the biggest members of the Wintel cartel. Since the bull market began again in October of 2002 the share prices of Dell, Intel and Microsoft all have underperformed the S&P 500 by a wide margin. While the S&P 500 has gained 70%, MSFT and Intel are up 42% and Dell has gained only 20%.

And it is not just software where Microsoft is having “issues.” When it comes to digital entertainment and hand held productivity products MSFT’s is also under pressure. When it comes to music, Apples iTunes and iPod are the leaders. And while Windows CE still dominates PDA operating systems the over PDA market is losing share rapidly to cell phones with PDA features. Most mobile phones do not use Windows operating systems.

Then there is video-gaming, another important market for Redmond and anyone else interested in dominating our digital future. We all saw what happened during Xbox360’s launch last Christmas. Microsoft botched it. There were hardware shortages that left retailers and gamers disappointed and considerable profits on the table. Moreover, according to the video gaming trade magazines I read, Xbox360 has been a big disappointment in the bell weather Japanese market. Why? Because other than offering speed and beautiful high def graphics, there is nothing innovative about the gameplay and the variety of software (games) are still in short supply. This Chrismas Sony’s Playstation 3 will rain down on MSFT’s Xbox and Nintendo will also introduce a new innovative console.

Luckily for MSFT shareholders, Google’s sudden rise to fame and prosperity and Apple’s explosive resurgence are causing defibrillatory shocks to MSFT’s system. If the iPod revolution wasn’t hurtful enough for Microsoft, Apple is now in bed with Wintel member Intel and is making fast and desireable computers with Intel chips. And its no surprise that Apple has announced its new Boot Camp software which runs Windows nearly flawlessly on its elegant Macs.

This environment has been creating some stress on Mighty Microsoft and I wonder if its Board of Directors is beginning to get concerned. I wonder what board member Charles Noski former vice chairman of AT&T thinks. Given his tenure at Ma Bell from 1999 through 2002 he should know the tell tale signs of a company in decline. Those were the years AT&T had to spin off AT&T Wireless and its cable TV and broadband business.

If things continue to get worse the Board and shareholders will have to blame someone for the malaise at Microsoft and the buck would seem to stop with Steven Ballmer, the Microsoft billionaire who took over as CEO in January 2000. Since Ballmer took the reigns the stock has dropped about 47% compared to a 7% decline for the S&P500. Last year was not a great one for Microsoft or Ballmer. During a year when MSFT’s stock went nowhere Ballmer got caught hurling a chair across his office screaming “I’m going to F*ing Kill Google,” after the search engine company hired away one of his chief computer scientists. It sounds like something Tony Soprano would do in a moment of frustration but not something you would expect from the eleventh richest person in the U.S. and leader of the most prominent software company on the planet.

Trouble in Bill Gate's Kingdom

There has been a lot of press lately documenting trouble in Bill Gate's kingdom. Window's Vista has been delayed, there has been a managment shake up in Redmond and now the guy who headed up the firm's "Live" Web based software is taking over the Window's effort. Meanwhile Google's recent purchase of Web-based MSWord competitor Writely was a clear first shot at the Windows Office Desktop monopoly. Cleary Windows is on the wane.
And when it comes to digital entertainment, where is Microsoft? Apple is fast gaining momentum in this space, with its iTunes, Video iPods and elegant computers that put Windows-based machines to shame. Another important initiative for mighty Microsoft has been its Xbox360 platform. However if you read the video gaming press you will soon find out that it's launch has been underwhelming. Microsoft underestimated the initial market and now the consoles aren't as being hotly sought. In fact I recently read that in Japan- a very important video gaming market- Xbox360 has sold about half the units that they anticipated. Part of the problem is a lack of compelling software or video games for the Xbox360. Now Sony with it's Playstation 3 and Nintendo's Revolution are coming. Those two Japanese gamers are interested in improving gameplay, making more innovative games that will bringing in a wider audience, not just increasing processor speed. All signs indicate that Microsoft is indeed getting soft, and deserving of the nickname Mister Softee. Luckily it has a pile of cash to throw at its problems.

Apple, Disney, Pixar and My Bold Prediction

I was a little bit early on my "bold prediction," but as you can see by my "Sneak Peek"on Forbes.com
originally published in late 2003, I thought that Apple, Disney and Pixar should get together long ago, and that Apple would be one of the key players in the digital entertainment future. Now we are reading that Steve Jobs may sell Pixar to Disney's Iger and that he may become Disney's largest shareholder.
If you would have been lucky enough to have purchased these respective stocks at the end of 2003, you would now be up 620% on Apple [nasdaq:AAPL], 11% on Disney [nyse:DIS] and 69% on Pixar [nasdaq:PIXR]. That compares to about 15.7% on the S&P 500 and and 14.3% on the Nasdaq. Had you purchased $10,000 in each stock I mentioned your $30,000 investment would now be worth $90,000. Not too shabby for just over two years. Unfortunately I didnt act on my own predictions. Anyway, I am still bullish on Apple and if Jobs becomes involved with Disney I would become a bull on that stock also. Disney desperately needs Pixar as well as a visionary leader like Jobs, who can put them at the forefront of the digital future. Disney has a number of underutilized assets including ESPN. In fact I think that Disney should buy Electronic Arts [nasdaq:ERTS], which owns the most important big league sports gaming franchises like Madden 2006. As I said in an earlier blog posting, the next major area for Apple to become a leader in is gaming. They are the perfect company for that huge and growing market. Imagine if Apple, Pixar, Disney and Electronic Arts (Full Disclosure: I own ERTS] were all on the same team?
If you would like to read my latest bold prediction, which involves Google [nasdaq:GOOG], which I happen to own, click here.