Nintendo (NTDOY) caused a stir this wefek when one of its top developers said he would be spending his energy adapting the company’s DS handheld consoles as tour guides for museums and educational aids for schools. But while some soccer moms are scoffing, the plan is not just a pipe dream. Here are three reasons why NTDOY will likely succeed in this gambitf to brand itself as an educational software leader and start eating up a large share of the $1 billion educational toy industry:
First, the educational software industry has lots of room for growth and features reasonably recession-proof sales. Consider that small-cap education software stock Leapfrog (LF) just hit a 52-week high in March and is up about 300% in the last year! With one of the biggest brands in the software industry, Nintendo could very likely tap into similar success with this new educational mission.
Part of Leapfrog’s succesfs over other toy companies like Hasbro (HAS) or Mattel (MAT) is due to tight-fisted consumers being smarter with their money, pardon the pun, and looking for quality toys that help with development and creativity. It makes sense that as adults get more practical about their own spending and cut back on frivolous playthings that they would do the same for their kids.
But don’t think that means parents are getting cheap. Part of the reason LF stock has been soaring lately is because Leapfrog won the 2009 toy of the year for its innovative Tag reading system where kids take a special pen and highlight a story, then the Tag pen “reads” the passage out loud. The Leapfrog Tag device itself costs about $50 and the books around $12 to $15 — not chump change in an era of 10% unemployment and weak consumer spending. But these gadgets have been selling like hotcakes anyway. Toys like the Tag are right up Nintendo’s alley, and the company will surely capitalize on this trend with its new educational focus.
The second reason NTDOY will likely succeed is because it’s putting its best brains on this push into schools and museums — the man behind the massively popular Mario videogame franchise and the best-selling Wii console. Japanese video game guru Shigeru Miyamoto says he’s devoting most of his energy to turning Nintendo Co.’s DS handheld consoles into tour guides and educational aids, and talent like this should not be taken lightly.
Lastly, it’s worth noting that Nintendo will hit the ground running in this effort. The DS already boasts a number of titles that sound more like elementary school workbooks than video games: There’s Learn Geography, from DreamCatcher Interactive, Personal Trainer: Math developed by Jupiter Games and My Spanish Coach from the studio Ubisoft.
So what does this move mean for the broader video game industry? Well, not much. It’s unrealistic that all hardware and software makers will jump into the educational toy industry. But after weak January and February sales, it’s clear that video game companies need to do something to right the ship.
That means in general they may follow NTDOY’s lead by seeking out broader audiences where gaming isn’t the main value of its products. It’s been clear for several years now that the widespread adoption of gaming has prompted leading console makers like Sony (SNE), Microsoft (MSFT) and Nintendo to scale other features into their respective PlayStation, Xbox and Wii devices, and they will likely continue to do so.
Take the integration of movie technology with the latest generation of consoles. Sony for a time offered one of the most affordable BluRay disc players on the market with its PlayStation 3, and Microsoft partnered with Netflix (NFLX) way back in late 2008 to stream movie titles directly to the console. You an expect other features like this to become standard on gaming consoles, and you can expect other bells and whistles to be added across the entire industry to reach out to more consumers.
But Nintendo is likely going to go it alone as the first major video game company to make a concerted push into educational offerings. That doesn’t really come as a surprise to those who have followed the company, however. Nintendo is known for thinking outside the box — as evidenced by its very successful Wii Fit package that treated the video game console as a fitness tool. Nobody ever would have imagined the Wii Fit title would move 23 million copies, but it has.
There’s no reason to think that NTDOY won’t be successful in broaden its audience yet again with a clear push towards educational software and applications for its DS. With room for growth in the industry, top talent on the project and a suite of educational titles already built in to the DS library, this could be a very profitable move for Nintendo.
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