Nintendo Co Ltd has more to prove than ever when it takes the wraps off its highly anticipated "Wii U" gaming console at next week's "E3," the $78.5 billion videogame industry's most important yearly trade show.
Gamers and Wall Street analysts alike will be closely watching for the next salvos from Nintendo, Sony Corp and Microsoft Corp - the "big three" of console manufacturers who have been at war for the past decade.
The main story line at the Electronic Entertainment Expo or E3, to be held in Los Angeles from June 5 to 7, is to what extent Nintendo's new version of the Wii console might help the Japanese company's battle to reclaim its crown in an industry that is struggling to grow.
Nintendo's back is against the wall, said Jesse Divnich, consultant and analyst at research firm EEDAR.
The Asian gaming company - whose long-held position as the videogame industry leader has been usurped in recent years by Microsoft's Xbox - is pinning its hopes on the new touchscreen-enabled device to breathe new life into both hardware and software gaming sales.
The original iteration of the motion-gaming console sent shock waves through the industry six years ago, but since then Nintendo has been fighting a strong challenge from upstart casual gaming companies hitching a ride on Apple Inc's iPad.
More than 45,000 analysts, retailers, investors and reporters are expected to attend E3, and they are hoping that Nintendo - creator of the "Super Mario" franchise - will disclose the price and other details of the Wii U.
Analyst Divnich said Nintendo would be wise to focus on showcasing its legacy titles that have pop culture recognition - such as "Super Mario," "Donkey Kong" and "Zelda" - on its new console.
"They should really play it safe and give us a reason to get excited over the Wii U," he said.
In 2011, Nintendo launched the 3DS handheld device to disappointing initial sales in part because at first it lacked new versions of its top games.
Last year, Nintendo President Satoru Iwata's pitch for a prototype Wii U fell flat, sending the company's shares tumbling. He will have to make amends this year by identifying who is the device's target audience - core gamers who like to play shooter games, or the casual audience that bowled in their living rooms and swung virtual golf clubs when the Wii was introduced in 2006.
Investors are expecting to be disappointed by the Wii U, said Mizuho Securities analyst Takeshi Koyama. Nintendo shares are trading just over 9,000 yen ($115.35), lows not seen since November 2003.
The market has begun to accept the possibility that "the situation is going to get worse after this year's E3," Koyama said in Tokyo.
Macquarie analysts disagreed, however, saying it will take a couple of years to show clearly whether the Wii U is a success or failure. And with $14 billion in cash, much of it made from the boon supplied by the original Wii, Nintendo has plenty of runway to gamble.
While the Wii U controller resembles a tablet and contains a screen that can also display games on TV screens, it faces tough competition from Apple's iPad, whose processing speeds get faster with each iteration, making it more attractive to both hardcore and casual gamers.
"They need to communicate how it's relevant in the tablet world," said Joe Minton, president of DDM, a videogame industry consultancy and talent agency.
To convince the masses to open their wallets, Minton said Nintendo must produce an "aha moment," similar to when consumers first saw how the Wii could be used for types of game play that could not be found anywhere else. The Wii eventually sold 95 million units, making it one of the most successful videogame products in history.
THE ROAD AHEAD
Nintendo's new console is being welcomed by a sluggish industry in desperate need of a boost. Microsoft's Xbox 360 is seven years old and Sony's PlayStation is only a year younger, and both companies are expected to show off how their older devices can be used at home to watch movies, TV and music at this year's conference rather than introduce new hardware.
"As an investor, the introduction of new hardware grows the user base, and that's kind of exciting," said Ted Pollak, portfolio manager of the videogame-focused EE Fund.
Talk about the so-called next generation of consoles, even without prototypes, will be abundant in hallways and hotel lobbies during E3. Analysts expect Microsoft and Sony to release new consoles in the next two years, which means they need to strike deals with videogame developers now.
Before their new consoles appear, however, publishers such as Activision Blizzard and Electronic Arts are tasked with drumming up interest in new games for the old consoles. Both companies will be touting online extensions for their biggest games as they try to squeeze more money from gamers, who now pay monthly fees to play on the Internet instead of just making a one-time $60 purchase on a game disc.
As the industry changes, so do the attendees at E3. Gree Inc, the Japanese developer with an online games network, will be taking up prime real estate on the show floor while Zynga Inc, which went public in December, is making its first official appearance at the show.
Zynga's shares are trading at 40 percent below their offer price since the FarmVille creator went public. In meeting rooms adorned with posters of its games, the company will plug the Zynga platform, a fledgling game service it rolled out that it hopes will reduce its dependence on Facebook Inc.
"We don't have a big flashy show presence - it's all business. We are focused on finding and signing partners to publish on our platform," said Rob Dyer, head of partner publishing at Zynga.
But for the old guard at E3, flashier may be better since it is becoming harder and pricier to produce hit games that players are willing to buy.
"E3 is about showing why the videogame industry is still relevant and why it's still worth it for consumers to spend a premium price point of $60 on games," EEDAR's Divnich said.
($1 = 78.03 Japanese yen)
(Additional reporting by Malathi Nayak in San Francisco and Tim Kelly in Tokyo; Editing by Peter Lauria and Matthew Lewis)