Nintendo

Times have been tough lately in Mario Land. After being stomped on by an oversized cartoon plumber for more than two years, Nintendo’s rivals are doing their best to shrink Super Mario back down to size. The Japanese entertainment company’s decision on Thursday to knock 20 per cent off the price of the Wii, its popular gaming console, came on the heels of price cuts for rival Sony’s PlayStation3 and Microsoft’s Xbox 360.

Along with the prospect of being dragged into a price war, there is plenty else for investors to feel glum about. Sales of the Wii fell 20 per cent in the first half, NPD market research estimates, while Nintendo’s shares have lost a third since January. And, with both Microsoft andSony preparing to launch their own versions of the Wii’s innovative motion-sensitive controls, Nintendo’s advantage in casual gaming risks being competed away.

But hang on. A price cut was inevitable given the number of Wiis already sold. Until this week, its price had been unchanged since the 2006 launch – the longest streak in gaming history.

While sales have fallen sharply, with an installed base of more than 52m consoles and a likely boost to sales ahead of the holiday season, the Wii’s position atop the heap looks secure. Its closest rival is Microsoft, with just over 30m consoles.

Nintendo’s share price already reflects lower growth expectations, having fallen from a peak of about 50 times forward earnings in late 2007, when the Wii was flying off the shelves, to about 10 times today. Nintendo must be hoping that its experience will be something like Sony’s. Meanwhile, US sales of the PS3 jumped 300 per cent after prices dropped last month. That could power-up Nintendo with the extra life it needs.