Samsung Isn’t Playing Games With Nintendo

(Originally published here.)

It’s hard to think of a better symbol of South Korea’s arrival as a developed country than the rise of Samsung Electronics Co. With a market value of almost $200 billion — about 55 times as much as it was worth two decades ago — the company now makes a quarter of the world’s televisions and a third of its smartphones. Samsung’s rise has gone hand in hand with the decline of storied competitors such as Sony Corp., which has just forecast an annual loss of$1.1 billion, and Nokia Oyj, which recently agreed to sell most of its handset unit to Microsoft Corp. It now seems that Samsung is going after another famous Japanese brand: Nintendo Co., the beleaguered videogame-maker with a market value less than a tenth of Samsung’s.

Nintendo was already in trouble because it had made a strategic blunder by focusing on the casual gamers who were most likely to abandon low-powered game consoles for smartphones and tablets. As if that weren’t bad enough, the website Kotaku points us to a “confidential” presentation given by Alan Queen, a senior director at Samsung’s innovation lab, who explains how the company could wipe out what little remains of Nintendo’s console and handheld-device businesses.

The main plan is to transmit game content from a Samsung smartphone, which will soon have more processing power than the Nintendo’s limp Wii U, directly to a high-definition TV. Ideally, that TV would be made by Samsung and would have sufficient processing power to complement whatever the phone was doing. Samsung would sell a simple controller to potential gamers that could be connected to the smartphone to create a device similar to the Wii U’s controller. Like the Wii U, this would let players use the small screen during gameplay. The total cost of this setup would be much cheaper than anything Nintendo could offer, even if would be less powerful than a high-end system, such as Microsoft’s Xbox or Sony’s PlayStation.

Last month at the Consumer Electronics show, Samsung said that its latest generation of smart TVs will be powerful enough to play games downloaded off Samsung’s proprietary network and eventually played cooperatively and competitively online. Presumably, Samsung’s concept game controller could be used to direct the player’s actions, although the announcement only mentioned the remote control and smartphones as potential controllers.

Both strategies could increase Samsung’s earnings from its TVs by attracting casual gamers who don’t own consoles, as well as those who used to like Nintendo but don’t feel like upgrading to the Wii U. Nintendo recently bought back more than $1 billionof its stock, much of which may have been sold by heirs of the founding Yamauchi family. Perhaps the game-maker’s executives realize that it’s time to start licensing its games for third-party platforms.

(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter.)

To contact the writer of this article: Matthew C. Klein at mklein62@bloomberg.net.

To contact the editor responsible for this article: James Greiff at jgreiff@bloomberg.net.

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About Matthew C. Klein

I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.
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