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How will Microsoft and Sony respond to the Wii U launch? Exclusive
How will Microsoft and Sony respond to the Wii U launch?
September 10, 2012 | By Matt Matthews

September 10, 2012 | By Matt Matthews
Comments
    33 comments
More: Console/PC, Business/Marketing, Exclusive



The upcoming Wii U price won't simply determine the console's own future, says Gamasutra analyst Matt Matthews.

Along with a Wii U launch date and details on hardware configurations, I will be watching news from the Nintendo press event this week to find out the official launch price for the new system. If the base model launches above $300 in the U.S., Nintendo's role in the console market will be at significant risk. On the other hand, at $250 the system could be extremely compelling to mainstream consumers.

But the Wii U price won't simply determine its own future. Once that price has been announced, it will have immediate and irrevocable effects on how consumers view the Xbox 360 and PlayStation 3.

Much of the current malaise in the U.S. video game market can be blamed directly on the stubbornly high prices of those two leading systems. The Xbox 360 hasn't seen a proper price cut since September 2008, when the base model was reduced to $200. The entry level PlayStation 3 model was cut to $300 back in August 2010 and to $250 in August 2011 but has now gone for over a year with no further reduction.

That puts the base Xbox 360 at 54 percent more expensive and the base PS3 at 92 percent more expensive than the PlayStation 2 at a comparable point in its lifetime.

When Nintendo plays its big card this week, we can expect Microsoft and Sony to relent and begin competing on price again.

Advantage: Microsoft

Microsoft has the advantage, since it began laying the groundwork earlier this year for a service-subsidized hardware program: $100 for an Xbox 360 4GB system with Kinect, after agreeing to a two-year, $15 per month Xbox Live Gold membership. Initially available only at Microsoft stores, the program has expanded to select Best Buy and GameStop locations.

Is the program working? Until Microsoft or one of its retail partners gives an indication, we can't really know. However, The NPD Group, which tracks video game sales across retail and online segments, did provide indirect information which is at the least suggestive.

According to NPD Group data provided to me, the Xbox 360 sold for an average $258 in August 2012. That's the lowest average I've seen for any month so far this year, the fourth successive monthly decrease, and is within $2 of the average right before the November 2010 launch of Kinect.

xbox360.jpgI suspect we're seeing several effects here. The market is generally weak in 2012 and is often seasonally weak in August. On top of that, the number of consumers willing to spend $300 on a 2005-era console with a 2010-era add-on is shrinking every day. Somewhere in there, the $100 system with service is probably also driving down the average price, but I doubt it is the only or even the main factor.

However, if Microsoft and other big-box stores like Wal-mart can work out the credit check details required for this kind of service plan, I expect consumers to respond very positively. In that case, I don't see Microsoft making dramatic cuts in its hardware prices.

In correspondence with Michael Pachter, industry analyst for Wedbush Securities, he suggested that a $300 Wii U bundled with a game would push Microsoft to respond with a $250 Xbox 360 4GB bundle with Kinect and a game. That sounds about right to me, but the optics for such a bundle are less clear to me if the Wii U has a bare-bones model at $250 without a game.

Sony: At Least Fifty

Sony's situation is a bit more straightforward, since their entry-level system is still at $250. Even if the Wii U starts at $300, that's too close. The main thing Sony will need to do is drop the entry-level system to $200.

The other thing Sony has often done is pack software and accessories into a bundle to increase its perceived value. In other times, that might have helped some, but I think this is the wrong time for that approach. For example, if it were to try to bundle its PlayStation Move add-on with every system while keeping hardware prices at their current levels, I'm fairly certain consumers would be uninterested. What Sony needs is as big a gap as it can afford between the Wii U and the PS3, and the bundling won't really help.

Prior to the last price cut (from $300 to $250 in August 2011), the average price for the system was $312, and that average immediately dropped $40 the next month to around $272, where it has remained with some slight variations. According to official NPD Group data, the average price of the PS3 during August 2012 was $266, which is the second lowest it has been all year.

If the price gets cut to $200, and all models get a comparable $50 cut, then I think we can expect the average price to drop by at least another $40, to around $220. I think it's possible that at that level it could grab some consumer interest, as happened with the drop to $300 with the introduction of the original PlayStation 3 Slim.

ps3.jpgWedbush's Michael Pachter agreed with my assessment that Sony will be forced to move, but had his own angle: Sony will be forced not only by Nintendo's Wii U pricing, but also by Microsoft's. If his prediction of a $250 Xbox 360 4GB with Kinect comes to fruition, then Sony will have no choice but to cut to $200. That's spot on, and Pachter's observation brings into sharp focus for me just how much Sony's position in this industry has changed.

Remember, it was Sony which relentlessly cut its original PlayStation prices and forced Sega into price cuts it could ill afford back in the late 1990s. It was Sony who used its one year head start over the competition to cut its PlayStation 2 prices in early 2002, forcing Microsoft into an uncomfortable situation as it could not bring down the original Xbox hard drive and GPU prices quickly enough.

Now as a new generation begins, it is Sony that is forced to cut prices as it endures the consequences of a $600 console launch nearly six years ago.

Nintendo: Wii at $100, Wii U at $300

Finally, Nintendo will have to clear the deck of Wii stock as it makes way for the Wii U, and that means that there should actually be two price announcements coming up. The Wii U will get an official first price, and the Wii will likely get its final price.

Going into the holiday, Nintendo can clear out its old stock of Wii systems by cutting the systems that are currently $150 down to $100. The conventional wisdom is that the $100 Wii did exceedingly well last holiday as a Wal-mart exclusive, and I don't see any reason they can't clear the shelves by making that an official price for all remaining systems.

That cut would be a real cut, by the way, since the Nintendo Wii is selling for an average of $147 now, according to official NPD Group data from August. Because the company has so few options on system pricing, the average would likely drop to under $100 immediately.

That would give Nintendo plenty of space between its legacy system and the new Wii U. I expect Nintendo to follow Microsoft's and Sony's leads into offering a range of systems at different prices. A $250 model would be cutting the margin close, perhaps too close for Nintendo who is still smarting from the forced Nintendo 3DS price cut a year ago. If such a system is offered, I expect it to be like the original 20GB PlayStation 3: absolutely no frills and limited stock.

The main Wii U model will most likely be $300, possibly with a game packed in. Ideally, Nintendo should offer a model with a voucher to download a game, because this would help jumpstart consumer interest in the company's online offerings. It would also have the benefit of cutting costs for Nintendo, but it isn't clear to me yet whether Nintendo is ready to step that boldly into the online arena.

Once Nintendo has announced its intentions later this week, I'll have a column on the official prices along with some more data.


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Comments


Thom Q
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I'd like to know the what & how about the European market. From what I've read it European console sales s are about 80-90% to total US figures, so might be interesting to read a well done analysis

Gern Blanston
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There is no way we'll see a Wii price drop this year. Nintendo won't do anything to make their current console more appealing, and potentially take any focus off of Wii U. Wii should drop to $99 next holiday season, but this year is all about their new system.

Sony has their Super Slim launch + price drop, and Microsoft has Halo 4 (plus a much needed price drop). They will both do well this holiday season. And I predict much better sales than last year on the Playstation side.

If Nintendo launches Wii U at $299 or less, it will lead HD console sales until at least the launch of competing next-gen systems.

Craig Page
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Why should Microsoft or Sony drop their prices in response to the Wii U? Graphically it won't be any better than a 360 or PS3. The Wii U's games catalog also sucks in comparison, and will always suck unless you're excited by ports of 3 year old console games and another round of Mario, Zelda, and whatever controller gimmicks Nintendo thinks of next.

Kellam Templeton-Smith
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" and another round of Mario, Zelda, and whatever controller gimmicks Nintendo thinks of next. "

Which is what sells Nintendo consoles to traditional gamers. If you're looking for the latest FPS, go play on your pc.

Charles Herold
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Even if all your Nintendo-bashing were true, I believe competitors make decisions like these based not on whether the competition, in their personal opinion, "sucks," but on what will happen in the market. While *you* clearly are not going to be buying a Wii U, others will, and the reason to drop prices would be to convince consumers to buy a console other than the Wii U. Businesses make business decisions; they don't just say, "I think that sucks so I'm totally going to ignore it because it's obviously how sucky it is."

Zirani Jean-Sylvestre
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Anthony, if you had gone to school, you would know that it's utter foolish to argue with Nintendo fanboys. It's not even emotional at this point...

On the other hand, Christian, I think the Wii U catalog sucks and I think the Wii catalog sucks. It's really sad that Nintendo managed to sell their crap. It's entirely and 100% my opinion and I know ppl that share it. Live with it.

A W
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Christian Keichel is right. What one thinks verse the overall fact of numbers makes ones point irrelevant to the overall conversation regarding "How Microsoft and Sony will respond to the Wii U launch".

kevin williams
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The speculation is really taking hold - first we were to see XB720 and PS4 at E3, then it was a Christmas launch and now mid or even late -2013!

Fundamentally the console developers have changed their plans on what they will release, and how they will generate revenue from it. Nintendo was the farthest down the sloop so could not alter their plans and redevelopment their system - the fall out over the second tablet, a case in point.

No we see this subscription model and cloud based game delivery gathering momentum and we all have to wonder that if the console manufacturers have not got this last minute reversal of business right then the implications for the industry could be terminal.

Makes me want to know more about the Valve box!

john talbot
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"How will Microsoft and Sony respond to the Wii U launch?"

you mean, other than by ignoring it completely and focusing on their own respective successors?

Adam Danielski
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Precisely.

Adam Danielski
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With laughter... Nintendo is done. I hate to say it, but they will always be third in the console race until they start supporting 3rd party.

E Zachary Knight
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I would add to Christian's comment, it is not Nintendo that abandoned the 3rd party developer. It was the 3rd party developers that abandoned Nintendo. Ubisoft is the only 3rd party publisher to take the Wii seriously and they had some very great successes over the years. The other major publishers pushed out some crap and then saw lackluster sales of said crap and then abandoned the platform.

Kellam Templeton-Smith
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What does this even mean? You make two completely different statements here-the first is just blatantly stupid, and the second seems predicated on the notion that their absolute dominance in every hardware market they participate in can be diminished because 3rd party devs make terrible games on them that sell poorly.

Michael Rooney
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@"I would add to Christian's comment, it is not Nintendo that abandoned the 3rd party developer. It was the 3rd party developers that abandoned Nintendo. Ubisoft is the only 3rd party publisher to take the Wii seriously and they had some very great successes over the years. The other major publishers pushed out some crap and then saw lackluster sales of said crap and then abandoned the platform."

It goes both ways. Think of it like any relationship. You see it as the girlfriend breaking up with you. Her friends see it as you being a huge asshole and giving her no choice but to move on.

Nintendo didn't make a console that major 3rd party developers wanted to develop for, so they didn't have big pushes to develop for it.

Dave Smith
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why would Nintendo care about 3rd party games? they dominate without them.

E Zachary Knight
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Michael,

"Nintendo didn't make a console that major 3rd party developers wanted to develop for, so they didn't have big pushes to develop for it."

I would think that having the largest user base of any console this generation would have been reason enough to develop for it. But what do I know. I am not the CEO of a giant 3rd party publisher.

Rick Kolesar
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Nintendo will launch at $250 or $300 to grab the early adopter money. They will then pull a quick price drop on December 1st to make it the "Christmas gift of 2012".

Look at MS and Sony to counter with software bundles.

Eric Pobirs
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The big question regarding Sony and Microsoft is whether they will do anpther major engineering revision of their respective machines. Both chipsets could receive a substantial die shrink to significantly reduce their cost and that of the surrounding machine by reducing power and cooling requirements. There is a lot of room for substantially lower price points on these platforms. Sony is currently doing a good job of enhancing value to new owners with the assortment of game collections being released that take advantage of the high capacity afforded by Blu-ray media.

This is a tricky PR situation for Nintendo. Like many, I regard the Wii as an enhanced Gamecub with bundled motion controllers originally developed as GameCube add-ons. It always felt in-between generations. Third party devs were always faced with a problem in finding the justification for doing Wii versions of their franchises when these would by necessity be very distinct versions rather than ports, making them more costly on a platform that was sold heavily to consumers outside the core audinece for those franchises. Nintendo made a bet there and lost on that front, unlike the DS market where third party support and big name franchises abounded. A big part of the problem is that the Wii controllers just don't work very well. Even the addition of MotionPlus has just barely made them adequate compared to the original promise. Such is the risk of doing something different. Big risks carry big rewards and big losses.

It could be very bad for Nintendo if the Wii U is perceived as playing catch-up with the PS3 and Xbox 360, especially when the Vita and Smart Glass will enable the companies to easily match the Wii U's biggest gimmick without the years of exclusivity the Wii enjoyed with its primary distinuguishing feature. If the Wii U isn't seen as being on par with the next generation of competitors it would likely suffer a short lifespan like the Wii.

William Johnson
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I really hope Nintendo doesn't fracture the market like Microsoft has. Where you have several different SKUs with different compatibility with games to just end up confusing consumers.

You can play all games on the base XB360, all but the ones that require a Hard Drive. And you can play all XB360 games on the $300 XB360 with hard drive, all but the ones that require a Kinect.

Screw that nonsense! Just give me one SKU that can do everything!

Anyway, consumer interest seems pretty low for the WiiU right now. So I think Nintendo may have a hard sale at first, but hopes that word of mouth changes that and turns it in to the juggernaut that the original Wii was. But if 3DS's okay-ish performance is any indication, I don't think its going to take off in the same way. At least it'll be viable and competitive; which I assume is all Nintendo can ask for right now.

I also feel that $300 is way too much for the system. If Nintendo is trying to expand the market they need a much more consumer friendly price. I recommend $200, and maybe $250 with a packed in game. But that's me.

Michael Rooney
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"I really hope Nintendo doesn't fracture the market like Microsoft has. Where you have several different SKUs with different compatibility with games to just end up confusing consumers.

You can play all games on the base XB360, all but the ones that require a Hard Drive. And you can play all XB360 games on the $300 XB360 with hard drive, all but the ones that require a Kinect."

I think the only games that can require harddrives are MMOs. Otherwise all games should work but have features only usable with some form of storage. I don't see why that's that confusing.

I also don't see why you'd expect the idea of a Kinect to be confusing. It's a peripheral; how would it be more/less confusing than Move, EyeToy, Wiifit, Wii Motion Plus, Wii Classic Controller, etc?

William Johnson
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Yep, its true. I dislike most peripherals because it ends up fracturing the user base and is yet another barrier for consumers. The more barriers that are placed on playing a game the fewer consumers you get.

Like for example, lets say I'm your stereotypical average casual gaming consumer and haven't bought a new system in about a decade or so. I've heard good things about Halo Reach from my hardcore buddy when we use to play in high school or college or some other time in the past. So I go buy a cheap XB360 and a copy of Halo Reach to play with him. I need to jump through a bunch of hoops to make a gamertag that is just slowing me down from playing the game I want. Followed by several updates that take an unusual amount of time where I can't do anything. Now it turns out that I need to buy an Xbox Live Subscription, so I reluctantly enter my credit card information. Then it turns out I need to buy a hard drive to play online, which doesn't make any sense! So I have to now go back to the store and buy a hard drive, but there are two different types of hard drives, for the original Xbox 360 and the new slim. Which Xbox did I get? Did I buy a new one or a used one? Why would they release two different peripherals instead of just designing the new system to work with the old peripherals?

Basically, there are a lot of reasons to not play video games anymore. Consumer confusion with lots of different bells and whistles from peripherals, accessories, etc. And I was kind of hoping Nintendo had realized that simplicity is key to a good user experience. But instead of keeping it simple, Nintendo seems to be following Microsoft's and Sony's lead.

Which is why I hope that when we learn about the WiiU's pricing structures, its not going to be as bad as Microsoft's.

Jeferson Soler
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@ William Johnson - While I do agree with you about Nintendo needing to keep things simple with the SKUs and not go the same route as Sony and Microsoft, you have to keep in mind that Nintendo is no stranger to doing multiple SKUs. Granted, the only time that I recall them doing multiple SKUs was when the original NES was launched in the USA (one SKU had R.O.B., Zapper, Gyromite, and Duck Hunt, while the other was just the core system with Super Mario Bros.), but still, it is something to think about. In any case, I do hope that Nintendo doesn't go above $300 with the WiiU.

Eric Pobirs
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Your extended scenario is simply ridiculous. Your straw man consumer appears to still be living in the 80s. In real life, most consumers have encountered sophisticated products that require some user effort on first use. Be it a PC, smartphone, car, or even a coffee maker.

Further, the list of games that require a hard drive for any major function is very, very short. Microsoft doesn't casually approve game with such requirements. In the case of Halo Reach the hard drive was needed to overcome memory limitations and the flash used for storage wasn't fast enough to avoid disrupting the game. Too bad, so sad. A scant dozen out of HUNDREDS of games require a hard drive.

And a store that still stocks the old hard drives but doesn't have anybody on the floor that can ask the customer to point at the picture of an Xbox that looks like his? This isn't brain surgery. The very fact that the console was a recent new purchase kind of narrows it down.

And for what kind of idiot is the Kinect an overwhelming complication? All of the advertising and iconography makes it plain this is a separate device that attaches to the main unit. I'm imagining this same cognitively challenged consumer trying to buy a car and being shocked to discover he bought the one without a bundled boat trailer only after he went to buy a boat.

And here's a wild idea: why not ask that 'hardcore buddy' what you should get and what to be aware of going in?

The fact is, the hard drive is a fixed cost that strongly affects the cost of entry but is only needed by a subset of customers. Microsoft would love if every Xbox owner had a level of activity making the hard drive a requirement but that is not the reality. Being able to offer a lower cost of entry is a critical feature they aren't going to give up.

If Microsoft had a base model that wasn't easily upgraded to be identical to the top of the line bundle, there might be some room for complaint. But it would be a truly naive consumer in today's world who didn't understand the concept of reduced cost for getting everything in one purchase.

Cordero W
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"Oh no, Nintendo abandoned the hardcore audience, they suckez."

I'm tired of hearing this tune.

In the end, I know Wii U is going to sell pretty well. Most of its consumers are going to be non gamers and those carrying over from the Wii. Even kids are going to say "Mom, it's a new Nintendo!" Throw Mario and Batman onto it, and it's instant grab.

Russell Carroll
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I'm looking forward to Scribblenauts.

...guess that makes me not hardcore, but I love stuff that is a little different and allows for expression and creativity. Yet another FPS doesn't move my needle.

Michael Rooney
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I think the hurdle for the Wii U now is that it's not really doing something new. There are tablets today that can do most of the things the Wii U is promising. There are tablets coming in a couple months that will blow it out of the water.

That's the larger problem I see for the Wii U. Wii had no real competition in it's niche at launch, Wii U is launching into massive competition.

Tom Baird
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@Michael Rooney

I'm curious which Tablets you think will 'blow it out of the water'

Smart Glass is a software solution, that will be inevitably be slower, travelling over whatever Wifi/3G the individual devices need, as well as having to work with whatever existing else is happening on the device outside of MS' control. It's cheaper, but only if you already have a Smartphone. It also suffers from mobile fragmentation with regards to Aspect Ratios of UI, Inputs, and Peformance. It also has no physical inputs, and ONLY a touch screen, making it difficult to work with existing Console games, or requiring both the touch screen and a controller which would be awkward to hold. It seems to primarily focus on being a remote, and not a full real-time controller.

Vita comes much closer to being comparable, but then it requires you to buy 2 consoles. Since the Vita is not a standard accessory, and that it's selling abysmally, it seems unlikely you will find any games that really support this beyond the most basic, trivial ways, since no game is going to even assume someone has a Vita, or else they are selling to a much smaller market.

Each device can have some unique benefits and drawbacks, but I find it hard to believe that either the Vita or SmartGlass solutions could be considered to be particularly dangerous to the Wii U, as they have much larger drawbacks, and will inevitably be either harder to work with, or such a miniscule market segment.

wes bogdan
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What about ps3 slimmer which is supposed to have a top tier model with a 500gb hdd that 's when sony will kick in the price cut. As for wii u i fear nintendo will find wii a hard act to follow if after two e3's the the game industry still doesn't know what to make of it i doubt batman and mass effect will really play to the nintendo (metroid,mario and zelda) audience. If best buy sells 4gb xbox's with live commetement and halo 4 needs 8gb for multiplayer alone there may be tears on xmas.

I wish times were better as this might be the toughest console sell ever.

Konstantin Yavichev
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I bet you next gen PS and XB will come with two year subscription plans similar to the ones for the phones, that way they can avoid loss on their hardware.

Also, while Wii is fun, audience might be maturing with the industry, so casual games that are simplistic in their nature might not be enough. On top of that, big publisher casual games seem to be less and less interesting compared to the sea of indie projects out there. It would be smart of MS or Sony to improve Indie pipeline since it seems that Nintendo missed its chance.

Thom Q
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With all the big 3rd party titles coming out on the Wii-U, MS & Sony will have a very hard time. It'll mean they'll have the same content, plus a superior motion-control system, plus the tablet, plus the whole of the Nintendo IP catalogue.

The Wii's shortcomings are obvious. Not taking into account that it's a 6 year old console, the shortcomings for players are: No 3rd party content, no HDMI, and little to none online / social capabilities.

For the Wii-U, the first two points are covered: They will have all the big titles, and with 2012 graphics. And from what I've seen they are focussing big on social interactment, but that is something that still has to prove itself.. With that said, just the ability to voice-chat, make parties, and setup lobbies for multiplayer games is .all the other consoles have to offer (with the Xbox doing a significantly better job at it then Playstation).

Personally I think the next generation-consoles is the last for at least one of the 3 old companies. My bet is on Playstation. Besides their occasional exclusive titles, they won't have anything substantial to offer for either this, or the next generation. Microsoft is way better at manufacturing, running their network, and has more money then Sony, while Nintendo will probably flourish for the fact they will please everybody with the Wii-U. Sony is already being beaten on the handheld-front by Nintendo for years.

Leon T
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When the Xbox, Wii, and PS3 launched people did buy a whole new system and many people did buy the PS2 games that were ported to those systems. This tends to happen when a new system is launched.

Kevin Fisk
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I see a lot of people calling the Wii U controller gimmicky. Why is it exactly? There may be gimmicky uses for it but the DS proved the concept is sound.

I wouldn't be surprised to see both MS and Sony copy the controller even if it's implemented differently.

wes bogdan
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Regardless of market stability ,games or price i personally fear unlike swap wiimote to the left hand and nav unit to the right hand giving the wii sd instant southpaw that games on wii u will follow the ps3 and 360 norm of give the player 1-4 schemes they may all suck but there will be no customization here.

That means smash brawl,new smb u and some games could be played but without a wiimote ver 2.0 with more face buttons like nes-snes any 3d dual analog metroid,mario or zelda would be unplayable by me.

Btw gba metroid games were very good EXCEPT i couldn't "open/close" the missles with toggle r but was forced to move,jump,shoot all while moving AND HOLDING DOWN R .

Whoever made it a hold not toggle missles was stupid but i can play a non dual analog 2d game even with gimped control of missles infinatlly better than unfinished southpaw and "default" is absolutly worthless. Wii u and i may have problems if i can't design my own scheme especially with a screen in the way spreading controls out farther and breaking sticks only southpaw.

I took southpaw to it's full mode and simply CAN'T PLAY any other way.


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