While Sony had the head start and Microsoft the marketing millions, as the battle lines become clearer, it appears that Nintendo may be best positioned to rule over the next generation of videogames.

This fall, Nintendo will release Gamecube, a new high-powered video game console that plays games stored on mini DVD-ROMs. When it arrives, Gamecube will have to compete with PlayStation2, a similarly powerful console from Sony Computer Entertainment that plays full-sized DVD discs and movies on DVD, and Xbox, a DVD-playing game console from Microsoft that features a built-in hard drive and an Ethernet card.

Until now, Nintendo has remained relatively quiet about Gamecube as Microsoft and Sony wage their pitched battles over hardware specs and processor power. Few people even believed that Nintendo would have its new hardware ready for market this year.

But now, with the 2001 Electronic Entertainment Expo only one month away, analysts, game developers and other industry watchers are starting to speak out, and it appears that GAMECUBE exceeds expectations.

“Nintendo has done an incredibly good job of flying in under the radar,” says Tom Russo, editor-in-chief of Next Generation magazine. “Microsoft and Sony have had their PR machines in full force, but I think Nintendo knew all along what needed to be done.

“They have spent their time quietly developing titles that will really capture the imagination of the gamer.”

What makes the mounting appreciation for Gamecube all the more surprising is that until a few weeks ago, few people regarded it or Nintendo as a contender. Sony, the company that completely dominated the market during the last generation of games with its 32-bit PlayStation, entered this latest generation with a one-year head start over Microsoft and Nintendo. After forcing debt-ridden Sega, manufacturer of the Dreamcast game console, out of the market, Sony looked unstoppable.

But Sony has not been able to capitalize on that one-year head start. Game sales are down in Japan, where PlayStation2 launched in March 2000. While Sony has sold more than 5 million PlayStation2 consoles in the Japanese market, software sales have been weak.

“Sony’s [software-to-hardware] tie-ratios are a problem,” says Peter Main, executive vice president of Nintendo of America. “There are as many people using it as a DVD player as there are buying new PlayStation2 software. The last numbers out of Japan are something in the magnitude of 61/2 to one, and of that, two are DVD movies, two are PlayStation 2 software, and two are original PlayStation discounted software.”

Despite record-breaking hardware sales, it has taken Sony more than a year to have its first million-selling hit for PlayStation2 — “Onimusha: Warlords” from Capcom. By comparison, Saturn, Nintendo 64 and Dreamcast all had million-sellers within months and sometimes even days of release.

Even worse, the games released for PlayStation2 have not lived up to consumer expectations. With few exceptions, the third-party games published by Sony’s partners have been disappointing and the reception Sony’s internally made first-party games have received had been even worse.

“Sony’s branding is what is carrying them right now,” says Russo. “The products will come, but due to the complexity of the system, they are going to take some time.”

Microsoft is also faltering in Japan. Scheduled for a worldwide launch this fall, Xbox is getting a less than enthusiastic reception from many Japanese consumers, retailers and game publishers.

While there seems to be general agreement that Xbox is technologically superior to PlayStation2, several people have stated that in the end, games matter more than hardware.

“You will definitely get better graphics with Xbox,” says Konami’s Hideo Kojima, designer of the best-selling Metal Gear Solid games.

“I don’t think that Xbox is that much better than PlayStation2. Other than little improvements in graphics, I don’t expect much difference.”

In the meantime, many executives claim that the Microsoft name carries a lot of ill will in the Japanese market.

“Launching Xbox is like planning a D-Day invasion,” says Richard Doherty, chief analyst at Envisioneering. “You have to get all these different armies, and all these different aircraft, and the Navy, and the Marines together at the same time. It’s a huge mission with huge risks and potentially huge rewards. Everybody has to arrive at the same time for Microsoft to win this war.”

As Sony struggles to straighten out its software market and Microsoft battles for a beachhead in Japan, Nintendo will go almost unchallenged as it markets Gamecube to younger demographics.

“We are strong in respect to dealing with our younger demographics but also older demographics — male and female,” says Main.

“We certainly have been proud of our more youthful component, and we have been stronger than the other guys in [the] 12-and-under [category]. Actually, in the 13-to-17 area, we have been much more similar than dissimilar to PlayStation and now PlayStation2. We failed by a wide margin in 18-to-22 penetration, which tended to become a bell weather, trend-setter, fashion-setter area.”

“Interestingly, after the age of 24, they evolve back to Nintendo either for nostalgic reasons or to play with their newfound children.”

But the asset that gives Nintendo its biggest boost is its long history in making games. While Microsoft and Sony seem to have concentrated on designing powerful hardware, Nintendo appears to have paid more attention to end results.

“Nintendo does not just develop new hardware for the sake of new hardware,” says Russo. “They always try to deliver a new gameplay experience with that hardware. When we do see Gamecube at launch, it’s going to be with a unique experience.”

This approach seems to have scored well with game developers and industry watchers. As an extremely influential analyst, Richard Doherty has spoken with many industry executives and concludes that the momentum is in Nintendo’s favor.

“Judging by overall developer confidence, there seems to be tremendous confidence in Gamecube right now,” says Doherty. “I respect that.”