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Phones squeezing out game gadgets? 'That doesn't make sense' says Nintendo president

Nintendo Satoru Iwata
David McNew / Getty Images
Nintendo President Satoru Iwata
Nintendo President Satoru Iwata shows off the company's portable 3-D gaming gadget -- the Nintendo 3DS. But is there still room for handheld devices dedicated to gaming in the market (and in our smartphone-filled pockets) these days?David McNew / Getty Images

As Nintendo prepares to launch its latest handheld gaming device -- the Nintendo 3DS XL -- the company's president is ready to take on those naysayers who are predicting that portable gadgets centered around gaming are going the way of the dinosaur. 

This week I had a chance to interview Satoru Iwata -- the president of Nintendo and a man who sits at the head of the Japanese gaming powerhouse during challenging, changing times. 

That is, in recent years, gamers and gadget aficionados of all stripes have marveled at the proliferation of smart devices and watched as gaming apps for these phones and tablets -- many of them costing less than a pack of gum -- have absolutely absorbed our free time.

We've also watched as the newest dedicated gaming handhelds -- Nintendo's 3DS and Sony's PlayStation Vita -- have  stumbled out of the starting gate over the course of the last year, failing to meet initial sales expectations and hurting their creators' financial outlooks. Initial 3DS sales were so poor that Nintendo had to cut the price of the gadget capable of playing eye-popping 3-D games from $250 to $170. And in April, for the first time ever, Nintendo posted its first annual loss.

And so there are questions: How can Nintendo -- maker the Nintendo 3DS handheld game machine -- possibly compete with the growing tide (tidal wave?) of smartphones and tablets not to mention the cheap gaming experiences they provide? Will there ever be a return to the boomtime days of the Nintendo DS and the PlayStation Portable? Is there still room for handheld game machines in the market (and in our phone-filled pockets) these days? If there is now, will there be in two years? In five years?

I had a chance to talk to Iwata about the Nintendo 3DS and its new, bigger brother -- the 3DS XL (which arrives in stores Sunday) . And he seemed ready -- more than ready, really -- to answer those questions and counter naysayers with some statistics and bold statements of his own. 

But let it be said, it's not that Iwata thinks things haven'tchanged or that mistakes haven't been made.

"First of all I want to say that, with the increase in smartphones and tablets in the market, the competitive environment in the gaming industry has changed," he told me through an interpreter.

But he's quick to point out: This is hardly the first time the gaming landscape has shifted. "Five years ago we were asked how we were going to compete with Microsoft and Sony and other publishers," he said. "And now, today, we are being asked how we're going to compete with smartphones and tablets."

But he insisted that the Nintendo 3DS -- despite its very rocky launch last year -- is now faring considerably better than many seem to realize. In the United States, it has crossed the 5 million sales mark and, since it launched in March of 2011, it has sold better than its best-selling predecessor -- the Nintendo DS -- did during the same amount of time after it launched in November 2004. 

"If you look at the United States and compare the sales of the Nintendo 3DS and the Nintendo DS over the same time period, the 3DS is actually selling more than the DS," he said. "Additionally, the Nintendo DS -- in that same time period -- covered two Christmases while the 3DS has only covered one Christmas season."

And then there's Japan. "As of last week, the 3DS reached the 7 million mark in terms of sales, and that took 77 weeks since its launch," he said. "And for the Nintendo DS, if we  look at how long it took to reach the 7 million mark in Japan, it was 72 weeks. It may seem that the 3DS is lagging behind but, as I just mentioned,  the DS had the benefit of two holiday seasons whereas the 3DS only has had one." 

And this is where Iwata pushes back against game analysts and pundits who predict dedicated gaming handhelds are being squeezed out.

"I think if you look at these numbers, you can say that the argument that the handheld market is diminishing with the increase in smart devices like phones and tablets, that it really just doesn't make any sense," he told me. "You can see that there are holes in that argument based on these numbers."

It's worth noting that Iwata did recently tell Nintendo shareholders that the 3DS's sales momentum is weak in the U.S. and Europe when compared to Japan. But he pointed out that, back when the Nintendo DS first launched, it also took time to pick up momentum in the U.S . 

"The Nintendo DS gained momentum within a year in Japan; however, it took more than two years in the U.S. and in the end the total sales of the Nintendo DS exceeded the Wii there," he said.

How big have Nintendo DS sales been? From its launch in 2004 to just before the launch of the 3DS in 2011,  the Nintendo DS and its variants (the DS Lite, DSi and DSi XL) sold more than 144 million units worldwide.

Certainly Nintendo is hoping to see the 3DS gadget gain sales steam and finally shake its reputation as a failure. When Nintendo slashed the  3DS' price from $250 to $170, it gave the floundering  machine a big boost into gamers' hands. And another sales boost looks to be on the way thanks to the launch of the revamped and super-sized 3DS XL (which went on sale in Japan in July and comes to the U.S. Sunday).

3DS and 3DS XL

The 3DS XL (which I've spent time with and given high marks) has been given a sleek, smart redesign and comes with two screens that are 90 percent larger than the original 3DS's screens.

Iwata said he doesn't see the 3DS XL as being skewed toward a different kind of gamer than the original 3DS. Instead, he sees it simply as a different option for all gamers to choose from. 

"We'd like consumers to choose the one that suits them best," he said. "With the 3DS XL, the benefit for consumers is that a bigger screen will offer ease of play and more impactful visual presentation. That being said, of course it's a little bigger, it takes up a little more space, and it's a little weightier than the original 3DS."

There's also a price difference: The 3DS will cost you $170 and the 3DS XL will cost you $200. (For an in-depth look at why I think the 3DS XL is the better choice, check out my review here.)

So why is Nintendo launching the super-sized 3DS XL now rather than at the same time it launched the 3DS?

"Ideally offering them both at same time is best," Iwata said, but technological and price constraints held them back.

"The biggest reason (we didn't launch the 3DS XL earlier)  is that we wanted to provide consumers with the larger screen that we currently have with the 3DS XL at a reasonable cost, and we could not do that a year-and-a-half ago," he said. "Another reason is that, with the larger screen, you have more area that you have to light up, which of course means using more battery power. We wanted to be able to provide this screen and have it back-lit the way that customers want and need without having to sacrifice the battery longevity. Really, we just required  a technological breakthrough for us to be able to do that."

But while Iwata clearly believes that gaming handhelds like the 3DS and 3DS XL have their place and will continue to have a place, "That being said the (gaming) environment is different," he said. "There are lots of free games available for smart devices and we're seeing a lot more people carrying smartphones and tablets with them. And I think it is a fact that we're seeing games on those devices fill that time-filler role."

In the face of this, Iwata says Nintendo's  challenge is to create not just time fillers but gaming software that makes dropping $170 to $200 on the company's game machines "a worthwhile investment."

Enter "New Super Mario Bros. 2" -- a new game launching along side the 3DS XL on Sunday. This latest in Nintendo's long-running series of Mario games is already getting high marks for its deep, well-crafted design. (Check out the review here.)

And if anyone can sell a Nintendo machine, it's Mario. In fact, Nintendo found out the hard way that you don't try to get a Nintendo game gadget off the ground without a Mario game. 

Games that feature the iconic mustachioed character are what Nintendo fans live for ... and buy Nintendo machines for. And yet, the original 3DS launched sans a single Mario game.

"At launch we did not have a Mario title available and I think it's OK for us to say that we should have had a Mario title available at launch," Iwata admitted. "Mario titles are games that if we don't have one at launch people ar clamboring for it: 'Where is our Mario title? Where's our new Mario game?'"

Where your new Mario game will not be found: On your smartphone.

Winda Benedetti writes about video games for NBC News. You can follow her tweets about games and other things on Twitter here @WindaBenedetti and you can follow her on Google+. Meanwhile, be sure to check out the IN-GAME FACEBOOK PAGE to discuss the day's gaming news and reviews.