Counterfeiters Pose Serious Challenge For Nintendo Video Game Giant’s Chairman Says Piracy Robs Company Of Revenues

Although Nintendo of America is facing business challenges from companies like Sega and Sony, the greatest single challenge to the ongoing success of the Redmond-based video game giant is counterfeiting.

“Most people have no idea how serious this issue is to everybody whose intellectual property is being pirated,” Howard Lincoln, chairman of Nintendo of America, said in an interview Friday.

Lincoln was in Spokane to speak at the eighth annual awards dinner for Eastern Washington University’s College of Business and Public Administration.

The counterfeiting of Nintendo’s video game products, and the software products of companies like Redmond neighbor Microsoft Corp., in foreign markets is a huge problem worldwide, Lincoln said. But the problem is particularly bad in China. Chinese counterfeiters are selling their copies of Nintendo products in the international market, and within the United States as well.

“And we have evidence that Chinese government officials hold ownership interests in the companies that are counterfeiting Nintendo products,” Lincoln said.

The counterfeiting is particularly galling, he said, because companies like Nintendo have to put such vast resources into creating their intellectual properties.

Coming up with game concepts and then bringing them to life is a tremendous creative challenge, he said. An equal challenge is keeping up with the technology that constantly revolutionizes the hardware on which the games are operated.

In 1989, Nintendo dwarfed its competitors worldwide with its 8-bit computer games. That year, though, a tiny competitor called Sega introduced a 16-bit game that offered much more sophisticated graphics. Nintendo didn’t respond with its own 16-bit game until 18 months later, and that gave Sega a major foothold.

Now, corporate giant Sony has joined the battle as each company tries to push beyond the 16-bit games. In September, Sega and Sony will introduce 32-bit games operated from a CD-ROM platform that will apparently sell for somewhere between $350 and $400.

Once again, they will beat Nintendo to the market, as Lincoln says Nintendo’s new 64-bit platform won’t come out until next year.

But Lincoln says he’s not concerned that Nintendo will be surpassed by its competitors. He says Nintendo’s offering will be as different from the competitive formats as apples are from oranges.

Nintendo’s Ultra 64 will be a cartridge game with a silicon-based storage medium rather than CD.

Lincoln and Nintendo are gambling that CD-ROM will be too slow to satisfy video game customers. The silicon-based chips provide speed and graphic quality that CD can’t match, he said.

The delay in marketing the Ultra 64 is not problems with the hardware, as has been widely speculated, Lincoln says. In fact, the hardware platform is ready to go.

“We’re just not satisfied with the quality of the software yet,” he said.

The company will not go to the market until it has games to offer that live up to the potential of the hardware.

“And frankly,” he added, “we can afford to wait. We have $3.5 billion in cash. We have no debt, and we’ll sell millions of our 16-bit products this year.”