.Project Natal: Playing with virtual controls...

As any fan of Super Mario Bros. knows, however, invincibility only lasts so long. In the first half of 2009, Nintendo profits fell 52 percent to $772 million, dragged down by a 43

Iwata should be worried about more than game development. Nintendo's archrivals, Microsoft and Sony, are poised to release their own motion-sensing devices in 2010, with Microsoft having the best chance to out-Wii the Wii. Its Project Natal product, announced in June, eliminates the controller entirely--instead of a player holding a gadget, a special device mounted beneath the TV uses a video camera, an infrared sensor, and software to identify a player's motions. The gamer's actual silhouette, not a generic avatar, can then be inserted directly into games.

I played an early prototype of Natal in May, and it makes the Wii controller's capabilities, once a breakthrough, seem crude. To win at Wii tennis, you basically just need to swing your wrist back and forth. In contrast, the Natal camera detects the subtle movement of your limbs. I tried a game called Ricochet, where you punch, kick, and head-butt a ball down a corridor to break apart bricks at the far end. It sounds simple, but because the Natal camera tracks the exact movement of each limb going after the careening ball, I really needed to reach for each shot. Microsoft isn't exactly known for simple products that work seamlessly--but the Xbox has been an exception, and if the final product delivers on what the prototype promises, Natal may be Microsoft's most graceful step forward in gaming yet.

Sony has a motion controller in the works, too: a handheld, wandlike device that pairs with a camera, splitting the difference between Wii and Natal. It doesn't have a name yet--but it does have an expected release date of spring 2010, earlier than Natal. Beating Microsoft to market is Sony's best chance at bringing the PlayStation 3 out of third place in the console wars.

Sony and Microsoft desperately need big hits. Both companies cut prices on their consoles by $100 this summer to pump up sales--an acknowledgment that the videogame industry is not, after all, recession-proof. Emphasizing platforms with intuitive, motion-based controls over those with complicated controllers is crucial to helping the videogame market expand beyond its base of young men. Nintendo is already there with games like Wii Fit, which appeals to families and adults.

At $50 billion and climbing, the global gaming market can accommodate all three big console makers. Until the new products--and the games that best exploit them--are out, it's impossible to say which will be the biggest winner. The smart bet, though, is on Microsoft and Sony to take a greater share of the videogame market. That's a perilous prospect for Nintendo, which doesn't have the same diversity of products and revenue streams to fall back on. Microsoft has Windows, Sony has its movie studio (and much more), while Nintendo is just a videogame company. And if it wants to remain the biggest, it had better get moving.