Nintendo is “far from ‘emergency’ mode,” analyst Jesse Divnich told Wired.com last week. And yet the Japanese gamemaker slashed the price of its Nintendo 3DS Thursday from $250 to $170.

Just at that moment, someone somewhere in Kyoto flipped a big switch labeled Emergency Mode.

The warning lights had been flashing for a while. Nintendo itself pointed out that sales of the 3-D portable game machine had dropped below expectations. Key software partners were delaying and canceling games, bad news for a platform that had not been on the market six months.

“I think it is fair to give them through the holiday season,” EEDAR analyst Divnich said Thursday in an e-mail to Wired.com. “I am not saying they will turn it around or not, but I think it is only fair that we give them the holiday season before we place any long-term judgment on the platform.”

That’s a fair-minded assessment; Nintendo does the bulk of its business during the Christmas season. But it’s telling that not even Nintendo was willing to give itself a holiday season. At some point during the past few months, the company apparently had its come-to-Jesus moment. It wasn’t enough for Nintendo execs to hold their breaths and think of Christmas. 3DS was way too expensive.

Even at $170, it’s still too expensive.

The price cut, said Wedbush analyst Michael Pachter in an e-mail to Wired.com, is “pretty dramatic, but it really just reflects that they (and I) were out of touch with the market. They (and I) thought they could sell out at $249, and they (and I) were wrong.”

Hey, as long as we’re doing the mea culpas, I blew it too: “What is all but certain is that Nintendo’s momentum coming off the ridiculous success of DS, coupled with the wonderful novelty of the 3DS display and the handheld’s strong software lineup, will cause the 3DS to fly off shelves at launch, spread like wildfire this year and be the hottest Christmas present of 2011.”

Whoops! In my defense, that was in an editorial expressing serious skepticism about Nintendo 3DS. I guess I should have listened more closely to my gut.

On the one hand, the drastic nature of the cut, unprecedented in the company’s long history, puts Nintendo 3DS in a totally new pricing bracket. As Stephen Totilo pointed out on Kotaku, it is “no longer more expensive than an Xbox 360; it’s now cheaper than an iPod Touch.”

Except it’s not really cheaper than an iPod Touch. Sure, the price of entry is lower now, but what happens after that? New 3DS games cost $40 each. There are no demos, and third-party publishers seem to be taking active steps to make used games less appealing.

$40 is a not a price point at which you say, “Oh, hell, I’ll just try it.” When you’re a kid, $40 means you get new games on your birthday, at Christmas and maybe after getting a root canal if you cry enough. Meanwhile, you could just ask for an iPod Touch and stalk the Free Game of the Day websites, loading up your system with games while spending nothing.

I have played more Super Stickman Golf (99 cents) on my iPhone than I have played any 3DS game. Meanwhile, the Nintendo 3DS eShop download service is full of expensive games (fuzzy black-and-white Game Boy games from 1989 start at $3, and the good ones you actually want cost $4). The ridiculous payment structure will only take your money in increments of $5, then give you nothing to buy with it: Nintendo declined to even re-release a single Game Boy title in this week’s update.

Photo: James Merithew/Wired.com

At the Game Developers Conference in March, 3DS producer Hideki Konno said Nintendo was reluctant to ever put its digital content on sale, a basic practice that can boost long-term sales even after the sale is over.

“I’d be a little sad to see if there was a product that I worked on for a couple of years go on sale for a buck,” he said.

It is thus the height of irony that Nintendo’s plan to appease the poor suckers who paid $250 for Nintendo 3DS is to give them 20 free digital games. On Sept. 1, you’ll be able to download 10 major Nintendo Entertainment System titles and 10 games from the Game Boy Advance library.

Nintendo says it currently has “no plans” to make the Game Boy Advance games available on the eShop to the general public. Of course not. Why would it do something that makes all the sense in the world?

The price drop to $170 is Step 1 toward making 3DS more relevant. Step 2 is to bring more and better games to eShop, lower the prices, allow developers to give away free demos, etc. It doesn’t need to be the App Store, but it does need to be Steam.

The price drop is a big deal, its magnitude revealing just how serious a problem Nintendo believes itself to be in and the steps it will take to shake things up. Nintendo just ripped off the Band-Aid hard; sending a clear message to skittish, risk-averse third-party software makers and investors that Kyoto is not at all interested in doing things halfway.

Let’s hope it applies the same seriousness to its foundering digital business.

Sony generated great buzz at E3 by announcing that its upcoming PlayStation Vita handheld machine (which still does not have a release date) would cost $300 for the 3G-equipped model and $250 for the Wi-Fi model. Sony had done such an excellent job building up expectations about Vita that the price seemed absurdly low.

“The Vita is a technical beast, and even though I’m a big fan of the 3-D tech in the 3DS, it wasn’t going to compare well to a Vita selling at the same price,” wrote Dubious Quality analyst Bill Harris, reacting to the 3DS price drop.

I’m inclined to disagree. Vita isn’t that much different from the Nintendo 3DS. Better graphics and a second analog stick are, from the perspective of the vast majority of consumers who are not devoted gamers, marginal upgrades. If people bought portable game systems based on which one had the best graphics, PSP wouldn’t have gone down in flames.

I think that both Vita and 3DS compare unfavorably to iPhone and Android devices.

The X factor here is Vita’s downloadable games service, which we know absolutely nothing about. Sony has said all retail games will be sold online day and date with the cartridge versions. Sony says a lot of things, though. I will believe that when I see it.

Whether or not that happens, Sony is clearly much more serious about pushing digital game sales than Nintendo. But this is no longer a fight between two handheld gaming machines. It’s a fight between traditional handhelds and smartphones. Sony doesn’t need to show what Vita can do that 3DS can’t — it needs to show why you’d pay $40 per game when the competition’s price is $0.

Original image at top: wlodi/Flickr