By Dan Gallagher
Sony Corp. (SNE) and Nintendo Co. Ltd. (7974.OK, NTDOY) are
making large-scale bets this year that they can still find
customers for high-end consoles and titles in a market that has
become dominated by smartphones and ultra cheap titles.
Many analysts are skeptical. The handheld gaming business has
shifted considerably in the past few years. Smartphones have become
powerful game platforms in their own right. That, along with a weak
economy, leads plenty to wonder how many gamers are still
interesting in paying an extra $250 for a dedicated game device to
play game titles that cost anywhere between $25 and $40 each.
"They are chasing a smaller market," said Michael Pachter of
Wedbush Securities, who added, "I don't think anyone at Sony or
Nintendo has yet bought into the premise that the market has
shrunk."
Both Sony and Nintendo made handhelds a big part of their
presentations at the E3 video game conference in Los Angeles
earlier this month.
For Sony, the big news came as the company announced a name and
launch price for its high-definition handheld gaming device--the
PlayStation Vita. The device is expected to hit the market later
this year with an initial price of $249 for a WiFi-only version and
$299 for one that works over AT&T's (T) wireless network.
Nintendo used the occasion to try and kick-start momentum for
its 3DS, a handheld that allows users to view games in 3-D--without
special glasses. The device went on sale in March, and Nintendo
executives admitted at the conference that sales past the initial
launch have been disappointing.
The company is planning a slew of game releases for the device
during the second half of this year, using some of its most popular
franchise characters, such as Mario, Luigi and Starfox. A 3-D
version of best seller "Zelda: The Ocarina of Time" went on sale
this week.
"Yes, the market is there, but it's declining. That's the
issue," said Arvind Bhatia, video game analyst with Sterne Agee.
"The shift is undeniable."
Outpaced By Apple
On the same day as the Sony press conference in Los Angeles,
Apple Inc. (AAPL) kicked off its Worldwide Developer Conference in
San Francisco, revealing there that it has sold more than 200
million devices that use its iOS mobile operating system to date.
All of these devices, which include the iPhone, iPod touch and iPad
tablet, are capable of playing games purchased from the company's
App Store, where popular titles such as "Angry Birds" and "Fruit
Ninja" sell millions of downloads for a dollar each.
Those numbers mean that Apple has the largest mobile gaming
platform currently on the market, with the rival Android operating
system from Google Inc. (GOOG) also gaining share quickly.
By contrast, Nintendo had sold about 150 million units of its
portable DS platform, which includes iterations such as the DS
Lite, DSi and 3DS, by March 31, the end of its last fiscal year.
Sony says life-to-date sales of its handheld PSP platform have
totaled about 70 million units globally.
"Apple has really turned the handheld business into a
$5-or-lower sort of market. That's really having a big impact,"
said Eric Handler of MKM Partners.
Still, there remain signs of a market for high-end games. Apple
launched its App Store in mid-2008, and it was immediately popular,
racking up more than 10 million in downloads on its opening
weekend. That number has since reached 14 billion downloads, Apple
said at its WWDC event earlier this month.
Despite the competition, nearly half of the life-to-date sales
for the Nintendo DS platform in the U.S. have taken place since
2009, according to data from NPD Group. That represents an
acceleration in pace, as the platform first hit the market in
November of 2004.
One of Nintendo's recent handheld releases--"Pokemon Black and
White"--did brisk business, selling a combined 11.5 million copies
within a month of its initial release in early March.
"At the end of the day, it all comes down to content," said
Jesse Divnich of Electronic Entertainment Design and Research, or
EEDAR, a market research firm for the video-game industry. "If you
create unique, original high-quality content, people will pay a
premium for it."
Market Segmented
Jack Tretton, CEO of Sony's U.S. computer-entertainment
division, agreed that the handheld game market is segmented now,
but said he believes there is a large business for dedicated
game-playing devices.
"There are people who will pay $16 to go see 'Hangover 2' in the
movie theater and those who will wait for it to show up for free on
TV," Tretton said during an interview at E3. "I don't think anyone
is going to confuse 'Uncharted' for a $1 smartphone game."
Tretton was referring to "Uncharted: Golden Abyss," a version of
the company's popular "Drake's Uncharted" franchise that is being
developed for the Vita.
The company is also preparing other versions of its popular
exclusive properties, such as "Little Big Planet" and "Mod Nation
Racers" for the console.
In addition, it's high-definition display along with a large
touch-screen combined with traditional game controls may make it
popular for portable versions of popular hard-core game franchises
such as "Call of Duty" from Activision Blizzard Inc. (ATVI) and
"Grand Theft Auto" from Take-Two Interactive Software Inc.
(TTWO)--the latter of which was the most popular game for the
previous PSP, according to NPD.
The challenge for both Sony and Nintendo is to get enough
support from third-party game publishers to boost the appeal of
their devices. But those publishers are also gravitating toward the
iPhone and the other smartphone platforms. Electronic Arts Inc.
(ERTS) expects revenue from its digital business--which includes
mobile games for smartphones--to exceed the $1 billion mark this
year.
"The handheld market used to be a solid Nintendo market. Now
we've got Android, iOS...and God knows what is coming tomorrow,"
EA's chief executive, John Riccitiello, said in an interview. "I
don't get a lot of mileage in guessing where a market is going to
be a year from now."
Analysts say handheld gaming is still an important business for
Nintendo and, to a lesser extent, for Sony. What remains unknown is
how many potential buyers of high-end portable games remain, and
how profitable that market may be.
"I think there is still a market for these devices, but the
question is, What kind of [return on investment] are you getting
out of it," said Handler of MKM Partners. "That remains to be
seen."
-Dan Gallagher; 415-439-6400; AskNewswires@dowjones.com