Much like characters in a real-life video game, the companies that make video game consoles – Sony ADR (NYSE: SNE), Microsoft (NASDAQ: MSFT) and Nintendo ADR (OTC: NTDOY) continue bashing each other as they battle one another for the largest share of the video game console market.
Most investors are well aware of this battle going on between these three rivals, so no surprises there. The real surprise in the games console market, of which most investors are unaware, is occurring in the area of handheld games consoles. It is this surprise which may lead to a profitable investing opportunity.
The challengers to the traditional handheld game console makers, like Sony and Nintendo, are the smartphone makers, such as Apple (NASDAQ: AAPL).
Handheld game console makers face increasing pressure from the rise in popularity of mobile phones with processors and graphics that are equal of their own devices, and with “app stores” of downloadable games for every major mobile operating system. In fact, Nintendo warned in July that it’s faced its first profit decline in four years, in part due to tougher competition in handheld consoles from Apple.
The traditional console makers aren’t standing by idly – they are fighting back. For example, Sony has recently launched a new version of its PlayStation Portable – the PSPgo. The device bears a resemblance to Apple’s iPhone and iPod Touch.
Like Apple’s models, it stores games on internal memory – 16 gigabytes worth – rather than on disks. And it is 43 percent lighter than the existing PSP. The PSPgo has a similar appearance to the iPod, but features a slide-out controller rather than a touch screen for playing games.
Like Apple’s App Store, Sony is opening a Minis section in its online PlayStation Store, where games can be bought and downloaded. The 16 Gb PSPgo is priced at $250, compared to $199 for the 8 Gb version of Apple’s iPod Touch.
Apple is looking to become a dominant player in the handheld games market. Apple reduced its price and promoted its success as a game console maker in a September presentation of new iPods. The company boasted its App Store had 21,000 games, compared with about 600 for the PSP and 3,700 for the Nintendo DS.
Apple is also close to matching Sony’s installed base of consoles – more than 50 million iPhones and iPod Touches have been sold compared with 56 million PSPs and 108 million Nintendo DSs. To put this into perspective – the PSP was launched nearly five years ago, while the iPhone has been on sale less than half that time.
Who should investors look for to emerge as the winner for the handheld games console market?
Apple’s devices and the latest smartphones can match the traditional consoles in hardware performance. And their games, at a cost of less than $10 – can beat them on price – with PSP and DS games costing between $25 and $40.
The battle has yet to be decided, but for now it looks like the advantage in the ‘game’ goes to Apple.