Portable Market Heats Up

The biggest story in the gaming industry recently has been the renewed competition in the portable gaming business. Nintendo traditionally has dominated the business with its ubiquitous Game Boy devices, which have been the industry standard for more than a decade. But now this market segment is seeing serious new competition emerge from such major consumer products companies as Nokia and, especially, Sony.

In the most spirited challenge to Nintendo in years, Nokia introduced its basic N-Gage model, a cell phone that doubles as a handheld gaming device, in 2003. Taking dead aim at Nintendo’s core market, the large Finnish cell phone maker promoted the N-Gage as both an advanced cell phone and a sophisticated portable console. But Nokia’s first, high-end version did not sell particularly well, ending 2003 with fewer than 300,000 buyers worldwide. Industry analysts blamed the N-Gage’s relatively high price (initially $299), awkward shape and other problems.

Nokia isn’t giving up so easily, though. At the Electronic Entertainment Expo (E3) in May 2004, the company launched a new version of its combined phone/portable game device, the N-Gage QD, to correct many of the problems with the original model. Although this model has struggled to make sales headway too, industry analysts say they’re impressed that Nokia has shown the determination and resources to stay in the game.

Nintendo struck back last fall with its new $150 Nintendo DS handheld unit. The silvery dual-screen device, which Nintendo touts as the start of an entirely new handheld product line, is designed to appeal to a somewhat older audience than the Game Boy family’s standard collection of 5- to-14-year-olds. Besides the two color screens, one of which is touch-sensitive, the DS has a built-in wireless link that allows gamers to play against each other. Nintendo promotes these features with its new slogan, “Touching is Good.”

Since it came out with the Nintendo DS in November, Nintendo has sold more than 2 million units worldwide, including at least 1 million in North America. The company reported selling out its initial North American shipment of 500,000 units in the first week of holiday season sales. Analysts ranked the DS as a must-have Christmas gift.

IDC expects Nintendo to ship 3.2 million Nintendo DS devices in North America over the course of 2005, along with 4.7 million Game Boy Advance units. But analysts said the DS has not yet succeeded in attracting hordes of young adult game players.

Aiming squarely at this much-coveted 18- to-34-year-old market, Sony now is taking an even bigger run at Nintendo with the widely heralded PlayStation Portable (PSP). The sleek, black rectangular device, descended from Sony’s dominant line of PlayStation living-room consoles, is a handheld gadget that can do far more than play video games. With its sharp, 4.3-inch liquid-crystal-display screen, the multimedia PSP can show full-length movies, music videos, home movies and digital photos. Sometimes likened to Apple Computer’s trend-setting iPod audio player, the PSP also can play digital music, plug into a computer and connect wirelessly to other PSPs.

Sony’s latest high-end digital toy made its debut in Japan in mid-December, selling for $190. It became an instant hit there, selling about 500,000 units before the year’s end. As of late March, Sony had sold more than 1.2 million PSPs in Japan.

Sony then launched the PSP in North American retail stores with great fanfare on March 24, pricing it at $250. With an initial shipment of 1 million units, the company sold about 500,000 units in the first weekend and another 100,000 devices before the first week closed. While these figures were healthy in comparison to the Nintendo DS and other product launches in the gaming market, some analysts termed the initial sales results somewhat disappointing for Sony. But Sony executives dismissed that notion.

With Sony’s brand name and an abundance of games, many analysts believe that the PSP will make a big dent in Nintendo’s market dominance. Sony said it expected to sell 3 million PSPs worldwide by the close of its last fiscal year, which ended March 31. IDC predicts that Sony will end up shipping 3.7 million PSPs in North America in 2005, edging out the Nintendo DS for the year.

Industry analysts also think the PSP will expand the market for handheld gaming Thanks to Sony’s entry into the business, DFC Intelligence projects that total worldwide handheld game sales, including both hardware and software, will double to $9 billion this year. Further down the line, DFC sees annual portable gaming sales soaring to $11.1 billion by 2007.