Nintendo Cuts to the Chase

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Nintendo (NQB: NTDOY) gave us the first price cut in the world of next-generation handheld systems. The Nintendo DS used to set you back $149.99. Not anymore. These days, one of those nifty little double-screen devices is $20 cheaper in the United States.

Nintendo is looking to ring a Pavlovian bell here. With the Sony (NYSE: SNE) PlayStation Portable (PSP) seeming to generate so much more excitement with users, from what I've gathered, Nintendo is hoping a $20 reduction will convince enough potential buyers that the DS is the way to go. More DS units will certainly be sold at $129 as opposed to $149 -- hey, we're talking the theory of price and demand here -- but the PSP is still going to effectively compete with the venerable video game giant. Side-by-side comparisons seem to allocate a higher "wow" factor to the PSP, according to anecdotal reports on my end.

The big story here for Foolish investors is that companies like Activision (Nasdaq: ATVI) and Electronic Arts (Nasdaq: ERTS) are the ones to own as opposed to the actual hardware manufacturers themselves -- the exception, of course, being Xbox owner Microsoft (Nasdaq: MSFT), which is a worthy investment for other reasons, none of which is mitigated by its hardware-maker status. Software is a higher-margin operation, one that will benefit from an increased amount of handheld units in the marketplace. It obviously follows that a higher installed user base can be leveraged to increase sales of a software publisher's game portfolio.

I'm not necessarily going to run out and pick up a DS -- I'm not really into playing games on small screens, to be honest -- but I know a lot of people will. And I know that Sony is going to be carefully considering a drop for its PSP unit in the wake of this move by Nintendo. After all, the powers that be are not going to let Mario have all the fun, are they?

The Fool has constantly invoked the mantra that the video game sector is a great one to be in for long-term growth and that software companies offer substantial potential. It's a believable thesis from where I sit, and it becomes even more palatable when the price wars on the hardware side of things heat up.

Individual investors are going to have a lot of fun tracking the effects of this price cut -- perhaps even more fun than playing the games themselves.

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Activision and Electronic Arts are past selections of the Motley Fool Stock Advisor newsletter. To view additional recommendations with a 30-day risk-free trial, click here.

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Fool contributor Steven Mallas owns none of the companies mentioned. The Fool has a disclosure policy.