Apple's Radical New Product Could Kill Nintendo and GameStop

Apple (NASDAQ: AAPL  ) is preparing to launch the fourth-generation Apple TV, according to Mark Gurman at 9to5Mac. Apple's set-top box, which has exploded in popularity in recent months, is about to get a major new feature -- the ability to play video games.

Apple could, almost overnight, rise up to dominate the video-game console market -- in the process devastating both Nintendo (NASDAQOTH: NTDOY  ) and GameStop (NYSE: GME  ) .

Apple's dominance has long been seen as a foregone conclusion
Industry observers have been expecting Apple to enter the video-game console market for years. Without even trying, Apple is already a major force in gaming -- last year, the company paid out $10 billion to mobile developers, of which an estimated two-thirds went to game creators.

And that's just mobile games -- simple titles such as Angry Birds and Candy Crush that are either free or inexpensive, and are limited by their touchscreen input. Allow iOS games to be played on the big screen, add in controller input (something Apple added in iOS 7), and you have a recipe for dominance.

"I think Apple rolls the console guys really easily," Gabe Newell told students at The University of Texas last year. Newell's company, Valve, is a major force in the PC gaming space. Valve's digital storefront, Steam, accounts for an estimated 70% of digital PC sales.

Valve is attempting to extend its PC dominance into the living room with its Steam Box initiative. Steam Boxes, set to go on sale later this year, will compete with traditional living-room consoles from Nintendo, Microsoft, and Sony. But when asked, Newell said he didn't fear those guys so much -- Valve's true competitor was Apple.

Similarly, Nat Brown, one of the co-creators of Microsoft's first Xbox, predicted Apple's console success last year. Brown, who has since become an independent app creator, wrote:

Apple, if it chooses to do so, will simply kill PlayStation, Wii-U, and xBox by introducing an open 30%-cut app/game ecosystem for Apple-TV. I already make a lot of money on iOS -- I will be the first to write apps for Apple-TV when I can, and I know I'll make money.

Nintendo's key market remains casual gamers
As Newell and Brown note, a video game-playing Apple TV would be a huge threat to all console vendors, but I believe Nintendo in particular is most exposed. Presumably, a $99 Apple TV wouldn't be capable of offering robust graphics on par with the PlayStation 4 or Xbox One, nor would it have the deep online community that Sony and Microsoft have developed.

But Nintendo, whose business is already on the ropes, would be hard-pressed to compete. Nintendo's core market is casual gamers and the young -- the two types of people who would find the Apple TV most enticing. The best-selling Wii games were titles such as Wii Sports, Wii Play, and Wii Fit -- not games such as Call of Duty or Grand Theft Auto. Even Nintendo's titles aimed at core gamers, such as The Legend of Zelda: Skyward Sword and Super Mario Galaxy, sold just a fraction of what Wii Sports Resort sold. Few of Nintendo's games support online play, and the marketing for the Wii's successor, the Wii U, has been aimed entirely at children and families.

When Apple unveiled the iPad in 2010, Nintendo's president, Satoura Iwata, mocked the device, calling it just a "bigger iPod Touch." That may have been the case, but in the years since its debut, the iPad has allowed Apple to become a dominant force in gaming. If Iwata hasn't already, he could come to regret those words.

GameStop depends on physical disc sales
As much as Nintendo would be challenged by an improved Apple TV, GameStop would be just as threatened. The shift toward digital distribution is already pressuring GameStop -- its primary suppliers, including Nintendo, are favoring digital games over physical copies -- but the rise of Apple would devastate the company.

The Apple TV has never had a disc drive -- even the first generation, released almost seven years ago, was completely digital. If games come to the Apple TV, they will be delivered through iTunes -- purchased over the Internet, and downloaded directly to the box.

Outside of selling iTunes gift cards, or perhaps refurbished Apple TV boxes, GameStop will have absolutely no role to play in Apple's video-game push. In short, if Apple TV captures a significant percentage of the video-game console market, GameStop's business model -- selling new and used physical game discs -- will be totally obsolete.

When will Apple release the next Apple TV?
Apple released the third-generation Apple TV almost two years ago -- at this point, the device is well due for an update. Citing sources, 9to5Mac believes Apple will unveil the next Apple TV before July.

If it does feature video-game functionality, Apple should emerge as a major force in the video game industry -- and indeed, it already is. Apple's entrance will shake up the traditional console market significantly, but Nintendo and GameStop are the most threatened.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 26, 2014, at 3:00 PM, jameskatt wrote:

    Years ago, I advised Steve Jobs before he died that the solution to his "to market" problem for Apple TV is the gaming console.

    People will buy gaming consoles, even multiple of them, irrespective of what the cable companies do. Cable companies cannot stop consumers from buying gaming consoles.

    Even if consumers already have an XBox or Playstation, they will also buy an Apple TV Gaming Console.

    Once in people's homes, the compelling nature of buying games and other media online will cause Apple to devastate every other competitor.

  • Report this Comment On January 27, 2014, at 12:34 AM, Kevpal wrote:

    Your article is comical; Sony and Microsoft have been delivering games and video services online for years. Nintendo is already going down the tubes, and gamestop stock is already taking a nose dive. Everybody and their mom has an ipad and is happy to play Apple's library of games there. With Steam already taking aim at the console market, nothing that is coming up will even be close to Apple's doing.

  • Report this Comment On January 27, 2014, at 8:04 AM, abj84 wrote:

    One problem persists...quality.

    Both IOS and Android are flooded with low-quality, free to play games with deceptive pay to win/pay to play features. A large majority of these mobile titles have little sustenance, often engineered to be engaging for short period, taking advantage of the player's captivation to get them to spend a few dollars until the time until the player is aware how shallow the depth of the actual game is. Mobile games have their place, sure, but they are mostly the junk food of the video game world.

  • Report this Comment On January 27, 2014, at 10:31 AM, Grendel wrote:

    Blah blah blah, more FUD about Nintendo from Motley Tool.

    Apple doesn't have a clue about gaming. They've never embraced it in the past (besides the failed Pippin), and they never will in the future.

    Dominating the market "without doing anything" is a fairy tale.

  • Report this Comment On January 28, 2014, at 11:27 AM, shipsahoy wrote:

    You're kidding right? Apple is having trouble competing in the smart phone market, and now they will all of the sudden just churn out a gaming console and put GameStop and nintendo out of business?

    Nice try, but keep your apple wet dreams to yourself.

  • Report this Comment On January 29, 2014, at 11:01 AM, jenjen961 wrote:

    I love these Apple stories where they enter a new market and all of a sudden dominate and kill off the major players.

    First of all, there are people like me that will never have anything to do with an Apple product. It's not that I think there quality is bad or it's a bad company, I just don't like being restricted so much.

    Apple iTunes Radio was supposed to kill Pandora along with everyone else in that space. It comes preloaded on all Apple devices now. How did that work out? Pandora actually increased listners, and overall Radio share.

    The problem with people writing about Apple is that they write with emotion, not with any realistic expectations. They think that Apple is the best company on earth and can move into any market and crush it. We would see the same article if Apple suddenly decided to make Kitchen Appliances. The writers won't be realistic with their observations, they will react emotionally and say that they will dominate.

    It's getting very tiresome.

  • Report this Comment On July 03, 2014, at 4:56 AM, sewercat wrote:

    I.. find that hard to believe. Apple succeeds in creating new markets where there weren't any before, not usually in jumping into already extant markets (Apple Maps) and video gaming has never been a focus for them. Just because they're selling a lot of shitty game apps at $1 or $2 with advertising added in doesn't mean they're ready (or interested in*) jumping into a dying market. Sony's "winning" this round and they've only sold 2/3'rds as many consoles as Nintendo sold last round. Why jump in now? Thanks to Valve PC gaming's all the rage again and all but 2 of the games I'd want a PS4 to play are available on PC. The other 2 are available on PS3. If Apple wants to dominate gaming they don't need to do anything at all other than help Valve port more PC games to OSX. Arkham Asylum and Bioshock infinite looked wicked on my retina MBP.

    Also, are you not aware that current Apple TV already has airplay?- you can stream shitty ipad games to your TV already. So far that hasn't seemed to have revolutionized anything.

    And- one last thing Nintendo's not exactly "on the ropes" console sales jumped 180% with the release of Mario Kart 8. Smash bros and a Zelda/ dynasty warriors mashup, coming for the holidays, then another Xenoblade and, what appears to be an incredible Legend of Zelda coming in 2015. that's 3 more big growth spurts guaranteed over the next 2 years if Mario Kart was any indication. Besides, Nintendo is the only console with a solid exclusives base to save them from the rejuvenation of PC gaming- Sony's got on Naughty Dog and Hideo Kojima. Microsoft has Halo (sort of) but now they're sort of competing with Valve and Apple on their own turf.. I guess? That whole relationship's a mess. Nintendo's also the only console with a solid party/entertaining a lot of people in one house kind of thing.

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