Sony (NYSE:SNE) and Nintendo (NASDAQOTH:NTDOY) are two giant Japanese companies in danger of falling apart within the next decade. Sony's November quarterly report saw profit projections slashed by 40% amid weak performance from its film division. Meanwhile, Nintendo's recent report showed losses of $15 million on the quarter and a projected deficit of greater than $330 million on the year. The problems facing the two companies are largely different, but they have certain shared interests when it comes to the gaming industry.
The disastrous Wii U situation that currently dogs Nintendo is not all good news for Sony. While the company may have the opportunity to pick up a segment of lapsed Nintendo gamers, recent quotes from Sony officials suggest that the company hopes Nintendo sticks around in the hardware space. Here's why Sony is secretly pulling for Nintendo.
Poor Wii U sales guarantee hardware contraction
In a recent interview with TrustedReviews, PlayStation UK managing director Fergal Gara stated that Nintendo's decline could hurt the market at large. Mr. Gara could just as well do away with the hypothetical element to his statement, as the falloff from Wii to Wii U all but guarantees a hardware contraction.
The Wii sold over 100 million consoles, while the Wii U looks like it will be lucky to cross the 12 million unit threshold. With the approximate 80 million LTD totals for both the PlayStation 3 and the Xbox 360, respectively, bringing last gen's total console hardware sales to approximately 260 million units, the PlayStation 4 and Xbox One will have to sell over 240 million consoles between them if this generation's hardware sales are to match those of the last. The handheld picture looks even worse.
A tale of two companies
Months prior to Fergal Gara's sympathetic comments on Nintendo, President of Worldwide Studios Shuhei Yoshida had a similar sentiment. He stated that a healthy and thriving Nintendo is ultimately good for Sony and the gaming industry at large. Yoshida has previously commented on the damage that mobile has done to the traditional handheld business, lamenting the poor performance of the PS Vita but also noting the difficulties facing Nintendo in the space.
In many ways, Nintendo has never looked more vulnerable. The fact that high-ranking Sony employees are singing Nintendo's praises and publicly hoping that the competing hardware sticks around underlines both the sad state of affairs at Nintendo and the precarious balance of the industry. Nintendo's share price is up approximately 25% on the year, however the company is on track to miss its initial Wii U and 3DS hardware targets by big margins. Meanwhile, Sony's price has remained virtually unchanged year-over-year. Sony has seen better-than-forecast sales of its PlayStation 4 console, but it's hampered by a lagging film division and mixed performance of its televisions.
There's more to Nintendo and Sony's shared interests than a desire to preserve relatively comparable business models in the gaming space. As Yoshida has stated, Nintendo is instrumental in bringing new gamers into the industry. The types of experiences produced by Sony and Nintendo for their hardware platforms have a great deal more in common with each other than either would have with the average mobile title. Sony sees gamers weaned on Nintendo's platforms graduating to its own ecosystem and sticking around. You certainly don't hear anything from Sony about how vital Microsoft is for the industry or that it hopes the Xbox platform remains healthy.
With Nintendo looking wholly inept in this round of the home console wars, Sony will attempt to develop more content with family friendly appeal. Still, Nintendo's floundering portends bad things for the broader industry. While the Wii's success may have convinced Nintendo to stay on a course that will ultimately ruin the company, it's undeniable that the Wii was good for the gaming industry. The system provided developers with a haven for games made on smaller budgets or which featured quirky premises. It also brought in swarms of new and lapsed gamers. They just didn't stick around.
Mario pity party
For the time being, a healthy Nintendo is one that manufactures its own hardware. News that the company will use integrated architecture for its upcoming handheld and home console platforms suggests that it is no longer capable of creating enough software to support two platforms. If Sony's future in the gaming industry really is tied to that of Nintendo, both companies have a lot to worry about.
Keith Noonan has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.