Will Sony Ever Release Another PlayStation Handheld?

Source: playstation.com

Portable gaming has arrived at a transformative moment. The prominence of smartphones and tablets necessitates that Sony (NYSE: SNE  ) and Nintendo (NASDAQOTH: NTDOY  ) rethink their previous strategies for handhelds if they hope to exist in the dedicated space. While Nintendo's 3DS can be viewed as a success given the altered market conditions, the handheld will still fall well short of the numbers achieved by its predecessor. Alternatively, it's clear that Sony's PS Vita is a failure when stacked against the performance of the PSP, though the portable console can at least be observed to be building momentum in Japan.

Nintendo is all but guaranteed to release a next-generation successor to the 3DS due to the importance that hardware sales and the portable market have for the company. A follow up to the PS Vita remains a much shakier proposition. Will Sony ever produce another dedicated gaming handheld?

The golden age is long gone
The PSP released in 2004 and would go on to become a considerable success for Sony, selling over 80 million units worldwide. The device achieved a particularly strong following in Japan, largely thanks to content like the "Monster Hunter" series from Capcom (NASDAQOTH: CCOEF  ) .

The PS Vita released in at the tail end of 2011, addressing many of the complaints that had been levied against its predecessor and offering impressive graphic capabilities. Despite the fact that Sony's handheld hardware offered consumers substantially more bang for their buck, it failed to catch on in Western territories and was soundly outperformed by Nintendo's 3DS. Sony's President of Worldwide Studios Shuhei Yoshida pointed to the growth of mobile gaming as one of the chief reasons for the Vita's disappointing sales.

The deterioration of the dedicated handheld market has been particularly evident in North America and Europe. The days of the PSP and the Nintendo DS saw the portable market grow to its biggest-ever size and are likely to go down as the golden age of handheld gaming. The DS has sold over 154 million units, and both dedicated devices moved huge amounts of software during their heydays. Current sales data and trends in Western territories see support for handheld consoles eroding rapidly, alongside a lingering hope that home consoles will be able to survive a recent influx of competitors.

Japan and the West want different experiences
In Japan, the situation is largely reversed. Home console gaming is rapidly dying, with the Wii U close to death and the PlayStation 4 off to a very disappointing start. While developer migration to to mobile is still the driving trend in the country's gaming industry, handheld consoles are the lingering source of hope for dedicated platforms.

Complicating the notion that dedicated handhelds might continue to be viable, publishing giant Capcom has recently opened two new buildings dedicated to mobile research and development. Much of the funding for the company's new $80 million mobile investment is said to have come from the profits generated by Monster Hunter 4, a Nintendo 3DS title that was the best-selling game in Japan for 2013. Money is clearly moving away from the dedicated platforms.

Source: nintendo.com

Changing tastes create a shrinking addressable market
Sony and Nintendo face challenges inherent to serving markets with widely divergent tastes. Western territories are quickly ending their love affair with dedicated handhelds, while Japan is soundly rejecting home consoles. The PS Vita has shown solid growth in Japan this year, with sales up approximately 22% over the corresponding period in 2013 according to the latest Media Create tracking, but the device is effectively dead in North America and Europe.

The PS4, long thought to be console gaming's last hope in Japan, is listed as selling approximately 13,000 units in Media Create's latest weekly tracking. Building a console that will sell primarily in North America and Europe can still be a viable undertaking, but manufacturing a handheld that only sells in Japan is a surefire way to lose money. 

How will Nintendo react?
Nintendo will likely seek to address the split market problem by unifying its next hardware platforms. Quotes from company president Satoru Iwata indicate that the next hardware releases from the company will utilize architecture very similar to that which is found in the Wii U. Releasing slightly different versions of the company's software across multiple platforms could allow Nintendo to save development resources and support its consoles across disparate territories.

Sony is done with dedicated handhelds
Sony's emphasis on providing high-end graphics and the extent of Vita's commercial underperformance make it unlikely that the company will pursue a unified platform strategy with a new handheld release. The PS Vita already offers substantial connectivity features with the PS3 and the PS4, and the system is solid enough on the technology front to stay relevant in Japan for another two to three years.

Source: playstation.com

Sony remains strapped for cash and has little incentive to create new handheld hardware for a rapidly shrinking market. Instead, expect the company to continue its promotion of PlayStation as a service and to better integrate its gaming offerings with its smartphones and tablets.

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