Nintendo's Handheld Dominance Is Challenged by This Emerging Trend

Nintendo's (NASDAQOTH: NTDOY  ) latest living room video game console, the Wii U, may be a flop, but Nintendo continues to dominate one industry: dedicated handheld gaming devices. Its current console, the 3DS, isn't selling as well as its predecessor, but has still seen solid demand despite the growth of mobile gaming.

Yet there's a growing trend that could topple Nintendo's dominance. Both Sony (NYSE: SNE  ) and NVIDIA (NASDAQ: NVDA  ) have embraced streaming gaming aggressively in recent months, and though this trend remains in its infancy, it stands as a major threat to Nintendo's handheld business.

Sony's PlayStation Vita gets a new trick
Sony's PlayStation Vita has been nothing short of a disappointment. According to research firm NPD, Sony's handheld console (Nintendo's only true competitor) sold just 10,000 units during the month of March, down nearly 70% from the prior year. Nintendo's 3DS, in contrast, sold 159,000 units that month -- more than 15x as many.

That said, Sony hasn't given up on the PlayStation Vita (going so far as to release a revision), and in fact, the console could experience a rebound in the coming months, as the dominance of Sony's PlayStation 4 and the introduction of Sony's new cloud service, PlayStation Now, serve to reinvigorate demand.

In addition to existing as a stand-alone console, the PlayStation Vita also acts as a remote extension for Sony's PlayStation 4. If you own both a PlayStation 4 and a PlayStation Vita, you can play your PlayStation 4 games on the Vita -- inside in your house or (if you have a solid Internet connection) anywhere in the world.

Given the tremendous popularity of the PlayStation 4 (at 7 million units, Sony's console has thus far outsold both Nintendo's Wii U and the Xbox One), it's likely that gamers could, in time, come to utilize this feature. It won't happen overnight, as the PlayStation 4's install base and its library remain small, but if the PlayStation 4 maintains its solid sales trends, the Vita could see a resurgence.

In addition to PlayStation 4 remote play, Sony is also preparing to launch a service in the coming months that will dramatically expand the number of games available to Vita owners. PlayStation Now, Sony's streaming video game service, will allow Vita owners to play many older PlayStation games so long as they have an Internet connection. Exact pricing and details have yet to be announced, but Sony is focusing on PlayStation Now aggressively, recently expanding the number of beta testers.

NVIDIA's Shield offers remote PC gaming
But Sony isn't alone in pushing cloud gaming -- NVIDIA, with its handheld Shield, is offering something similar. The Shield, paired with an NVIDIA graphics card, allows gamers to play their PC games remotely. As long as they have a solid Internet connection, just about any game they have installed on their computer can be played nearly anywhere in the world.

NVIDIA is also working to bolster the number of games the Shield offers without an Internet connection. The Shield runs on Android, and therefore can play many of the most popular mobile games, but NVIDIA has also begun to release exclusive games for the device. Two of the most highly regarded PC games -- Half-Life 2 and Portal -- were released for the Shield earlier this month, and more could be forthcoming.

Dedicated handhelds are increasingly unnecessary
Of course, neither of these handhelds offers Pokemon or Mario, or any of the other franchises Nintendo has built its handheld gaming business on. But as dedicated gaming devices with full fledged buttons and joysticks, they threaten Nintendo's handheld business in a way that's wholly distinct from the challenge posed by tablets and smartphones.

Core gamers may never be satisfied with mobile devices -- the touch screen may be too much of a limitation. But as bandwidth speeds increase, remote, cloud-based gaming, the sort offered by Sony's PlayStation Vita and NVIDIA's Shield, seems poised to grow in popularity, capturing a portion of Nintendo's handheld market.

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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 May 24, 2014, at 1:59 PM, JJ82 wrote:

    Nintendo can sell 30-40 million handheld units in Japan alone and stay profitable. And all they would need to do is sell a few million outside of Japan to remain a top company.

    Japan is a mobile gaming nation and Steam will never gain ground there because Japanese players are not into mobile PC games, nor streaming gaming services.

  • Report this Comment On May 24, 2014, at 2:53 PM, awang0718 wrote:

    The PS Vita is a failure. The only place where the Vita challenges the 3DS is in Japan. Outside of Japan, the Vita sells next to nothing, as you have already stated. Nobody will buy the Vita just to remote play PS4 games and use PS NOW. That is why worldwide PS Vita sales are expected to go down 15% year over year, according to Sony's own sales forecasts.

    The NvIdia Shield is even less popular than the Vita. There is no market for Android based consoles, no matter how many analog sticks and buttons there are. People can play Angry Birds on smartphones, thus the Nvidia Shield is irrelevant.

    Obviously, Nintendo needs to improve their next handheld to better evolve in this smartphone dominant world. An 720p HD handheld-console hybrid with dual analog sticks and no sterioscopic 3D is what I expect. Nintendo should not be concerned about the PS Vita or the Nvidia shield at all. Both of those devices are irrelevant.

  • Report this Comment On May 25, 2014, at 12:55 AM, senmithrarin99 wrote:

    The Vita's Slim Borderlands 2 Bundle did pick up quite a few sales at the jump in America, it's just that Sony needs to start ADVERTISING the thing for once. Get it out there. Maybe during the holiday season, Sony can release a few of the new Slim colors in bundles with Minecraft and Terraria, and advertise on kid's channels. Kids would LOVE to play these games on a device with physical controls, and the colors let parents buy multiple units without mixups as to whose handheld is whose.

  • Report this Comment On May 25, 2014, at 3:06 PM, awang0718 wrote:

    @ senmithrarin99

    The PS Vita is is dead (outside of Japan). It has sold around 8 million units in 2 years, and worldwide sales this year are expected to go down 15% year over year. It is over. The PS Vita's Slim Borderlands 2 Bundle will boost sales, but considering that the PS Vita has been selling below 10000 units per month in America, the sales boost will likely be very small.

    The PS Vita could have rebounded in 2012, when AssCreed 3 Liberations and CoD Blackops Declassified were released, but both games were mediocre at best and failed to boost sales.

    Minecraft and Terraria are great, but they are also available on other platforms, thus decreasng the incentive to buy a PS Vita just to play those games.

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