Nintendo's Handheld Dominance Is Challenged by This Emerging Trend

Nintendo's 3DS dominates the market for handheld gaming devices, but an upcoming trend could see Sony and NVIDIA capturing Nintendo's market.

May 24, 2014 at 12:00PM

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.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recent recruited a secret-development Dream Team to guarantee their newest smart device was kept hidden from the public for as long as possible. But the secret is out...and some early viewers are even claiming its everyday impact could trump the iPod, iPhone, AND the iPad. In fact, ABI Research predicts 485 million of these type of devices will be sold per year. But one small company makes this gadget possible. And their stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Sam Mattera owns shares of Nvidia. The Motley Fool recommends Nvidia. 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.

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