Sony Overtakes Nintendo

Sony and Nintendo are headed in different directions.

Jun 18, 2014 at 9:15AM

For the first time in nearly a decade, Sony (NYSE:SNE) sold more video game consoles than Nintendo (NASDAQOTH:NTDOY). According to Japan's Nikkei business news website, Sony sold 18.7 million video game systems in 2013, compared to Nintendo's sales of 16.3 million.

To some extent, the gap in sales is a testament to the success of Sony's recently released PlayStation 4. But it also serves to highlight Nintendo's continued struggles.

Gaming is more important to Sony than ever before
Sony's PlayStation division is just a small part of its larger business, but it's more important to the Japanese giant than ever before. The company's other electronics businesses have been increasingly pressured by low-cost competitors: Sony exited the PC business earlier this year, and put its money-losing TV division into a separate, wholly owned subsidiary (perhaps to be spun off at a later date).

Sony's struggles in electronics have largely been the byproduct of low-cost competition, mostly from China and Korea, which exploits the fact that Sony's TVs are several times more expensive than the typical budget set.

But video game systems are far more complex; it's one market where Sony cannot be so easily undercut. This segment also benefits from Sony's extensive entertainment assets: In addition to the exclusive games developed by its in-house studios, Sony plans to give PlayStation owners access to original TV programming later this year.

Sony CEO Kaz Hirai was previously in charge of the PlayStation business, and he has discussed plans to use the PlayStation's large base of consoles to sell digital services such as Sony's Music Unlimited subscription service, PlayStation Now, and an upcoming Internet-based cable TV alternative.

Nintendo's core business is shrinking
While Sony's PlayStation business is growing, Nintendo's dedicated console business is shrinking. The failure of Nintendo's most recent living-room video game console, the Wii U, has been well documented: sales have fallen far short of Nintendo's projections, and third-party video game publishers have largely abandoned the system.

Far more insidious is the gradual decline of Nintendo's handheld video game console business. Since it released the original Game Boy in 1989, Nintendo has had a virtually monopoly on the space -- competitors, including Sony's PlayStation Portable and PlayStation Vita, have had little impact.

But Nintendo's current handheld console, the 3DS, in 2013 sold fewer units (12.24 million) than in 2012 (13.95 million). This is particularly notable given that the 3DS, was only released three years ago -- its predecessor, Nintendo's DS, saw sales growth well into its fourth year.

Nintendo's handhelds have generally been far more successful than its living-room efforts. While the company's previous console, the Wii, sold more than 100 million units,the DS sold 150 million units.

Barring a dramatic increase in demand, it seems unlikely that Nintendo's 3DS will sell even half as well as the DS -- three years after its release, the 3DS has sold less than one-third as many units (43 million) as the DS.

Gaming giants headed in different directions
To be fair, 2013 is just one year, but Nintendo and Sony appear to be headed in vastly different directions. Sony's PlayStation 4 has been the top-selling video game console in the United States for five-straight months; if this momentum continues, it wouldn't be surprising to see Sony's consoles outsell Nintendo's yet again.

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Sam Mattera has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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