Can Sony and Nintendo Fend Off Apple and Google in Gaming?

Sales of portable consoles in Japan roughly doubled those from the previous week. Does this mean Nintendo and Sony are in position to preserve their respective handheld businesses?

Jul 20, 2014 at 12:31PM

Discouraging Japanese sales numbers for traditional gaming hardware and software have become a near-weekly export. Platform holders Nintendo (NASDAQOTH:NTDOY) and Sony (NYSE:SNE) are up against unfavorable cultural conditions and increasingly dominant mobile platforms from the likes of Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL). Home consoles have seen a precipitous drop in popularity, and the once strong portable market is under heavy attack. Yet, the most recent weekly sales data from the Land of the Rising Sun may bear a ray of hope for the dedicated gaming market.

Some background
Google and Apple have already reshaped the Japanese gaming landscape, and both companies see the territory as a major opportunity for continued growth. As smartphones and tablets have become increasingly ubiquitous, developers are taking advantage of large mobile user bases while also moving away from creating software for dedicated gaming platforms. This transition is causing fast decline across the traditional Japanese gaming industry.

Nintendo and Sony must prove that their hardware offers essential experiences in a market where smart device penetration is very high and the vast majority of software revenue comes from in-game purchases in free-to-download titles. Further complicating this challenge, Google and Apple are involved in their own value and content battles, competing to secure exclusive software for their respective platforms.

3DS gets a big new game
The biggest news to come from Media Create's latest sales report is the incredible success of Yo-Kai Watch 2: Ganso. The 3DS title sold approximately 1,317,000 copies in its first tracking period, a highly impressive feat given the state of the Japanese gaming market. The strong debut makes Yo-Kai Watch 2 one of the territory's most successful games in recent years and evidences substantial franchise growth. For comparison, the original Yo-Kai Watch sold approximately 54,000 units in its first weekly tracking period.



The strength of the property has grown substantially thanks to strong word of mouth for the first game in the series and the introduction of a very popular tie-in cartoon. In a year that has seen 3DS hardware sales fall approximately 50% compared to the same period in 2013, Yo-Kai Watch 2 has delivered evidence that blockbuster success for young IPs is still attainable on the platform. The game outsold its 2013 predecessor's approximately 1,195,000 unit lifetime sales in less than a week on the market.

Handheld hardware sales approximately double those from the previous week
As is typical, Nintendo's 3DS was the top selling hardware in Japan. The portable console moved approximately 62,000 units in the week, more than doubling its performance from the previous reporting period. The increase was largely driven by Yo-Kai Watch 2's massive debut, indicating that strong software can still propel Nintendo's handheld even as it contends with increasing mobile competition and market saturation. The game from developer Level 5 is the first in a series of 2014 3DS releases that should help the system lessen the sales gap with numbers from the previous year.

Sony's PS Vita was once again the second-best selling hardware in Japan for the week, moving approximately 41,000 units according to Media Create's tracking, and nearly doubling sales over the previous period. The increase came as a result of a new bundle that sees a number of relatively high-profile games included with the portable system. The new SKU should help the platform sustain its YOY growth, but it won't change the fact that the Vita is a disappointment for Sony. It remains exceedingly unlikely that the company will develop another dedicated gaming portable.

Japan is a huge market for Apple and Google
While this week delivered better-than-usual numbers for Nintendo and Sony's handheld platforms, it also highlighted growth for Google and Apple's gaming endeavors. Mobile tracker App Annie released a quarterly performance analysis that shows Android widening its app-download lead, while iOS continues to generate more revenue per user.

In the last quarter, Google Play is said to have seen approximately 60% more downloads than its main competitor, while Apple generated approximately 80% more revenue. The increase in downloads helped Google close the earnings gap relative to the preceding quarter. For both companies, Japan stands as the biggest gaming revenue driver.

Foolish final thoughts
At this point, further erosion of the dedicated portable gaming market seems to be all-but-guaranteed. Sony's likely exit from the space should give Nintendo a bit of breathing room as it readies its next handheld, but odds that a next-gen handheld can outperform the 3DS are dwindling. Japan stands as a shrinking market for both Sony and Nintendo, and a huge growth opportunity for Apple and Google.

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Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). 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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