After successfully introducing its PlayStation Portable handheld and establishing itself as a challenger in the handheld space, Sony (NYSE:SNE) sought to continue its market gains with a successor system. The PS VITA was unveiled in 2011 with a price point that put it at parity with the 3DS system from Nintendo (NASDAQOTH:NTDOY), suggesting that Sony would have an improved ability to best its primary competitor. Rumors also circulated that Microsoft (NASDAQ:MSFT) might enter the handheld arena. Now that the VITA has limped through its second year on the market and the viability of dedicated handheld gaming devices is in decline, is it time for Sony to stop supporting the device?
Lost footing in the handheld game
The launch of the Nintendo 3DS provided one of the first indications that the uptake of handheld consoles would lag behind what was achieved in the previous generation. The system debuted at $250, above the price of any previous handheld from the company, with a software lineup that lacked the type of standout first-party games that drive the sale of Nintendo consoles. Hardware adoption proved to be slow, but Nintendo reacted quickly with a drastic price cut that improved consumer interest and provided distinction from Sony's impending VITA.
While Nintendo's device recovered its footing after a weak launch, the VITA did just the opposite. The handheld posted a solid debut, as Sony enthusiasts and PSP fans bought up the initial stock before the device puttered out on the global sales front. The device has posted decent sales in Japan, but even there the system lags behind Nintendo's 3DS. A lack of standout software and a prohibitive price point were among the reasons listed for the VITA's failure to catch on in Western territories. Now, despite efforts to remedy those issues, it is apparent that a recovery is nearly impossible.
Nails in the North American coffin
An August price cut to $199 MSRP and the release of well-received exclusive software for the VITA have had little in the way of sales impact. The device's performance during the highly important November retail month was disastrous. Leaks from the NPD Group's sales tracking data put the console's monthly performance at below 75,000 units, effectively rendering the device dead in North America. To put that number into perspective, Nintendo's struggling Wii U console is believed to have sold approximately 220,000 units in the same time period.
Putting up such dismal sales numbers in a holiday month following a price cut shows that Sony has waning incentive to develop Western-oriented titles for the device. VITA-exclusive Tearaway managed to sell a paltry 14,000 units in North America despite being one of the best reviewed games of the holiday season and taking full advantage of the VITA's feature set. With the development of titles for the PlayStation 3 winding down, the VITA is likely to receive fewer ports, further compounding the handheld's problems. That said, the possibility exists that the system's life could be extended by an unexpected source.
Aid from an enemy
When Nintendo decides to release its next handheld, chances are good that its hardware performance will be comparable to what the VITA currently offers. This means that third-party publishers will have the option to debut their wares on an additional platform with little in the way of added cost. Even so, another source of ports is unlikely to do much but keep the VITA on life support in the West. Third parties have not supported the 3DS to the same degree that they supported the DS. That trend is almost certain to continue with Nintendo's next handheld.
Mr. Softy stays out of the fray
With the dedicated handheld market in a state of erosion, it becomes increasingly unlikely that Microsoft will choose to bring a direct competitor to market. That hasn't stopped rumors from continuing to swirl, some of them inspired by patents suggesting an expansion of the Xbox brand into the handheld space. The failure of the VITA amid growing interest in mobile makes some manner of convergence machine or inter-device functionality with Xbox One a much more likely prospect. Microsoft does not have the internal studio strength possessed by Sony and Nintendo, and the 3DS has shown that focused first-party efforts and strong IPs are necessary for such a device to survive.
Plight of the living dead
The failure of the PS VITA in Western territories puts Sony in a difficult position. The handheld has been the company's best selling hardware in Japan this year, yet the types of games that are driving the system have little appeal in North America and Europe. The fact that Japanese third parties appear hesitant in their support for the PlayStation 4 means that Sony's Japan Studios will have to carry more weight this time around. The company's decision to keep the zombie-like VITA shambling along risks diverting resources necessary for PS4's success.
Keith Noonan has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. 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.