The games business isn’t all fun and, well, games. After years of impressive growth, major game companies are struggling. Depressed consumers, aging console systems, and a massive shift from physical to digital media have created new headache for traditional firms like Microsoft, Nintendo and Sony. All three are gearing up their next generation of games. Question is, how will they stack up?
Microsoft (MSFT), for one, must be feeling confident. It has sold more consoles in the U.S. than Nintendo (NTDOY) or Sony (SNE) every single month for the last 18 months. And in a blog post in July, the company reported that the Xbox 360 captured 47% of all U.S. hardware sales in June, making it the 16th consecutive month it was able to reach 40% or higher.
Microsoft’s success wasn’t predicted years ago when the Xbox 360 couldn’t match Nintendo’s cheaper, motion-reading Wii. But Microsoft has been able to win over gamers by delivering its own motion peripheral, the Kinect. Another key move has been getting publishers to ensure the Xbox 360 gets the top titles. Microsoft has also aggressively added entertainment offerings to its Xbox Live service, including 24-hour ESPN programming and HBO Go, turning the device into a home media hub. That, coupled with price reductions that have brought the console down to $199, has helped Microsoft become a dominant force in the industry.
The same can no longer be said for Nintendo. When the current generation of consoles kicked off, the Wii was far ahead. Nintendo’s console had motion gaming and competitors didn’t. The Wii was far cheaper than the Xbox 360 or PlayStation 3. And perhaps just as importantly, Nintendo had the kind of hype surrounding its console the others couldn’t muster. Nintendo watched its sales soar.
All of that success came early on, however. In its first two years of availability — 2006 and 2007 — the Wii hit 20 million unit sales worldwide. In both 2008 and 2009, Nintendo sold over 20 million units. Since then, sales have fallen off, culminating with 2011 unit sales of just 11.6 million. During its last-reported quarter, Nintendo said that it sold just 710,000 Wii units worldwide, down from the 1.6 million units it sold during the same period last year. In other words, the Wii is dying.
The Wii’s fall from grace follows the similarly disconcerting demise of the gaming handheld business. Both Sony (SNE) and Nintendo had for years made boatloads of cash with gaming handhelds. Nintendo is best known for its popular Game Boy, and its even-more-popular DS. Sony’s PlayStation Portable took a while to get off the ground, but found a following.
Now, though, Nintendo and Sony, armed with their 3DS and PlayStation Vita, respectively, are facing headwinds like never before. According to Nintendo, worldwide sales of its 3DS hit 1.86 million last quarter — a respectable figure, but not blockbuster. And after a strong opening, Sony’s PlayStation Vita — a new portable loaded with technology goodies like 3G wireless and a big touch screen — is having trouble keeping sales up.
Why? Blame it on Google (GOOG) Android and Apple’s (AAPL) iOS.
Smartphones and tablets are becoming more popular and their components more powerful. Meanwhile, major game publishers, like Electronic Arts (ERTS), are realizing that gamers increasingly prefer to use those devices to play titles. And why not? Smartphones and tablets today deliver high-quality visuals at every turn. And the sheer convenience of being able to switch from a phone call or text message to a video game is too appealing to pass up.
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