Handheld Gaming: Forget Apple, What About Nintendo vs. Sony?

As the iPhone has stolen the media spotlight and been touted as the sole competitor for Nintendo's dominance of the mobile gaming market, Sony has been somewhat left in the shadows.

That's understandable, to a point. The company's first handheld gaming system - the PSP (PlayStation Portable) - never quite lived up to its promise as a true rival to Nintendo's dominance of the market. And despite the company's efforts to refresh the PSP brand over the past six years, it never hit the cultural zeitgeist that many expected.

The focus on Apple, though, is letting Sony quietly work on its next generation handheld system in relative privacy – and that could work to its advantage when the NGP (next-generation portable) hits store shelves.

The device will feature a 5-inch OLED touch-screen display (OLED is a substantially brighter and clearer display panel than LCD or LED) as well as a rear touch panel, WiFi and 3G wireless connectivity, motion sensors, rear and front-facing cameras and dual analog sticks (like the PlayStation controller).

Nintendo 3DS
Photo: nintendo3ds.com
Nintendo 3DS

Despite the devastating earthquake and tsunami in Japan, Sony says it's on track to begin a staged rollout of the system this holiday season.

The company discussed the NGP at a recent analyst day conference, showing several games and generally impressing many in attendance. The plethora of bells and whistles on the system, though, did cause some apprehension.

"We remain somewhat concerned with potentially high launch pricing, although details are unlikely until the E3 conference in June," said Colin Sebastian of Lazard Capital Markets. "Management indicated that it is mindful of pricing lessons learned from the PS3 launch (high price/limited sales). However, the company is committed to both overall profitability and market share."

Nintendo , it's worth noting, is seeing notable success with its recently released 3DS system. In its first week of availability, the 3DS sold 400,000 units at a price that was $100 higher than its previous generation system.

Perhaps more importantly, it sold more software per unit than the DS did initially, indicating people were happy with the launch lineup and wanted to experience the system's stereoscopic 3D effects on a variety of titles.

That's likely to grow, as Nintendo plans to release a 3D "Legend of Zelda" game in June and has a "Mario" title in the works. (The launch date of that will be announced at E3.)

While the software lineup for the PSP's launch was generally weak, that's not shaping up to be the case with the NGP. Early titles include some of the company's biggest franchises, including "Uncharted" and "SOCOM 4", which could boost Sony's competitive position.

"I think they're in a much better position than they were with the PSP," says Billy Pidgeon, senior analyst at M2 Research. "Sony is far better prepared, but it's a different audience. The 3DS is skewed older than previous Nintendo handhelds, so I think there's going to be more competition between the two than in the past. Previously, the PSP was targeted at an older audience, while Nintendo was targeted at a wide range, but generally younger."

The fight between the two companies will be a fiercer one this time, but both are still keeping a wary eye on the new players in the portable gaming market.

The iPhone, iPod Touch and iPad (along with Android devices) controlled 34 percent of the mobile market in 2010, according to Flurry Analytics. That's a 15 percent jump from 2009. The DS saw its market fall from 70 percent to 57 percent, while the PSP dropped from 11 percent to 9 percent.

Those numbers are a little deceptive, though, as they compare new iOS systems to legacy core gaming devices. The early success of the 3DS indicates there is still substantial interest in dedicated game machines, something that was likely good news to Sony.

Beyond that, though, it also opens up the possibility that likening Apple's iDevices to those of Nintendo and Sony could be an apples-to-oranges comparison. Instead, it's possible that two separate markets are growing in parallel, which just happens to have some crossover audience.

"A lot has happened in the games industry and there has been tremendous growth in the audience," says Pidgeon. "Initially, people thought that meant there was a larger audience for the traditional model – packaged goods and dedicated gaming handhelds – but it worked out that many of those people don't self-identify as gamers. And I don't really see that group being a winning proposition for dedicated game machines."