Analysis: DS Games Outselling PSP 8 To 1 In U.S.

[Gamasutra looks at the evolving handheld space as part of its NPD analysis, revealing that Nintendo DS software outsold PSP software by an 8-to-1 ratio in the U.S. in March 2010 -- and muses on Nintendo's motivations for launching a fourth simultaneously sold handheld.] Since our last report, Nintendo has announced that it will launch a successor to the Nintendo DS, currently called the Nintendo 3DS, before the end of its current fiscal year (ending March 2011). The new device will incorporate a screen technology that allows 3D effects with the naked eye and will be backward compatible with the existing Nintendo DS and Nintendo DSi. Should that device come to market on time, it seems likely that Nintendo will have four different devices on the market at the same time that all play Nintendo DS software as well as their own specialized software. We find that possibility disconcerting, to say the least, especially from a company which has generally maintained a simple line of hardware models. As we've outlined previously, we also expect Sony to announce a successor to its PSP handheld, probably within the next six months, with the launch at the end of 2010 or early 2011. If things play out as we currently expect, then the two companies are again on a course for what many will view as a head-to-head competition. (For our current feelings about Sony's position, please see last month's article.) Just looking at the American market, we admit to being somewhat baffled by Nintendo's motives. While the Nintendo DS platform has shown a very slight weakness, it is still crushing its competition and outselling its competitor, the PSP, by a tremendous margin. It has also demonstrated over the past five years that consumers are content with the graphical and sonic fidelity of Nintendo DS software. Consider the comparison below of software dollar sales in the U.S. handheld segment during March 2010, showing that Nintendo DS software outsold PSP software by an 8-to-1 ratio. The success of Pokemon SoulSilver and HeartGold during March skews these results, but not by as much as one might suppose. During a usual recent month Nintendo DS software is likely to outsell PSP software by a factor of 5-to-1 or 6-to-1. A year ago, during the beginning of 2009 and back into 2008, the ratio was closer to 4-to-1. However, we must admit that Nintendo appears to have a deep understanding of what its consumers want. In the past few years its presentations to investors regularly include results of extensive demographics studies, data that appears soft at first glance but which is clearly guiding the company's hardware and software plans. For example, the figure below from Nintendo's April 2009 briefing to investors shows the age and gender distribution of Nintendo DS users in the U.S. Nintendo has also made a habit of not introducing new hardware until it was affordable for the general public. The current $190 price of the Nintendo DSi XL is what we would consider to the extreme ceiling for a new Nintendo handheld. We expect that by the time the Nintendo 3DS is introduced Nintendo will be phasing out the Nintendo DS Lite (currently $130), and move the Nintendo DSi down to below $130. That will leave a sufficient headroom for the new model to sufficiently differentiate itself from the older ones. In the meantime, it seems likely that Nintendo DS platform sales will be dominated by the Nintendo DS Lite and the Nintendo DSi, which have previously split the market evenly. Already with only 7 days of sales, the larger DSi XL has garnered 141,000 units in sales, according to Webush analyst Michael Pachter. While this isn't nearly as robust as the launch of the Nintendo DS Lite (which helped move over 500,000 units in its June 2006 launch) or the DSi (58,000 units in one night during March 2009), it still outsold the PSP for the month by 20,000 units. In a recent conversation Pachter said he believes that Nintendo will reduce the prices on the current three models in time for the holiday this year. He expects a $99 Nintendo DS Lite to take about 45 percent of the DS platform market, with a $150 DSi claiming 30 percent. The DSi XL, he said, will probably hold its price at $190 and make up the remaining 25% of DS unit sales.