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Apple eats into Nintendo, Sony sales as iPhone plays to gamers

By Ragnhild Kjetland
(c) 2010 Bloomberg News
Wednesday, September 8, 2010; 6:08 PM

When Max Batch wants to play a video game, he turns to his Apple Inc. iPhone.

The 22-year-old German has shunned hand-held consoles such as Sony Corp.'s PSP and Nintendo Co.'s DS, joining a growing number of people who use their smartphones for online and other games, eroding sales of the dedicated handsets.

"It's not worth having a hand-held," said Batch, who spends about 2 euros a month on mobile-phone games and tried out Sony's Playstation Portable at the Gamescom fair in Cologne, Germany, last month. "I have an iPhone and when I want to play, I download something from the app store."

With more processing power and better graphics than their predecessors, smartphones are eating into the market dominated by Nintendo and Sony. Shipments of game-capable mobile phones are set to rise 11.4 percent to 1.27 billion this year, researcher iSuppli said last month, while those of video-game consoles may be little changed at 52.3 million and portable units may drop 2.5 percent to 38.9 million.

"With casual gaming dominating the market, the iPhone is starting to give the traditional hand-held DS and PSP models a run for their money and will likely continue into the future," iSuppli researcher Pamela Tufegdzic said. Revenue from hand-held gaming units is estimated to be little changed between $5 billion and $6 billion this year, iSuppli said.

Apple's iPad is another threat. With the success of the tablet computer prompting companies such as Toshiba Corp., Samsung Electronics Co. and Research In Motion Ltd. to develop similar devices, console makers may be set for more competition.

"There's certainly increased competition between the hand- held platforms and the mobile devices," John Schappert, chief operating officer of Electronic Arts Inc., said in an interview. "I think there's going to be incredible growth happening on the iPad and the iPhone and the Android devices." Android is Google Inc.'s operating platform.

The multi-purpose capabilities of mobile phones are making them the platform of choice for young gamers.

"In some countries the first digital entertainment device that people there might touch is a mobile phone rather than a PC," Chris Lewis, vice president of Microsoft Corp.'s EMEA Interactive Entertainment Business, said in an interview.

Microsoft, the maker of the best-selling Xbox360 console, doesn't have a dedicated hand-held device. It now wants to attract players on the move with games on phones that use its Windows Phone 7 operating system.

The boom in mobile-phones games is prompting software makers to adopt existing games to the new market segment.

Some games, such as "Max and the Magic Marker" from the Danish studio Press Play ApS have their roots in the console and hand-held market and will now be available on the Windows 7 Phone, Matt Booty, general manager of Microsoft's mobile game studios, said in an interview.

"A lot of children have hand-me-down phones as opposed to having dedicated portables like the DS or the PSP," Booty said. "We definitely see that as a potential target market where we would like to compete."

Microsoft has announced 50 games titles that will be available when Windows Phone 7, scheduled for release in October, becomes available.

Apple, based in Cupertino, California, has shipped more than 120 million devices that run its iOS operating system, including the iPhone, iPad and iPod Touch. The company earlier this month added a Game Center feature to the operating system that offers multiplayer games.

Mobile phones on which users can potentially play games made up 93 percent of all games hardware in 2009, while consoles accounted for 3 percent, according to iSuppli. Still, hand-helds had a 67.1 percent share of the worldwide games software market in 2009 with the rest for mobile phones.

Hand-helds still have the advantage of buttons and specific gaming capabilities, while smartphone games are usually played with less accurate touchscreen controls, executives at the console makers say.

Comparing smartphones to hand-helds "is like comparing apples with oranges" and the current development of handset sales isn't connected to the rise of smartphones, said Bernd Fakesch, Nintendo's general manager in Germany. "It has to do with the Nintendo DS having reached a market penetration that has never been seen before for any console."

DS hardware sales fell 47 percent to 3.15 million players in the three months ended June 30, while software sales dropped 23 percent to 22.4 million units, Nintendo said July 30. Mobile game consoles accounted for 27 percent of revenue last year, making them the company's biggest sales generator.

"The hand-helds will continue to be successful if they bring something different and more interesting for gamers," said Yves Guillemot, chief executive officer of Ubisoft Entertainment, Europe's biggest video-game producer.

Brian Farrell, CEO of wrestling video games publisher THQ Inc., said a good example is Nintendo's 3-D version of the DS hand-held, which has a 3-D screen that doesn't require users to wear special glasses.

Some executives say the discussion about whether mobile phones and tablet computers will usurp traditional gaming consoles and hand-helds is misleading, as phone games may help to expand the total computer-games market.

"If even a small percentage of the casual gamers say that this is something I really like and enjoy, some may go out and buy a PlayStation 3," said Kazuo Hirai, president of Sony's Networked Products & Services Group. Mobile-phone games may be a "good way to get people into the world of games."

© 2010 bloomberg.com