Screen Digest: DS To Dominate By 2011
In a newly published report, Ed Barton of UK-based analyst group Screen Digest
takes an in-depth look at the varying strategies, install base, and software sales of the DS and PSP over their life so far, predicting that, by 2001, the DS will have an installed base of 112 million and the PSP 67 million - with an unprecedented 89% DS household ownership rate in Japan.
The report is reprinted here in full, with the permission of Screen Digest:
"The global market for portable console gaming is dominated by the Kyoto based hardware manufacturer and software publisher, Nintendo. Historically, Nintendo has owned this market despite numerous spirited attempts by competitors to wrestle away market share. Yet none have succeeded to any meaningful degree.
Indeed, their devices form a litany of failed gaming platforms remembered only by enthusiasts and historians (eg, Bandai's Wonderswan, SNK's Neo Geo Pocket, Sega's Game Gear, Atari's Lynx). As a result Nintendo enjoyed a virtually uncontested handheld monopoly in the latter part of the Game Boy generation and subsequent Game Boy Advance generation.
At E3 in 2003 Sony announced plans to launch the PlayStation Portable ("PSP") the following year. Expectations soared with both games publishers and within Sony about the potential of the sleek device. Flush from the success of PlayStation 1 and PlayStation 2, surely this was a company with both the hardware expertise and publishing muscle to challenge Nintendo in the portable gaming market.
Industry observers were seduced by the largest screen ever seen on a handheld, movie and music playing capabilities (then SCEI CEO, Ken Kutaragi, dubbed it "the Walkman of the 21st century"), promises of proven, exclusive PlayStation games and the huge cachet of one of the biggest brands in video gaming. Anything except global domination was surely inconceivable?
Fast forward two and a half years from PSP's Japanese launch and the global market for portable consoles is, once again, comprehensively dominated by Nintendo. In all major territories Nintendo's DS is the clear market leader and the gaps continue to widen.
The DS has reinvigorated a company many felt could not endure the loss of another market leadership position (as it had in the home console market to PlayStation 1) and has provided a test bed for a number of tactics which have gone on to inform the company's home console strategy.
Nintendo DS has proven, once again, that technical superiority is not mandatory for competitive success. The PSP is effectively a portable PS2 and boasts an unprecedented level of processing power for a handheld games platform. The DS cannot compete on the basis of graphics or rendering of large, complex 3-D worlds.
Such processing power enables the PSP to play movies (beautifully rendered in widescreen resolutions) and music while Nintendo's handheld is unashamedly and completely focussed on playing games. How did the DS, whose principle technical innovation was the addition of a touch-sensitive screen ("dual screen"), prevail against an outwardly more capable machine?
Many point to Nintendo's dogged insistence on the hardware principles which had served it well in the Game Boy generation: durability, battery life and a price point putting it within reach of the impulse buyer and, perhaps more importantly, parents purchasing on behalf of their offspring. While there is some truth in these factors, they were not enough. Noone buys gaming hardware on technical specifications alone.
The key was software. As with any dominant games platform, DS hardware sales momentum was kick-started by virtuoso games which captured the market's imagination. Nintendogs
and Professor Kawashima's Brain Training
were the first in an increasingly long line of titles which have outstripped all expectations in both sales volume and sustainability. Such titles play a key role in driving installed base growth, especially early in the hardware lifecycle, and Nintendo was able to generate game after game which continued this process.
From its own developers Nintendo released more iterations of Brain Training, Mario Kart DS, New Super Mario Bros
and numerous iterations of the wildly popular Pokemon
From third party publishers came Animal Crossing: Wild World, Tamagotchi
and a succession of Phoenix Wright
games. All of these titles have sold in the millions across all major territories and have played a key role in driving hardware sales. This in turn convinced third party publishers to devote more resources to making games for a platform whose numbers they could no longer ignore.
Ultimately it was the combination of accessible games, easily comprehensible by even non games players, and accessible hardware, made possible by the touch screen, which enabled Nintendo to build what is increasingly looking like an unassailable position of dominance in the marketplace.
In the face of such a software line up, the PSP was unable to respond. Despite games from popular PlayStation franchises such as Metal Gear Solid, SOCOM, Killzone, Final Fantasy
and even Grand Theft Auto
, it appeared the market's preference was for a simpler conception of portable gaming and not the prospect of home console titles playable on a portable platform.
As at the end of Q1 2007, Nintendo DS had an installed base of 38 million across the PAL region, Japan and the US compared with 20 million for Sony PSP. Nintendo has confirmed to Screen Digest that the global installed base as at the end of May 2007 is in excess of 41m. Screen Digest forecast no substantive change in respective hardware buy rates and believe that at the end of 2011, Nintendo DS will have an installed base of 112 million and PSP, 67 million.
DS is the dominant handheld platform in the US and across PAL territories however it is in Japan where the platform has truly captured the market's imagination. Since the launch of new hardware iteration, DS Lite, in March 2006, continued shortages at retail have dogged the platform. Despite increasing production volumes DS Lites continue to sell out as quickly as Nintendo can ship them.
Although popular in the US and Europe, a combination of the sleeker, smaller DS Lite hardware update and a release schedule packed with exclusive titles have seen the DS comprehensively dominate the Japanese market.
Such are the volumes of DS's selling in Japan that Screen Digest forecast an unprecedented household penetration rate of 89 per cent in 2011 (by comparison, the original Game Boy peaked at 56 per cent in Japan).
Screen Digest forecast that the Japanese will buy in excess of 7.5m DS's in 2007 (compared with 3m PSP's) while selling a further 11m units in the US and PAL territories. As at the end of 2007, we expect the US will have an installed base of DS users of around 13.9m with PSP just under 10m. Across PAL territories, Screen Digest forecast an installed base of around 17m for DS by the end of 2007 with PSP counting around 10m users.
In terms of hardware sales momentum, the overall picture is perhaps a little more worrying for Sony. Looking at 2007 sales on a year on year basis, Nintendo DS continues to demonstrate sales growth in each major territory (more than compensating for the twilight of the Nintendo GBA platform).
However Sony's PSP has barely beaten 2006 Q1 sales this year, with unit sales actually contracting 5.2 per cent in the US market. Sony recently introduced a hardware price cut across all major territories however it is still too early to determine if this will have a sustained effect on unit sales (first week sales increases notwithstanding).
Screen Digest partner firm GameVision offers some valuable insight into the consumer demographics purchasing Nintendo DS's. Given the core gamer market has tended towards young males in their late teens and early twenties, the results are surprising.
Of DS gamers in Europe 54% are female (compared with 40% for PSP). This also runs counter to the male dominance of all other current games platforms. Both software such as Nintendogs, Animal Crossing: Wild World
and Super Princess Peach
alongside the release of pink versions of the DS have been crucial in appealing to this hard to reach (for video games companies at any rate) consumer group.
In addition GameVision research also reveals that 52% of European DS owners are 14 years old and under (compared with 28% for PSP), the youngest profile of any platform, demonstrating the importance of pricing a handheld such that parents are not deterred from purchasing on behalf of their offspring.
Nintendo's dominance in the handheld hardware market is, naturally, reflected in the performance of DS platform software. Growing installed bases in all major territories and cheaper games development costs (compared with the PSP) have created the conditions loved by games publishers.
Large installed bases of users attract third party publisher support and a virtuous circle is created whereby larger and more diverse games libraries drive hardware sales, increasing the installed base, which in turn attracts more software publishers etc.
In 2007 Screen Digest predict that 106m DS games will be sold across Japan, US and PAL territories, more than doubling the 48m PSP games we forecast will be sold over the same period. Japan is the world's most voracious consumer of DS software with around 47m units, while also proving the most reticent with regard to PSP software, buying under 8m units (compared with around 18.5m units in the US and 22m across PAL countries).
Screen Digest expect DS market leadership of the handheld software market to continue to 2011 when we forecast spending on DS games to top $1.5 billion in Japan, $1.1 billion in the US and $750 million across the PAL region.
By comparison we predict that PSP will generate global software spending of $1.7 billion in 2011. Screen Digest have factored in the release of new hardware iterations of both DS and PSP in 2008, which is the driver behind the growth fillip from 2009 onwards.
The DS is a vindication of Nintendo's strategy to simplify both hardware and software to appeal to as broad a market as possible. DS has driven a revolution in the games industry, leading the way in targeting demographics who have never before considered electronic gaming as in any way relevant to their entertainment spending.
That it has done this with software that is simple and against the grain of current trends in games development (eg, better graphics, increasingly expensive development cycles) makes such strategic insight even more impressive.
Screen Digest has long maintained that the PSP and the DS target very distinct markets: DS focussed on the pure play, games focussed proposition while the PSP is a digital media platform, of which gaming is one part of a potentially broader entertainment experience.
While few would argue that the PSP has failed to exploit its gaming capabilities, perhaps it is a lack of focus on its other capabilities which have prevented the device from performing better than it has.
Screen Digest believe that the PSP will improve its performance from late 2007 onwards. Sony appear to have renewed their focus and energies on the device following the global launch of PS3 and the beginning of the charge is a price cut in all major markets. Wireless downloading (not contingent on a PS3) of premium content will be introduced to all major territories by the end of 2007.
In addition, interoperability with the PS3 (currently remote streaming of movies, music and photos stored on PS3 to PSP, game downloads to PSP via PS3) is likely to drive sales, and is also a capability that will be continually developed and enhanced via firmware updates. The PSP is designed to be the portable component of Sony's ambitions to position PS3 as the entertainment hub of the broadband enabled living room and if this strategy resonates with consumers, we expect a further uplift in hardware sales.
Sony and Nintendo have offered two distinct conceptions of what handheld gaming platforms should offer the consumer. There is little doubt that both have proven worthy competitors in their pursuit of the consumer dollar, however there is also little doubt as to which approach the market has comprehensively endorsed, for now..."
[Thanks again to Screen Digest for allowing us to reprint the report. More reports on and analysis of the games industry can be found at Screen Digest's website.]