Videogame business has its hands full

Exclusive games driving Nintendo DS' success

The littlest consoles are driving the biggest business in vidgames today.

While press attention over the past few months has centered on the competition between the PlayStation 3, Wii and Xbox 360, another videogame system consistently has been outselling them all.

The DS, Nintendo’s portable videogame system that folds up to fit in a pocket, sold 508,000 units in March. That’s almost twice as many as the Wii and nearly four times as many as the PS3.

Nintendo, which created handheld gaming with the GameBoy in 1989, is used to ruling the market. But many thought it could lose that position when Sony introduced the PlayStation Portable in 2005.

Though more expensive, the PSP completely outclassed the DS with a bigger screen and multimedia capabilities, including the ability to play music and video.

But the PSP has largely been a bust for the movie and music industries and DS is beating PSP the same way videogame systems have always succeeded: by creating popular games.

When Nintendo launched the DS at the same time as the PSP rather than extending its successful GameBoy line, it left many gamers mystified. PSP sales roughly matched those of the DS in their first year on the market.

But in the past year, Nintendo’s device has pulled way ahead. To date, the DS has sold more than 40 million units worldwide. And when Nintendo revised its earnings guidance upward last month, the company cited stronger than expected DS sales as the reason.

As of Dec. 31, PSP had sold 25 million units around the world. Sony recently cut the device’s price from $199 to $169 and, in the face of slowing momentum, is trying to reposition it as a fun gaming device for teenagers instead of the premium multimedia machine for twenty- and thirtysomethings it was marketed as at launch.

Sony originally sold the PSP on the premise that gamers would get a complete portable entertainment package. But video in the device’s proprietary UMD format — essentially a tiny DVD — has been a flop. Three of the six major studios — Universal, Warner Bros. and Paramount — have already given up on it. And Sony has yet to come up with an easy way to download music to the device.

The Japanese electronics giant is trying to finally get the PSP’s multimedia content right, so it can fulfill the device’s as-yet unmet promise of being a video iPod and portable gaming system rolled into one. Though it hasn’t announced specific plans, many in the industry expect Sony to launch a video and music download service that will work on the PlayStation 3 and PSP.

“Consumers see the value in one product that can do it all, and it’s important that we provide value in downloading music and video from the PC or from a certain service,” says John Koller, senior marketing manager for the PSP.

As with any console, however, the core driver of sales is always games. And there’s no arguing that Nintendo has taken a big lead on that front.

Only one PSP game, “Grand Theft Auto: Liberty City Stories,” has sold more than 1 million units in the U.S. Six DS games have reached the same milestone, and the recently launched “Pokemon: Diamond” and “Pokemon: Pearl” are likely to join the group.

“Though they came out around the same time, the PSP is truthfully a year behind in software,” says Wedbush Morgan analyst Michael Pachter.

Sony execs acknowledge a key problem with the PSP: Because the device can theoretically do everything and appeal to almost everyone, publishers and studios didn’t develop products specifically for the PSP and its aud.

Sony may have initially dug its own grave because PSP was designed to be so similar to the traditional gaming experience on a TV. With its wide screen and controls that almost mirror the PlayStation 2, it’s not hard to make a smaller version of any PS2 game for the PSP.

The DS, by contrast, is nothing like playing on a TV. It has two screens, one of which responds to touch, and even a microphone that understands simple commands. Nintendo itself took the lead by publishing games such as “Nintendogs” and “Brain Age,” which take full advantage of those capabilities.

“The DS opened up a whole arena of software titles we couldn’t do anywhere else, and that has helped us get people who normally don’t pick up game controllers,” says Nintendo PR director Beth Llewelyn, pointing out that the DS has been more successful than any system before it in reaching women and older gamers, particularly in Japan, where it’s a cultural phenomenon.

Many third-party publishers — who previously weren’t sure how to make a game for the DS’ unique capabilities — are now eager to jump in to take advantage of its big install base.

Sony, on the other hand, has to persuade more publishers to make unique games for the PSP rather than just copy their PS2 games, something they’re doing less often due to disappointing sales. Sony provided the first example of that with last year’s “Loco Roco” and is working on a PSP spinoff from its successful “God of War” franchise.

Those in the industry have hugely differing opinions of Sony’s position in the handheld market. One senior exec says the PSP is “pretty much done for,” while another says the PSP has “done fine.”

But most agree that Sony is at an inflection point where it must either rev up the PSP’s public image and make it more relevant or else watch it fade into obscurity.

Nintendo, on the other hand, just has to make sure it doesn’t screw the DS up.

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