Nintendo DS Shakes Up Gaming Hierarchy

This column was originally published on RealMoney on Aug. 25 at 2:00 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.

Nintendo rolled out the new version of its DS handheld console in America and Europe during the summer, and results are spectacular. If the summer trend favoring DS continues, major video-game software houses strongly tied to Xbox360 and PlayStation 3, including Electronic Arts (ERTS Quote) and Activision (ATVI Quote), may need to adjust their development plans.

Similarly, investors now contemplating the video-game software stocks might want to reassess the situation, given Nintendo's stunning summer success and the murky outlook of the tabletop-console market.

Worldwide Phenomenon

In Japan, Nintendo DS took over the software sales charts a long time ago; last week, 19 out of top 30 games in the country were for this portable console. This resembles the absolute domination that the PS2 displayed a few years ago. But until this summer, the global appeal of DS games had been somewhat suspect.

In Japan, the titles recently hitting 2 million to 3 million units in sales have been idiosyncratic. They can feature a smack-talking duck that berates you for missing a tea date, or a middle-aged Tokyo professor helping you to develop lateral thinking. Space marines are in short supply. Nevertheless, the recent DS offensive has also caught fire in America and Europe, where DS has spawned many of the biggest hits of the summer.

According to NPD, the DS console racked up 377,000 units in America during July. The sales momentum from the June launch of DS Lite seems to be carrying over well. In contrast, PS2 sold 241,000 units and Xbox360 sold 206,000 units. The U.S. tabletop market was clearly in a summer lull, but the DS has now been able to pierce through consumer apathy in Japan, Europe and North America in a similar manner. Whereas the monthly sales of Microsoft's (MSFT Quote) Xbox360 have slumped by nearly 100,000 since April, Nintendo has managed to nearly triple the sales of its DS consoles in America.