This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Apple's Decade: Getting Into the Games

Stocks in this article: AAPL

Editor's note: This is the seventh excerpt of an e-book on Apple by Jason Schwarz, an analyst at Lone Peak Asset Management in Westlake Village, Calif. Here are Part 1, Part 2, Part 3, Part 4, Part 5 and Part 6.

I don't think Steve Jobs is interested in jumping into the online movie distribution business. Most analysts have supposed that Apple (AAPL) would do to digital movies what they did to digital music. Not going to happen.

What is going to happen is that Apple will do for gaming what they did for music. The process has already begun. Remember when music labels finally woke up and realized that consumers could pick off their favorite song for 99 cents instead of purchasing the album for $19.99?

Well all of a sudden consumers can now buy Madden Football through the App Store for $9.99 instead of shelling out $49.99 for the Nintendo Wii version. On top of that huge price cut, Apple also becomes a partner with Electronic Arts (ERTS) as they collect a reported 30% of the revenue. What's great for Apple might not be so great for the gaming industry. The margins on games will continue to get crunched as the App Store expands its market from iPhone to Tablet to Apple TV.

Apple has provided clear signals that it intends to take on the Nintendo DS and the Sony (SNE) PSP in the handheld gaming business. In a research note, Bernstein Research analyst Toni Sacconaghi tries to put some numbers around the situation. He says that over the last 12 months, 665 million to 670 million games may have been downloaded for the iPhone and iPod Touch from the App Store. About 12% of those were paid -- or roughly 80 million to 90 million -- with an average price of about $2.50.

He figures that over the last year, Apple generated $60 million to $70 million in gaming revenue from the App Store, with developers taking another $140 million to $160 million. Sacconaghi says that iPhone and Touch together will have one-third of the total handheld-gaming installed base by 2012.

Total handheld game sales for the segment were $14.7 billion in 2008. He estimates that the average handheld gaming console generates 4.9 game title sales over the lifetime of the device, with an average selling price of $34.

The iPhone/iTouch has so far sold only 1.6-1.8 games per devices, with an average ASP of $2.51. Not a good sign for game developers. While viewed by many software vendors as an incremental revenue opportunity today, the analyst contends that over time, the iPhone/Touch platform will likely be viewed as a negative for the gaming software industry, pushing down prices and luring customers away from the PSP and DS.

1 of 4

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,866.83 +88.68 0.50%
S&P 500 2,074.82 +13.59 0.66%
NASDAQ 4,775.6470 +27.2510 0.57%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs