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.
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
, 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.
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
Xbox360 have slumped by nearly 100,000 since April, Nintendo has managed to nearly triple the sales of its DS consoles in America.
The French video-game chart for the week ending Aug. 20 demonstrates a veritable DS mania; six out of the top eight titles are for DS, according to GfK. Four of these summer bestsellers are the kind of dreamy nongames that have taken Japan by storm:
. Nintendo has demonstrated that not only Japanese consumers crave slow-paced virtual villages and simple puzzles -- it's a global phenomenon.
The U.K. Chart Track shows three DS games in the top 10 for the week ending Aug. 19. Interestingly, all three of these titles were in the top 10 list of mid-June. This is the phenomenon Nintendo has been able to replicate from Japan to America to England -- many of the nontraditional DS hits keep hanging on to their top-10 positions month after month. The summer malaise of Xbox360 is deep in Europe -- no titles in either the French or U.K. top-10 charts.
The longevity of DS games is highly unusual in a game industry that has begun resembling Hollywood more and more over the past 10 years; even the biggest hits often remain in the top 10 for only four to six weeks. The peculiarly long shelf-life of
titles and simulation games for DS implies that they may be tapping into a different audience than most video games. Female and family audiences tend to give movies long legs in both America and Europe -- I suspect Nintendo is tapping into the same phenomenon with its DS software.
Is this an important new trend or just a summer fling? Nintendo is right now lining up the heavy guns for a major autumn offensive in Japan -- a
game just debuted in Japan this week, and
is gearing up for a triumphant return in September. It seems that the DS juggernaut is guaranteed to roll on in Japan until
PS3 debuts -- the American and European outlook is more uncertain.
Over the summer months, Xbox360 lost a lot of momentum, particularly in Europe. In America, Xbox360 games still sell well. But in Europe, the titles vanished from sales charts during the summer. In September, we'll see major promotional pushes for PS3 and Nintendo's Wii kickoff around the globe.
Xbox 360 will need a couple of massive hits before Christmas to gain new steam in the video-game market, which is now splitting more evenly between portable and tabletop games than perhaps ever before. Xbox360 lost the game in Japan during the dismal launch week -- now its software sales have gone limp in Europe over the summer as well. Xbox360 continues posting strong game sales in North America; its future may depend on whether it can return to form in Europe.
In a way, both PS3 and Xbox360 remain ideal foils for Nintendo. Their software lineups remain too heavily slanted toward blasting away grotesque mutants with laser rifles -- and the prices of both boxes are expected to remain relatively high throughout 2007.
The DS volume surge has attracted a lot of new developer interest recently. This may translate into a profusion of new franchises in 2007 -- the short development cycle for handheld games means that software companies can react rapidly to the widening DS appeal. Expansion beyond Nintendo software is important for DS to widen its demographic appeal among the hardcore video-game fans. The stage for this is now set.
As a result, this Christmas season may be extremely tricky for companies such as Electronic Arts and Activision.
Rumors about PS3 delays continue circulating, and Xbox360 shows no signs of breaking out of the sales pattern of the original Xbox. Consumers who remain unsure about the tabletop-console market direction may be persuaded to spend more of their cash on DS and PSP, the Sony portable console that is hanging on, despite falling steadily farther behind DS globally.
Considering the development budgets of the big Xbox360 and PS3 titles, a murky Christmas for the tabletop market may be a grave disappointment for investors who are now trying to time the bottom for the video-game software stocks.
Tero Kuittinen is a senior product specialist for Nordic Partners, Inc., a pan-Nordic brokerage firm. Although Kuittinen is an employee of Nordic Partners, Inc., the statements above are being made in Kuittinen's personal capacity and are in no way are the statements of Nordic Partners, Inc., nor attributable to the company. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kuittinen appreciates your feedback;
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