Pachter: 3DS Will Survive In Diminished Market, Vita To 'Die Slow, Painful Death'

by Matt Helgeson on Jan 22, 2014 at 11:50 AM

In the light of Nintendo's recent lowered forecasts for 3DS sales, We asked Wedbush Securities' outspoken analyst Michael Pachter for his take on the current handheld market. As usual, he didn't mince words.

On whether he was concerned about Nintendo lowering its 3DS sales projections:

No, I think it's realistic and we're not talking about massively down – it's a couple million. If you look at peak Nintendo DS sales, they were north of 25 million for three years in a row. They've steadily come down since. I don't think it's because the 3DS is an inferior product or priced too high, it's just that the handheld annual market is now a 15 million annual market - and being split by Vita.

On the long-term decline of the dedicated handheld market:

What really happened was that about half the people who were buying DS were buying it to babysit their kids and have them play casual games, not because all 30 million who bought one every year played Zelda. They played Tetris. You can play Tetris on your Kindle now. Tablets and smartphones have cut into older casual gamers' ability or desire to play on a dedicated handheld and, to some extent, they've cut into younger gamers' likelihood of playing handhelds....My kids got phones at age nine - as did every single kid in their class. I made my kids wait until their 13th birthday to get smartphones, and I swear to God my kids are the last ones of all their friends to get iPhones. If you look at the domestic demographic of who bought handhelds, say it was about age 7-to-15 kids. Now that's cut to age 13, because any casual gamers who are that age would rather have a smartphone and play Doodle Jump or Angry Birds because they are just as fun as Tetris on a DS and they are free.

On whether the 3DS can survive:

The handhelds are going to always appeal to core gamers. Core gamers can be six or seven years old. Go look at Skylanders. It's far from a casual game. There are tons of 8 and 9-year-old core gamers – look at the kids that play Minecraft. So, those kids are still going to want a 3DS, I believe that. But I promise you will not be able to find a nine-year-old alive in America who says they would rather have a 3DS than a smartphone. Kids who are hardcore gamers want both, but all kids would rather have a smartphone so they can text all their friends.

On why Nintendo should bring its back catalog to iOS and Android:

They should take their old software – and I don't mean their new software – [to mobile]. Some of the 500 games on the GBA could be easily ported to iOS and Android. Most of them are just run forward and jump controls schemes. Why not sell those games for $5 to $10 on iPhone and Android? When you think about half a billion Android and iOS phones and tablets out there right now and growing, what are the odds that every game Nintendo released would sell 5 million copies at 5 bucks? Pretty good. Let's say they did 10 games and only did 50 million units at $5 – that's $250 million more than they have now. And – oh by the way – it wipes out their financial loss. If they put 100 games on phones, and the average is $7 because some are at $5 and some are at $10 and they sell five million each of 100 games, we're talking billions of dollars. I think they would make more from mobile than the rest of their operations combined.

On why Nintendo won't do it:

I just don't think they think about it that way. I think that their vision or mission is to sell hardware. They believe that their proprietary software exists solely to support sales of their proprietary hardware. First and foremost, they are a hardware company that makes great software. Apple is that way. They are a hardware company, but the iOS and interface is all software. If you ask anyone why they like the iPhone over a Samsung, they are going to say the interface. Apple thrives because its software supports its hardware. Just like Apple won't support Adobe or license its operating system to other PC makers or HTC. Nintendo thinks it's Apple. I get how consumers would think that's the right strategy. And I have to say, if they were Apple, that would be the case. But I don't think they are Apple, as their sales have proven.

On the state of the PlayStation Vita:

The sales are horrible. My model says the Vita sold 4.2 million last year. It's a pretty small number and I don't think they are going to build a business selling 4 million a year -- and that number could go down. Vita is a little bit too elegant and a little too expensive. I always feel like I'm going to break it. But then it has relatively few games because they are complicated to make and the market is so small. Very few publishers are spending money to make them. You had Assassin's Creed: Liberation, that cost Ubisoft a lot. It's a whole new adventure. Sony will spend the money with their internal studios, but you're just going to see [Vita] die a slow, painful death.

It's super high-end in the market; it's too expensive for a casual gamer. I know that phones are subsidized, but you can get a smartphone for free when you renew your contract. You can get an HTC free, or spend $200 on a Vita. It's too [hard] to pass up the free phone. They are never going to get the casual end of the market.

On whether connectivity with PlayStation 4 could boost Vita sales:

I don't quite get it. First they were selling it as a controller, which was lame. I would rather just spend $50 on a controller. They were selling it as a controller because...I have to turn off the game on my TV because American Idol is on and I have to continue my session on my Vita? That's what a DVR is for, you can watch American Idol later. I think most people who have competing concerns about use of the console versus watching TV have their console on a different TV from where their wife is. I agree those are cool features, but it's limited.

On the future of Vita and Sony in the handheld market:

There is no future and they couldn't do any better [than Vita]. The market is what it is because of Nintendo. Nintendo built the market and Nintendo has the best name in handhelds. I just think [Sony] misjudged the size of the market and launched it into this s---storm of mobile destroying the casual end of dedicated handhelds. And Nintendo's not giving up much share on the hardcore side, because they have three games to every one Sony game, and they are good games.