Why the rise of Apple’s iPad spells trouble for Nintendo

Can it take a bite out of the $20-billion video game industry?
Paul Sakuma / AP

When Apple CEO Steve Jobs stepped on stage in San Francisco last January to introduce the iPad, much was made of the potential threat to the ballooning e-reader market—particularly Amazon’s hot-selling Kindle device. But it wasn’t just the digital book world that was paying close attention. So were the head honchos at video game giant Nintendo, the makers of the popular Wii console and hand-held DS device.

Downloadable video games have been part of the iPhone universe for a while—a game called Angry Birds is currently listed as the App Store’s top download—but the experience of playing a free or 99 cent game on your iPhone has so far paled in comparison to what Nintendo’s DS or Sony’s PlayStation Portable offers. The iPad, on the other hand, threatens to raise the stakes with its bigger screen and more capable hardware, taking a bite out of what has become a US$20-billion industry for consoles and games.

Nintendo’s president, Satoru Iwata, reportedly told his senior executives that Apple—not Sony—is the “enemy of the future.” Analysts, meanwhile, say it’s a safe bet that Nintendo, Sony and others are monitoring Apple’s progress closely. “Nintendo would be dumb not to have this on their radar,” says Lewis Ward, an analyst at market research firm IDC.

There is already evidence that devices such as the iPhone and iPad are having an impact. In April, sales of video games and hardware suffered their fourth-biggest drop ever, down 26 per cent year-over-year, led by a decline in sales of portable gaming systems, according to data compiled by NPD Group. Sales of Nintendo’s DS, in particular, fell by half to 440,800 from more than one million in April 2009. The drop was blamed mainly on a dearth of new game titles and consumers holding off on purchases until the launch of Nintendo’s upcoming 3-D hand-held gaming device, the 3DS. But observers note that Apple’s iPhone and iPad are now also competing for consumers’ discretionary income.

The competitive threat could become even more explicit if Apple decides to position the iPad as more of a gaming device. IDC’s research shows more people are now playing games on their smartphones than on portable, dedicated gaming systems, creating a potentially huge market. But the revenue associated with those games remains a drop in the bucket since most cost less than $5, whereas a Nintendo DS game is often closer to $35 or $50. That trend is expected to continue for at least the next few years.

Given the DS’s position as the top-selling portable system and Nintendo’s reputation for building family-friendly games, Nintendo would appear particularly vulnerable to competitive threats from Apple if consumers decide there’s only room in their life for one hand-held device. But Ward says Nintendo could prove more resilient than most people think. That’s because a big part of its customer base is teens and tweens, who are less likely to own pricey smartphones, let alone a $500 to $700 iPad, and because Nintendo owns the rights to some of the world’s most popular game franchises, including the Mario series and Pokémon. “You can’t get that stuff on Apple,” he says. “So if you want to play Donkey Kong, there’s really only one place to go.”