Sony's PS Vita And Nintendo's Wii U Look Equally Feeble

For Apple and Zynga, this E3 was a magical event. Microsoft, Sony and 

Nintendo all retreated within the crumbling walls of aging franchises and spin-off sequels. Under attack from mobile and social games, the Big Three console vendors are stumbling through the year 2012. Nintendo had a notably disappointing Wii U showcase and Sony’s Vita lacks the powerful slate of new titles it needs. We may be drifting towards a scenario where Nintendo shrinks to a rump company focusing only on portable gaming – and knocks out Sony’s PS Vita in the process.

There are several good reasons why it was vitally important for Sony to announce a strong PS Vita line-up at the E3. And why the failure to do so is deeply problematic for the pricey handheld.

The Japanese sales since the December launch have been calamitous. After the modest Golden Week sales rebound, the PS Vita unit sales have sunk to weekly pace scraping 6’300 at worst. We are now witnessing weeks where no PS Vita title cracks even 3’000 units in sales. Yes, Nintendo’s 3DS also sunk low a few months after its launch. But then Nintendo pulled off a radical price cut to $170 combined with a string of Triple A game launches. Sony cannot afford a similar price cut for the lavishly equipped PS Vita. Its only hope to salvage the handheld is to deliver a string of exceptionally strong new titles. And that is not happening.

The general state of video game industry in the US is dismal – hardware sales plunged by more than 30% YoY in April. Still, Sony had more success with its US Vita launch than it had in Japan – and that helped the company to announce 1.8 M units shipped worldwide by the end of March. Weak, but not lethal. The company is still maintainting an ambitious 10 M unit sales target for the new handheld for April 2012 - March 2013 period. This would demand a substantial pick-up in demand.

                                         Video Game Industry's Annual Summer Event

Some have argued that Vita isn’t actually doing all that badly in Japan, because its market share among all game consoles has remained roughly 7% for months. But this ignores the fact that total Japanese hardware sales are declining sharply and the brand new Vita is competing against badly aging rivals like PSP and Wii. How could it possibly be good news that a brand new console is stuck at 7% of a shrinking market?

In June, the Vita is going to get a bounce in Japan when the Crystal White version of the console is launchd the   same week as the Metal Gear Solid HD Collection

debuts. But beyond that, the software line-up is nowhere near where it needs to be to compete with Nintendo’s 3DS. Nintendo had a soggy early preview of its Wii U at E3 this year – no price, no launch date and a wobbly software line-up that was anchored by Ubisoft’s “Just Dance 4″ (!) Retreads of “Assassin’s Creed” and “Batman” franchises were supposed to give Wii U a more mature slant, but look tired. The “Nintendo Land” omnibus game seems to be an ominous hint about the Christmas season – does the inclusion of characters from Zelda, Donkey Kong, Metroid and Animal Crossing in “Nintendo Land” imply that these franchises won’t launch for Wii U during this calendar year? A new installment of the 27-year old “Super Mario” franchise may have to largely carry the Wii U on its shoulders this Christmas. As powerful as he is, Mario could not salvage the previous Wii console.

The apparent weakness of the Wii U launch could indicate that Nintendo is in the process of shrinking into a rump company specializing in handheld consoles and marginalized in the home console market. And this would be very bad news for Sony’s PS Vita. Nintendo has a formidable roster of franchises that fit well on its 3DS handheld – Zelda, Donkey Kong, Mario, Paper Mario, Wario, Metroid, Castlevania, Animal Crossing - the list goes on and on. If Nintendo’s home console weakness forces it to channel the full power of this range to its handheld, Sony is going to need half a dozen massive Vita franchises to stay even remotely competitive. This does not seem to be in the cards.

“Assassin’s Creed III Liberation” for Vita will be Sony’s big chance of getting any momentum in North America in 2012. The game arrives in late October and has to buoy the console during the holiday season together with a new “Call of Duty” title. “Sly Cooper”, “Little Big Planet” and “Battle Royale” are unlikely to create much sizzle for Vita. Both Assassin’s Creed and Call of Duty franchises have a lot of recent supply on home consoles, where their dazzling graphics are the big draw. Can they really help Sony revive its handheld? Probably not.

The new phase in the video industry consolidation is likely to be defined by Sony pulling out of handheld market and Nintendo out of home consoles.