Most of the major news in consoles this week was in handhelds, but there are major implications for both Sony and Nintendo. Nintendo broke a record that's stood for almost 125 years and posted the company's first ever yearly loss this week. The company had issued profit warnings as early as November, but the amount—$533 million—was double what the company projected back last fall.
Part of the problem was the massive price cut Nintendo gave the 3DS last summer, when it slashed the price from $250 to $160. The $90 cut drove the unit's price below its cost-of-manufacture, and has left Nintendo reliant on software sales to make up the difference. As a result, the 3DS faces a much slower road to profitability and is dependent on software sales and royalty fees to make up the difference. With over 13.5 million units sold to date, the 3DS is well on its way to becoming a profit center; Nintendo has pinned its hopes for a recovery on handheld software sales through 2012.
Vita aeger consilii
The PlayStation Vita's woes, meanwhile, have analysts and industry pundits calling for price cuts -- preferably yesterday. Unit sales have gone into freefall since the console launched, it's respectable sales of 324,000-odd units its first week out have slumped to less than 10,000 sales a week. US sales haven't slumped to the same degree but have fallen nonetheless; estimates put the figure at around 225,000 units sold in March, which is less than it sold for the four days it was available in February.
The Playstation Vita's graphics have been hailed as gorgeous, but that's not moving the devices very well
Would a price cut fix what ails the Vita? That's hard to pin down. Data from both the 3DS and Vita launches suggests that at their original prices, the systems only appealed to a core group of followers willing to pay such a high premium. The worry, in this case, is that Sony may not have the franchises it needs to haul the Vita's sales out of the doldrums, price cut or no price cut. 3DS sales only improved modestly after the price cut -- it was the launch of new Mario games and other first-party titles that really kickstarted the system's popularity.
The other question is whether Sony can afford to cut the price at all. The company is bleeding cash as year after unprofitable year have piled on, and the Vita isn't cheap. Nintendo's estimated manufacturing cost for the 3DS, for example, is about $104 -- yet the company is selling below cost at $160. The difference between the two is the cost of marketing, other manufacturing costs, and software development. If we take Nintendo at its word and assume that such costs add up to $180, how does the Vita look?
Not too well, it turns out. The Vita's BOM comes out to $159. That doesn't leave Sony with a whole lot of wiggle room, particularly if it's taking a loss on the hardware. The PSV's OLED screen and touchscreen capabilities are expensive, and there's no way to drive those costs down in the near future.
Between the two companies, Nintendo has a reasonable chance of eventually driving the 3DS to profitability, but Sony's fortunes are less clear. Of the two, Sony is far better positioned to create a convergence product that would mesh tablet functionality and a handheld game device, but the internal barriers to doing so are probably high. The entrenched game development community won't want to give up control of the device or of the overall experience. Regardless, the Vita is almost certainly the last handheld of its type--regardless of whether or not Sony cuts the price tag.