The Adult Handheld Gaming Market is No Slam Dunk

Electronic Gaming Business, May 5, 2004

Despite widespread industry hopes that next year's launch of the Sony PSP will expand game software revenues and cushion publishers from the inevitable dip in game sales before the next generation of large consoles hits in 2006, we at EGB think that the challenge of cultivating an adult handheld gaming market will be more formidable than many suppose. With negligible sales of two early attempts, the Nokia N-Gage and TapWave Zodiac, the market is wholly unproven. And despite Sony's marvelous technical and marketing genius, even a great multimedia handheld has to overcome adult embarrassment with playing games in public, price barriers, and media mindshare competition with other mobile entertainment options.

New projections from In-Stat/MDR predict that handheld game hardware sales will grow 14% annually between 2004 and 2008 and that Nintendo will likely remain the powerhouse in this category despite expected success for Sony's PSP. According to reports, Sony will ship three million PSPs worldwide by March 2005.

While he expects hearty growth in this category, In-Stat/MDR senior analyst Brian O'Rourke admits that banking on adults embracing handheld gaming is risky. "It's unproven - no doubt about that." Nintendo tells him that about 45% of Game Boy Advance SP units are purchased by consumers over 18, but many of those might be parents buying for children.

The industry is relying on the presumption that as younger GameBoy veterans age they will embrace a more sophisticated handheld unit with multimedia features. Unfortunately, as these gamers age they also become more self-conscious about gaming. When TapWave was designing its Zodiac, company research discovered that disguising the game functionality of a handheld unit was very important to adults. The MP3 and video playback on the PSP may help camouflage the gaming element, but these other functions also compete with gaming for media time share. O'Rourke points out that while adults do clearly want to play games, "the number of portable entertainment options is expanding," with MP3s, DVDs, and upcoming portable media players.

There is also a pocket space issue of how many devices a person wants to carry. PDA sales have started to decline, for instance. The next-gen handhelds risk overreaching the market in a similar way. Many adults may find that advanced phone handsets are good enough for the types of portable gaming they prefer. O'Rourke says that handheld game manufacturers don't see too much competition from handsets because "mobile is only good for gaming in short bursts, so they don't think it's as immersive an experience as handhelds."

Well, maybe. One of the clearest lessons of the high tech era is that new technologies that rely on changing people's everyday habits are very high risk ventures. Just because technology makes robust game play portable doesn't mean that in everyday use adults will find the time, the inclination, and the pocket space to engage in rich gaming experiences outside of the home. We think that portable gaming among adults will be a long, slow climb.

Contact: Brian O'Rourke, 480/609-4527, borourke@reedbusiness.com

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