Watch Out, Nintendo: Apple Is Designing Game Controllers

by Brad Moon | June 18, 2013 8:14 am

Amid all the recent hubbub in the video game industry, we completely forgot about Apple (AAPL[1]).

The E3 video game conference recently wrapped up, featuring next-generation video game console reveals from Sony (SNE[2]) and Microsoft (MSFT[3]). Back in January, Nvidia (NVDA[4]) surprised audiences with a “Project Shield”[5] reveal at January’s Consumer Electronics Show. And Nintendo’s (NTDOY[6]) Wii U stumble[7] has attracted ongoing attention.

What fell by the wayside in all this was the impact Apple (AAPL[1]) has had on portable gaming.

The iPhone, iPad, iPod Touch and an App Store combined to hammer the segment[8] at the expense of longtime leaders Nintendo and Sony. So far, Apple has shied away from the living room, despite having obvious interest in the space and selling 13 million Apple TV set-top boxes. (Apple TV runs iOS, plugs into a TV and could theoretically be enabled to run the same games that other iOS devices do.)

Sony, Microsoft and especially Nintendo have been looking warily at the little black device, ticking time bomb that it is. Only three factors have kept the threat of Apple turning that video streaming box into a $99 game console:

A quick review of those historical factors shows worrisome signs (if you’re in the video game console business).

Apple CEO Tim Cook has recently changed the story on the living room, switching from Apple TV as a hobby, to an area where the company has a “grand vision.”[10] The hardware powering iOS devices has become powerful enough that it rivals current game consoles[11]. Plus, Apple is supporting HD resolutions, and it has begun to loosen up on allowing different display sizes and aspect ratios.

So iOS devices have the capabilities now. And, with the iPhone 5, developers will start compiling app versions to support multiple display configurations.

The Big News

The shoe that just dropped was an announcement at last week’s WWDC[12] that Apple has released an official framework for designing an external game controller for iOS[13]. This means no more kludgy add-ons that work with one game but not others. It’s a set of rules that outlines the specs for controllers and documents how buttons are to be mapped.

It also specifies two types of controllers. The first is a shell for an iOS device like an iPhone or iPod Touch, effectively turning it into a mobile game consoles — complete with the joysticks and buttons that are currently the primary remaining advantage Sony’s Vita and Nintendo’s 3DS have over mobile iOS devices. The second controller type is a standalone one designed to wirelessly connect to an iOS device and control what you see on screen.

In other words, the missing piece if the AppleTV were to take on Sony, Nintendo and Microsoft for living room gaming. Gizmodo called the news “the surest sign yet that Apple TV will be a gaming console.”[14] So the question isn’t really “if” so much as “when.”

While 13 million is a decent number of AppleTVs (compared to about 77 million Xbox 360s), not all of those would have gaming capability. Early-generation boxes would be out — even current versions don’t have quite the same power as an iPhone 5. So the move to offering video game console capability might be limited to the next generation of Apple TV, or it might even be part of Apple’s aforementioned “grand vision” and be incorporated into the Apple television we’ve all been waiting for[15].

Adding to the risk to the status quo, next-gen video game consoles are expensive. The Xbox One will start at $499 when it launches, while the PS4 will clock in at $399. Add a handful of video games at $60 a pop and you’re looking at a significant investment. In contrast, the current-generation AppleTV is going for $99, an add-on controller peripheral would likely be less than $50, and top-tier titles at the App Store seldom top $5. Those purchases would be playable not just on an AppleTV, but whatever iOS device the user owns as well.

Starting to sound a little more dangerous?

A video game console Apple TV — which also incorporates all of Apple’s considerable video streaming expertise — would be a formidable box. Something like a light version of Microsoft’s Xbox One, but at a third of the price.

And the Market Trembled

Microsoft and Sony will undoubtedly retain their hardcore gaming customers thanks to their next-gen consoles’ crushing graphics capabilities and multiplayer support. However, AppleTV could eat into the new gamer market and capture a lot of the business of families who want a multipurpose console for their living room, but don’t want the hardware and game investment an Xbox One or PS4 represents.

While Microsoft could take a hit in its aspirations to grow the Xbox One beyond hardcore gamers, the biggest loser if the Apple TV becomes a video game console is likely to be the same company that’s taken the biggest hit in the mobile gaming market — Nintendo.

Casual gamers who are less focused on extreme graphics capabilities have always been Nintendo’s target market. Its Wii U lacks the raw horsepower of the Xbox One and PS4 and is instead relying on a novel controller that incorporates a tablet to draw in buyers. An AppleTV combined with an iPad could offer much of the Wii U experience, but instead of the 105 games currently offered for Wii U[16], Apple TV owners would have hundreds of thousands of low-cost games to choose from, including big-name titles like Madden Football, FIFA and Mass Effect from Electronic Arts (EA[17]) — a leading video game publisher that supports iOS, but has decided to hold off on releasing for the Wii U[18].

With two straight years of annual losses[19], its mobile gaming division under fire, the poor sales numbers for the Wii U, and now the specter of Apple invading the home video game console market … Nintendo is in the hot seat.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Endnotes:
  1. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  2. SNE: http://studio-5.financialcontent.com/investplace/quote?Symbol=SNE
  3. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  4. NVDA: http://studio-5.financialcontent.com/investplace/quote?Symbol=NVDA
  5. “Project Shield”: http://investorplace.com/2013/01/ces-day-one-nvidias-bombshell/
  6. NTDOY: http://studio-5.financialcontent.com/investplace/quote?Symbol=NTDOY
  7. Wii U stumble: http://investorplace.com/2013/01/nintendo-warns-of-weak-wii-u-sales/
  8. hammer the segment: http://www.theverge.com/2012/4/26/2976735/nintendo-sales-stats-handheld-gaming-report
  9. referred to the Apple TV as “a hobby.”: http://appleinsider.com/articles/10/06/02/jobs_apple_tv_a_hobby_because_theres_no_market
  10. “grand vision.”: http://www.theverge.com/2013/5/28/4374480/apple-tv-sales-13-million-to-date
  11. rivals current game consoles: http://www.forbes.com/sites/jasonevangelho/2012/09/13/mobile-game-developers-discuss-iphone-5-graphics-matter/
  12. last week’s WWDC: http://investorplace.com/2013/06/apple-unveils-ios-7-new-macbooks-more/
  13. official framework for designing an external game controller for iOS: http://reviews.cnet.com/8301-31747_7-57589005-243/game-change-ios-7-welcoming-game-controllers-is-a-big-deal/
  14. “the surest sign yet that Apple TV will be a gaming console.”: http://gizmodo.com/-513191654
  15. Apple television we’ve all been waiting for: http://investorplace.com/2012/12/will-apple-tv-be-steve-jobs-salmon-of-doubt/
  16. 105 games currently offered for Wii U: http://www.nintendo.com/games/gameGuide?system=wii+u
  17. EA: http://studio-5.financialcontent.com/investplace/quote?Symbol=EA
  18. hold off on releasing for the Wii U: http://www.trustedreviews.com/news/ea-says-no-wii-u-games-is-a-business-decision
  19. two straight years of annual losses: http://www.theverge.com/2013/4/24/4260062/nintendo-2012-earnings

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