Apple Inc. (NASDAQ: AAPL) CEO Steve Jobs talks a good game. At yesterday’s Apple media event in San Francisco, Jobs proudly announced that the Apple iPod Touch is the world’s “number one portable game player” and that there over 1.5 billion pieces of game and entertainment software have been downloaded on iPods through iTunes and the Apple App Store.
It’s true the iPod certainly has built a strong reputation as a video game player in addition to its more common identity as a music and video playback machine. Still, Apple has a long way to go before its portable devices can begin to compete in the devoted game console market, portable and otherwise.
With 130 million iOS-powered iPod Touches ready to play any piece of game software available on the App Store, it would appear that Apple’s device is ready to unseat Nintendo (PINK: NTDOY), whose successful Nintendo DS handheld has sold over 132 million units since it was released in November 2004, as the reigning champion of the portable game player market. Every game platform’s success is measured by its ability to sell software, not hardware, though, which should make Apple’s boast of 1.5 million downloads to the platform all the more intimidating to its would be competitors. Impressive as they may be, these numbers are misleading.
First, no matter the strides Apple has made in establishing a healthy games market on the iPod and iPhone, only part of the user base who owns these devices is using them to regularly play video games. Which illuminates just how deceptive the statistic of 1.5 billion downloads really is. That figure includes games, yes, but it also includes downloads of television, movies, and most significantly, free software.
If anything is preventing Apple from becoming a dominant player in the video game market, it’s the proliferation of cheap, shoddy software on the App Store. For every success story like Plants vs. Zombies, the PopCap Games-developed game that sold 300,000 copies within two weeks of its release on iOS platforms last February, there are thousands of low-cost titles that create a barrier between the paying audience and quality software. Apple’s devices can’t succeed in the way that Nintendo’s portables have historically for no other reason than the structure of its marketplace.
Apple is taking the right steps however. Its recent emphasis on the type of software typically associated with Microsoft (NASDAQ: MSFT) and Sony (NYSE: SNE) home consoles show an interest in dispelling the App Store’s reputation for low quality titles. Titles like Electronic Arts (NASDAQ: ERTS) Mirror’s Edge, Take-Two Interactive (NASDAQ: TTWO) Grand Theft Auto: Chinatown Wars, and the just announced Project Sword from Chair Entertainment and Epic Games, the developer’s behind the successful Xbox 360 franchise Gears of War, prove that Apple has the support of the industry’s biggest financial players. The new Xbox Live-style Game Center on iOS platforms will also help establish a more coherent marketplace on the App Store, fueled by user word of mouth and ratings. There is even the potential in Apple’s new Apple TV to leverage iOS consoles as living room game consoles. While the functionality isn’t present in the Apple TV shipping this fall or the upcoming iOS update, the ability to stream video content from the iPad to televisions through Apple TV over WiFi means that the same might be done for games.
Apple’s claims that the iPod is the world’s number one portable game machine might be premature, but the Cupertino, California, company has the potential to make that claim a reality by 2015.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
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