Analysis: Michael Pachter's claim that Apple is 'cannibalizing' DS sales

The NPD Group survey for video game hardware and software sales in October 2010 came out late on Wednesday, and now we're getting more information about the numbers. Most interestingly, analyst Michael Pachter continues his oft-repeated claim that Apple iOS are 'cannibalizing' sales of dedicated handheld gaming devices like Nintendo's DS. In this article we'll evaluate that claim and see how much weight it holds.

Apple's iOS gaming vs. Nintendo DS

As more numbers have come out from the NPD October 2010 survey, some interesting patterns emerge. According to an interview with industry analyst Michael Pachter on Gamasutra, the precipitous drop in hardware sales (26 percent year-over-year) is predominately because of handheld devices. In other words, despite the fact that Nintendo's DS was the best selling device on the market, those sales are down 34 percent from last year. Mr. Pachter claims that ""We believe the iPod Touch is cannibalizing dedicated game handheld hardware sales, and expect weakness in handhelds to persist until the 2011 introduction of the Nintendo 3DS." It's no secret that DS sales are down because many are holding off until the 3DS arrives, but is it because of the growing market share of Apple devices?

Mr. Pachter, to our knowledge, has no divulged any information to support that claim. The most recent data for handheld gaming that includes Apple devices is from September 2010, derived from market research firm NewZoo and reported on by Forbes. The most notable figure that supports Pachter's claim: despite a much higher installed base (in terms of lifetime unit sales), almost as many people actively game on Apple platforms as they do on Nintendo's DS handheld. In other words, there are a lot of DS units just gathering dust.

Further refined data suggests that more gamers play 'frequently' (at least three days a week) on Apple devices than Nintendo's DS--21 million versus 19 million. That said, hardware exists to sell software, and gamers who own the Nintendo DS buy a lot more software in a given month than those on Apple devices, almost double in fact. Even Sony's struggling PSP handheld generates more software sales--in dollars per gamer--than Apple devices.

Apple devices are clearly a force in gaming, but considering the large separation in software sales on the platforms, they are long way from threatening Nintendo's current dominance of the handheld market. Obviously, Nintendo's DS games carry a higher per-unit price than most iOS apps, but they also typically deliver a longer and deeper playing experience. Many writers have described Apple iOS games as those you pick up for 15 minutes at a time, whereas DS games are played in somewhat longer sittings. Until further data emerges, it seems more likely to attribute the weakness in DS sales to the impending release of the Nintendo 3DS than to competition from Apple's iOS devices. The software attach rate--both in terms of unit sales and in raw dollars--has to rise considerably higher for Apple's iOS devices to truly 'cannibalize' DS sales.

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