After watching Steve Jobs last week on the live stream of their media event, I was all ready to start a scathing post about their use of numbers … and I wouldn’t be alone in doing so. I had done a similar thing last year, calling out Apple’s touting of their massive numbers of entertainment titles in the App Store. But quickly I realized that while the statistician in me might be affronted by Jobs’ penchant for bad math and claims that lack any sort of ‘truthiness’, the larger picture in Apple’s portable gaming dominance claims were more important to explore.

But I do have to start off with a look at the numbers: Apple has made claims of being the #1 handheld game system, though I know the wording Jobs used was loose and vague enough to avoid anyone pinning him down. It certainly can’t mean overall, since estimates put overall ‘iOS device’ units (including all iPods, iPads and iPhones) at ~120 million, Nintendo DS sales at ~140 million and PSP sales at ~65 million. Even Apple wouldn’t directly claim that 120 > 140 + 65!

To break down the iPod Touch sales further, take some info from AppleInsider:

We know that there were 59.6 million iPhones sold through June (from SEC filings)

We also know that 3.2 million iPads were sold.

If we assume about 8 million iPhones and 4 million iPads were sold during August and July, the total number of iPod touch sold is 45.2 million.

One common assumption is that what Jobs was talking about was the most recent quarter. Based on the recent numbers, we can either assume either the 37.7% total share or the run rate of ~1.25 million per month, both of which wind up ~3.5-3.75 million units per quarter. For comparison, Nintendo sold 3.15 million DS units and Sony 1.2 million PSP units, for a combined total of 4.35 million units.

So if Apple had a really good quarter for iPod Touches, it is possible that they did outgun both Sony and Nintendo. In fact, it is likely that as the iPod Touch has become more dominant in the iPod lineup that its sales FAR exceeded 4.35 million! What we don’t know is how many of those iPod Touch sales are used for predominantly games, compared to how many have a few dozen games but see less than 1 hour per month of actual game time.

Just look at those numbers: more than 45 million iPod Touch sales in 3 years. If you assume that Apple continues selling ~4 million per quarter while Sony sells 1.2 million, then the iPod Touch will reach parity with the PSP in 7 quarters and outnumber the PSP within 2 years. And since the iPod is ascending while the PSP is declining, the iPod Touch could outnumber the PSP within a year! As for the DS … the iPod wouldn’t reach the DS install base in 6 years even with an optimistic forecast.

As an aside, I have had some call into question iPod Touch numbers because Apple pushes out a new model each year, with the 4th generation just now shipping 3 years after initial launch. In some ways they have a point – in our house we have a 8GB 3rd gen, my 32GB 1st gen and my recently ordered 32GB 4th gen … all attached to the same iTunes account. But I also have a PSP-1000, 2000, 3000 and Go attached to the same PSN account, and also 2 Nintendo DS, a DS Lite and a DSi … so it is hard to say that the iPod Touch has any more ‘version bloat’ in sales figures than any other platform.

But while we don’t know about the gaming habits of iPod Touch owners, we do KNOW that (a) there are loads of apps in the App Store, games and other entertainment included, (b) some of those games (~1 in 1000) actually sells enough to make a reasonable amount of money, (c) the cost model is difficult for most developers, but that (d) the cost model is attractive enough to be bringing in more and more large developers.

So what does that tell us?

It tells us that while Steve Jobs once again got up and spouted some half-truths and misleading potential information, the core of his argument (incidentally something he never said but really should have) is extremely valid:

The iPod Touch has utterly changed the gaming landscape and with each new iteration continues to take the lead while Nintendo struggles to keep pace and Sony looks more and more incompetent and irrelevant.

So that brings us to the PSP. I believe I tipped my hand when I just called Sony’s handheld efforts “incompetent and irrelevant”. Without getting into too much detail, I have talked about how Sony has attempted to rewrite history by relabeling what they once called a ‘premium product’ (as in boutique) as an ‘experiment’; I have also noted how they continue to fail to get their premier third party developers to release their games on PSN day and date that UMD releases occur, in spite of the digital service being inherently quicker. Finally, I have talked about how badly the PSP Minis games are selling compared to similar games on the App Store.

But here is yet another great example of the state of the PSP, from an article at Joystiq:

Steve Fawkner, CEO and president of Infinite Interactive, confirmed with Joystiq that the PSP game would only be available as a PSN download — there will not be a UMD version. “Although we’ve received great support from D3 and Namco for all previous Puzzle Quest releases, PQ2 PSP is the first Puzzle Quest game that Infinite is doing by itself, without a publisher, so we’re not really able to handle a full UMD release at this time,” Fawkner told us. He went on to say that “it’s important to get a PSP version out there for all the people who enjoyed the original PQ on PSP and wanted the second one.”

Fawkner offered further insight into why Infinite would be publishing the PSP version itself (given that other versions were published by D3). “The truth is that most publishers really aren’t keen to take a risk on PSP these days, which is kind of sad, because it’s ‘taking risks’ that gets great games like Puzzle Quest published in the first place!”

So while we are seeing huge releases like this week’s Kingdom Hearts and the upcoming God of War: Ghost of Sparta, and a fair share of movie tie-ins and multiplatform releases (though it seems the first platform cut is always the PSP), and even sequels like Patapon 3 … that statement makes me wonder whether we would even see games like Loco Roco or Patapon now.

The PSP has an audience, but it has gotten more and more fragmented over the last few years – for many folks the PSP was all about a ‘non-kiddie’ gaming experience. But the DS has delivered loads of great games, generally at $10 lower cost. The load times of UMD games has always been a hassle, so the introduction of the iPod Touch, allowing there to be a high-definition video system with quick loading. This is demonstrated nicely with GTA Chinatown Wars, with a DS version for special dual-screen mini-games and the iPod Touch offering PSP-level visuals and audio for less money and without the load times.

So that brings us to ‘the hardcore’. I consider myself to be a hardcore gamer and few would argue – but there is a difference between BEING a hardcore gamer and having some elitist ‘I AM TEH H4RDC0R3′ attitude. As I have said, I choose to be a PC/Mac/handheld gamer. Console gaming in front of a TV is just not for me – but that doesn’t make me somehow better or make PC or handheld games inherently better or worse than anything else. THAT is the attitude that would be part of ‘the hardcore’.

As an example, we have recently seen major franchise releases on handhelds from previously console-only games: Dragon Quest IX and Valkyria Chronicles 2. The announcement back in 2006 that Dragon Quest IX would launch on the Nintendo DS created quite a stir, with gaming news sites and forums falling all over themselves about how this would the demise of … well, something. Similarly, the release of Valkyria Chronicles 2 for the PSP led some to speculate that there must be something forcing it to happen, such as this: “I have no clue why Sega thought it was a good idea to release VC2 as a PSP exclusive … this reeks of contractual obligations.”

I can understand the frustration of having a game franchise on your platform of choice migrate to another platform, along with the inherent changes need to make such a transition. I have been harsh about the failings of the PC version of Oblivion and Fallout 3, for example, both of which were primarily targeted for the XBOX360. Similar criticisms could be made for the second class treatment afforded the XBOX360 and particularly the PS3 version of Dragon Age: Origins, a PC-first development.

But that is different from what happened in these cases: there is a clear feeling amongst ‘the hardcore’ that handheld gaming systems are inherently lesser and inferior. To them, the move to the DS for Dragon Quest is akin to ‘selling out’. That is because they consider the Nintendo DS to be a ‘kiddie’ platform for playing casual, Mario & Zelda titles. Not for their beloved franchises!

The move to the PSP for Valkyria Chronicles 2 is admittedly somewhat curious: the PSP is certainly not a ‘kiddie’ platform, but it is also not viewed anywhere as being ‘on the rise’ as the PS3 certainly is. At the same time, that might be part of the reason for the choice – the PS3 is getting more and more crowded with top-tier games, so a release on the PSP could gain more attention. Or something like that.

So … why does any of THAT matter?

Because while ‘hardcore’ console gamers look down upon handhelds and handheld games, ‘hardcore’ handheld gamers look down upon the iPod Touch and the games in the App Store. You could see that attitude reflected in the recent ad from Sony on the PSP. In that article I reflected on how Sony was taking a fingers-in-the-ears ‘I can’t hear’ you approach to the fact that many of the games from the PSP are now on the App Store – and in every case they are cheaper!

I have posited here more than a couple of times about the critical need for the App Store to figure out a way to develop a viable business model. And while I still don’t think that the transformation is complete, I think there is a case to be made that rather than building a model to suit the $20 million budget game, they are teaching developers to adapt their games to certain price points and price games according to features.

And I think the iPad has definitely helped – there are tons of games and apps in the $10 – 15 range, with a bare-bones price of $5 for anything of substance. And people are BUYING! As a result, the water level for iPod apps – which I had concerns due to seeming endless pricing down-spiral – has risen so there are more apps selling in the $2-5 range, and more than ever feature-rich apps can command a premium price. Folks are willing to pay $5 for a 10 hour RPG with great graphics and features, and $10 or more for a great multi-function utility!

When you look at the other platforms, some things are obvious: gamers are less willing than ever to drop $30 – $40 for a handheld game, and that is having a HUGE impact. Nintendo actually lost money, and they attributed the loss not to hardware sales – which were doing fine – but to a huge decline in SOFTWARE sales! Certainly the smaller amount of high-profile titles this year compared to last during the same period hurt, but their bread & butter casual segment has all but disappeared to the iPod Touch. Sony … okay, aside from pointing out again that most people won’t pay $5 for a PSP Mini identical to a $2 iPod Touch game, I think I’ve already pounded on Sony enough.

Even with console and PC games we are seeing an uptick in the expectations that post-release DLC will arrive frequently as a way for gamers to stay connected with a game world they love and experience new things – for a reasonable ($5-10) price. Hmmm. Even indie developers seem to be altering some of their tactics, with Hazen: The Dark Whispers on Steam for $8 as episodic content and a new announcement for a game called Beyond the Pillars, a set of 7 episodes for $5 each for the Mac and PC.

Hmmm … notice the pricing – more and more stuff is drifting towards $5-10 for a few hours of entertainment. It seems that rather than App Store developers being forced to adapt their model to existing frameworks, that the popularity of the App Store is forcing the video game industry to adopt a model that recognizes a continuum of pricing models from $0.99 to $60 per game.

It is obvious that within this new reality there are going to have to be changes – as I have said it doesn’t make sense that a game that cost $5 million to make could sell for $1.99 … the sales requirements are just too great (>3.5 million or ~10% of all iPod Touches ever sold). It also seems fairly obvious that people will not be willing to pay $30 for the exact same game they can get for $10. What remains to be seen is how it all shakes out. As I have said, I consider the PSP a lost cause – but I also believe that Sony has positioned it as such and done nothing to stop it from progressing that way.

Nintendo needs to do a couple of things – the first is getting out the new 3DS as soon as possible in 2011. That is more or less straightforward, as the hardware is pretty well done, and there is massive customer pull for the system – ensuring a solid sales stream for at least a few games. But once the dust settles from all of that, they will need to address the reality that the $20 casual market they dominated has migrated to games selling for $2-5 on the App Store. That is a tougher thing to deal with … but something that is critical, if last quarter’s results are any indication!

So let me state it again:
The iPod Touch has utterly changed the gaming landscape and with each new iteration continues to take the lead while Nintendo struggles to keep pace and Sony looks more and more incompetent and irrelevant.

In 2004 Nintendo launched the DS and in 2006 they launched the Wii, and with those two systems changed the face of gaming. Those systems invited people into gaming in ways that complex PC and console games with their cumbersome interfaces never really had. Games like Elite Beat Agents invite you to tap to the beat on the DS screen, Nintendogs lets you scratch the belly of your virtual pooch, and organizations still use Wii Bowling for virtual bowl-a-thons to raise money. And companies continue to expand their use of those technologies.

But in the summer of 2008, right as we were heading into a major recession, Apple launched the App Store, allowing all sorts of games and entertainment and utilities to be bought and installed on the iPhone and iPod Touch. And as we have seen, it has completely changed the face of mobile gaming. No longer confined to crappy Javascript games on slow handsets, we could play Plants vs. Zombies or FieldRunners or Doodle Jump or GTA Chinatown Wars on a bright 3.5″ screen with a robust graphics system.

So while I still bristle when I think of the way Steve Jobs plays fast and loose with numbers, making insinuations and semi-assertions that are fraught with factual half-truths and misleading conclusions … what I also realize is that everything has changed. People who would lay out $30 for Puzzle Quest on the PSP in 2007 are now going to get it for $20 on the DS or be content to wait to pay $10 for it on the App Store.

Much has been made over the other app stores, such as the Android Market and the upcoming Windows Phone 7 marketplace. As of right now I think they have a long way to come (personally I think the Android Market is a total mess and useless to browse), but with the Android smartphone hardware becoming better every day and the promise of XBOX Live functionality in Windows Phone 7, the transition to a broader low-priced mobile gaming ecosystem is clearly not going to stop.

It remains to be seen what impact Apple’s new Game Center will have, but given the massive popularity of Steam’s community for PC & Mac gamers, XBOX Live, and the Playstation Network, my assumption is that if it is done well and is convenient to use (unlike Nintendo’s friend code system), it will be a massive success.

What are your thoughts on Steve Jobs and his ‘loose with the truth’ ways? How about the iPod Touch as a gaming platform – and the impact of the App Store on the overall gaming world? What do you think will be the impact of iOS 4, the Game Center and the new Pixel Display iPod Touch over the next year? Let us know!

Source: AppleInsider