For Pachter, the crucial challenge for the iPod Touch as a game platform is pricing. The sticking point is whether well see these games offered at $9.99 or at $29.99. If at the lower price, the developers/publishers would take a profit hit; if at the higher price, the popularity of the iPod Touch as a gaming device will suffer. (Currently most of the top-selling App Store titles, even from major game publishers, sell for well under $10.)
At the moment, Pachter noted, Sony and Nintendo have access to better games, including exclusive first-party titles that will never show up in the App Store; this gives both companies a distinct competitive advantage over Apple: Everyone who owns a DS or PSP is a potential game customer, as he puts it, while only a fraction of iPod Touch owners will buy expensive games.
That said, Pachter still believes the iPod Touchs expanding market and lower prices will ultimately make a dent in the PSP and DS software markets. The question is whether its supplementing the existing handheld market, or cannibalizing it.
[M]y guess, Pachter told me, is that its a bit of both.