With so many changes looming for the game industry in the next 10 years, I think Sony + Nintendo would be better off teaming up to form an "alliance" rather than trying to compete against each in a split market and possibly being broad sided by outside forces like Apple and free-to-play Facebook/Flash gaming. Not to mention Microsoft. Before you spit out your cofee, hear me out:
They're both Japanese companies and with Kaz Hirai tipped to be the next Sony president, this is someone Iwata (another Japanese gaming guy) can really work with, this isn't some guy who doesn't know anything about the game business. With the Japanese game industry failing, the coming together of these two companies could kick start the Japanese market again. Together they could control virtually 100% of the traditional handheld market and be able to integrate a joint portable platform into their own branded cell phone devices with real gaming controls.
Nintendo put Mario on iPhone? Never. On a platform that they have major control over and have a share in the profit and full design input on? With a fellow Japanese company? OK, now you probably got Mr. Iwata's attention, this can be Nintendo's "answer" to the rise of cell phone gaming (and Sony's too) ... one in which they have control and a stake in all hardware/marketing/software decisions.
Their franchises just compliment each other very well too, Mario/Zelda/Pokemon/Mario Kart/Wii Fit with Uncharted/Gran Turismo/God Of War/Killzone/LBP is a 1-2 combo of exclusives that appeal to virtually every demographic you could think of. Such a console platform would be gaurunteed 100-150 million unit sales every time out, without the need for Nintendo having to pull a "Wiimote" miracle out of their R&D every 5-6 years or Sony to get back all the 3rd party exclusives they've lost. It gives both companies an assured massive market userbase that they both crave to sell their own IPs to.
Combined it would be easier for the two to fend off things like unfavorable currency losses as they could split those as well (this is killing Nintendo right now), they could also split things like hardware costs, have joint R&D (Sony obviously mirrors Nintendo's controllers, why not just work together). They could operate like the Blu-Ray/DVD consortiums, except it would only be the two of them, and they could split 3rd party royalties between each other, keep profit from their own titles seperate, and share marketing costs.
I think this can be an answer to long term problems both companies. Neither stands to win if 99 cent cell phone gaming continues to grow. Neither stands to gain anything if Microsoft continues to grow in the industry. Both are wary of Apple I think. Both stand to lose if the Japanese game industry continues on its downward spiral. Perhaps once they were bitter rivals, but the 90s are over. Nowadays, it seems to me that their common interests are starting to out weigh their differences.
