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Soundwave said:

Maybe there is a bottom and this just magically ceases to be a problem for Nintendo next-generation, but its very possible that mobile gaming is a cancer that isn't going to stop until it carves the handheld business into something unsustainable. 

The problem is these smart devices are getting kids to think of portable gaming as something that should be free or $1 at most. You have a whole generation of kids thinking that's how things should be. That's a problem. 

Between the 3DS and Vita, there's going to be about 140-150 million fewer handhelds sold this cycle. Whereas smart phone sales and adoption is accelerating. If it chips away another say 30 million even next cycle, Nintendo is getting into a danger zone.

If it comes to the handheld business been unsustainable then it's in Nintendo's best interests to start selling hardware at a profit. The red ocean route might not be a bad idea come to think of it since Nintendo practically has a monopoly on dedicated gaming handhelds. Nintendo should do what Apple does and that's depending on their loyal customer base much like how Sony went through the bad times with the PS3 ... 

That line of thought really might be dangerous when it comes to gaming but that only shows that they value gaming very little since so pandering to them was a lost cause from the start ...

They definitely might be getting into the danger zone with a further decline like that but it doesn't have be that way as long as they sell their hardware at a profit and there will always be an audience for dedicated gaming handhelds since control schemes are the biggest differentiator ...