Nintendo has recently announced that the next generation of its DS handheld video game console will come with a 3-D display. It is scheduled for release in the current fiscal year (ending in March of 2011). The new console will be compatible with games for the company’s older DS and DSi handheld models. Users will not be required to wear special glasses to view 3-D images. The company has not yet revealed what kind of technology this handheld product will employ or how much it will cost.

Contributing Factors

In particular, a couple of notable factors have encouraged Nintendo to move forward on the three-dimensional front. The popularity of recent 3-D films has helped to drive the development of this technology. Manufacturers like Samsung and Panasonic (PC) have recently introduced 3D televisions, with prices starting around $1,700. Initial customer reviews have generally been positive. 3D Blu-ray players and DirecTV broadcasts are also expected in 2010. Moreover, the emergence of rivals in the mobile game market, such as the iPhone and the iPod Touch (both by Apple (AAPL)), have increased the pressure for Nintendo to introduce a new handheld game system.

Sony’s 3D Offering

Nintendo isn’t the only video game console producer expanding into 3D. Sony (SNE) is also working on a 3D capability for its PlayStation 3. Sony will likely remain focused on adding this capability to the PlayStation 3 console, and not in handheld systems, such as the PlayStation Portable. In that sense, Sony and Nintendo won’t be directly competing with each other in their new 3D offerings.

Risks and Challenges

The development of three-dimensional televisions and video games is still in its nascent stages, and our view of the future remains clouded. There are many unanswered questions at this point. Despite the popularity of several recent 3D movies, it remains unclear to what extent adding this new capability to televisions and video game systems will catch on with consumers. Early indicators appear positive, and we remain cautiously optimistic about this technology for the time being. This looks to be a serious undertaking that could very well improve the way we watch television and play video games. That said, this trend will probably take several years to build momentum. Customers may initially be reluctant to buy a new television with 3D capability, especially those who have recently purchased a high definition model. This issue may prove an important obstacle for Sony’s efforts to add the 3D feature to PlayStation 3. On the other hand, Nintendo faces no such problem with the launch of the Nintendo 3DS. However, this offering may well face its own set of challenges. The extent to which 3D capability will enhance handheld game play is not yet known. Furthermore, it remains uncertain how successful this offering will be among the younger users who are typically drawn to Nintendo’s platforms. Thus, it remains to be seen whether this product can attract enough of an audience to be commercially successful.

Indicators to Watch

The Nintendo 3DS will be on display at the E3 video game expo this June. We suggest interested readers watch this event closely. Information about the technology, features, and cost of the Nintendo 3DS will likely be revealed at this time. Moreover, from this point onward, readers should have an idea of how this offering is likely to be received by customers. In order to gauge Sony’s success in its 3D endeavor, investors are encouraged to follow the reception of 3D televisions along with the introduction of 3D-friendly games for PlayStation 3 in the coming months.