Iwata doesn't like that, and that's fine. His company's business, like the business of a great many people reading this, involves selling more expensively developed software at more expensive price points, and they don't like seeing downward price pressure or the spectre of customer attention being grabbed by cheaper experiences.
It's a clear and obvious threat, and plenty of people have observed that the 3DS, as an extremely relevant example, is going to have to face up to some tough competition from iOS in the coming years. That doesn't, however, mean that it logically follows that the smartphone gaming business isn't making money, or is a threat to gaming as a whole.
If anything, this is an exercise in picking your battles. I'd draw your attention to another story that's been bubbling away this week - the release of the first gameplay videos from EA's upcoming Battlefield 3, along with some pretty strong rhetoric about taking on Activision's Call of Duty franchise.
These are multi-million-dollar games in their development phase which have the potential to turn into multi-billion-dollar games at retail - and there's seemingly plenty of space for them to duke it out in the market.
Meanwhile, we're being inundated with fresh information about gigantic, sprawling RPG title Dragon Age 2, and teased with the first trailer for another dragon-sporting RPG epic, Skyrim. Some of the first hands-on previews of Sony's The Last Guardian, five years in development, have hit the internet in the past couple of days. Killzone 3 and Bulletstorm are doing just fine in terms of sales, and Nintendo itself is about to drop the undoubtedly gigantic Pokemon Black and White on the UK.
Is the top end of the market in crisis? No, it's not. Break-out hit titles are still doing what break-out hit titles have always done - selling lots of units and making lots of money - and they're doing it in a host of genres and demographics from "core gamer" right out to the kids market.
"Iwata is dead right on one point - one answer to this is to innovate and to progress the science of games design."
The threat of smartphone and online downstream gaming has never been to those games, and it's disingenuous to suggest that that's the case. Certainly, any new form of entertainment - especially a cheap one - is never going to be welcomed by the existing media, but are shooter fans really going to eschew Bulletstorm because they're too busy with Angry Birds or another iOS treat? That audience exists. It's there. It's being served. It's not going away.
Rather, the threat is to the segment of the games space that can't quite justify itself in the face of 99p App Store offerings. It's not, ironically, Nintendo's key titles that are most likely to suffer, although the company will have to join the rest of the industry in re-examining how it handles development and pricing in the face of this new pressure. Rather, it's the countless shovelware titles which have made their way onto the DS and Wii that are seriously going to suffer when consumers cast a critical eye over where their gaming money is being spent.
It's a rough shout for the developers who are involved in working on those kinds of titles - because, let's face it, nobody joins this industry dreaming of making short-cycle shovelware - but ultimately, if your Ł35 Wii title doesn't entertain consumers as much as a 99p iPad application, then it's not some wicked conspiracy that's putting your job at risk. It's pure economics.
If another company can make a solid income out of entertaining consumers for a fraction of the price that you're charging, then in a purely evolutionary sense, they're fitter and they're going to survive.
Iwata is dead right on one point - one answer to this is to innovate and to progress the science of games design. Make better games, and do it in smarter ways that reduce cost and risk, so that you can tap into developers' creativity and pursue break-out hits rather than safe mediocrity.
That's going to be vital in the years to come - because with the absolute best online, smartphone and tablet titles being priced much cheaper than the absolute worst console games, the ability to launch something mediocre and make a return is going to dissipate rapidly.
Iwata's true concern is that with it will go a fairly sizable chunk of Nintendo's third-party catalogue and licensing income. How he steers his company through this challenge will be a major test of the creative thinking and business intellect that he has demonstrated so often in the past.
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