Iwata on spreading game information to all sorts of consumers.

When it comes to the decision making process of which video game software to purchase, a huge gap exists between each individual as to the amount of effort one will put into seeking the relevant information. There are consumers who very actively search for game-related information. They are so knowledgeable about video games that I sometimes wonder if they have more knowledge than us working in the video game industry. On the other hand, there are a number of consumers who have virtually no video game knowledge. When Nintendo DS was quickly expanding its sales, it was not rare to encounter people at the video game outlets who came there to purchase certain software but all they could remember was the person who appeared in the software’s TV ad. In such a situation, where we are dealing with wide variety of consumers, I could not agree more to your opinion that the need for effective matching is, and will be, of significantly increasing importance. Anyone who can invent the most appropriate matching mechanism will take a great advantage in the digital platform business from now, I think. About this challenge, Nintendo does not have any concrete answers today. Of course, by now, Nintendo has been able to gather a number of data through the activities with Club Nintendo and, with the consumers’ consent, we gather their play records on Nintendo Channel. As a result, we are starting to see a number of such relationships as, “those who have played with this software are also actively playing with that software” or “those who find this game satisfactory are giving high marks to that software as well.” As you know very well, at Amazon.com, we often see, “Customers Who Bought This Item Also Bought…” and you must have clicked the “Purchase” icon without the prior intention to do so. I have done so myself. When I think about how that kind of recommendation should be in our video game field, my opinion is “Customers Who Bought This Item Also Bought…” is not sufficient. Rather, such messages as “Consumers who liked this product very much also gave a high score to that product” should be more useful information for our potential consumers. So, the issue is how effectively we can deliver such information to them. Another thing is, people who are actively gathering relevant game information do not mind going through several processes in order to reach the very information they really wanted to know. But for the other people who do not act so proactively, the information which they cannot access in the first trial is as if it does not exist at all. Even if just one process is required, the relevant information cannot be delivered to a number of our potential consumers. With that understanding, we are making efforts. This thinking is also very important when we launch our products outside Japan or in the countries where we were not able to sell our video game products. As for the Wii U, we have been making preparations and are ready to make some proposals with which the consumers can at least say that Nintendo has taken the first step to make a new proposal in its endeavors. As I said before, it is not too much to say that anyone who comes up with an effective mechanism to this challenge will have a great advantage in the future of digital business. This challenge is so important. We should not forecast any one attempt to find the concrete and final solution. A number of you may have the impression that Nintendo can show its strength in the packaged software business, where the company does not need to take care of its products a lot after releasing them in the market, and that we may not be good at continuing efforts after the product sells. But in the network business, the fact is, “endurance makes you stronger.” In the network business field, how we can take advantage of the data we obtain every day will be critical for the next steps. In the near future, I would like to establish the style of what Nintendo can do in this regard. – Satoru Iwata


Iwata talks how digital business is ramping up.

We are anticipating our financial performance to recover in the next fiscal year and beyond, but we are not anticipating that the digital business will suddenly play the central role next year, and we are not anticipating the packaged business to go away anytime soon. On the contrary, as I explained with the chart, the sales of the applicable software can grow in the third fiscal year for the hardware, so the third year for the Nintendo 3DS will be the opportunity when we can expect to increase the software sales significantly. Therefore, if we will be able to sell the Nintendo 3DS hardware without losing money on the hardware sales and the software sales will largely increase, the company will be able to generate significant profit even if today’s severe foreign currency exchange situation continues. On the other hand, we cannot share with you the concrete figures (financial forecasts for the next fiscal year) in an environment like today where the level of the Euro, for example, that we thought as appropriate one week ago is totally wrong today. When we consider foreign currency fluctuations for no less than three months, it is almost impossible to predict accurately. Without knowing the foreign currency exchange rate situation, we need to refrain from picking up any concrete numbers today as doing so would not be an appropriate indicator for our actual performance forecast.

Regarding the add-on content, the revenue from the so-called digital business generated via the network, including the revenue from add-on content, will largely increase from now. There is no doubt that this is the area which has an overwhelmingly bigger growth potential than other business fields today. But if you ask me whether the level of the revenue will immediately match the ones currently generated through the existing hardware and packaged software sales, I do not think it is going to be that way anytime soon. Also, if we place too much focus upon that effort, we will end up focusing too much on increasing the just-mentioned ARPU, and it will result in negative side-effects. The important point for us to remember is how to maintain the situation where a wide variety of our consumers can readily appreciate our offers. In terms of that priority, we cannot, and should not, ask our consumers to embrace the situation where they are required to make excessive payments. Doing such things might be good for short-term profit, but it will not serve our mid-term and long-term business developments. So, while we believe that digital business revenue, such as revenue from add-on content, will grow to be an important resource, it will still take time before it can play the central role, or constitute the majority of our income. – Satoru Iwata


Iwata on the importance of various graphical styles.

You are asking for my comment as a judge, but I also need to think about the software content, so my remarks are two sided. Looking at the software for home console systems, there are certainly the software titles for which very rich graphics must be reproduced on HD displays and which demand a large number of developers to spend a very long time to develop. It is one of the truths that a certain number of such software titles must be prepared, or the consumers will not be satisfied. But we do not think that any and all the software must be created in that fashion. When you look at Nintendo’s software, extraordinary rich graphics, massive gameplay volume and astonishing rendition effects are not necessarily the appealing point. It is, in fact, important for us that our games are appealing in other ways as well. An example of this is the Wii software, “RHYTHM HEAVEN FEVER,” that we released last year in Japan. It became one of the hits, but if we had adopted rich photo-realistic graphics, it would have lost much of its appeal rather than improving its appeal. Similarly, about the Japanese title “Tomodachi Collection” for Nintendo DS, the developers themselves confirmed that this software is based upon the “cheap concept.” It is not necessary for us to deploy a huge number of people in order to develop such games. When we need massive power and have a lack of internal resources, we collaborate with outside resources and pour necessary resources to where they are needed. We are increasing the frequency of working with outside developers where Mr. Miyamoto and our internal developers alone used to develop. At the same time, however, we do not forget to ask ourselves in each such opportunity, “Isn’t this something our internal resources alone could sufficiently deal with?” Also, when we have such a doubt in the development as, “Will such cheap pictures do in terms of today’s home console graphics’ standard?,” sometimes we conclude that “showing such pictures are unique and rather appealing, so it’s OK.” So, there are a variety of different ways to show the unique appeal of software. What’s important here is not to narrow down what we can do. Rather, we have to create the dynamic range of appeals that the consumers can appreciate. We decided to make a proposal of an additional screen into the Wii U controller because developers could think of a variety of different possibilities here and there of using both a big TV screen and a screen in a player’s hand. As we will showcase the Wii U at E3 in June this year, the detailed announcements must wait until then, but we are aiming to make a system which shall not be forced into competing with the others where the contenders can fight only with massive developer resources and long development times as their weapons. Having said that, however, as I mentioned, it is true that, in some software areas, we need to be engaged in the power games. Take The Legend of Zelda franchise, for example, the fans must be looking for the graphic representations that they do not see as cheap at all when the title is released for the Wii U. When it is necessary, we do not hesitate to role out our resources. – Satoru Iwata


Iwata on 3DS demographic.

Regarding your remark on Capcom’s “Monster Hunter 3 (Tri) G,” (Japanese title) making a change in the Nintendo 3DS’s user demographics, you are exactly right. The number of Nintendo 3DS users who think of themselves as skilled game players is increasing. Also, the number of male Nintendo 3DS users in junior high school, high school and university is increasing. I believe I have previously shown you a pyramid chart of Nintendo DS’s and Wii’s user demographics, which showed surges in children and their parents’ age demographics, and between which was a dip, so that it looked like a two-humped camel. I think that dip is now being significantly filled. For years, Nintendo’s video game platforms have had an almost equal split between male and female consumers but, probably with such a background, the male-female user composition for the Nintendo 3DS at this point in time must be about 6 to 4 in favor of male users. Of course, there are a large number of female users of the product, but the ratio is more male-favored at present.

In the overseas markets, the main battlefield for third party publishers is the home console market. As you once again look at the graph that I showed you today, you will notice that a higher ratio of software sales is generated on home consoles. As the result, the major western publishers tend to put more priority on developing their software for home console systems. On the other hand, now that they were able to confirm the Nintendo 3DS’s marketability in the just-finished holiday sales season, their attitudes are gradually changing. Also, until such software from the overseas publishers pours into the market, the Japanese software makers have a great business opportunity, I believe. This is one thing that I often talk about with Mr. Hatano. If the company can cooperate with the Japanese software makers and increase the overseas sales of their quality software, we can prove to the others that the market is there for them and the Japanese software makers will be able to expand their markets. Therefore, if we can do so, there will be a number of advantages. In other words, the important factors are: One, such titles will be launched by the western software makers and succeed in the market, and: Two, Nintendo and the Japanese software makers will effectively cooperate so that their titles will sell well outside Japan.

As for the “Touch-Generations” titles for the Nintendo DS, as many of you recognize that these titles were able to gain popularity among different consumers and to expand the total number of consumers for the hardware, we often receive such questions as “Why don’t you do the same for the Nintendo 3DS?” If the company was to simply port these “Touch-Generations” titles to the Nintendo 3DS, there would be nothing fresh. Although we have not included the software in the lineup that we have announced so far for this year, we are, of course, preparing several titles with which we will be able to aim to expand the entire gaming population. By releasing these titles in the market, and by linking them with other network activities of the company, by taking advantage of such communications among friends as “Swapnote” or interactions in public enabled by “StreetPass” communication, if we can beef up the joy of the software, and if we can communicate to consumers the brand-new experiences such software can deliver, I believe we will certainly make a change. For example, in comparison to the Nintendo DS and the Wii, fewer senior consumers are using the Nintendo 3DS today. It must be inevitable as there are few titles among the Nintendo 3DS software so far developed with this age demographic in mind. The situation must change after applicable software is introduced. However, for the Nintendo 3DS, we have to first maintain the situation in which the current owners of the Nintendo 3DS will be satisfied. We cannot put too much priority on expanding the entire user demographic at present. It is important to maintain a good sense of balance here. – Satoru Iwata


Iwata on maintaining 3DS success.

Among the challenges you just mentioned, the ones involving the Nintendo 3DS are the ones which will affect the company’s future. For a new hardware system, the third fiscal year after the launch is a very critical year, the one which can be referred to as the “year of challenges” from some viewpoints. How we can expand the sales of the Nintendo 3DS in the third fiscal year will determine the total hardware and software sales of its entire lifespan. As for the Wii U, although this system is categorized in the general video game description of a home console system, the play styles the company is proposing with the Wii U are not limited to the ones which are available only in front of TV sets, so I believe that we will not use the term “home console system” for this hardware. Whenever we launch a new video game hardware system, if we cannot sustain the momentum during the launch period and a certain period thereafter, it can invite very challenging situations just like the one the Nintendo 3DS experienced. Doing our utmost to avoid such a situation is another challenge the company is focusing on. As for other things, to sum up, we will make efforts to effectively implement what we have already prepared.

I recall that I also heard a concern at one of these occasions in the past that the company may lack sufficient resources, and I was asked, “How will the company cope with it?” It is obvious that Nintendo does not employ so many people internally. If we look at the number of our own employees, we are not a so-called “resource-rich” company. When we view our company from a different perspective, on the other hand, it is an advantage because Nintendo has more freedom and flexibility to be able to collaborate with outside resources as long as we can find good partners. As a matter of fact, although many tasks used to be done only internally in the past, we are now working with people outside the company in several business fields. When we make any relevant announcements on such projects, we cannot just say we are working with this company on that project. Unless we can make more comprehensive announcements by discussing the details of the subject product, it may not make any sense to you. So, we would like to discuss this topic sometime later. There are several projects we will be able to talk about this year. I hope that I will be able to pick up examples which will show that Nintendo is taking care of the business fields in which it lacks internal resources. – Satoru Iwata


Iwata on swapnote success.

I’m afraid I cannot show you anything quantitative as I have no data here. The only quantitative thing I can tell you is that more than 10 million handwritten notes have been exchanged in the four weeks after the launch of the service, which you can see in the Iwata Asks interview posted on our website (in Japan) just the other day. So I can say that users are using this software actively to some extent. And, I believe that the number of handwritten notes to be exchanged will increase at an accelerated pace if we can have users continue to enjoy the software for a long time. In fact, we have some plans to encourage more people to use it, and you will find out what I am talking about when we reveal such plans in the future. Therefore, we believe this software will gain more popularity going forward. From a qualitative standpoint, “Swapnote” is very popular among women. Watching the people around our employees and myself, I have the impression that a lot of women of all ages enjoy using it. Therefore, this software works really well to have women feel familiar with the Nintendo 3DS. I will be preparing some quantitative data for the next briefing. – Satoru Iwata


Iwata talks Wii U launch date.

In determining the launch date of the Wii U, we need to take into account not only what to release at the launch period but how to keep the sales momentum after then. In the past, I mentioned that having strong momentum is very important for game platform businesses, and as a matter of course, we are now more convinced of that and we need to have a backup plan ready.

Regarding the add-on content I mentioned before, effectively providing such content for a game which has sold well could be a way to keep the market momentum. The sales pace is getting slower day by day even for the biggest hit software. If we could announce some big news in connection with the add-on content for such software, many people would start playing it again, which could be an opportunity to revive the momentum. In this context, the add-on content should be considered as a key to extending the lifespan of products and to maintaining the sales momentum, as well as a chance to earn additional profits. – Satoru Iwata


Iwata on allowing 3rd party companies to do micro-transactions.

If third-party developers would like to adopt this form of micro-transaction, and if this kind of business relationship between the developers and consumers is commonly accepted in Japan, we have no intention to decline it. Please understand that this is totally up to each developer, and I am not in the position to say yes or no. Again, we will not turn down such requests by third-party developers as far as they can establish an appropriate relationship with their customers. – Satoru Iwata


Iwata on more 3rd party freedoms.

As a hardware manufacturer, or platform holder, it would be better to present third-party developers with as much freedom as possible. Some say that the guidelines and regulations we previously established are too strict and behind the times, and others say that Nintendo should not put too many restrictions on the features of software targeting the consumers who are familiar with micro-transactions. Therefore, we plan to ensure a relative level of flexibility for the Nintendo 3DS and the Wii U software compatible with the Nintendo Network as long as the developer has built a trusting relationship with consumers, except for the cases that consumers will be too disadvantaged.

On the other hand, the reason I refer to Nintendo as a software developer is that we have a belief that our games should be a trusted brand for a very wide variety of consumers, including children and casual users who are not so familiar with the trends of video games. Therefore, we would like to have regulations with a certain degree of strictness so that consumers will get a sense of reassurance from our games. I am not saying that Nintendo is better than third-party developers. Each developer has its own customer base, and we should be more careful with this point for Nintendo consumers. – Satoru Iwata


Iwata on allowing retail games to go digital.

What I told you today is that we already have the necessary infrastructure to digitally distribute the software on a scale as large as the packaged software. We can start it as soon as we decide to do so. We have prepared the structure because we anticipate that it will increase in importance in the future, and I wanted you to know as a part of my presentation today that the company is not denying the future possibility of doing such activities. As for the actual digital distribution method, we need to consider what kind of cooperation we can make with wholesalers and retailers, but we think that there must be various solutions other than just positioning digital distribution as an enemy to them. Upon close consultation with them, we would like to determine the details of our digital distribution. We therefore have nothing to tell you about the differences in prices or release dates. Some argue that a downloadable version to be sold at the same price as the MSRP (Manufacturer’s Suggested Retail Price) of a packaged version is not competitive because packaged software is often sold at a lower price than the MSRP. Downloadable versions that are too cheap will create a different problem, while no one will want to buy games online at a price that is too expensive. As the spread of speculation caused by our remarks on undetermined things might have a negative effect on our business, we would like to hold back from making more comments until when we can actually start such digital distribution. Please let me tell you one thing again: there must be a solution other than positioning digital distribution as an enemy to wholesalers and retailers. When we find one, we think that the solution will provide an interesting future in which both of us can benefit. – Satoru Iwata


Expanding the life of software with digital content.

…For instance, we anticipate that “Super Mario 3D Land” and “Mario Kart 7” will bring in a substantial profit in the next fiscal year and the year after that. On the other hand, we will be able to do various things in the field of digital business. Up until now, once consumers who had bought a game got tired of it, they would never play it and it would never draw public attention again. Even if the game had the sales potential to other new consumers, they rarely actually bought it because the consumers who already had bought it would never talk about it again and the game would be considered an old one. Having said that, what if we could provide add-on content through the network? As I referred to before, for example, this is the idea of supplying new stages to Super Mario users who want to play the game more but have completed the game and lost interest in the existing stages. This will not only give us new profits but will lengthen the life of a product, in that it will never be out of fashion and can keep attracting public attention as long as many people play it. We should not aim to just increase the ARPU, but at the same time, to give our products a longer lifespan and a larger number of total sales. “Wii Fit Plus,” which we released as packaged software as the upgraded version of “Wii Fit,” could be another example. Under the current network environment, we might be able to provide such upgrades to consumers through the network as opposed to just providing the content in a disc form. We can recommend that “Wii Fit” users try new trainings and games, and continue to play the software with a fresh mind, which will give the software a longer life and bring us slightly more revenue. – Satoru Iwata


Iwata talks more about NFC.

Please let me answer your question then. I mentioned the NFC (Near Field Communication) function for the Wii U (in my presentation today). In Japan FeliCa-based e-money is used the most, but the NFC standard compatible with FeliCa has been very popular. If we can provide a system in which consumers can use such e-money, they will far more easily be able to make payments than by entering credit card numbers or purchasing the Nintendo Prepaid Cards at stores. “SpotPass,” in which consumers unconsciously get connected online, is enjoyable, but a system in which they unconsciously make payments online is unacceptable, we believe. Therefore, one answer to your question could be to build a solid system in which consumers will make payments at their will and with a minimal amount of effort.

Additionally, in connection with the flow from watching the “Nintendo Direct” presentation to trying the demo versions I mentioned, it was a new discovery for us that so many people watched the presentation via the Nintendo eShop. If we can construct a seamless flow in guiding consumers to watch the Nintendo Direct presentation on their Nintendo 3DS and then voluntarily try 3D trailers and demo versions (that were introduced in “Nintendo Direct”), this is a fairly powerful and efficient system. One of our reflections on why we could not bring our network business up to the level we had anticipated is that each step consumers had to take was not simple enough. It is said that with each extra step, the number of consumers drops by one-tenth. Our challenge is how to improve such steps one by one.

I understand that the former question was the idea to surprise people using the network. This is the last thing we can tell you until our product is actually available. It is so difficult to amaze consumers if we give prior notice way ahead of time, so we are hesitant to say anything. Thank you for your understanding.

By the way, “Swapnote” for the Nintendo 3DS is another attempt in addition to “Flipnote” for the Nintendo DSi. This is the software of exchanging handwritten notes, including photos and sound, with the friends who are registered on your Nintendo 3DS. Previously, if you took an interesting 3D photo with your Nintendo 3DS, it was not easy to share it with other people. But now people are actively using this software for that purpose. This is another key example of how we offer users more and more opportunities to communicate with each other. Furthermore, if the collaboration between the forum for communications and the place for new information on games starts to work well, we will be able to figure out a vital response to the concern you sometimes shared that Nintendo may be behind the social age. To the views that Nintendo is cautious, conservative, or even negative about business on a network, our answer is, in short, that we will make a bold attempt when the time is ripe. Unless the timing is right, we will lose the consumers who do not have an Internet connection. We have not gone so far yet because our developers have a belief that our products should be available to as many people as possible. However, now that the network connection ratio for the Nintendo 3DS is much higher than the past handheld systems and that a lot of people watched the Nintendo Direct presentation, we have a strong impression that the foundation for business on a network for us to take on various challenges on it has been steadily put into place today. – Satoru Iwata