Megadrive1988
Veteran
http://www.nintendo.co.jp/ir/en/library/events/080425qa/index.html
I took the best questions for posting here. There was 5 pages worth.
I took the best questions for posting here. There was 5 pages worth.
What is your observation about the possible price cut of your hardware during this fiscal year?
We have not made our financial forecast with the premise of a hardware price cut. Also, we are not foreseeing the necessity for us to do a price cut in this fiscal year. If it is predetermined that the hardware price shall gradually decrease, then that model reiterates the notion that early purchasers will suffer a loss, which I do not believe is the right business model. I believe that something must be wrong if we conduct our business with the premise that we will need to cut prices of our hardware as time goes on.
Tell me more about WiiWare. Now that the service has started in Japan, have there been any changes in the reactions from new software publishers? I am anticipating growth in this field, but I would like to know your thoughts on how many software titles will be sold and how much sales will be generated?
As to the number of software developers entering the WiiWare market, I have the impression that it is gradually increasing. As for the initial reactions from software developers who have already started selling their software, some of them have already started working on their second titles because the initial download sales so far in Japan alone where service is available has been relatively good, and global sales can be expected to be several times as much as the Japanese sales. They are thinking that "We definitely want to work on the next title now that we know what to expect with Japan sales alone."
On the other hand, I think it is very difficult to predict how fast WiiWare will be expanded to customers. Should we have to prepare physical inventories in order to deliver the goods to our customers, we would need to make the best guess on the potential sales and make the inventory available. However, as we electronically distribute, we do not need to prepare for physical stocks. Accordingly, we have not made the forecast on the precise business potential, and we are not in a position to answer to that question today.
Having said that, I am expecting it (electronic distribution business like WiiWare) will play important roles in the long run. Will it go pass the tipping point just in one year, or will it take 3 or 5 years? The future of the electronic software distribution business is not very clear today, but it is something that we need to prepare for. On the other hand, I do not believe that today’s packaged software business will simply be replaced by electronic distribution business all together. The packaged software business has its own up side, as does the electronic distribution business. We would like to establish a business model in which both can prosper.
I would like to ask about one of the subjects you mentioned today, "platform cycles." You said that DS started off its explosive sales in Japan around 2006, and, in 2007, the sales pace was somewhat calmed. Now that Europe has been experiencing excellent sales, aren’t you concerned that it will go through the same path as Japan did? Some say that both DS and Wii can be played intuitively but that they do not have deeper elements for players to explore so that it can get boring. So, isn’t there any concern that both DS and Wii might lose the current popularity in Europe in the future?
About the point that the U.S. and Europe might tread the same path in a year, a year and a half later as Japan did with DS sales calming down after 2 years, it may not be appropriate to lump together nations such as the UK, which tends to catch onto trends very quickly, and Germany, which is relatively slow in appreciating the same product.
One thing for certain is that both the U.S. and Europe have far larger population than Japan. As I have mentioned before, the ultimate goal of any video game system install rate is to achieve one game system per individual, and more population means more market potential. As they (the U.S. and Europe) have a larger population than Japan and the speed at which any new information is spread and consumed is exceptionally high in Japan and slower in these countries, my hypothesis here is that they shall experience a longer cycle than those seen in Japan.
Of course, we do not intend to let our guard down at all. It is just that we are not anticipating the overseas market to change at the same cycle as we have experienced in Japan. We have been carefully observing any symptoms of change (in the market places), but so far have not sensed them.
As to the "depth" issue of games, the game elements which encourage players to play again and again are not determined by hardware characteristics. It is the matter of how many game replay incentives the game developers include into one software and of how to balance between very easy-to-be-understood aspect for anyone and the additional excitements only those who have played hard can experience. For example, while a number of DS software currently available in Japan are highlighting their intuitive game plays, many others are including the elements that must be explored by intensive plays. The balance between the two will change as time goes by. Such notions as all the Wii and DS software can be intuitively played but shallow in the contents are superficial observations.
About a year ago today, I know that many people were talking about how the Wii’s great momentum few months after its launch would soon fade. Now that a year has passed, there must be different opinions even among these same people as to whether the Wii’s momentum will pass or whether the Wii has just begun its great cycle where quality software are developed one after another.
Nintendo is increasing Wii’s manufacturing capability for this summer in order to meet global demands. We are challenging ourselves to sell hardware at a level where Nintendo has never sold before, and for that matter, where no other video game home console has ever sold in a record one-year period. So, we are basing our judgment upon the fact that the current momentum is something real. On the other hand, our business can be finished as soon as our customers become indifferent to our products. Accordingly, we are always reminding ourselves that we need to offer something new before our customers get bored of our current proposals.
Japan had suffered a serious gamers’ drift situation during the preceding hardware generation because the business back then was placing too much emphasis on hardware specifications. With the efforts of Nintendo, the market situation has finally been recovered. On the other hand, the growth ratio is slowing down a bit. If the current situation continues, I am afraid that the Japanese market share will be weakened to be less than 10% of worldwide market. So far, video game market has been introduced overseas as a sort of culture with Japanese origins, but I am concerned that this may not be the case in the future. I would like to know what you, Mr. Iwata, think about this situation. If you share my concerns, do you have any plans to alter the situation? In Japan, I understand that the market has not reached a point where many small-scale developers are starting to work on WiiWare software. What is your observation on this?
Back in 2003, when I made a keynote speech at Tokyo Game Show, I compared the Japanese video game software companies’ presence in the global market then and 5 years before, in other words, 5 years and 10 years ago from today, and said that Japanese software manufacturers’ presence (including Nintendo’s) had dwindled in the overseas markets. That was the time when Nintendo’s own presence was shrinking, so I was not in a position to address the issue as someone else’s at all. About 10 years ago, the Japanese video game industry represented a significant portion of the global industry market, and the sales of Japanese software used to largely outnumber that of non-Japanese developers’. However, the new business structure created by overseas software publishers fit well into the overseas markets and, accordingly, Japanese software makers’ presence dwindled. I am afraid to say that the Japanese video game industry as a whole is not completely ready to recover its past position yet.
In actuality, the Japanese market’s share is low when you observe software sales data. When it comes to portable game system software, the Japanese share is still high. But when it comes to home console, the hardware sales in Japan is comparatively lower in Japan than in overseas markets, but the share of software unit sales is even lower. Your concern was that the Japanese market share may occupy less than 10% of the global sales, but in fact, the total number of home console software sold in Japan must now be less than 15% of the global home console software sales, I think. It used to occupy a quarter of the global sales, so it can be said that the Japanese home console video game software are not selling the way it used to.
I think this is because Japanese people are becoming increasingly busy so that the game play style that requires them to sit in front of a TV for a long time no longer suites their daily lives and, instead, the portable video game sales are increasing. On a global scale, the home console video game market is still huge, and thus it is important for us to develop (home console) software that can be appreciated by the global markets.
As for WiiWare, at this point in time, there seems to be a higher number of major publishers in Japan, while there are more small-scale developers overseas working on WiiWare software. I am hopeful that a small developer will succeed in their WiiWare software and the news will be introduced as a success story of WiiWare so that more small developers will be willing to create unique WiiWare applications. I am really hopeful that there will be one such a good example to trigger this good cycle in the future. Nintendo would like to consider what Nintendo can do to most effectively make that happen.
Nintendo has had a long-standing relationship with Japanese publishers and major developers, and overseas expansion is a major topic when we get together. A unique example that I am proud of is the Mario & Sonic Olympic Game that we collaborated with Sega. Sega had obtained the Beijing Olympic license to make exclusive video games and offered to cooperate on a game in which Mario and Sonic appear together, which was the starting point of this project.
In Japan, Nintendo is selling this Mario & Sonic game, In the U.S. and in Europe, however, it is Sega who is selling the same game. Sega has recently announced that the cumulative sales of Wii and DS Mario & Sonic games have reached 5 million units. It has been a while since a Japanese publisher had produced this kind of smash hit in the overseas markets, so I felt that this set a great example. Of course, I am not suggesting that merely licensing Mario will generate good results. However, if there is a good idea, and if we can understand the advantages of each company that can be leveraged in the project, we would like to cooperate in such a project that can help heighten Japanese software manufacturers’ presence in the global market.
When I look at the supplemental material distributed for this Financial Results Briefing, I feel that the number of titles prepared for the latter half of the year is small. Are you intending to announce the software lineup for the latter half of the year in mid-July at E3? When I compare with the software you have actually sold from the end of last year to the former half of this year, I feel the future lineup is not strong enough. Are you preparing for some big title?
When we prepared the Wii software lineup from the end of last year to the first half of this year, we were very conscious of the fact that we had to make a strong enough lineup in order to expand the Wii platform install base. Of course, we are preparing for a variety of software for the latter half of this year. However, we are now feeling that the speed at which new information is consumed and made obsolete has become quicker than ever. When I think of today’s situation as a consumer, when I am exposed to new information too early on, I find that I am already tired of it when the product is launched. This is one of the reasons why we would like to keep news at bay until we really have to disclose them.
Rest assured that we are preparing for a variety of products for the latter half of this year and early next year. Also, you will begin to see the many results of our third party partners, who have since recognized that Wii will be a platform for their success. So, I am hopeful that there will be rich contents available for Wii software in general. I am sorry but we are not ready to announce the details today.
Mr. Iwata, you told us before that you would like to establish some new business by utilizing this highly prevalent DS as an infrastructure. When will you start this? What kind of impact are you expecting for your sales and profits? Anything you can tell since you spoke to us the last time?
As that was one of the topics I discussed with you last fall, it would have been ideal if I could have shared additional details today. With regards to the use of DS in public spaces, however, there are elements Nintendo alone cannot complete. We were not able to complete the necessary coordination with our partners in time to prepare a detailed plan to be shared today. However, it is true that we are making progress, and we think that we will be able to start several experiments in the near future.
Of course, in the long run, we are hopeful that such new projects will yield (direct) profits to us. Before doing so, however, it is important for us to create situations to which we can point and say "if you bring your DS to a public space, there will be something nice for you" or "there a number of people playing their DS, making use of them and enjoying themselves in public" because it would imply that DS’ activity rates are on the rise. In other words, we would like to see a situation where DS usage will be ubiquitous, and this, for the short-term, will be the greatest benefit.
Although more than 22 million DS hardware has been sold in Japan alone, what we are most afraid is a situation where people stop playing with their DS. Before DS launched, people lived without DS without experiencing any inconvenience back then. But as software caught their attention, provided entertainment, and the DS became a part of their daily lives, there is now an unprecedented phenomenon where those who had never played any video games have started playing and, on average, three people per household today are playing DS.
However, whether or not we can keep this momentum is really important. Of course, we need to provide them with interesting proposals one after another in order to keep their interests. At the same time, we think it is necessary to increase the number of places where you can feel it more advantageous to bring your DS with you. This is a concept behind our idea of using DS in public spaces. Of course, we are not forgetting to consider it from a revenue source perspective, and they may be able to actually contribute to our financial results sometime in the future.
What I can say at the very least is that within this year, we are thinking of starting several projects.
You said that platform cycle may change. What are the things you can identify as the factors to generate the new platform cycle today?
I personally feel that, when software creators have done everything possible with one hardware platform to offer ideas and tricks to generate pleasant surprises to the customers, it is the end of the hardware lifecycle. As Nintendo has its own hardware development team, they are always researching into new hardware. Also, while they are working on new video game hardware, they are also working on hardware accessory to the video game hardware, such as Wii Balance Board, which can add extra functions to the original hardware in order to add an element of surprise for people. Such developments by the hardware team can be considered as a way to expand the hardware platform’s lifespan. Most recently, the wheel accessory for Mario Kart Wii falls in that same category.
On the other hand, any technology has a breakthrough point. Even today, there are many things that we want to materialize, but that is limited by the currently available technologies or that can be done today but would be costly to be sold as a game console. But when a breakthrough takes place in the future, that technology can be incorporated into a hardware that can be reasonably priced for our customers. At that time, if the software developers believe they have done everything possible on the current platform to surprise the customers but cannot do anything further, that is when a new hardware platform is needed.
As semiconductor technology makes progress and the width of the process rule has become thinner, we can put more transistors and the total functionality will increase. However, that alone will hardly surprise the customers any more. So, we have to think in terms of other elements as well.
Do you mean that the factor which will trigger the new platform to emerge into the market will be from within the company and not initiated from outside?
We are always trying to be the first to offer fun proposals to our customers, and many companies in this industry are eager to do the same and putting in the utmost efforts in order to find the concept that can give pleasant surprises. From that perspective, when another company comes up with an idea that can totally surprise customers, our way of thinking on what we should do might be altered. So, as principle, we would like to generate such (factors to initiate the new product cycle) from among ourselves, but we cannot say for sure that the trigger won’t result from action of other companies.
Could you explain your idea that the past platform cycle can not be applied today and its relationship to DS’ Japanese sales? Can I assume that DS may someday exceed the peak the Japanese sales realized for the term ending in March 2007? Or, has the Japanese DS sales already entered into different phase?
We should not conclude that the Japanese sales of DS have peaked. In our business, one single software can change the entire picture completely. For example, there was a time when people thought the Game Boy platform was virtually over. However, a software called Pokémon single handedly changed the situation and expanded the platform’s lifespan by several years. Just as we were able to do so with Nintendogs and Brain Training, if we are able to provide customers with an unexpected product, the situation can drastically change.
I said earlier today that the (past) product cycle cannot be applied today, but I did not mean that the notion of product cycle will disappear. What I was trying to say was that, thinking such as "since the past generation’s product cycle was 4 years or 5 years, this generation’s cycle must be 4 years or 5 years too" or "as the past generation hardware followed this path so will the current generation" will not hold as cycle length and patterns will differ with different environment and customers. Simply because the same patterns have taken place for many years in the past, many tend to think that the same pattern should be repeated next. However, when I hear that kind of traditional platform cycle theory, it reminds me of how people opposed our ideas of products for 5 to 95 years old, regardless of age, gender and their past gaming experiences. So, what I really wanted to say today was, isn’t it time for us to rethink of product life cycle in a less static manner.
Do you mean that the past platform cycle may or may not be applied in the end? Or, are you saying that Nintendo is making efforts to not repeat the same product cycle? If the answer is the former, how will you cope with the prolonged cycle? If it is the latter, what efforts are you making to prolong the product lifespan?
First of all, our traditional customers are mainly those who proactively seek game-related information for themselves, and we could quickly deliver the information they needed. This is because they are acting to obtain the information from their side. On the other hand, what we are attempting today is to ask those who openly states that they have no interests in video games to give Nintendo’s products a chance and enjoy our games, which takes time. From this perspective, I have to wonder if it is all right to think that this current generation of hardware will have a 4-year lifespan just because the past generation’s lifespan was 4 years. I believe a different time cycle must be considered.
Now that they have kindly purchased hardware, it is desirable for us if they can enjoy the machine as long as possible. We are selling the hardware just because we want our customers to enjoy software. This is something that Mr. Yamauchi (the former president of Nintendo) was saying and not something I myself started. But Nintendo thinks that our customers reluctantly buy our hardware (in order to play software). Accordingly, we would like to offer new proposals one after another as long as that hardware can still provide fresh and pleasant surprises. If such efforts can be resulted in the prolonged lifespan of a hardware, that is good to us.
So, we are trying to offer new proposals one after another and trying to maintain a high activity ratio of the hardware. At the same time, there are still many people in the world who have not played video games, so if we can reach out to them, the total life cycle will change. The main point of my address today is that, we have reached a stage where an analysis of past businesses that targeted traditional gamers in Japan, the US, and the European markets alone cannot be an appropriate indicator for the future.
Tell me about the hardware profitability. I understand that you are not planning on a price cut in the current fiscal year. Are you taking into account the hardware production cost factors or are you anticipating the further cost down for the hardware?
As a matter of course, when we make more hardware, costs will go down as time goes by. On the other hand, whenever I read reports written by a number of people outside the company, I always have the impression that our video game business would be much easier if the cost decrease could be realized as quickly as the writers are predicting. I mean, the costs cannot be decreased that easily at all. From the very beginning, the number of hardware units Nintendo guarantees to produce are fairly large in the first place. Because we guarantee a fairly big amount for a fairly long time period, video game hardware have been manufactured and sold with the relatively low costs for the functions realized by the machines.
So, the costs are actually coming down, but if you ask me if the cost of DS Lite will be going down the way it did since the time Nintendo started manufacturing it until today, I have to answer that there will not be that much of a cost decrease in the future. The costs of DS Lite cannot be drastically decreased from now. The costs cut we have experienced before cannot be repeated in the same way. That is how I am feeling today. Having said that, as a matter of course, we are constantly making efforts to cut costs and we are constantly making efforts to improve profits.
Likewise, the costs for Wii are expected to decrease. However, when we compare Wii with other machines, whose core semi-conductor chip comprises a comparatively big share of the costs, there is a difference in how a price decrease of these semiconductor chips contributes to the total price cut, as the chip price is not a dominant factor in deciding Wii hardware’s price. So, I think this gap in the premise must make the cost down predictions made by people outside the company look rather fast in comparison with the actual cost down process we are making.
I am concerned of two risks. One is about the rumor that Microsoft will launch a controller which will resemble a Wii Remote by the end of this year. What are your thoughts on this? The second is, even though this may be the matter of next year or thereafter, they often refer to Apple and others as potential companies to enter into home console and handheld game businesses. What is Mr. Iwata’s opinion to this kind of move?
I am also aware of the rumor and have seen a fake image made by a fan on the web which looks like a Wii Remote with the rumor that such a controller may be launched, However there is no way for us to comment on such speculations. All I can say today is, it is not that easy to develop software which leverages the characteristics of Wii Remote. We are not concerned about what other companies may do but rather more concerned with presenting them with new ideas to our customers based on the prospect that our existing customers will surely get tired of the plays enabled by Wii Remote if we do not try to improve the experience. In other words, what matters to us is whether or not we can continue to constantly create and offer new surprises one after another. If we can, then (other company’s attempt to launch Wii Remote-like controller) should not be a big threat. The efforts in this field to try to appeal to a wide variety of customers are something in which we saw potential early on and that we have been working on the longest, so there appears to be no reason whatsoever why we need to be concerned.
About your next question about what we will do if other companies enter into the market, as I said earlier, the game business comes with huge business risks and it is becoming increasingly more difficult for new entrants. You mentioned the name of Apple, but until any one of them can actually demonstrate what they are willing to do in this game market, I cannot make any comment.
Just like I said now, what matters to us is not who may be entering into the video game market with what kind of risks but how we can keep the interests of our customers because these customers, even though they are appreciating our offers today, will get tired of them if we cannot provide them with new proposals before they get tired of them. If we can provide them with new surprises, they will continue to support Nintendo for longer, and if not, they will say in the near future, "That was Nintendo’s peak." So, we want to make sure we will do our job right.
