IR Information

Financial Results Briefing for the 68th Fiscal Term Ended March 2008
Q & A
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Q 1   What is your observation about the possible price cut of your hardware during this fiscal year?
A 1

Satoru Iwata (President):

  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.

Q 2   I personally believe that Fire Emblem is one of the best software Nintendo has ever produced. I have seen Mr. Yamauchi and Mr. Iwata listed as executive producers in the end credits of the game. What kind of involvement have you had with the series?
A 2


  Fire Emblem’s current producer has been consulting with me, so my job for the Fire Emblem development team is to be the consultant to the producer of the game. The role of an "executive producer" has been changing with the times, and I imagine my involvement must be slightly different from how Mr. Yamauchi used to be involved.

Q 3   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?
A 3


  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.

Q 4   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?
A 4


  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.

Q 5   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?
A 5


  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.

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