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Third Quarter Financial Results Briefing for Fiscal Year Ending March 2011
Q & A - Jan. 28, 2011
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Q 1   I have a question about home console game machines. Some time ago, there were these "rich experiences" that were only available on home console machines. But now, entertainment can be brought out from the home, and even portable devices (handheld game machines) can provide us with experiences which can be compared with or even exceed those of home consoles. Amid such circumstances, I think people will expect less from home console machines than what was expected of them 10 years ago or even a few years ago. I'd like to know the president's view on my viewpoint.
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Satoru Iwata (President):

  The question was if the value (created by home consoles) or "the rich experiences which could be realized only by home console video game systems" have changed. Until recently, it was true that the focus had been placed significantly on the "rich experiences" which were available because of such advantages as it could use the home electricity and, accordingly, home consoles have less restrictions in terms of power consumption, unlike portable devices which require batteries to operate, and that large and dynamic graphics can be created for the large monitor screens. But are these "rich experiences" the only unique characteristics which could be realized solely by home console video games in the first place?
  If such "rich experiences" were actually the only uniqueness, home consoles would lose their meaning when battery-operated portable devices become capable of reproducing similar rich experiences. On the contrary, and this is something which started to be discussed when Wii made its debut in 2006, bigger screen TVs were entering our living rooms around that time, which enabled people to use their living rooms for a more broad range of purposes. More specifically, living rooms had morphed into play areas where people could move their bodies. This is one of the unique entertainment features that home console systems, not handheld devices, were able to realize.
  With this as an example, even such a distinction that "home console machines provide rich experiences but handheld devices cannot" will change as time goes by, and I believe that there will always be unique experiences that only home consoles can realize. Nintendo has to make efforts to offer the public something only our home console systems can achieve. There are also a number of restrictions with home consoles such as you have to be in front of a TV set, all the players must get together in one place and you cannot play if someone else is watching a TV program. I feel that an increasing number of people, who are playing with a variety of games, are saying, "I used to be able to start home console games rather casually, just whenever I felt like playing with them, but nowadays, because I am used to the easy-to-start handheld game devices, I have to have a rather strong determination to start playing with home console games." I understand that the situation surrounding home consoles is changing. Home consoles have to provide something unique to users that is only possible on home consoles in addition to the "rich experiences." For example, we must focus on what kinds of unique entertainment can be created when a home console can reproduce its images on a large monitor screen which can be viewed by several people at the same time. I think that in the mid and long term, the mission of home console machines will change in this fashion.

Q 2   Yesterday (January 27, 2011) Sony announced its new PSP. Sony called it "the ultimate portable entertainment." What kind of impression did president Iwata get? Even though they have not announced the price nor the launch date, will it be a strong rival for Nintendo 3DS?
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  I was anticipating that some of you would certainly ask me this question today. (laughter) But, Nintendo has been and will continue to be a company that does not think in terms of how to compete with other companies' products. Our only focus has always been, "What kind of new proposals from the company will be able to capture the attention of even those who are indifferent to video games?" and "How can the company create entertainment which has the potential to be appreciated by people regardless of age and gender?" In the end, the question we are always asking ourselves is, "How can we surprise people in a positive way?"
  In reality, however, our products are sold on the same shelves as other products.  But how each one of these products is to be sold in the market is up to the consumers who will decide which product seems more appealing to them, so I do not think I should comment on any other companies’ products.
  The only thing I may be able to say here is that other companies are trying to appeal to consumers in quite a different way than we do. I am hopeful that several such products with different proposals shall be offered to consumers and that, as a result, the entire handheld game market will flourish more.
  You may still feel that I should share at least my own personal impressions.  I think it was at the same Financial Briefing we held this time one year ago that I was asked to share my impressions of iPad, which was announced shortly before our event.  At that time, I said, "it felt like the introduction of a larger iPod touch," and my comment made the audience laugh.  Because I was asked to do so, I just shared my honest first impression without any positive or negative inclinations at all.  However, my first impression was somehow misinterpreted and spread as if the president of Nintendo had discredited iPad by calling it, "merely a bigger version of iPod touch."  Maybe there was something wrong in the translations from my Japanese comment into English, which were once again translated into Japanese and reported in Japan with different implications than my original comment, but some people thought and commented on the Internet that, "Nintendo's president is outrageous," and I had to read their such remarks, again, on the Net, and I felt that the situation had become quite surreal. (laughter)  That incident made me realize that I must refrain from sharing even very frank first impressions.
  I understand that, in general, people around the world take it for granted that every company must compete against other companies' products, so it must be natural for many to ask, "How will you compete?" Please understand that Nintendo is not a company which changes its strategy just because another company is going to launch this hardware console or that device. For example, how Nintendo has been persevering with 3D and how extensively we have thought about this new product are now explained in some of the Iwata Asks interviews. We have elaborated on this background in considerable detail and, by now, many of you must have already read the relevant Iwata Asks interviews that we have posted, so I will not spend time to reiterate these points. But in summary, the company has spent many years attempting this, and we believe that the time has finally come to launch this product. This decision cannot be altered by whatever offers other companies may newly make. Let us focus our efforts and energies on helping consumers to understand the brand-new value of Nintendo 3DS, by directly experiencing it, in hope that they will pass on to others their honest appreciation of the product's value.

Q 3   I have a question about your view on Nintendo 3DS software.  When I looked at the launch titles, I got the impression that the number of Nintendo’s first-party titles is less than before.  Is it because the company was late in developing applicable games, or do you have a different strategy than before?  Please advise me on this point first.
  Also regarding the software, while I got the impression that Ubisoft is now more active toward Nintendo, as for the other companies, their messages were almost similar to what were already announced at E3 in 2010.  What’s your take on my view on this?
  Finally, in your presentation, I thought you indicated that a Pokémon title would be launched for Nintendo 3DS sometime in the future.  Is my interpretation correct?
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  The question must be the concern over the fact that only one Nintendo-published title will be released at the launch of Nintendo’s new hardware platform.  First, as I briefly said today, compared with our past products, we have largely enriched the pre-installed software for Nintendo 3DS.  As we were internally discussing how we could overcome the hurdle that the 3D viewing of Nintendo 3DS without a need for special glasses can be only appreciated through the users’ actual hands–on experience, we made the decision to allocate some of our own development resources to the pre-installed software.  One of the reasons behind this decision was that we understood how valuable the inclusion of "Wii Sports" in the Wii hardware package was when we launched the hardware in such regions as the U.S. and Europe.
  More specifically, few people would disagree today that the "Wii Sports" software was the major driving force that boosted Wii hardware sales.  However, when we look back to around the time when we launched the new hardware, the general public, who had not yet experienced "Wii Sports," did not realize that this software would change the world of video games.  When we launched Wii, "The Legend of Zelda" was one of the launch titles.  Not all the people who were willing to purchase Wii in order to play with the Zelda game were willing to purchase "Wii Sports" as well.  As we did actually include "Wii Sports" in the hardware package, even those who had purchased Wii just to play with Zelda were also able to play with "Wii Sports."  Moreover, they volunteered to play the game with other members of their families.  We believe that the inclusion of "Wii Sports" acted as a strong driving force to expand the sales of Wii.  Nintendo Co., Ltd. did not include "Wii Sports" within the packaging box of Wii hardware in Japan. Internally at Nintendo, we had discussions on the most appropriate marketing method in each region of Japan, the U.S. and Europe.  When we look back now, we can conclude that the inclusion of "Wii Sports" in the hardware package in these overseas markets made a lot of sense.  We have found that if we can create a situation where all the purchasers of our new hardware can experience brand new software, it can create significantly strong momentum for a new platform (just as it did for Wii).
  So, although it may look as though Nintendo will be offering just one (first-party Nintendo 3DS) software title at its new hardware's launch, we have preinstalled something that could establish such a background to some extent. More specifically, as long as you have Nintendo 3DS hardware, even without purchasing any software, although we do want people to purchase additional software, you will be able to enjoy new experiences to some degree. We are hopeful that Nintendo 3DS users will communicate that new joy to people surrounding them. We will then enrich the software lineup for a variety of different tastes. In all, we want to create an environment in which the launch of Nintendo 3DS itself can be a much-talked-about topic in society, which will encourage even those who do not have any interest in the device today to want to know more about it. The inclusion of such preinstalled software, the attraction of which can be readily realized by those people even without prior interest in Nintendo 3DS, will hopefully be able to work in a similar way that the bundling of "Wii Sports" worked for Wii in the U.S. and in Europe. This is the reason why we allocated our (development) resources in this fashion for this time.
  Please also note that if the third-party publishers were reluctant to support Nintendo 3DS, which would have been an unfavorable situation for the company, Nintendo itself would have needed to publish more of its software for the launch day. Before the launch of new hardware, we always start the preparation of multiple software titles for the launch and, among them, we decide which one or ones should be launched simultaneously with the hardware and which others should wait, by taking into consideration the development completion level of each software title and how many of each type of the software shall be available at the same time. We made the launch software decision not because there would be only one Nintendo title ready on time. In fact, the development for some of Nintendo's own titles had already been completed before the completion of our launch title, "nintendogs + cats."
  Having said all this, however, as I already said at our Nintendo 3DS announcement opportunity in Japan last September, we see two challenges with Nintendo 3DS. One is the fact that you have to see it with your own eyes in order to appreciate the 3D aspect of Nintendo 3DS without the need for special glasses. And, the other one is the concern that only Nintendo software may be able to sell well on Nintendo's hardware. The company really wants to alter the public view toward this second point. By changing the circumstances, we want to make Nintendo 3DS a platform which can truly satisfy all the consumers. To change the situation, it is necessary for us to establish a situation where several software titles published by third-party publishers have gone off to a good start at the launch period of the new hardware platform. We found this difficult during the initial expansion period of Nintendo DS. From a certain point in time, however, the third-party software titles became hits on Nintendo DS one after another. So, although in the beginning there was a complaint that only Nintendo's own software could sell well on Nintendo DS, that feeling has waned in the midcourse. Unfortunately, however, we have not been able to create a similar situation for Wii, which is one of the points we need to improve on. When we focus upon the overseas sales of Wii software during the last year-end sales season, a change from the corresponding period a year before was found and the percentage of third-party software sales increased, but when we look at Japan alone, it is clear to everyone that the situation has not changed. So, we really want to change the situation significantly. To make that change, Nintendo has to be careful that its own titles do not cannibalize the others' titles at the hardware launch and shortly afterward because, we know a number of third-party publishers have been developing games in order to launch them in the hardware's launch period when a lot of public attention would be paid to them. This too is one of the reasons.

  Finally, on the same question, if Nintendo launches many of its own titles at the hardware’s launch or shortly afterward, it is possible that we may not be able to launch additional titles one after another and that there may be an interval before the entire software lineup shall be sufficiently rich.  In fact, it has happened before, and the expected momentum in the market couldn’t be created during such an interval of software releases.  For example, shortly after the launch of Nintendo DS, sometime during the early new year, we found such an interval.  For Wii, after Nintendo launched a number of first-party titles during the launch period, we were not able to feed the market with titles constantly so our consumers felt that Wii should have had a few more new titles.  For Nintendo 3DS, we have made the first-party software release schedule so that we will be able to provide the market with our new software without having those long intervals.  As you can see from these explanations, there are not any particular technical reasons which are hindering our ability to launch more of our own first-party titles (at Nintendo 3DS’s launch).  Let me also add that there are a number of Nintendo 3DS titles that we have not made a public announcement for yet but that we are expecting to launch this year.

The Japanese Software Market Unit Sales Transition
The U.S. Software Market Unit Sales Transition
The European Software Market Unit Sales Transition

  Next, let me answer the question on the western publishers’ views.  I understand your question was why the western third-party publishers are less active than the Japanese ones when it comes to making Nintendo 3DS software.  I think it is due to the completely different sales breakdown between home console sales and handheld sales in Japan and in the other major markets in the world.  I’d like you to take a look at this. The pink and black colors represent the software sales for the handheld devices.  In Japan, more than 60% of the entire software sales were made for the handheld devices.  On the contrary, when we look at the corresponding graph in the world’s largest software market, the U.S., the portable business accounts for only about 20% of the entire sales.  The difference is this large.  Accordingly, when we see the market from the Japanese software publishers’ viewpoint, more Japanese people are opting to play on handheld devices rather than sitting in front of a TV set.  I understand that this point also relates to my answer to a previous question.  On the other hand, for the consumers in the U.S. and in Europe, video games predominantly mean the ones played on large TV screens.  This is not a question of which region is more advanced in game play than the others: It’s just the difference in lifestyles.
  As for Europe, in or around 2008, it had a bigger handheld market than the U.S.  However, the European handheld business has been seeing a small decline recently.  As a result, Europe has a similar handheld device - home console breakdown as the U.S. today.  In these regions, accordingly, (the western developers recognize that) their main concern is the home console business.  Naturally, they make it a principle that their best development teams should develop software for the home console market, not for the portable market.  This is the big difference from the Japanese situation.  The difference in how western publishers are approaching their markets compared to how the Japanese publishers are approaching the Japanese market is causing the current situation.
  Having said that, however, I think that the importance of the portable market will increase both in the U.S. and in Europe. People will always notice the increasing differences between the unique experiences only available in front of TV sets and the freedom of gaming anytime and anywhere. When we specifically look at such newly-emerging attractions as 3D that are more feasible on a handheld device, the people who will appreciate these features will not be confined to Japan. People all around the world are in the same position. Overall, the difference in the initial efforts of the Japanese and the western publishers must have been caused by the actual percentage of the current handheld game sales in each different region's entire video game market.

  Your final question was about Pokémon.  I guess the background to your question is the possible contradiction in our message that we are making Pokémon for Nintendo 3DS even though we announced that we do not recommend people aged 6 and younger to view 3D images on Nintendo 3DS.  Let me answer your question with this assumption.  First of all, we are not saying that people 6 years old or younger should not play with Nintendo 3DS at all.  Our recommendation is due to theories on 3D viewing which is more concerned with brain function rather than eyes.  More specifically, it is said that there are large individual differences when it comes to when 3D-viewing functions are established inside our brains.  There is a theory that while this is still under development, continuously viewing 3D images that are created using a parallax method can have some influence.  We thought that the company should be proactive in letting such a theory be known to our consumers.  Because it is the parents who will purchase and let their small children play with any video game machine, and because it is highly possible that children may play with video games continuously for a long time, we wanted to convey the message that Nintendo 3DS has a parental control function and that the parents can control their children's use of various functions, including the 3D viewing, so that parents can use it to prevent their children from using Nintendo 3DS in 3D-viewing mode even when the parents are not with their children.  Our message is not, "Don’t let your children play with Nintendo 3DS" but "Let your children enjoy Nintendo 3DS under the parents’ control."
  Naturally, we expect 3D viewing to become one of the attractions when the new Pokémon title is released on Nintendo 3DS, but a number of other attractions, which do not depend upon the 3D aspect, shall also be realized.  I have no hesitation about the prospect that a Pokémon-franchise title will be released for Nintendo 3DS.  Also, the company needs to more clearly spread our message regarding the possible effects of 3D viewing on the growth of our children.  I think that such attitudes as "Please refer to the instruction manuals as everything you need to know is contained in there" are not sufficient for products like ours.  We have dispatched the message already, and we will continue our efforts, including the fact that we will add that message on the package of our products.  We would like our consumers to understand our message before purchasing our products.

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