IR Information

Financial Results Briefing for Fiscal Year Ended March 2011
Q & A - Apr. 26, 2011
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Q 1

  Recently many tablet-type devices have entered the market, and I feel they have reasonably large screens, are intuitive and are attractive as game devices. What is your viewpoint, Mr. Iwata, on having a tablet device as Nintendo hardware or a game device?

A 1

Satoru Iwata (President):

Regarding the format you referred to as "tablet," which has a certain big screen and allows users to directly touch it, when we look at it from the viewpoint of "developing software which uses a touch screen," I think it is an interesting device if it creates an experience that is in line with the trend created by Nintendo DS. On the other hand, we have never abandoned the + Control Pad and buttons for our game systems because we think these functions are advantageous when creating highly reactive games. In this meaning, I do not think Nintendo hardware will take on any of the current tablet forms as they are without buttons, to make our game devices. However, this is only when we consider tablets as game devices and, for other purposes, I think tablets are very interesting, and they are a form of hardware that will continue to grow.

Q 2

  Social games in addition to mobile games, which are played mainly on smartphones, are continuing to grow rapidly. How do you think this affects your company's business?

  Also, are there any possibilities you will somehow incorporate social games as one of revenue sources?

A 2


At the same time Nintendo's performance was declining, the growth of social games and smartphones was seen, and I think there was much speculation, along with reports and articles stating that there was a causal relationship between the two. For example, social games became popular, or iPhone and Android were launched, and smartphones became a large presence in the mobile-phone market and a number of applications including games became available at a very low price. Then articles were published saying that "this is the cause of the decline in the Nintendo DS business," and even this morning there was an article with such tone. I have repeatedly brought up the question, "Is Nintendo's performance as it is because it has been affected by social games or smartphones, or is there a separate cause?" In other words, "Is there a causal relationship or is it just that the two things are happening at once?"

As I emphasize again and again, if there was a causal relationship, there would be a significant difference between Nintendo DS users who play social games and Nintendo DS users who do not play social games, or a significant difference between Nintendo DS users who play games on smartphones and Nintendo DS users who do not play games on smartphones. For example, if we discover that users who play social games are not playing with Nintendo DS as much anymore, or if there is a decline in how many games they buy in a year, we would need to start believing that there is a causal relationship because, no matter what I think, we would have actual proof, but if we cannot find any proof, the assumption that there is a causal relationship may not be correct.

I have mentioned that we are researching the gaming population in Japan and the United States, and at the same time, we have also researched whether respondents play social games, have smartphones, or play games on smartphones. As for the use rate of Nintendo DS, we have not found any significant differences. I can not say that no one said, "I recently stopped playing Nintendo DS because I am now playing games on my smartphone," but statistically, there was no significant difference.

On the other hand, we found out that people who play paid social games have a higher Nintendo DS use rate. This was a significant difference. Isn't this the opposite of your impression? Therefore, I think that the people who play paid social games are people who like games. And as a result, they have a higher overall use rate.

As for the number of games purchased during a year, we only have data for Japan and it's very recent data, so the Nintendo DS business is not that sensational and the number of games purchased during a year is a bit small, but again, there were no significant differences in contrast with users who play social games or play games on smartphones. The number of games purchased during a year by users who play paid social games was an average of 1.5 titles. This figure was larger than the average of all Nintendo DS users, which was 1.2 titles (year average). This number is not per hardware (meaning the tie-ratio) but per user (who plays Nintendo DS now) basis, so please do not misunderstand this point.

When I look at these numbers, I do not think we can say that the growth of social games and smartphones has had an impact on our Nintendo DS business.

However, in terms of any kinds of effects, the unique aspect of smartphone games and social games is that the players are able to enjoy playing with them at a very low price among all the applications which are categorized as games. This occurred for music contents in the past, but now, I think there is pressure to lower the video game prices. It is becoming more difficult for us to correctly communicate the value of the video game business, which is where we do business, and have consumers acknowledge that the games they enjoy are worthy of their paying a few thousand yen. Therefore, if we can not overcome this challenge, Nintendo's business will shrink in the future, and conversely, if we can, I believe it can expand even more.

By the way, I have also repeatedly said this, but when the past mobile phones became compatible with games, there was much speculation that "If gameplay is available on everyday mobile phones which everyone carries, the handheld game devices genre will disappear," and I have been interviewed many times and read many articles regarding this topic. If we had unthinkingly repeated what we did during the Game Boy Advance era, I think our fate would have been sealed. However, we kept moving forward, and because we didn't stop, we were able to create this new large market for Nintendo DS. We would like to do the same for Nintendo 3DS and, of course, even beyond Nintendo 3DS, we will need to continue to take on new challenges. Nintendo's lifeline depends on whether we can offer something different from other systems and whether we can provide added-value through the integration of hardware and software. We would like to continue offering such experiences to consumers.

Also, to answer your question concerning whether we will enter into the social-gaming industry, we do not have any intention to simply enter into the present social-gaming structure. Our fundamental policy is to provide Nintendo software only on Nintendo hardware.

On the other hand, in terms of games with a social element, we were engaged in this area long before the term "social games" was created. We have offered gameplay that increases its value by real people-to-people connections. The evolution of gameplay started from our first game system that had two controllers, which allowed two players to play together, then to Nintendo 64 with four controllers, to "Pokémon," where people were first connected with cables and then with wireless communication. Games like "Mario Kart" or "Smash Bros." are also good examples of social games because the "social" element increases the games' value. In addition, I think we can say that we take pride in the fact that "Animal Crossing" had an influence on the current so-called social games. Therefore, Nintendo will engage in this so-called social-era by proposing gameplay with social aspects which can be done under the current circumstances and which is only possible on Nintendo 3DS, Wii, or Wii's successor.

Q 3

  I have a question regarding the current analysis of Wii. In September 2006, at the "Wii Preview" event, I believe you said that Wii had three concepts: "Change the relationship between family and games," "Change the relationship between TV and games" and "Change the relationship between the Internet and games," but I feel the second and third goals have not been fulfilled. Out of the three, I'd like to ask you which concepts you are having difficulty realizing and the reasons why. Were the concepts themselves mistakes or were there mistakes in the methodology? Other than these three concepts, I would like to know if there any challenges that Wii is facing now.

A 3


Users per Household Japan - U.S. Comparison

(slide) This is a chart, which I occasionally show in the Briefings, which shows the average "number of users per household for each game system," which is a very important barometer for us each time we conduct our gaming population research. I have mentioned this repeatedly, but a value above 3.0 is extremely unique. This is because the average includes people living alone and, unless there is a situation where everyone in the family in most of the families is playing a certain system, it is unlikely that the value will exceed 3.0. In that meaning, from the viewpoint that we were able to make a situation where family members think "Wii is not something that is not for me," Wii has produced results following its original concept.

For your information, when Nintendo DS was at its healthiest in Japan, even the value for Nintendo DS reached 3.0, and for a handheld device, I think this is extraordinary, but now even the numbers for Wii are a bit on the downside from its best, and this is one of our challenges. More specifically, consumers were playing Wii once, but have not played it continuously. Although we had an increase in the number of users in the U.S., there was a small decline in the numbers in Japan. We had continuous growth in the number of Wii users, but we are now seeing a downward turn. In other words, we are not making a situation where users are continuing to play after their first experience. This is a big challenge we are facing.

Also for "Changing the relationship with television" or "Changing the relationship with the Internet," we have made several attempts, but as of today, I do not think we have come to a point where we feel we have gained a definite response. Surely, there are many consumers who say, "I have never done anything like this before" or "This is my first time to experience anything like this," and therefore, I do not intend to say that every attempt we executed was a mistake. In fact, we have made several attempts that no one has ever done before and I think we were able to make movement; however, in our scenario, we wanted more and more growth with an increasing number of people using it, and we wanted to have people keep on using it, but we fell short of this goal. In particular with Wii, for example, the challenge with start-up time when changing channels, or the current situation where we cannot automatically turn on Wii, turn on the television and change the input mode in the event that Wii receives a message, have led to challenges where we had difficulty having the users use Wii in the way we had intended. I don't think that the concept was a mistake, but I think that Wii has yet to fulfill these concepts.

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