IR Information

First Quarter Financial Results Briefing for 72nd Fiscal Term Ending March 31, 2012
Q & A - Jul. 29, 2011
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Q 11-1

  Why were you able to make such a price cut for the Nintendo 3DS? A typical Japanese company would be very slow when making decisions and many companies can not make a 10,000 yen price cut in just half a year after a product's launch. I would like to know whether Nintendo's decision was made by Mr. Iwata solely or whether it was an organizational decision. Also, I would like to hear about development resources. One, I believe that your internal resources are devoted to the Wii U, Wii, Nintendo DS and Nintendo 3DS, and out of these, since the Wii U has rather rich content, aren't most of your internal resources being used for the Wii U? When aiming for a comeback for the Nintendo 3DS and also expanding the Wii U, how do you plan to spare your internal resources? The other question I have is about the third parties. An increasing number of them are not taking a strategy similar to that of Nintendo, which is aiming to sell its software to a wide range of consumers without focusing upon any particular group, but are instead shifting to a more focused audience by, for example, realizing more than half of the initial sales with the limited premium edition of the game. As a result, these third parties do not develop games for your platforms that can appeal equally to the wider audience. How do you deal with such a situation?

A 11-1


Maybe the reason we were able to make the markdown decision is our lesson from Nintendo GameCube. Therefore, in that sense, it was slightly a personal decision, meaning that the current executives, who are the ones who make the decisions, all experienced, "there was a chance for the Nintendo GameCube but we were not able to capitalize on it," and I think that was a large factor, that the executive all shared this sense, not just myself. One other factor is our financial characteristics. I have repeatedly said, "Please allow us to hold high liquidity of assets since this business has very high risks. We can have more options if we have high liquidity." During those days, when the Wii and the Nintendo DS were in a continuous good cycle, we had cases where people asked us, "Well, won't you be all right even without holding so much cash?" But it must be a factor to our ability to make decisions like these under situation like this, and along with this, proceed with the development of the Wii U and take on its business risks. We will put our best efforts to make this decision a good one.

  Regarding the resource issue, it is obvious that the resources of our development teams are challenged during the transitional phases of the platforms. When we have a situation where we need to stimulate and maintain the momentum of the current platforms, and we need to prepare for the next platform, it is no surprise that we become short of hands. It would be a lie if we said that we were not facing any challenges inside Nintendo in respect to this situation. However, on the other hand, we are currently dividing "what we really need to do internally" and "what we need to work on together with an outside team" somewhat more boldly than before, and shifting to ask for more assistance from outside. There are some areas where such attitude can be easily understood, but it is not always the case. For example, for some software titles, people may feel, "This is a main title of Nintendo, why isn't this being developed internally?," but we have asked for outside assistance in a situation where we were able to make high-quality software by asking outside developers to support us in a way we can maintain the quality. By doing so, we have been able to tackle the issue of development resource allocations by being able to secure, in effect, dozens of additional people. We are actually making these decisions in several places and, although things are not easy all the time, we do not think they are big ones that can not be resolved.

  Regarding third parties, for the Nintendo DS, there were many successful titles from the outside publishers which created good cycles, but for the Wii, although there were some successful titles in the overseas markets, there were no definite successful titles in Japan. Right now, we are closely communicating the plans for the Nintendo 3DS and the Wii U to various publishers, and we are well prepared so that what happened to the Wii will not happen to the Nintendo 3DS or the Wii U. It is the most important thing that we can establish a success case in the early period of the platform. That way, everyone would think, "Let's follow that," and they will be able to visualize a pattern, "We can appeal to consumers in this way," and I think it is important for us to put efforts toward being able to raise this visibility.

Q 11-2

 The situation is that third parties, and I think they are doing so even on Mobage or GREE, are heading to a business dedicated to a rather specific audience and that only Nintendo is providing titles for casual users. Can Nintendo implement an approach to change how third-party developers think? If not, do you think that Nintendo needs to continue investing its resources into providing these types of software?

A 11-2


We do not have any intention of approaching third parties to change the way their developers think. Rather, if there is communication on how to maximize a publisher's advantage or where the opportunities are, we would be happy to discuss it with them and we are actually having these kinds of discussions. On the other hand, if a publisher has specific consumer segments or fans that Nintendo can easily appeal to, we need to think together about how that publisher can work more closely with our platform. We do not intend to communicate messages to a publisher that would make them change (if they did not want to change).

Q 12

  Regarding micro-transactions, some software publishers are shifting their resources to a business using micro-transactions and some publishers may be attracted to a platform that is capable of flexible billing. What do you think about this? In relation to this, there were some discussions earlier about digital distribution and I believe your sales of the online business were eight billion yen in the fiscal year ended March 31, 2011. I would like to know how and at what timing this transaction volume will increase.

A 12


I have never rejected the idea of micro-transactions. What I previously said was, "A business that offers a game for free and provides micro-transactions is totally separate from how we are communicating the value in our game business and therefore, in that framework, the premium value of our game content may be damaged." (*2)

  To the question, "What will Nintendo do in the future regarding micro-transactions?" or "How will Nintendo prepare micro-transactions for its platforms?" we are preparing a system for micro-transactions and so-called add-on content for both the Nintendo 3DS and the Wii U, and for the Nintendo 3DS we are targeting to release something this calendar year. This means that we will be able to give flexible options to software developers on our platform, but "what to do with Nintendo's policy as a software developer" is a separate issue.

  This is a good opportunity, so I would like to talk about what Nintendo is thinking as a software developer. Generally, it may be thought that Nintendo is reluctant toward micro-transactions, meaning that Nintendo is not interested in gaining profit through add-on content or micro-transactions. I have been discussing this topic with Mr. Miyamoto for a fairly long time. For example, let's say there is an occasion where a user says, "I'm done playing this game but I would play it more if there were additional stages," and we were able to focus the right amount of energy to develop additional stages and that way, by distributing the additional stages, we were able to extend the life-span of the game or stimulate social topics, or increase sales. Then, we would discuss whether we could sell the add-on content at a price where both Nintendo and consumers would be satisfied. For example, in the future, I think it will be all right to have a situation where we prepare an additional stage and say to consumers, "Can you pay some more to play this?" On the other hand, and I'd like to emphasize that this is only me talking from Nintendo's point of view of what we want Nintendo to do, and we do not intend to comment on whether another company is right or wrong, and I would like to avoid any misunderstandings on this point, but, I would also like to mention that, under Nintendo's set of values "charging money just for changing the parameters to unlock something or to allow some large advantage," is a totally different earnings structure that is not compensation for creative work and, while pursuing this may create short-term profits, Mr. Miyamoto and I discussed that we should not use this type of billing system since we think that we will not be able to make long-term relationships with our consumers.

  Also, there is one other thing. In the past, the business model for a packaged game was that, after paying some money in the beginning the game could be played as much as you want, but whether this business is going to last, everyone is discussing in relation with the affects of smartphones and social games. Nintendo thinks that it is all right to have various ways of payment depending on the content. To realize this, and this will relate to your second question, but, if we can not improve on how well we can exchange data with consumers digitally, or in other words, we can not realize this unless we raise the Internet-connection ratio and our consumers become familiar with electronic payments. Currently, the connection ratio for the Nintendo 3DS is much higher than that of the Nintendo DS but not at a 100% satisfying level, and it is only a portion of that ratio when it comes to people who have paid for download content. Therefore, by delivering more attractive proposals, we would like our consumers to feel that the purchased content and how much work was put into that content balances out when obtaining digital content. In other words, we are hopeful of constructing a sustainable digital business. We have just started the Nintendo eShop and there is room for improvements there, but I think we have met the preconditions better than ever. In my mind, I would like to make the presence of the Nintendo eShop much larger in three years time. I don't mean to say that we will no longer have packaged games in three years but what I mean is that we will have one more pillar. In the event of this occurring, the transaction volume (for digital business) under expectation is obviously not 5% or 10% of growth but a more drastic change, and I am strongly motivated to increase the number of people who will use money digitally and create a future where consumer do not feel any resistance in doing so. I think that the next three years will be very important.

*2 Please refer to the following:
A6 - April 26, 2011 Financial Results Briefing for the 71st Fiscal Term Ended March 2011 Q & A
A12 - June 16, 2011 2011 E3 Expo Analyst Q & A Session
A6 - June 16, 2011 The 71st Annual General Meeting of Shareholders Q & A
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