IR Information

Corporate Management Policy Briefing/Third Quarter Financial Results Briefing
for Fiscal Year Ending March 2012
Q & A - Jan. 27, 2012
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Q 10

 I’d like to ask about the prospects for the next fiscal year and beyond. In the presentation today, the president mentioned that the company is aiming to get back to the level of profitability the company used to have. Will the network sales, such as the add-on content discussed today, be considered as one of the important factors to achieve that goal? Or, for the next fiscal year and the one thereafter, will the existing sales mechanism of traditional hardware and packaged software continue as the pillar of your sales? You also said that the company will start the sales (of the Nintendo 3DS) in Asia. I’d like you to explain a bit more about your strategy in Asia as I think that, in Asia, where it is hard to run a packaged software business, download sales will be key.

A 10


We are anticipating our financial performance to recover in the next fiscal year and beyond, but we are not anticipating that the digital business will suddenly play the central role next year, and we are not anticipating the packaged business to go away anytime soon. On the contrary, as I explained with the chart, the sales of the applicable software can grow in the third fiscal year for the hardware, so the third year for the Nintendo 3DS will be the opportunity when we can expect to increase the software sales significantly. Therefore, if we will be able to sell the Nintendo 3DS hardware without losing money on the hardware sales and the software sales will largely increase, the company will be able to generate significant profit even if today’s severe foreign currency exchange situation continues. On the other hand, we cannot share with you the concrete figures (financial forecasts for the next fiscal year) in an environment like today where the level of the Euro, for example, that we thought as appropriate one week ago is totally wrong today. When we consider foreign currency fluctuations for no less than three months, it is almost impossible to predict accurately. Without knowing the foreign currency exchange rate situation, we need to refrain from picking up any concrete numbers today as doing so would not be an appropriate indicator for our actual performance forecast.

Regarding the add-on content, the revenue from the so-called digital business generated via the network, including the revenue from add-on content, will largely increase from now. There is no doubt that this is the area which has an overwhelmingly bigger growth potential than other business fields today. But if you ask me whether the level of the revenue will immediately match the ones currently generated through the existing hardware and packaged software sales, I do not think it is going to be that way anytime soon. Also, if we place too much focus upon that effort, we will end up focusing too much on increasing the just-mentioned ARPU, and it will result in negative side-effects. The important point for us to remember is how to maintain the situation where a wide variety of our consumers can readily appreciate our offers. In terms of that priority, we cannot, and should not, ask our consumers to embrace the situation where they are required to make excessive payments. Doing such things might be good for short-term profit, but it will not serve our mid-term and long-term business developments. So, while we believe that digital business revenue, such as revenue from add-on content, will grow to be an important resource, it will still take time before it can play the central role, or constitute the majority of our income.

Regarding Asian nations, as I said before, I’d like you to wait for the announcements to be made by each country. Being able to offer download sales means that the company now has additional options in the countries where we have not been able to construct sufficient distribution channels, and where we have been challenged with enforcing copyright infringements or where the price points of packaged software are not suitable. As we now have the environment where completion of software development for packaged software means that we are ready to distribute the same in our digital distribution channel, we have a broader sales strategy. It has a very significant meaning for us.

Q 11

 I’d like to know about your gaming population expansion strategy. For example, when we look at today’s digitalization of applications, an overwhelming number of content service providers are entering the market, and the efficient matching, or how to realize a situation where the users can find an application they really want to purchase, has become more important than ever, I believe. You said today that the company needs to think in terms of the wholesalers and retailers as well as the need to construct an effective system. I would like to know your opinion on, when we see the picture from the users’ perspective, under what kind of circumstance, or when what kind of conditions are met, effective matching can be realized. I realize that making good stuff is a fundamental thing, but in my opinion, there is increasing importance in coming up with the product functionalities that can focus upon a different target audience and the different situations of the places where the game is being played. I think this has something to do with your new marketing activities in Asia. I would like to hear Mr. Iwata’s opinion.

A 11


When it comes to the decision making process of which video game software to purchase, a huge gap exists between each individual as to the amount of effort one will put into seeking the relevant information. There are consumers who very actively search for game-related information. They are so knowledgeable about video games that I sometimes wonder if they have more knowledge than us working in the video game industry. On the other hand, there are a number of consumers who have virtually no video game knowledge. When Nintendo DS was quickly expanding its sales, it was not rare to encounter people at the video game outlets who came there to purchase certain software but all they could remember was the person who appeared in the software’s TV ad. In such a situation, where we are dealing with wide variety of consumers, I could not agree more to your opinion that the need for effective matching is, and will be, of significantly increasing importance. Anyone who can invent the most appropriate matching mechanism will take a great advantage in the digital platform business from now, I think. About this challenge, Nintendo does not have any concrete answers today. Of course, by now, Nintendo has been able to gather a number of data through the activities with Club Nintendo and, with the consumers’ consent, we gather their play records on Nintendo Channel. As a result, we are starting to see a number of such relationships as, "those who have played with this software are also actively playing with that software" or "those who find this game satisfactory are giving high marks to that software as well." As you know very well, at, we often see, "Customers Who Bought This Item Also Bought…" and you must have clicked the "Purchase" icon without the prior intention to do so. I have done so myself. When I think about how that kind of recommendation should be in our video game field, my opinion is "Customers Who Bought This Item Also Bought…" is not sufficient. Rather, such messages as "Consumers who liked this product very much also gave a high score to that product" should be more useful information for our potential consumers. So, the issue is how effectively we can deliver such information to them. Another thing is, people who are actively gathering relevant game information do not mind going through several processes in order to reach the very information they really wanted to know. But for the other people who do not act so proactively, the information which they cannot access in the first trial is as if it does not exist at all. Even if just one process is required, the relevant information cannot be delivered to a number of our potential consumers. With that understanding, we are making efforts. This thinking is also very important when we launch our products outside Japan or in the countries where we were not able to sell our video game products. As for the Wii U, we have been making preparations and are ready to make some proposals with which the consumers can at least say that Nintendo has taken the first step to make a new proposal in its endeavors. As I said before, it is not too much to say that anyone who comes up with an effective mechanism to this challenge will have a great advantage in the future of digital business. This challenge is so important. We should not forecast any one attempt to find the concrete and final solution. A number of you may have the impression that Nintendo can show its strength in the packaged software business, where the company does not need to take care of its products a lot after releasing them in the market, and that we may not be good at continuing efforts after the product sells. But in the network business, the fact is, "endurance makes you stronger." In the network business field, how we can take advantage of the data we obtain every day will be critical for the next steps. In the near future, I would like to establish the style of what Nintendo can do in this regard.

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