IR Information

Corporate Management Policy Briefing / Third Quarter Financial Results Briefing
for the 73rd Fiscal Term Ending March 2013
Q & A
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Q 1

Mr. Iwata said in his presentation that Nintendo would enhance the Wii U software lineup to include software that communicates better the product value of the hardware to the wider public, but what kind of time frame does he have in mind? Are there examples of such titles in the software lineup that has already been announced, or will they need to be developed from scratch? Will there even be a need to revise Nintendo's standards of software development and production? I would like Mr. Iwata and Mr. Miyamoto to comment.

A 1

Satoru Iwata (President):

The time frame I have in mind within which to enrich our software lineup with titles that communicate better the true appeal of our hardware is not an excessively long one. Except for "Wii Street U powered by Google," which I demonstrated to you a while ago, and other titles already announced, a month or two is certainly not adequate to release a large number of titles, but we are hoping to be able to communicate to our consumers the new value of our hardware with titles that we are going to launch from approximately the second half of the calendar year toward the end. Our results so far have indicated to a certain degree that it is rather difficult to let the hardware communicate its value by itself unless we focus on this aspect and become more creative in our messaging. However, this is not to say that our existing software has been inadequate in this regard and we are certainly not thinking of a long-term scale to achieve this. In addition, I believe that we will be able to launch new software within this year that we have not yet announced at this point.

Shigeru Miyamoto (Senior Managing Director, General Manager of Entertainment Analysis and Development Division):

Wii U has a lot of attractive features, but it requires a certain amount of time for people to understand them. A common practice in the entertainment industry is to offer a new proposition whose appeal can instantly be understood, enabling it to be popularized quickly. Nevertheless, while it is perhaps strange for Nintendo to say the opposite, our belief in designing this hardware was to create a standard machine full of convenience for every living room. We would have liked to create new entertainment that instantly communicated its value to the public, but we could not. However, I am confident that we did manage to develop software that, once people have played it, does communicate its value very well. We have not yet launched many titles, but Nintendo has been striving to sell its software for as long as three years in an industry where a typical software title has only a few weeks of product life. In this sense, we are confident that even our existing ideas are attractive enough to draw people to our hardware. During development, I found myself becoming increasingly accustomed to using two screens, and now I feel compelled to take a look at the screen in my hands even if that is not necessary. While it will take more time to give shape to our new propositions that take advantage of being able to use two screens, we have various ideas already. In terms of our research and development resources, as we need more staff in response to the high performance of this hardware, we are working to recruit more people, including people from outside the company. Apart from these issues, we are working hard without becoming worried about whether we are out of ideas or the system will be accepted into people's living rooms. It seems to me that we have a larger challenge in how to have many people understand the value of this hardware through our promotional activities.

Iwata:

Speaking from personal experience as a Wii U user, Wii U GamePad clearly created more incentives for me to switch on the system at home. I am increasingly seeing the impact of the system becoming independent of the TV, but it was not until I took it home with me and it started to become part of my daily life that I could talk about it as an actual experience. In this sense, I fully realized the value of the system only after it was launched. I believe that when we enrich the software lineup of Wii U, it will be easier to understand the advances in entertainment that are possible with this hardware system, and as more software is released, the advantages of its unique configuration will become more apparent. Please look forward to our progress with Wii U in the near future.

Q 2

What do you think gaming will be like in the near future? And could you share with us Nintendoís strategy in such an environment? I feel that dedicated gaming platforms will gradually be replaced by cloud gaming, but handheld devices will survive. Looking at some of the recent strategy and announcements from Nintendo, I got the impression that handheld devices and home consoles will first be unified, with handheld devices also functioning as controllers, and eventually there will be cloud gaming as well as handheld devices. Can Mr. Iwata and Mr. Miyamoto share with us their thoughts on what gaming will be like in the near future and at least an idea as to what kind of strategy they have in mind for Nintendo?

A 2

Iwata:

The term "cloud gaming" is one of the words we have lately heard so often, but I would like people to understand that there are certain things that cloud gaming cannot achieve. A cloud is an attempt to process information online on a server, as opposed to doing so on individual machines in the hands of the users. What this implies is, since the time to transmit data over an Internet connection is never negligible, there is always some latency before you receive the result of your input. Of course, there are types of games on which delays have no effect. In such instances, it may perhaps make sense to have an input means as well as the ability to display images at hand and let all the information be processed on a server. On the other hand, for some highly interactive games, action games in particular, the time required to reflect the push of a button on the screen is critical and the frame rate (the number of times a screen can be updated in a given second) determines the fluidity of the movements. This means that there are some types of games that can be put on the Internet and others that cannot. By the laws of physics, it always takes some time to transmit data, and given the current level of Internet technology, there is bound to be some latency during the processes of a server receiving data, producing images instantly and sending them back. There are many things that cloud gaming cannot do by design, but this fact has not been communicated well to the public, and I find it strange that many people claim that cloud gaming is the future.

In this sense, what we should be discussing is not cloud gaming but whether dedicated gaming platforms will eventually die out and whether handheld gaming devices and home consoles will one day be unified. Naturally, our stance is that dedicated gaming platforms will not die out and we are determined to create a future where they will not. In terms of our platform integration, as I explained to you a short while ago, we are not saying that we are planning to integrate our platforms into one. What we are saying is that we would like to integrate software development methods, operating systems, and built-in software and software assets for each platform so that we can use them across different machines. This means that if we manage to integrate our platforms successfully, we may in fact be able to make more platforms. At the moment, we only have our current handheld devices and home consoles because if we tried to make more platforms, our development resources would be spread too thinly. The more we can share software across different platforms, the more development resources will be left for something else. Platform integration does not mean creating one type of platform, but the point is that the united method of software development will enable us to share our most precious software assets across different hardware. It is natural that there will be more things that battery-run devices can do thanks to technological advances and game consoles will become more powerful. However, if we try to linearly pursue this direction, software development will become so complicated that we will eventually face a situation where cost recovery becomes a serious issue. Therefore we feel that we are nearing a saturation point in terms of simply improving performance or enhancing graphics. What is far more important for the future of video games is whether we can make new propositions in other aspects and create games out of something that people never expected to see in the form of a game.

Miyamoto:

As Mr. Iwata just explained, in addition to video game software developers who create actual gameplay, we have staff members who, for example, create development environments, prepare libraries for licensees and make preparations to successfully implement a new CPU. Our platforms after Nintendo DS and Wii have various standard applications with which you can do a lot of things once you buy them. Recently we have found ourselves having more work in development of such preinstalled applications, in addition to the fact that we need more time to develop video game applications. As Wiiís design concept was similar to that of Nintendo GameCube, software developers were able to focus on creating new types of game software applications. On the other hand, when we use a new CPU or a new development environment as we did for Nintendo 3DS and Wii U, it takes a certain amount of time before we can start actual development of games. The integration of our hardware divisions is for the purpose of getting our core developers to work on creating actual entertainment applications, and we are not trying to develop a unified platform. Speaking of hardware, we started making various efforts to expand our user base mainly with Nintendo DS several years ago. Around that time mobile phones were considered as our competitors, but the gameplay with them was not so comfortable and their architecture was very complicated and too varied. We tried various approaches with Nintendo DS to get people who didnít play video games to understand and enjoy interactive technologies. In the end, it was a variety of software titles that we offered for Nintendo DS which increased the number of people who got accustomed to something interactive. The fact of the matter is that the technologies included in smartphones have progressed so much that they can now do what mobile phones couldnít do in that arena previously. Therefore, what Nintendo should do this time is create something that is more fun to play on our devices. The sales of "Animal Crossing: New Leaf" we released last year in Japan have already assured us that, as long as we create software that meets certain demands from the consumers, such as a game title they really want to play by any means and they want to do so without worrying about the battery life of their handheld devices, they will be willing to purchase it. We think that this title has sales potential for the overseas markets and we are now investigating how best to promote it.

Moving on to our home console business, I think there are only a handful of machines on the market that really try to answer the question of how best to use the TV screen in the living room. It seems that, in developing powerful video game consoles, the TV screen in the living room is just considered as an output device which could be replaced by a computer monitor. We, on the other hand, believe that our mission with Wii U is to make the TV sets in the living rooms more convenient and diverse in peopleís daily lives. In this sense, we feel that we managed to create a very cost-efficient machine. I believe that handheld devices and home consoles will continue to coexist for the time being because they have different goals.

Q 3

I have some questions about "Animal Crossing: New Leaf" for Nintendo 3DS. In addition to the fact that its download version is available, I think new elements of this game have contributed to its faster sales speed than "Animal Crossing: Wild World" for Nintendo DS. What do you think about this, and how are you going to launch this title in the overseas markets? When it comes to overseas sales, my understanding was that the Nintendo DS version of Animal Crossing was not so well appreciated. How do you plan to use such a past evaluation to sell this Nintendo 3DS version well in the overseas markets and then to improve the sales of Nintendo 3DS there? Also, I remember you mentioned that "asymmetric gameplay" was a key factor for Wii U games in the beginning, but it seems that it has not been communicated to many people. What do you think about these issues? Finally, I would like to know how you will demonstrate the appeal of gameplay with Wii U GamePad and the computational capacity of the Wii U console, which could be realized in "Pikmin 3"?

A 3

Iwata:

These charts tell you about the Japanese user demography of "Animal Crossing: Wild World" for Nintendo DS released seven years ago and the relatively new "Animal Crossing: New Leaf" for Nintendo 3DS. It is little use making a simple comparison due to the difference in the time from their respective releases, but we would like you to see the user difference through the data of Club Nintendo registrants for these games. In some age groups there are many Club Nintendo members and not in others. The blue circle indicates the position of the average number of Club Nintendo members. Then the portion outside the blue circle means there are more registrants than the Club Nintendo average, while the inner portion represents the number of registrants below average. In these cobweb charts, the right half of the cobweb chart represents male users from age six at the top to over 45 at the bottom and the left stands for females.

The graph on the left shows "Animal Crossing: Wild World" for Nintendo DS released quite some time ago. As it had been very popular among children and has finally sold more than five million copies, the portions representing users aged 12 and under in particular spread outward. You will also notice the huge presence of the female registrants. Compared to this game, you can see from the graph for "Animal Crossing: New Leaf" for Nintendo 3DS just after its launch that it is more popular among girls than boys and is popular among adult women. In addition, the portion showing both male and female registrants aged 19 to 24 protrudes outward sharply, which is not the case for the Nintendo DS software. "Animal Crossing: New Leaf" appeared seven years after the release of "Animal Crossing: Wild World" and 19-year-old people were 12-year-olds seven years ago. We think that those who enjoyed "Animal Crossing: Wild World" seven years ago were probably the first consumers to buy "Animal Crossing: New Leaf." In this sense, there are many consumers who understand the attractions of the Animal Crossing series through playing the Nintendo DS version, and we were able to communicate the improvements in this Nintendo 3DS version to them. Another factor is that consumers are more likely to see what their friends are interested in now through social media than when we released the Nintendo DS version. There are some users who became interested in "Animal Crossing: New Leaf" and bought it because their Twitter timelines were filled with other people's tweets about it. Also, we released the "Animal Crossing: New Leaf Direct" video (Japanese only), in which our developers, negatively speaking, rambled on about this game for more than 45 minutes, and it has attracted no less than 1.6 million views on YouTube and what's more, the most popular way to see it was from smartphones. We think that this result was caused by the changes in information channels.

One more thing to mention is that "Animal Crossing: New Leaf" has increased the number of female users of Nintendo 3DS. This chart shows changes in the weekly trends of the female ratio of Club Nintendo registrants since the launch of Nintendo 3DS XL and week 16 was when "Animal Crossing: New Leaf" was launched. Although the male-female ratio of users of most Nintendo platforms is more or less equal in the long run, Club Nintendo in which you can earn points for special gifts like a mileage service has relatively more male registrants, about 60 percent. The female user ratio in week 16 was 50 percent, but taking into consideration the trend of registrants in Club Nintendo, the actual female ratio could reach two thirds of the total users. As the female ratio remains higher than before the launch of "Animal Crossing: New Leaf," we can definitely say that this game has increased the number of female users of Nintendo 3DS.

The graph on the left shows the overall Club Nintendo registrants and the right one indicates those who registered "Animal Crossing: New Leaf" and the Nintendo 3DS hardware at the same time. In the graph on the right, female users aged 19 to 44 account for an extremely large portion of those who bought Nintendo 3DS to play "Animal Crossing: New Leaf." This single game has increased the number of our consumers and has given momentum to the entire platform.

You mentioned that the reception of "Animal Crossing: Wild World" was not so good overseas. The sales of this game have reached no less than five million copies overseas. There are few companies whose result of selling more than five million copies of a product is considered not up to scratch. It is true that the sales figure overseas, meaning in the U.S. and Europe, is relatively small compared to the fact that the number of sales has surpassed five million copies only in Japan, but there are already some core fans of the Animal Crossing series overseas too. When we announced "Animal Crossing: New Leaf" through our Japanese Nintendo Direct presentation, many consumers worldwide viewed it on the Internet and we received a lot of requests from overseas consumers who wanted to play it as soon as possible. We would like to first promote the attractions of this game to such a core fan base.

By observing what has happened surrounding "Animal Crossing: New Leaf," we have been able to analyze how the relevant information spread in Japan and how so many people were willing to participate in these communications. Before we released "Brain Age" for Nintendo DS overseas, we promoted it there in reference to how it had become popular among people here in Japan. As we did for "Brain Age," we would like to have overseas consumers understand this game with the help of our knowledge of what happened to this game in Japan and what kinds of information channels were suitable for it. When it happens, we will have more opportunities to have more people abroad accept the Animal Crossing series. Some might be concerned about whether the graphics used for this series will appeal to consumers overseas, but I think we have the odds in our favor.

As for "asymmetric gameplay" of Wii U, whether the name is good or not is different from the reputation of "Nintendo Land" as the representative work incorporating such gameplay. We know some criticized the name "asymmetric gameplay" as debatable and not intuitive, and we have reflected upon its actual explicitness to consumers. On the other hand, we donít think that asymmetric gameplay itself lacks in appeal because we have received a lot of comments that the gameplay of "Nintendo Land" is in practice interesting. In short, we unfortunately have not overcome the hurdle to come up with the best words to make people easily understand the value of such gameplay. As "Nintendo Land" is to be a longtime seller during the lifespan of Wii U, we would like to somehow invent a way to have many people understand the value of "Nintendo Land" and the appeal of gameplay with both Wii U GamePad and a TV screen. Now I would like Mr. Miyamoto to say something about "Pikmin 3."

Miyamoto:

Please let me go back to "Animal Crossing: New Leaf." In playing a game, I myself really value how much I can identify with it. In addition to the feature that you are appointed as the mayor of the village in the beginning, we implemented more elements you would identify with than its earlier series such as the conversations with animals in this game. I believe that such elements will be accepted worldwide, overcoming the barriers of nationality and trends. Although it is important how to promote this game through Twitter and other media, the basic stance as a developer is, first of all, to localize this game carefully. We have a lot of issues to consider, including how Japanese puns should be translated, for example why a white turnip can be traded like a stock.

With regard to "Pikmin 3" for Wii U, I donít want to be misconceived, but the biggest draw of this game is the higher-resolution images through the high-definition graphics. You can even see Pikminís gestures with the graphics. We are not going to put asymmetric gameplay in a game if it is unnecessary. In this game, you can see the entire map on Wii U GamePad. The two screens of the TV and Wii U GamePad will let you see what you are doing at any time during your gameplay, which alone is a great evolution for a strategy game. As a side note, you can play this game only with Wii U GamePad. If it is hard to imagine what it will be like, maybe you can recall the visuals of the original "Pikmin" for Nintendo GameCube and imagine how you can play it with the smaller but more detailed screen in your hands. The two control sticks of Wii U GamePad will let you play this game more comfortably and, with a TV screen, the gyro sensor inside Wii Remote Plus will further help your gameplay. Wii U GamePad will give you style variations of playing this game and playing only with Wii U GamePad might be a good experience for you. I hope you will like this game.

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