IR Information

The 71st Annual General Meeting of Shareholders
Q & A
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Q 4-1   Regarding the Wii U, I am afraid it will be difficult to rebuild the sales if it does not become a hit. What's your take on it? I think the same thing can be said for the Nintendo 3DS.
A 4-1


  Regarding your question, "What will we do if the Wii U does not become a hit product," we will put in our best effort to increase our overall hit product rate, but because this is something done by humans, so I cannot say, "All of the things that Nintendo create will 100% become hits." If I say that, it might become a lie, and I do not want to lie to you, so I would like to answer your question by saying that we will do our best to improve the hit product rate. Also, it would be appreciated if you could trust us in a way like "The hit product rate of Nintendo is relatively high," by looking at the past achievements of Nintendo's top management. However, I think you are absolutely correct by saying, "It is difficult to recover if it fails to sell in the first place" and "When an understanding of something is commonly shared, it is hard to change it," which you mentioned earlier. We are recognizing that these are very important points.

  Therefore, we believe that there were also external factors, but if we had have launched the Nintendo 3DS after we had prepared more software by which the users felt "I want the Nintendo 3DS right away!," the transition of the sales of the Nintendo 3DS would have been better. You pointed out that our preparation was lacking in that regard, and we ourselves understand that is a point we have to reflect on.

  On the other hand, ideas such as "If we develop a product in the way we initially planned, it will certainly be an enjoyable product" cannot be said for entertainment products. Only after developing the product to some degree and actually touching it, we can notice that "This would be more enjoyable if we made it in this way," or "The fun element of this part is somewhat interrupted by other things." A part of this is known as Mr. Miyamoto's "upending the tea table," but we sometimes request changes in the specifications at the very end of the development stage. This does not mean that we do not care about the schedule, but the most important thing for us is that majority of the people who have bought and experienced Nintendo products feel, "This is actually fun." If this does not happen, our brand will quickly fall apart, so we are doing this in order to maintain our brand. But because we are doing this, we cannot constantly provide the market with big hit titles. We also must reflect on the fact that we were not able to launch Nintendo 3DS at a time when a sufficient number of strong software titles were ready. In order to avoid the same thing from happening to the Wii U, we are considering details, such as what software is suitable for the launch, more carefully than ever before.

Q 4-2   Motion-sensing video games are in their prime, but because core gamers are conservative, are they really accepting such games? Also, the Wii U will be the first HD hardware from Nintendo and, therefore, it is a field in which Nintendo does not have much know-how, but in what way will you produce a constant flow of software?
A 4-2


  Putting aside whether people who enthusiastically play games are definitely conservative or not, it is true that such people are used to playing games with a controller with many buttons and sticks, so I can imagine there was a psychological barrier for them to "shake the remote" or to "move the controller itself," because they had to play the games without using their former skills. We analyzed that this might be one of the differences which existed between the users who accepted the Wii console and those who did not really accept it overall.

  We can divide the reasons why we could not satisfy some consumers (who did not really accept the Wii overall) concerning the Wii, into two points. One was the image quality. At the time when we released the new gaming console back in 2006, HD, or high-definition TVs, was not so widely accepted in society, and we judged that the balance between the cost we would have had to pay in order to realize beautiful high-definition images and the merits we could gain from doing so was not worth it. That is why the Wii was developed based on the resolutions of old TVs, which made it inferior in terms of quality of the graphics or resolutions compared to other gaming consoles. Instead, Nintendo allocated its resources to other points and renovated the user interface. By providing entertainment products such as the Wii Remote or Wii Balance Board, we were able to make many people (who did not previously play games) game players.

  It is not that our decisions were wrong, but it is just that we made these choices. So, one point was the graphics, and the other point was that this new method of game control was not welcomed by the users who were used to the conventional controllers. One of the concepts for the Wii U is "Deeper and Wider," and for "deeper," we mean that we would like to comply with the request of the users who feel that they want to enjoy the games in more depth, and also feel like "The more beautiful the images are, the better," or "I want to play games in a way that I am used to," which means "I prefer controlling the games using many buttons and sticks." Because we wanted to make it possible for such users to utilize their experience with the conventional controllers, there are many sticks and buttons on the Wii U controller, which I have shown you several times today. On the other hand, although it is not as big, bulky or heavy as it may look at first sight, there still might be people who feel psychological barriers to actually holding this controller, so we are currently discussing what we should offer such people.

  In addition, you indicated that Nintendo might not have HD video game know-how because we have never developed such games. However, there was a scene from "Zelda" included in the latter half of the Wii U introduction video. This scene is from demo software we, in cooperation with a development company, created in a relatively short time before the E3 show, but a person from another Japanese software development company saw this video at E3 and commented, "These kinds of images cannot be easily produced on the gaming machines of other companies," and so we believe we have been able to prepare something, and the quality of which can be appreciated to some extent or more. Because we did this in a relatively short timeframe, we could show that we are not completely behind other companies, so I think you do not have to feel anxious about it.

  However, I do not think that the Wii U will be in widespread use all over the world only with Nintendo software. Currently, in the western countries especially, war-themed gun-shooting games, which are not well-received in Japan, are very popular. It is a reality that some of these games sell 10 million units per year in those markets, and this is one valid type of video game genre. I would personally feel sad if all video games became something like that, but on the other hand, I do not think such games should disappear. Both (Nintendo software for everyone and gun-shooting games) are video games, so our aim for the Wii U is for it to be a console where various people can enjoy what they want to enjoy at their own discretion. Therefore, we have been talking to major overseas software publishers who are good at developing such games, and through our communication, we have received very positive comments from them (on the development on the Wii U). So we believe such software publishers will proactively develop software for the Wii U, and we think we can dispel the concerns you mentioned earlier by the time of its launch.

Q 4-3   When we talk about the current mainstream games, most of these games fall into categories D or Z in the CERO rating system. I heard that such games have already been released in overseas markets, but I fear that there will be an adverse effect on the brand image of Nintendo if we release such software on Nintendo systems also in the Japanese market.
A 4-3


  CERO is a Japanese organization, the official name of which is the Computer Entertainment Rating Organization. There is a rating system for movies which provides advice such as "People younger than a certain age should not watch this movie," "This movie should be watched in the company of your parents" or "This movie is only for adults," and we have a similar rating system also for games, which rates the games based on facts such as "Are there any violent expressions?," "Is too much blood spilled?" or "Are there any sexual expressions?" Specifically, there are five categories in the CERO rating system: "A" is for all ages; "B" is for ages 12 and older; "C" is for ages 15 and older"; "D" is for ages 17 and older and "Z" is for ages 18 and older. The "Z" rated games can be sometimes restricted under law or regulation, and cannot be sold at retailers. There is a similar organization in the U.S., called ESRB, which is a rating system ran by an industry group, and in this organization, there is a category called "M" which stands for "Mature," or "AO" which stands for "Adults Only." The games that fall under these categories are also restricted in the same way when game elements are too extreme and may be regarded as not suitable for children.

  I have understood your question as, "how will Nintendo cope with games rated higher than "C" from now on?" Of course, it is natural that Nintendo will mainly offer games rated "A" or "B" or, in other words, games which can be enjoyed by many people in society, and some good examples of such games are "Super Mario Bros." or "Pokémon." If we do not develop such software, Nintendo will not be Nintendo anymore. But it is also true that if only such software is provided for Nintendo platforms, adult users may think it is "childish" or "something we cannot enjoy." As a result, we are clearly distinguishing the products which are rated higher than "C" in the retail stores. From the beginning, CERO rating marks, such as "A," "B" or "C," have been displayed on the cover of the packaging, but it is only a small part of the overall packaging. What we are currently doing with the Wii and some other consoles is changing the base color of the packaging from white to black for games rated higher than "C," and by doing so, we are announcing "these titles are clearly different." At the same time, by asking the retailers to completely separate the selling spaces, we would like to avoid a situation in which such products cannot be released for Nintendo platforms.

Q 5-1   I own some shares but I do not have any Nintendo products. Basically, I think "Games are a waste of time" and, therefore, I would like a product that has value added to it so that even I would buy one. As for the Nintendo 3DS, if I were to buy it for my child, there should be no negative factors. There needs to be value added to dispel any negative factors. I think parents will not buy it unless there is value added, for example, the display of this game console is easy on the eyes so it is less harmful than displays of other game systems or mobile phones, or adding mobile-phone functionality so that just having the Nintendo 3DS will enable gameplay and take on the role as a mobile phone and, therefore, parents could contact their children as long as that child is carrying his or her Nintendo 3DS.
A 5-1


  First, regarding your comment that "Games are a waste of time," I think it depends on the individual, but I believe Nintendo is present today because there are many people who do not think so. Certainly, the situation where "games = playing alone in a room" is often discussed by society very negatively and even now, although I feel it has improved quite a bit, I really want to somehow change the situation where, for example, if there is a criminal act by a teenager, there are opening reports such as "The suspect was a video game player." This is something I mentioned earlier today, and we call it "social acceptance," but there are less people who consider video games to be a form of entertainment that they acknowledge and enjoy to the same degree as movies or TV. Through our activities, I think the level of acceptance has risen, but we still have a long way to go. Therefore, your comments, "I think games are a waste of time" and "I want something that an adult like me would want to play" is part of our goal, which is to "expand the gaming population," and raise the social acceptance of video games and, therefore, we would like to continue to move towards that goal.

  Also, there are many discussions of adding various value functions, not just for the Nintendo 3DS. By proposing elements to help change the ways of using the TV in the living room, for example, which was one scene in the Wii U clip that I showed earlier, being able to make video calls easily with someone far away, surf the Web or move something interesting from the Web from the controller to the TV screen, we envision a future where the Wii U controller will be regarded as something which relates to even family members who aren't interested in games.

  In addition, if we had never considered combining a mobile phone and a handheld device, we would be negligent, but on the other hand, mobile phones are subject to monthly fees and we need to consider how well this would fit with game devices or how we should balance these aspects. Adding to this, mobile phone companies are generally divided by countries and when running a business on a worldwide basis, we need to consider in what conditions can we partner up with mobile phone companies around the world. Please understand that we are still researching these areas.

Q 5-2   Last year, when the Nintendo 3DS was unveiled in June, I thought "Wow, something amazing is coming," but it was only launched in February this year. Can't the time from announcement to launch be shortened? It seems to me that development is slow and the excitement fades unless a product is launched three to six months after its initial announcement.
A 5-2


  The situation, "Even if a person thought it was amazing at the time of announcement, the excitement fades six or nine months later," may also be felt for the Wii U. If Nintendo could maintain the platform without anyone else's help or use past assets without any change, for example, enhanced graphics along with 3D view when Nintendo DS software is played on the Nintendo 3DS, then we could keep silent in the preparation of the platform and then announce, "We will launch it tomorrow, please buy one." However, unfortunately, we needed to have software newly developed for software that uses 3D, beautiful graphics or new communication functionality on the Nintendo 3DS. This applies not just internally within Nintendo but outside of the company also.

  In the past, when Nintendo did not receive as much attention as we do now, we did not have to worry about the spread of our confidential information since it did not have any value in society, but since the Nintendo DS and the Wii created a social phenomenon, "Nintendo's next move" commands great attention and extreme news value. Therefore, although we go to great lengths to ensure that this will not happen, there are cases where, even if a person receives information under a Non-Disclosure Agreement, the information is leaked because there is great temptation. Even for the Wii U, some people may be aware, if they had been checking the Internet, that information with true and false rumors mixed together was spread on the Internet before the announcement. Therefore, as for new hardware, even if we wanted to, it is extremely challenging to realize a situation where a product is announced and then launched the next day.

  On the other hand, as for software, it is often the case where the time between its announcement and launch is very short, but we sometimes receive complaints from our consumers such as "I don't have enough time to consider whether I should buy one." I would like to ask for your understanding that there is a great difference in the time span from announcement to launch between things that we need many people to be involved in, such as hardware, and things that Nintendo can do on its own (such as software made internally).

Q 5-3   I think Nintendo needs to target countries in Asia, such as China or India, not just Europe or America. These territories are regarded as "copy heavens" and there are possibilities that similar products will be made, so I would like to ask for your opinion on whether Nintendo will sell its products there taking the stance that it's all right to have these kinds of products, or implement strong securities so that these products can not be made.
A 5-3


  If you look at the global population, Japan's population is declining, and Europe and the U.S. are increasing but not as much as Asia. In addition, Asia has higher economic growth and, considering that consumers categorized as middle class and above, or the people who have enough food and clothing, desire entertainment to enrich their lives, and the number of such consumers will be increasing on a large scale, I think it is necessary to expand our business in Asia. On the other hand, regarding conducting business in Asia, there are many discussions about whether what we have done in Japan, U.S. or Europe will really work in this market, or as you pointed out, to what degree consumers will accept our products in the current "copy heaven" environment. Therefore, that gives us more reasons to localize to the local language, understand the local culture and recognize what things the local people value and will pay money for. If we were selling daily necessities, it would be acceptable to make and provide cheaper and better things, but that is not the case for entertainment, and we would like to show our results after we research what entertainment local people will really enjoy. We are proceeding with investment, organizing teams and product plans to develop business in Asia since I think that this will be one of the most important fields in the next few years, and I believe I will be able to explain more about it in places such as business reports when we have specific details.

Q 6   First, I visited the E3 show and would like to report that Wii U was highly appraised there, as Mr. Iwata mentioned earlier, and after coming back here I was surprised at the enthusiasm gap between Japan and the U.S.
  What are called "social games," and specifically the ones operated by DeNA and GREE, are becoming popular and there is widespread concern that Nintendo which is manufacturing home video game consoles might be behind the times. Even some executives of major video game developers have announced that they will make social games. These social games have both positive and negative elements: the good thing is people can start playing games at a low price and can choose to pay additional money only when they are willing to do so, and the bad thing is that, when the paid-for model goes too far, the players end up paying too much money for all the items in a game, each of which is a requisite for the player to continue enjoying the game. I would like to know Nintendo's overall network strategy and your thoughts on these social games.
A 6


  First of all, I would like to thank you for your comments on the value of Wii U from the viewpoint of a shareholder who visited E3 as a non-exhibitor.

Current Market Concerns Surrounding Nintendo

  In my previous answer today, I explained about such market concerns over Nintendo as, "Can Nintendo 3DS recover its momentum?" and "Is Wii U really a revolutionary product?" I think that there are two additional points to cover. One is the exchange rates, in which the yen's rapid appreciation could have an adverse impact on the results of Nintendo because it has large sales in foreign currencies. The other is just what you have inquired about: how many people in the future will dare to buy Nintendo's systems when they can play video games with high-performance mobile phones or smartphones? Also, how are the free games under the brands of Mobage and GREE by DeNA and GREE respectively in Japan affecting Nintendo's business? I understand that they have adopted the system with which you can start their social games free of charge in the beginning, but you are required to make payments to play more conveniently or to advance in them. So, the concerns in the market in this regard are that there may be an adverse effect on Nintendo's software sales due to such social games that can be played free of charge at the beginning and that Nintendo's business model may eventually become outmoded.

  It is a fact that Nintendo's results once peaked and then started to decline at the same time that social games started to gather interest and win over many users. Therefore, a lot of people assume that there is a causal correlation between the two, and about 80 percent of economic articles on Nintendo seem to say that Nintendo is having a hard time due to social games. However, two things can happen by cause or by coincidence, and I think it very important to find out which is true. If there is a causal correlation, those playing both Nintendo DS and social games will play with Nintendo DS less frequently or become less likely to purchase Nintendo DS software. Because they will spend more of their disposable time and income on social games, there must be a meaningful gap of active use ratios of Nintendo DS if they also play games on their smartphones or play with the social games.

Active User Ratio of Nintendo DS in Japan

  We conduct a semi-annual extensive consumer survey both in Japan and in the U.S. Because Nintendo's basic strategy is to expand the gaming population, for us to make appropriate decisions it is necessary to know how large the gaming population is and how many people are playing with Nintendo DS, Wii or other platforms. During the survey, we have recently investigated the number of social game players and the influence of social games on the active use ratios of Nintendo DS. Please take a look at this graph. The top bar shows the entire number of Nintendo DS owners. As no less than 30 million units have been shipped to consumers in Japan, naturally some of them are not actively playing with it these days. You can see that about three-quarters of the total number of owners are still actively playing with Nintendo DS but the rest are not. The second bar represents those playing both Nintendo DS and Mobage or GREE, in which, as you can see, the active use ratio of Nintendo DS is, in fact, higher than that of the average Nintendo DS owner. This is a totally converse phenomenon to what many newspaper reporters and analysts are saying. I feel that the fact that, these days, Nintendo has not released software products on Nintendo DS that are as attractive to consumers as before has lowered the overall active user ratios and made Nintendo DS less represented in society and, just incidentally, Mobage and GREE have increased their number of users at the same time. The third bar is the paying users of Mobage and GREE, who represent only a small part of all users of them but pay for additional items and more convenience after starting free games. The active user ratio of Nintendo DS of such users is much higher than that of the average Nintendo DS owner. I understand that this situation is also contrary to the public perception. The only explanation I can find is that these users love games. They are spending more time both on Mobage or GREE and Nintendo DS. Then, those who play only free games are playing with Nintendo DS as much as the average Nintendo DS owners. What surprised me was the result that the active user ratio of Nintendo DS of those who do not play Mobage and GREE is a little lower than the average Nintendo DS owners. After all, it is not true that consumers are moving from Nintendo DS to Mobage or GREE as a kind of crucial social change. In addition, players of paid social games purchase more Nintendo DS games than average: 1.2 per year for an average Nintendo DS owner and 1.5 per year for a paying social game player. This is the situation in Japan.

Active User Ratio of Nintendo DS in U.S.

  Looking at the U.S. situation, Mobage and GREE have little presence there. It is said, however, that more and more people are playing games on Facebook, the world's largest social networking service. Some analysts insist that those who once played "Wii Fit"  are now playing with social games on Facebook, making Nintendo outdated, but I would like to show you data which negates this assumption. Let's focus on the users 19 years old and over, as social networking services are basically for adults. The active user ratio of Nintendo DS is just short of 70 percent, a little lower than that in Japan, because this data does not include children, who are in fact more intensively playing with Nintendo DS. No difference is shown with Facebook users. In fact, the active use ratio of Nintendo DS is even higher among the Facebook users. The next bar represents iPhone, which is much more popular in the U.S. than in Japan, but there is no meaningful gap between those who have an iPhone or play games on iPhone and those who do not. The bar on the bottom represents smartphones, which means high-performance mobile phones other than iPhone, including Android, Windows Mobile and BlackBerry, but there is almost no gap either. In summary, I would like you to understand that, so far, consumers have not stopped playing with Nintendo DS because they are using these services or playing social games.

  However, my intention of sharing all these data is not to say that we will be all right forever. Today, there are an increasing number of opportunities where people can see video games as entertainment which we can start free of charge. A free start is a powerful means of attracting many consumers, but it could be a drastic medicine with side effects. You mentioned "going too far" in your question, and what could simultaneously happen is the destruction of the value of video games. That is to say, consumers have thought that the money they pay equals the value extracted from, for example, "Super Mario," which has helped the growth of the video game industry and made it possible for companies to develop elaborate games with rich user experiences for tens or hundreds of millions of people worldwide who are willing to pay for such games. Therefore, the concept "video games are basically free" could have a big impact on the industry. In the keynote presentation I was privileged to make at the GDC (Game Developers Conference) held in San Francisco in the U.S. in March, I said that video game developers should be increasingly conscious of trying to preserve the high value of the games they develop, or otherwise the value could easily be dragged down by low-priced or free ones, so all of us must be careful. Despite the complete text of the presentation being available on our website, unfortunately, many reported that Nintendo got angry about social games or criticized free games, and we have not been able to fully correct such distorted reports yet. Under these circumstances, anyway, the important points are how to innovate our business model and how to continue to develop games, and the value of which shall be appreciated by consumers. Naturally, for our core products like "Pokémon," "Super Mario" and "The Legend of Zelda," Mr. Miyamoto and I have to dedicate ourselves to leading our company and to continuing efforts to have consumers appreciate the value of these products. On the other hand, we understand that the current packaged form is not necessarily suited for any and all the entertainment products we will be making. As an example, Nintendo therefore built Nintendo eShop for Nintendo 3DS. At a past shareholders' meeting, we received the opinion that Nintendo should improve the design of its digital software distribution shop, and I think that we made measurable progress with Nintendo eShop. Additionally, when Nintendo would like to ask users to try a specific new game, we should deliver it to their Nintendo 3DS, and possibly Wii U, with their prior consent and recommend that they just try it and, if they like it, they can pay for it. In this way, we need to introduce users to unknown products. Consumers are likely to be convinced to pay about 5,000 yen for a well-established franchise product, but not all the people are willing to pay a certain amount of money for an innovative but unknown product. Now is the time to prepare for these situations. We would like to respond to some of the concerns surrounding our business in this manner.

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