IR Information

The 73rd Annual General Meeting of Shareholders
Q & A

Q 5 A video game platform, such as Wii U or Nintendo 3DS, is generally considered to be played for six to seven years, so I believe that business performance should be evaluated over that entire period. You used the word “commitment” in the Corporate Management Policy Briefing in January this year, and the media reported that it indicated your resignation. I bought additional shares of the company with the understanding that you would keep managing the company throughout the period of one platform, but if there is a chance that you might resign, that puts a completely different complexion on the matter. So, I would like to ask you what your real intention was by making that statement.
A 5


First of all, as you said just now, I mentioned in the announcement of the third quarter financial results at the end of this January that we would aim for the operating profit of 100 billion yen for the fiscal year ending March 31, 2014, on the condition of the exchange rates at that time, which were 90 yen per U.S. dollar and 120 yen per euro. And, in the Financial Results Briefing held on the following day, I said, “this aim is a commitment of the management.” After that, also in the official full-year financial forecast announcement for the fiscal year ending March 31, 2014, at the end of this April, we set forth the same full-year financial forecast. This is because we decided that simply conveying the same forecast was better than saying, “We announced our aim for the operating profit of 100 billion yen on an assumed condition of 90 yen per U.S. dollar and 120 yen per euro, but the exchange rates changed at the end of this April, so we have revised the forecast amount.”

It is true, as you mentioned, that articles stating my “indication of resignation” were published as a result of my using the word “commitment.” However, I have said nothing about resigning from my presidential post. Also, as you highlighted just now, the life span of a console is at least five years, so I also believe that management posts should not be judged on the basis of a single year’s results. On the other hand, I have heard the opinion that Nintendo’s future does not appear promising because it has not been able to adjust to changes in the business environment as a result of its recent business structure changes. In response to this opinion, I thought that if Nintendo itself did not explicitly state it would recover to a certain performance level that is typical of Nintendo, we would not be able to send a clear message to investors and investors wouldn’t know what criteria to use. Unfortunately, the unfavorable period with an exceedingly strong yen was exacerbated by generational change of our platforms, which put immense pressure on our financial condition. In the subject period, Nintendo was not producing many software titles for the hardware platforms which had large installed bases, and the software titles we produced for the launch of the new hardware did not sell in large volumes in their first year (because of the limited installed hardware base of its first year.) The business size of a game platform can become bigger in the second year after launch, even bigger in its third year and eventually become a large business; it cannot be reflected in only a single-year’s financial results. New hardware platform sales have a negative impact on our profits in the beginning and also the yen was abnormally strong. With the influence of these factors, Nintendo experienced an operating loss for the first time since it started to announce consolidated financial results, and it continued for the second consecutive year. Regarding the operating losses for two consecutive years, management took responsibility with salary cuts and no annual bonus, but in spite of these actions, I expect some people wonder how Nintendo’s business performance will change in the future. Fortunately, the yen has weakened a little since the end of last year. And, from our past financial results, many people came to expect Nintendo to consistently earn an operating profit of more than 100 billion yen. Considering these facts, I used the word “commitment” in order to tell you that we are determined to achieve our aim of an operating profit of 100 billion yen.

I have put a lot of energy into thinking about how we can accomplish this performance goal, but comparatively I have not put much effort into considering what we should do if we fail to achieve it. I also believe now is not the time to mention those things concretely. In that sense, I would like you to think that the word “commitment,” which I used before, means we have the intention to put in our best effort and ensure that we achieve this goal. The reports about the possibility that we do fail to achieve it, I understand, are what other people interpreted the word “commitment” to mean. I interpreted your question as one of encouragement. Thank you.

Q 6 I am afraid Wii U lost its momentum after the launch window period. Nintendo’s first-party software alone may not be sufficient to keep momentum for a platform. I am concerned about recent announcements by some third-party software developers that they will release games for other consoles, but not for Wii U. Please let me know your view.
A 6


Admittedly, there are currently a small number of announcements of new games by third-party software developers for Wii U. The attitude of Japanese developers and overseas developers are a bit different, and for overseas developers, some certainly announced that they would not release their key titles for Wii U, but other big publishers have made all of their main titles available for the platform. In this sense, we can say that this is not a universal trend but each software developer has its own thoughts. Naturally, it is desirable that many developers support Wii U and release a lot of games for the platform as soon as possible, and we think there are two things we must do right away.

One is to seamlessly release our first-party titles starting from next month to improve the momentum of Wii U. As third-party software developers do business for their own profits, they tend to avoid investing in a platform with little presence. We would therefore like them to see Wii U as a platform with which they feel they can make profits from an economical perspective. However, if we tried to do nothing but buying our way to create such a good condition for developers, our own business could collapse. Accordingly, we will give more momentum to Wii U through our software. This is one thing we need to do.

Third-party software

To explain the second point, let me show you a slide which shows some examples of Wii U games that had been announced by third-party developers at the time of E3. I am not in a position to discuss the software to be launched by the third-party developers in detail, but there are more key titles to be announced by them. The other important thing is to have a hit from such third-party titles. There were so many games released by third party publishers for Wii U during the launch period, but most of them were converted from other platforms and therefore could not enjoy brisk sales. As a result, some software developers have become pessimistic about Wii U. However, the time will come when some third-party games for Wii U and for other platforms are released at the same time this year. It is important to have given much momentum to Wii U around that period. If the number of consumers who prefer the Wii U version’s unique entertainment value, such as the ability to play games only with the Wii U GamePad (while the rest of the family is watching TV), increases to a certain extent where third-party publishers notice unexpected hit Wii U titles from other publishers and realize this system’s business potential, its momentum will be improved. Even if these publishers did not have any concrete plans to develop Wii U software, they will swiftly change their minds when they see the successful examples from others. By giving sales momentum to Wii U through our first-party software in the short run and seeing success from third-party software within this year, we would like to dramatically change the situation of Wii U next year and beyond. Thank you.

Q 7 Would you tell us about the loss on litigation of 2.84 billion yen, which was booked as an extraordinary loss in the statement of income?
A 7


According to accounting rules, we need to report a loss on litigation in the event of a compensation payment in relation to a lawsuit. This does not mean that Nintendo has realized an actual loss. We have recently had an increasing number of intellectual property related lawsuits and had many allegations of patent infringement by our products. When we believe that there is no infringement from a legal viewpoint but the alleger sees otherwise, such a disagreement could eventually end up in court.

As some media reported, there is a patent infringement lawsuit brought by Tomita Technologies against Nintendo, and the loss on litigation of 2.84 billion yen that you pointed out corresponds to the 30.2 million dollars in damages awarded to Tomita by a jury in the first trial of the U.S. District Court in New York on March 13, 2013. We plan to appeal this ruling and we are confident in our appeal. In that case, we will be able to transfer the loss to a profit. However, accounting regulations say that, once a court rules against a company, it must report a loss on litigation, so we reported accordingly.

Q 8 I want to know the details of your global strategy. Japan has a low birthrate and is an aging society, but there are plenty of children in the world. I heard that in Saudi Arabia and the United Arab Emirates there are a lot of Japanese schools for children, and the children of royal families and millionaires have entered these schools and play with Nintendo game systems in order to communicate with Japanese children. As for our aging society, I currently volunteer at a paid care facility and nursing home for the elderly. There are many Nintendo games at these facilities and the elderly people say, "Though I don’t play video games, I study idioms and characters for a kanji test.” If you pay more attention to such people and address the needs of a low birth rate and an aging population, I think you will be able to increase the number of business opportunities. In addition, I would like to ask you to improve business performance so that shareholders can smile at the next general meeting of shareholders. Similarly, at next year’s general meeting of shareholders, I would like to see some young people and women sitting in the directors’ seats. Also, as Prime Minister Abe advocated in his growth strategy that action be taken to enhance English education, I would like Nintendo to develop software which enables everyone from elementary school children up to adults to enjoy learning English.
A 8


Hardware Market Share
Hardware Market Share
Hardware Market Share

First of all, I would like to talk about Japan, the U.S. and Europe, for these are the major regions in the global video game market. These graphs show the market share of hardware systems from January to March this year. The top bar represents Japan, the one below it is the U.S., the third one is Europe and the last one shows the sum of Japan, the U.S. and Europe. Red represents the market share of Nintendo 3DS. Pink represents Nintendo DS, light blue is Wii and deep blue represents Wii U. These products hold shares of the hardware market with Sony’s PSP, PS Vita, PS3 and Microsoft’s Xbox. You can tell from this chart that though Nintendo 3DS had a significant share in the Japanese market, it needed a little work in the U.S. and Europe. As a result, it had less than 30% of the worldwide market. This was the situation from January to March, but then we released big titles for Nintendo 3DS in the U.S. and Europe from late March and the market share changed in April and May. While the sales of other game systems decreased because of generational change, Nintendo 3DS sold as much as and in some cases even more than last year. It is crucial that we first do everything within reach during this fiscal term.

Of course, we value new markets in the emerging countries. We would love to be a cultural bridge connecting children all over the world and providing our new entertainment to people who are not accustomed to playing with video games yet. On the other hand, the fact that the U.S. and the European markets were not favorable up until a few months ago contributed to our less-than satisfactory business performance in the last fiscal year. So we first need to improve these markets, and this should contribute to our overall business performance that can make our shareholders smile. Having said that, although it might be difficult to localize our games in all languages, we believe that in this world, there still remains areas where we can launch our game services in English or Japanese and we will pursue these opportunities with our subsidiaries and agencies.

As for our board members, we nominate candidates based on whether we believe they would be the best members at the helm for the next year, not by only age or gender. This year marks a generational shift. Four older board members are going to step aside and younger members will take their place, bringing the members’ average age down by about seven years. As for female employees, we do have many female managers at Nintendo and reflect women’s points of view in all aspects in our product development. For instance, “Animal Crossing: New Leaf” which I mentioned earlier, is one of the titles which involves many female developers and the product has been well received by women. Thus, I believe we have been sufficiently incorporating women’s opinions into our products. Please understand that rather than focusing on whether we do or do not have female board members, what we believe is important is whether we are able to sufficiently reflect the viewpoints and opinions of women in our business operations.

Regarding the possibilities for English education, one of the features of game systems is that you can get immediate responses to your actions. Naturally, it is hard to continue something from which you cannot get a response. For example, Japan would be full of English speakers if we were able to speak English fluently after studying it for only one day. The reality is that we cannot get immediate results when trying to improve our English skills, so this makes it challenging to continue studying. From this point of view, we can make use of our game systems. On the other hand, compared with the time when Nintendo DS was newly released, fewer things are possible only with game systems because now there are also smartphones and tablet devices. Considering the current situation, we continue to examine how Nintendo can combine entertainment with education and make studying fun.


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