Nintendo Co., Ltd. - Corporate Management Policy Briefing : Q&A

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Q1	When will Nintendo announce the exact price and launch date of Wii? Is your policy that you sell Wii hardware at or over the cost?

Iwata:

I believe we will need to announce the precise price and launch date of Wii in or before September this year. Because we are saying that we will launch Wii in the fourth quarter of 2006, or during the October-December time period, we will need to make these announcements before then. So, we are contemplating to make these announcements in or before September. Let me now talk about your question on whether or not we will sell Wii hardware below cost. Some take it for granted nowadays that video game hardware is sold below cost, at least initially, but I don't think it should be regarded as common sense. Of course, if manufacturing costs are expected to be reduced so small red ink in the beginning will be soon offset as a whole hardware-software business, it is one idea. However, some people somehow think that hardware always loses money. Nintendo is taking some distance away from that approach. If you ask me, "Will Wii be sold at or over the cost?", I cannot tell today if we won't lose even one yen by selling one Wii hardware. However, we do not intend to lose a great deal of money from the hardware sales. Any loss must be recovered elsewhere, of course. We are making our overall Wii plan so that we can develop it as a healthy business from the first year.

Q2	I recall GameCube received a warm welcome by the software developers before the launch. Comparing with the pre-launch period of GameCube, how differently are the third parties evaluating Wii now, and does Nintendo deal with the third parties differently?

Hatano:

As Iwata said in his presentation, the majority of the third parties were putting game graphics as the top priority. However, especially after observing the sales trend of DS since the end of last year, their priority appears to be shifting to the unique game ideas. I believe those who have attended E3 this year among today's audience will understand that Nintendo was the only company that showed different exhibits based upon different concepts from any other exhibitors. I understand they (third parties) were wondering before the E3 show what future course they should take, and the general impression the third parties have had with E3 this year, as I understand it, was that it was helpful in mapping a future course. Since E3, almost all the domestic software makers have approached us and requested detailed information on Wii and requested hands-on experiences with the Wii software we showed at E3 for those developers who did not attend E3. Such developers requests are increasing. Since the end of last month until around the 20th of this month, we have been conducting hands-on opportunities either at our Tokyo branch or at their facilities depending on their conveniences. I'm sure they will come up with unique ideas to create great software, and we are more than willing to cooperate with them. We are also intending to provide them with a dev kit at an inexpensive price, say, at little more than 200,000 yen. We cannot disclose the software manufacturing price for third-party publishers, but they will be at the same level of GameCube.

Mr. Iwata, you said four years ago (2002) at this Corporate Management Briefing that you were concerned about the tendency of lowering software prices, as it could lead the industry to destruction and that the industry probably does not need to lower the software price as long as it could develop the commodities, the value of which were worth the price. Could you elaborate on your view toward the lowering software price today? Listening to your presentation today, I got the impression that you will prepare different price points for Wii.

Iwata:

Maybe the question is based upon the fact that Nintendo is selling Brain Age at 2800 yen in spite of the fact that I had expressed my opposition towards the tendency of lowering software prices. The reason why I expressed my concern was because the game software with huge contents that were made by spending a long development time would be sold at very high price point at the beginning but they would be significantly discounted soon after the launch. I was referring to this kind of unhealthy product cycle The real value of the software must be judged with its contents, not with the medium on which the software is stored. Our business has been based upon the fact that we are asking consumers to appreciate the value of the contents, not the material cost of the optical discs, which are much cheaper. If we put the low price tag for software, the value of which are much more, or if we were lowering the price soon after the launch of the software regardless of its inherent value, I said it was unhealthy. We believe that each software should have its own price point depending on its volume, theme, contents or energies and time spent for the development, namely, the development costs. For example, the majority of portable software is being sold at around 4800 yen now. Especially when we approach non-users and offer them more compact games, the development time for which was much shorter than the other software, having different price points, or more inexpensive price points, has the wider impact to arouse their interest and to cause the expanded sales than simply offering 4800 yen as the almost standard retail price. To put it another way, many in this industry once appeared to believe that marking down hardware prices or attaching free software was the only way to expand the installed base. What is notable today is, people are actively purchasing a 15000 yen DS or a 16800 yen Lite just because they want to play 2800 yen software. So, what I really meant was, we should be in a position to choose the most appropriate price for each software depending on its mission, volume or development costs. Once the suggested retail price is announced, we should stick to it. Of course, we should be flexible. If the software was first introduced 5 or 10 years ago, we don't need to stick to the original price. However, if the suggested retail price of any and all software is marked down in 6 months or 9 months, the customers will learn the cycle and wait for the discounting, which will simply aggravate the decreasing sales of new software. We need to be cautious about this.

Q4	How many Wii hardware do you plan to sell in three years from the launch?

Iwata:

I do not intend to declare how many Wii we will be selling today, but Wii will be a failure if it cannot sell far more than GameCube did. In fact, we shouldn't continue this business if our only target is to outsell GameCube. Naturally, we are making efforts so that Wii will show a far greater result than GameCube.

One game company person referred to Wii and told me, "It was just like starting to compete with completely different rules, as if we started playing with soccer rules just when we were engaged in baseball." Nintendo has the history of introducing many different hardware such as DS, GameCube and Super NES. How do you think consumers will react to Wii? Will they react more positively than the past products?

Miyamoto:		My impression may be too subjective or personal, but I haven't felt any significant difference when I see Wii from purely the standpoint of a man who has been making something. I have just been trying to make something fun. When I was working on Donkey Kong, I was impressed with the fact that I could make completely different things on the same hardware just by working on the software as long as we are using computer as the platform to make things. Of course, Nintendo has been developing a variety of different hardware and peripherals such as Virtual Boy and Kirby's Rumble and Stumble, but our basic approach has been to make new things by working on the software. When many people are trying to improve things within a limited area, a few limited things are becoming more and more sophisticated. Now that you referred to soccer, in case of a soccer video game, developers would make the games more and more interesting just for those who know about real soccer games. The same formula has been applied to action games, role playing games and many other genres. We believe that we have already reached to the stage where we need to show the new vision for the whole entertainment. This is why we have decided to alter the game control interface significantly, not just slightly. Now that we are going to drastically change the control interface, we thought we should also aim to change things from different perspectives as well, such as seeking new ways to package software just as Iwata mentioned today. It will also be fun for us, game designers, if we think in terms of altering the overall way how players play with home console games with what kind of images. On the other hand, this is nothing new for us. After all, Nintendo has been making commodities this way for a very long time. So, we have been making a variety of different software for Wii and we exhibited some of them at E3 this year. Many of you have had the hands-on experience of Wii today. I know many people in this industry do not play video games even though some of them are running video game companies, but I have seen them enjoying playing with Wii without any hesitations. Looking at them, I can feel that we can change the way people play. We are trying not to increase the number of buttons the player has to manipulate. We are trying not to be constrained by conventional rules. We are trying to make games so that anyone can enjoy playing easily. I am sometimes sharing this view with third-party developers. Sorry, I was spending a long time to answer to you.
Iwata:		The person in your question appears to be puzzled with the changing rules in developing software. At Nintendo, changes are nothing new. Nintendo has always been trying to create things from the perspective of making uniquely fresh, fun entertainment. Though the hardware may change, we don't feel that we need to see things from a completely different angle. Looking outside of Nintendo, however, there are people in this industry who have been spending their energies always to make improved versions of the existing games, say for 10 years. Some of them have become the authority in certain game genres that nobody can compete. Many developers are so capable of doing their jobs perfectly in the traditional way of making games. Some of them may not have been able to determine how they can utilize their know-how when Nintendo offers a completely new platform. This will change as the time goes by. Even inside of Nintendo, not everyone could get accustomed to it when a completely new platform was presented. In case of DS and also in case of Wii, some of them could adapt easily and some of them needed time. In the end, however, everybody learned how to adjust themselves, so I'm sure that the same thing happens outside Nintendo as well. At E3, I felt the same way as Miyamoto did. When the brasses at major publishers visited the Nintendo booth, they used to see games by crossing their arms at the tail end of the crowds. This year, the majority of these top executives were the first people to hold and swing the Wii Remote to play. I was really impressed.

Q6	Will Nintendo be able to renew the profit record after launching Wii? If so, when?

Iwata:

As long as the current fiscal year is concerned, we have Nintendo DS which has already been entering into the significant expansion period, and profitable Game Boy Advance for which the development costs have already been depreciated so that we can expect them to significantly increase our profitability for the portable business. As for the home console business, we announced that we expect to ship 6 million Wii hardware and 17 million Wii software during this fiscal year. Even when these numbers are met, their contribution to our overall profitability is limited, as long as this year is concerned. I do not think that DS will be peaking out this year so, if we can make the successful launch of Wii this year, we can look forward to increasing the profitability next year. Your question is when we will make the record profit, but renewing the profit record is not the immediate goal for us at this point in time. As long as the home console business is concerned, Nintendo has been a challenger during the past 10 years. Our priority is to determine the strategy from the challenger's perspective on how we market Wii to make it the best-selling machine. We should refrain from committing ourselves as to when we are targeting to renew the profit record at this point, although we are hopeful that such a day will come sooner and we are making the efforts.

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