IR Information

Financial Results Briefing for the 67th Fiscal Term Ended March 2007
Q & A
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Q 1   Some time ago, Mr. Iwata said that the video game hardware business is the business of momentum, so you must achieve a high volume sales at launch. So far, so good. On the other hand, after 4 or 5 months from its launch, I cannot find any titles that can be key for Wii sales. Please tell me when and what game titles will be launched that can satisfy hard-core gamers.
A 1

Satoru Iwata (President):

  As you just mentioned, we believe that the video game platform business is a business of momentum. Once you gain momentum, consumers can feel comfortable in choosing your machine. Software makers feel secure to make the applicable titles. These attitudes will further create a positive cycle, like a chain reaction. But if the mood starts to go in the opposite direction, you have to fight against headwind. So, trying to make one brand-new proposal after another in the first and second years, when the platform is still in its infancy, is always important. With the unprecedented challenges our new platforms have, creating launch momentum was critical for both Wii and DS, and I believe it was Nintendo's internal developers' jobs to make that happen. Once our own developers start the momentum, the third-party software makers will expand the applicable software lineup. In my mind, this is the basic structure of how it should be.

  Frankly speaking, Wii unfortunately did not receive as much positive anticipation as we had hoped it would before the launch. Accordingly, Nintendo had to rely upon its first-party titles to create the momentum.

  As of today, however, between the first-party and second-party titles alone that will be sold under Nintendo's brand name, we have 45 titles for Wii and 79 titles for DS under development. Of course, I cannot say that all these titles will definitely be sold eventually, but these titles were actually given development budgets, specific development teams have been assigned and they are developing the games. So, these titles will be launched one after another.

  Back to your question of when we will fulfill the hard-core gamers' titles lineup: It will be from around the end of this summer to the end of this year. We will then launch a new title of Super Mario (Super Mario Galaxy), Smash Brothers (Super Smash Bros. Brawl) and Metroid Prime (Metroid Prime 3: Corruption) although the last one is primarily for the overseas markets. These will be the key titles for the period ranging from the summer until the holiday sales season of this year, and I think we will be able to cater to the specific needs you mentioned.

  Ideally, we should have had one such title already in the spring in order to create a better flow. At the same time, we are strongly holding the belief that we must raise the quality level if we need to introduce something new to our customers. We wanted to avoid a situation where these flagship titles were introduced when they were not perfectly tuned up. Please allow us that it is taking time.

Q 2   I notice that an increasing number of companies are making Nintendo DS titles, and I would like to know how you evaluate the effect of increased titles on the market. Will you simply welcome the increase in titles, or do you see a threat of market oversaturation?
A 2


  For one thing, the increase in software titles is basically welcomed for the sake of the hardware platform. On the other hand, if too many titles are introduced in a certain limited time period, potential customers have to wonder, "which ones of them will be good to buy?" As every one of us has limited time and energy to use for this kind of research, and as the attention of potential customers itself is limited, people would naturally have to wonder what they should buy if there are too many titles to choose from.

  Our marketing people are telling me that less and less shelf space is available today (due to the increased titles.) Before, all software packages were placed so that the front sides were facing visitors to the outlets. Now, almost all the software for Nintendo platforms are displayed so only the spine of the packages can be seen by customers, and it is becoming hard for our marketers to visually demonstrate the strong appeal of these titles at the outlets. Even when we have titles that have unique and interesting elements, if we cannot conduct effective marketing, they can end up being unnoticed by potential customers.

  Also, the more titles there are, the more the possibility of customers purchasing not exactly the perfect choice. If a person is disappointed by the software he or she has chosen, even though we are expanding the gaming population today, they may say, "I won't play games anymore."

  So, the increase in software titles per se is good, but we cannot be content with the situation. We have to recognize that our customers have a limited amount of attention, we have to struggle to find out a way to communicate what they really want to know and we have to be considerate so that we will not betray our customers' expectations. This is going to be an increasingly important mission for us. As a matter of fact, this is one of the most critical themes for us to combat this year.

Q 3   Bandai-Namco issued a release about your purchase of Monolith Software. Have you changed your position that you will not do M&A (mergers and acquisitions)? Or, is this an exception? What is the purpose?
A 3


  When we say we do not do M&A, there are always exceptions, so let me explain about it. We have never said that we will never do M&A in any situation. Actually, we are not against M&A if Nintendo can absorb the real value of the company. However, in most cases, the value of software developing companies is attached to its people, not the company, which is merely a vessel for its people. So, when we purchase a company, we can purchase the vessel, but we cannot necessarily purchase the contents. Even if we should compete with others to purchase a software company, although we might be able to increase the sheer number of our developers and to gain a short-term result, we do not think it will do good for us in the long run. We have been repeatedly saying that we will not do that kind of M&A.

  In the case of Monolith Software, Mr. Sugiura, the president, and Nintendo have a long-term relationship. How Mr. Sugiura thinks is close to how Nintendo thinks. The software Mr. Sugiura would like to create is in line with what Nintendo would like to have for its platform. So, we thought that Nintendo should support this idea, and we decided to take action.

  If certain conditions are met, we may do the same thing in the future (M&A). However, we will be very careful and selective, so that we will only partner with people with whom Nintendo can create a long-term working relationship.

Q 4   Tell me about the Wii Channel possibilities and its effects upon your sales and profits. Right now, except for Virtual Console, you are offering all the services for free of charge. How will you take advantage of them, as marketing tools or as a revenue source? Will you also increase the number of paid services?
A 4


  We created the Wii Channel structure after asking ourselves such questions as "How can we make a video game machine that will be relevant to all family members?" and "How can we make Wii the machine that puts smiles on surrounding people's faces?" In other words, we did not mean to make it to be a revenue source in the beginning. Having said that, however, the Wii Channel has ended up with a structure that has a number of potentials (to create revenue.) The structure to electronically deliver and bill for the contents is up and running globally, as has already been demonstrated with the Virtual Console. So, when Nintendo thinks we have a Channel which is worth asking our customers to pay for, we are in a position to make a business out of it. I am not saying that the existing services that we are offering for free of charge today will suddenly become a paid service. The Internet Channel will be a paid service, but we have been stating from the outset that the download of the Internet Channel would be free of charge by the end of June and that, afterward, the new download would cost you 500 Wii Points. All the other channels have been offered free of charge.

  Again, we have no intention to charge for these existing free services out of the blue, but when it comes to future Wii Channels, there must be a number of possibilities, and aside from the business model in which we receive money directly from our customers, we may also be able to establish a new type of business model, to receive advertisement fees or by an alliance with other companies.

  For many years, Nintendo has been exercising the businesses of "making its own commodities and marketing them around the world" and "making the efforts to expand the platform and obtaining the licensing fees from the software makers who are willing to take advantage of our platform." I believe Nintendo has been able to establish a foundation upon which other business structures may be built in the future. Although I do not have any concrete plan as to when and what kind of businesses we will initiate, an increasing number of companies are approaching us with their proposals, so we may be able to make some announcement not too far in the future. It is too premature for me to predict the size such a business could be.

Q 5   You said that you would like to double the current unit software sales. How are you improving the current development status? You are increasing the number of developers and R&D costs every year. Will you continue this position, or will you put more emphasis on R&D efficiency? How do you position you and Mr. Miyamoto in that scheme?
A 5


  For the mid-term prospect, as was the case with the previous few years, we are increasing the number of developers to some extent. Otherwise, we would not be able to invest for future research and development while maintaining the current platforms. So, in that sense, we will naturally intensify our R&D position.

  On the other hand, when I said that we would like to establish a market where we will be able to sell twice the number of software, I did not mean to double the number of Nintendo's internal developers, needless to say. The number of software developers who are partnering with Nintendo may increase. Also, when a certain platform can enjoy good sales, third-party software publishers will see it as a good business opportunity. That kind of aspect was also included when I said that we would like to establish a market where more than 300 million software can be sold in one year.

  As long as Miyamoto is concerned, I would like him to concentrate as much time and energies as possible on the products that his teams are developing. I said that we are currently developing 45 and 79 titles, but it is not humanly possible for Mr. Miyamoto to take care of every single one of them. We would like Miyamoto to focus upon the games that his teams are developing. We would like him to focus his energies to realize the highest quality level so that other companies will think that they cannot duplicate it. I think it important for Nintendo's operations.

  Although I myself am looking into some software titles, we have been able to nurture other excellent developers among ourselves. Some of them are starting to take on what Mr. Miyamoto had to do for himself in the past. Probably because we now have more highly-skilled developers, we are now being able to generate a number of million-seller titles.

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