IR Information

Corporate Management Policy Briefing/Semi-Annual Financial Results Briefing for the 68th Fiscal Term Ended March 2008
Q & A
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Q 6   You said that it is important for you to encourage people to touch the Wii Remote in order for them to appreciate Wii. However, the Wii Stations you have installed at retail only show movies and we can hardly touch the Wii Remote. Are you going to improve this situation?
A 6


  Traditionally, it was quite all right for people to stand very close to video game players. In the case of Wii, as we have been reminding people from time to time, we are asking players to make sure before they play that there is nobody or no objects around. While we would like as many people as possible to have a hands-on trial of Wii Sports, when we look around where and how our Stations are installed at retail, we cannot expect people (who can always monitor how customers play) to man the stations. It is very hard for retailers to secure big enough areas for test play. Under such circumstances, we have to expect more potential damage from an incident in which someone gets hurt or has some uncomfortable experience than benefits from a hands-on test. This is why we have refrained from enabling hands-on trial opportunities for Wii at retail. Having said that, however, Wii has been played in different ways. Increasing the number of software titles that require players to manipulate the Wii Remote in a traditional way will allow far fewer risks of that nature. When we can identify appropriate Wii software for retail hands-on trials, the Wii Stations that we are already installing are equipped for that function of test play for those types of games, even though they are showing video footage alone today. We would like to deploy such marketing when we are in a position to promote software which is suited for hands-on trial at retail, which has no risks, but only provides sufficient advantages.

Q 7   In the video game industry, as the hardware installed base increases, the software tie-ratio usually decreases. Do you have any scenario to reverse that trend? For the tie-ratio to increase, I think you must tackle many challenges for both DS and Wii such as the expansion of online and other distribution, and distributions in Asia. How will you allocate your resources?
A 7


  It is the traditional belief in the video game industry that the tie ratio decreases as the installed base increases. Specifically, those who are first to snatch up new hardware are avid gamers who are willing to purchase many software titles. As the installed base expands, increasing numbers of so-called casual and light gamers purchase hardware, who won’t buy much software. More specifically, the majority of game software would be purchased at such price points as 50 dollars or 6800yen, and customers would buy this packaged software only when they expected to receive the value and volume of entertainment worthy of the not small amount of money they would have to spend. If there is only software with game volume that can be played only by veteran players who can afford to spend that much time, novice players will not be willing to spend the money to buy most of them, knowing that they would not be able to finish the games. One of the main reasons why so many people have come to kindly embrace DS might be because we have been saying to them, “If you would spend a little spare time with DS, and you might find that time amusing, or valuable or useful in your communication with the others.” Perhaps, many people are now saying, “this is the very first time that I have bought this much game software in a year.” So, the past common formula that applied to the relationship between hardware installed base and the software tie ratio cannot be applied to DS. What we really want to do now is to expand the dynamic range of both video game prices and game play volumes. The time and energy one person can spend for video games in one day varies by person. Busy men may be able to spend a little time on weekends but they cannot spend an hour every weekday. I personally believe that, if we can make proposals to create a market where such busy people can regularly play with video games, we may be able to alter the issue associated with the past tie ratio formulas. About the allocation of resources, I would like to ask Miyamoto to supplement after I speak as it relates to software development. I know that Nintendo does not have infinite resources. Even if we could increase the number of internal developers drastically, those new developers would still need some time before becoming accustomed to Nintendo’s culture. So, while it is taken for granted that we will intensify our internal development, there is always a limit to how fast we can expand it. If we should rush into this, it could ruin our advantages. So, I believe that we should focus upon the things only Nintendo can do or the things Nintendo can do far better than others. As for other areas, we should actively collaborate with other companies. We will have to deploy our business so that great sales of hardware can result in great business success for the software makers. Otherwise, the platform will not last very long. We will have to make that kind of dynamic.


  When I come to think about this once again, the software we developed with the hope of expanding the gaming population were all brand new kinds of entertainment. I don’t know if we can call WiiFit a video game at all(according to the existing definition of video games). Many customers are buying the hardware just because they want to play some specific software. When we started (the planning), we would first ask ourselves if such people would read game magazines to study about the software they were interested in, and we decided that probably they would not be interested in purchasing any other games after their initial purchases. For example, when we started selling Brain Training, we reviewed the software lineup to find out what we could recommend to these customers as their next game and created the advertisements with that in mind. However, as we are trying to encourage Wii to be set up in as many ordinary households’ living rooms as possible, we must create stuff that those who would not buy into traditional advertisements would be willing to buy as their 2nd or 3rd software purchases. The software tie ratio may decrease in such a process. However, under such new circumstances, we should aim more to expand the installed base of Wii so it can be found in the living rooms of every household. If we can expand Wii sales so that people will take it for granted that Wii is being set up in their living rooms, it becomes possible for an unprecedented lineup of software that would never considered as video games today to become an authentic business. I don’t know if we can call some simple plug-in applications software, but if such plug-in software becomes a prerequisite for some people’s daily lives, they may be willing to buy new ones every year to maintain a level of convenience in their lives. If such a situation is realized, a new software market may be born that cannot be discussed in terms of traditional tie-ratios. Game developers and third party publishers alike today are concerned whether they can go on just by making traditional types of video games. Software engineers are creating new styles of software, which can create new markets and profits, I believe.


  Just when the sales of Brain Training software started to explode, we had a number of arguments internally. It was wonderful that those who have never played games were starting to play Brain Training but would they purchase any other titles? In fact, at some point then it seemed highly possible that DS would not be a video game machine for them, but a machine used to play Brain Training alone. However, More Brain Training included game software called “Virus Buster”, which is a rearranged version of the Dr. Mario game. With the expanded sales of More Brain Training, increasing numbers of people started to say that they couldn’t go to bed before they played Virus Buster. Not realizing they have done so, they have already cleared the first hurdle in playing video games. And then, all we had to do was to suggest to these people that video games in general were always something relevant to them, or that games had always been something they could play. From the data from our Club Nintendo online memberships, we knew that those who purchased DS to play Brain Training were also buying New Super Mario and Animal Crossing. In other words, it was not true those who had purchased DS in order to play Brain Training would not buy any other titles. Of course, not 100% of them are purchasing additional software, but there is potential to change the total picture. Another important factor is whether or not these customers will continuously use our hardware. For example, if customers of WiiFit only play with WiiFit for some prolonged time period, and they play with WiiFit almost everyday, when we offer them some new title which may stimulate their interests, they will already know how to play with it in general, so the possibility for them to buy new software will increase. Today, we believe the most important thing is that our customers will not put their DS and Wii in the closet. As long as they are not put away, there is always a possibility. We are trying very hard to identify what kind of new subjects will stimulate our purchasers’ interests. As a result, we introduced you to software for cooking, English training software and one relating to your vision. They may not be able to achieve the sales volumes that Brain Training software has, but their sales are not small numbers, which attests the fact that people with different interests are appreciating our different offerings. We should not refrain from challenging ourselves to do something unprecedented simply because it was regarded as impossible in this business in the past.

Q 8   Today, many people carry a cell phone with them whenever they go out. Do you think that, in the future, people will be willing to carry around two or three portable devices with them? If Nintendo’s portable device cannot be the 1st nor even the 2nd device to be carried around, are you willing to offer your software content to the 1st device? Or, will you start making cell phones, say, DS Phone, and try to survive as a platform holder?
A 8


  First of all, I personally do not think that people will carry around only one device. I have an engineer’s background and love to try anything new. I am the typical person to be the first in line to purchase anything when other companies introduce something interesting. After trying out many versatile machines myself, I always feel that it is very difficult to use these multi-functional devices. In my analysis, the more functions one device can perform, the more potential users are eliminated. When we look around at devices that are accepted by the general public as popular, few of them offer complex multifunctional capabilities. It looks like these popular devices have been created to be lean by people who are talented in figuring out “how to beautifully trim fat.” So, I cannot imagine that, in the future, a single portable device will be able to provide every need for all the daily issues people have, and I do not share a vision that DS has to be merged with cell phones in the future. Of course, we do not know how cell-phone technologies will evolve and what kind of business structure will emerge in the future. I cannot say with 100% assurance that Nintendo’s future will never intersect with that of the phone business. But as far as the structure of today’s phone business is concerned, Nintendo does not have much interest. As to the question, “Will Nintendo become a dedicated software provider if its device cannot take a leading position,” I can never imagine a situation where Takeda and Nagai will have to lose their jobs. Nintendo’s unique strength lies in the fact that both hardware development teams and software development teams are working in the same building and sharing the same unique philosophy of trying to always create unique and unprecedented entertainment which will surprise people in a meaningful way. Nintendo is clearly much stronger when we can combine both hardware and software development than when we have to focus on software. I just cannot think of any reason why we would abandon a weapon which brings us such a great advantage. I just cannot imagine Nintendo’s future as a dedicated software content provider.

Q 9   How many WiiFit are you expecting to sell just in December?
A 9


  We are hopeful that WiiFit can play a role for Wii that Brain Training software has played for DS, not just in Japan but all around the world. But if you ask me today how many WiiFit we are targeting to sell, today’s situation is similar to that of when we were about to launch the first Brain Training. We had some goals for Brain Training and we felt some potential with the software, without which we would not have made relevant challenges to sell the software. However, before the launch of Brain Training, if I had told you at an event like this that we would sell more than 10 million units of this Brain Training software, you would have just called me a liar. No one could buy into that kind of prospect. So, we do have a large number in mind that we are hopeful of selling with WiiFit, but it is not something appropriate to be publicly announced as a goal. Only sales results will tell. I am not intending to put any pressure on Miyamoto by saying this, but we have big ambition with the sales of WiiFit.

Q 10   According to your financial statements, there was a sharp rise in the Wii sales in Europe from the 1st quarter to the 2nd quarter. Why? Please also explain about who is purchasing Wii in Europe.
A 10


  As for the reasons for the rise in 2nd quarter sales over the 1st quarter in Europe, for one thing, we were able to gradually increase the production of Wii around the 2nd quarter, so the number of units we could ship to Europe increased. Also, I recall around the same time Wii sales in the UK started to accelerate. I believe Wii passed a tipping point at that time. In other words, the number of those who became aware of Wii increased, its popularity increased, and those who might become potential purchasers of Wii also drastically increased around that time. Also, among those who regularly play, there must have been a feeling that Wii was going to become mainstream, while many people who did not regularly play saw Wii as an interesting device that might be relevant to them. I understand that the UK has its own “pub culture”. After work, they visit pubs and talk over drinks. Although Nintendo had nothing to do with this, some volunteered to start “Wii Days.” After they played with Wii at the pubs, some of them went to retailers to purchase Wii the next day. I heard from our local people that such phenomena were reported by newspapers. As the UK traditionally has been a big market in Europe, and the news over there can easily spread to other countries, it was fortunate for Nintendo that the market situation in the UK has been contributing to Wii sales expansion across the whole of Europe. Also, although some people in Japan sometimes say that only small number of veteran gamers are playing with Wii, that statement can never be applied to markets in Europe and the U.S. Sales of Legend of Zelda; Twilight Princess are one good example. Miyamoto and his team have put all their energy into creating this software but Japan happens to be only the territory where it has not yet reached our expected sales. However, in overseas markets, sales are moving ahead just as we originally expected. Many people have purchased Wii in order to play this Zelda game. As this example shows, Wii’s overseas markets have expanded not just with casual gamers and novice players.

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