Financial Results Briefing Q & A

Financial Results Briefing for the 68th Fiscal Term Ended March 2008

6	I am personally enjoying WiiWare and Virtual Console but feel Wii’s flash memory size is not enough and annoyed that I need to use a SD memory card. Will this situation be improved?
6	Iwata: Statistically speaking, it is true that there are a small number of customers who feel that the flash memory is too small, while many others find that they have plenty of memory. However, because this small number of people are none other than the most avid players, we know we have to review the best possible solution to eliminate their inconvenience.

I am personally enjoying WiiWare and Virtual Console but feel Wii’s flash memory size is not enough and annoyed that I need to use a SD memory card. Will this situation be improved?

Iwata:

Statistically speaking, it is true that there are a small number of customers who feel that the flash memory is too small, while many others find that they have plenty of memory. However, because this small number of people are none other than the most avid players, we know we have to review the best possible solution to eliminate their inconvenience.

7	What is the "Unrealized losses on investments in securities" in the Statement of Income for the fiscal year just ended?
7	Mori (General Manager, Corporate Analysis and Adminstration Division): Most of it can be attributed to the reevaluation loss of the securities in U.S. dollars due to the stronger yen.

What is the "Unrealized losses on investments in securities" in the Statement of Income for the fiscal year just ended?

Mori (General Manager, Corporate Analysis and Adminstration Division):

Most of it can be attributed to the reevaluation loss of the securities in U.S. dollars due to the stronger yen.

8	When I look at the supplemental material distributed for this Financial Results Briefing, I feel that the number of titles prepared for the latter half of the year is small. Are you intending to announce the software lineup for the latter half of the year in mid-July at E3? When I compare with the software you have actually sold from the end of last year to the former half of this year, I feel the future lineup is not strong enough. Are you preparing for some big title?
8	Iwata: When we prepared the Wii software lineup from the end of last year to the first half of this year, we were very conscious of the fact that we had to make a strong enough lineup in order to expand the Wii platform install base. Of course, we are preparing for a variety of software for the latter half of this year. However, we are now feeling that the speed at which new information is consumed and made obsolete has become quicker than ever. When I think of today’s situation as a consumer, when I am exposed to new information too early on, I find that I am already tired of it when the product is launched. This is one of the reasons why we would like to keep news at bay until we really have to disclose them. Rest assured that we are preparing for a variety of products for the latter half of this year and early next year. Also, you will begin to see the many results of our third party partners, who have since recognized that Wii will be a platform for their success. So, I am hopeful that there will be rich contents available for Wii software in general. I am sorry but we are not ready to announce the details today.

When I look at the supplemental material distributed for this Financial Results Briefing, I feel that the number of titles prepared for the latter half of the year is small. Are you intending to announce the software lineup for the latter half of the year in mid-July at E3? When I compare with the software you have actually sold from the end of last year to the former half of this year, I feel the future lineup is not strong enough. Are you preparing for some big title?

Iwata:

When we prepared the Wii software lineup from the end of last year to the first half of this year, we were very conscious of the fact that we had to make a strong enough lineup in order to expand the Wii platform install base. Of course, we are preparing for a variety of software for the latter half of this year. However, we are now feeling that the speed at which new information is consumed and made obsolete has become quicker than ever. When I think of today’s situation as a consumer, when I am exposed to new information too early on, I find that I am already tired of it when the product is launched. This is one of the reasons why we would like to keep news at bay until we really have to disclose them.

Rest assured that we are preparing for a variety of products for the latter half of this year and early next year. Also, you will begin to see the many results of our third party partners, who have since recognized that Wii will be a platform for their success. So, I am hopeful that there will be rich contents available for Wii software in general. I am sorry but we are not ready to announce the details today.

9	Mr. Iwata, you told us before that you would like to establish some new business by utilizing this highly prevalent DS as an infrastructure. When will you start this? What kind of impact are you expecting for your sales and profits? Anything you can tell since you spoke to us the last time?
9	Iwata: As that was one of the topics I discussed with you last fall, it would have been ideal if I could have shared additional details today. With regards to the use of DS in public spaces, however, there are elements Nintendo alone cannot complete. We were not able to complete the necessary coordination with our partners in time to prepare a detailed plan to be shared today. However, it is true that we are making progress, and we think that we will be able to start several experiments in the near future. Of course, in the long run, we are hopeful that such new projects will yield (direct) profits to us. Before doing so, however, it is important for us to create situations to which we can point and say "if you bring your DS to a public space, there will be something nice for you" or "there a number of people playing their DS, making use of them and enjoying themselves in public" because it would imply that DS’ activity rates are on the rise. In other words, we would like to see a situation where DS usage will be ubiquitous, and this, for the short-term, will be the greatest benefit. Although more than 22 million DS hardware has been sold in Japan alone, what we are most afraid is a situation where people stop playing with their DS. Before DS launched, people lived without DS without experiencing any inconvenience back then. But as software caught their attention, provided entertainment, and the DS became a part of their daily lives, there is now an unprecedented phenomenon where those who had never played any video games have started playing and, on average, three people per household today are playing DS. However, whether or not we can keep this momentum is really important. Of course, we need to provide them with interesting proposals one after another in order to keep their interests. At the same time, we think it is necessary to increase the number of places where you can feel it more advantageous to bring your DS with you. This is a concept behind our idea of using DS in public spaces. Of course, we are not forgetting to consider it from a revenue source perspective, and they may be able to actually contribute to our financial results sometime in the future. What I can say at the very least is that within this year, we are thinking of starting several projects.

Mr. Iwata, you told us before that you would like to establish some new business by utilizing this highly prevalent DS as an infrastructure. When will you start this? What kind of impact are you expecting for your sales and profits? Anything you can tell since you spoke to us the last time?

Iwata:

As that was one of the topics I discussed with you last fall, it would have been ideal if I could have shared additional details today. With regards to the use of DS in public spaces, however, there are elements Nintendo alone cannot complete. We were not able to complete the necessary coordination with our partners in time to prepare a detailed plan to be shared today. However, it is true that we are making progress, and we think that we will be able to start several experiments in the near future.

Of course, in the long run, we are hopeful that such new projects will yield (direct) profits to us. Before doing so, however, it is important for us to create situations to which we can point and say "if you bring your DS to a public space, there will be something nice for you" or "there a number of people playing their DS, making use of them and enjoying themselves in public" because it would imply that DS’ activity rates are on the rise. In other words, we would like to see a situation where DS usage will be ubiquitous, and this, for the short-term, will be the greatest benefit.

Although more than 22 million DS hardware has been sold in Japan alone, what we are most afraid is a situation where people stop playing with their DS. Before DS launched, people lived without DS without experiencing any inconvenience back then. But as software caught their attention, provided entertainment, and the DS became a part of their daily lives, there is now an unprecedented phenomenon where those who had never played any video games have started playing and, on average, three people per household today are playing DS.

However, whether or not we can keep this momentum is really important. Of course, we need to provide them with interesting proposals one after another in order to keep their interests. At the same time, we think it is necessary to increase the number of places where you can feel it more advantageous to bring your DS with you. This is a concept behind our idea of using DS in public spaces. Of course, we are not forgetting to consider it from a revenue source perspective, and they may be able to actually contribute to our financial results sometime in the future.

What I can say at the very least is that within this year, we are thinking of starting several projects.

10	I heard that the initial sales of Mario Kart Wii that you just launched have been good, which reminds me of the arcade version of Mario Kart that was also a hit just sometime ago. On the other hand, someone attribute the recent slump of arcade business in general to the success of Wii. What are Nintendo’s position and thoughts on arcade business? Does it have potential to become another new business model for Nintendo?
10	Iwata: Nintendo licensed the arcade version of Mario Kart to Namco Bandai, who rolled out the game and with whom Nintendo has collaborated on many other fronts. For example, the Flash Focus software to which I was referring in my earlier presentation, was originally developed by Namco Bandai. Nintendo saw the potential for it to develop into an excellent software if it finished up well and, accordingly, we proposed to Bandai Namco to jointly develop it. As a result, more than 2.5 million units of Flash Focus software were sold on a global basis, and I imagine that they are as happy as we are. So, we are working together on many other projects, and the Mario Kart arcade project was one of the many collaborations with them, which cannot be compared to any other Mario Kart developments for the Wii or DS. When any arcade software is developed, the application must provide players with unique, fun experiences that can be realized only by the medium of the arcade. As for Nintendo, it has been a while since we withdrew from the arcade business when Mr. Yamauchi was the company president. I myself have been concentrating upon how we can make DS and Wii appreciated by customers all around the world, so I have not had a time to think about arcades nor do I have any idea about arcade business at present. In the entertainment business, however, it is my fundamental belief that we cannot think that a form of entertainment cannibalizes another. People are attracted to a form of entertainment because it offers something that no other form of entertainment can offer. I think we should think in this way. In general, if I were to think about entering the arcade business, I would disregard Wii’s influence and first think about what it can offer that could never be experienced at home.

I heard that the initial sales of Mario Kart Wii that you just launched have been good, which reminds me of the arcade version of Mario Kart that was also a hit just sometime ago. On the other hand, someone attribute the recent slump of arcade business in general to the success of Wii. What are Nintendo’s position and thoughts on arcade business? Does it have potential to become another new business model for Nintendo?

Iwata:

Nintendo licensed the arcade version of Mario Kart to Namco Bandai, who rolled out the game and with whom Nintendo has collaborated on many other fronts. For example, the Flash Focus software to which I was referring in my earlier presentation, was originally developed by Namco Bandai. Nintendo saw the potential for it to develop into an excellent software if it finished up well and, accordingly, we proposed to Bandai Namco to jointly develop it. As a result, more than 2.5 million units of Flash Focus software were sold on a global basis, and I imagine that they are as happy as we are. So, we are working together on many other projects, and the Mario Kart arcade project was one of the many collaborations with them, which cannot be compared to any other Mario Kart developments for the Wii or DS.

When any arcade software is developed, the application must provide players with unique, fun experiences that can be realized only by the medium of the arcade. As for Nintendo, it has been a while since we withdrew from the arcade business when Mr. Yamauchi was the company president. I myself have been concentrating upon how we can make DS and Wii appreciated by customers all around the world, so I have not had a time to think about arcades nor do I have any idea about arcade business at present.

In the entertainment business, however, it is my fundamental belief that we cannot think that a form of entertainment cannibalizes another. People are attracted to a form of entertainment because it offers something that no other form of entertainment can offer. I think we should think in this way. In general, if I were to think about entering the arcade business, I would disregard Wii’s influence and first think about what it can offer that could never be experienced at home.

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