IR Information

Corporate Management Policy Briefing/Semi-Annual Financial Results Briefing for Fiscal Year Ended March 2009
Q & A - Oct. 31, 2008
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Q 1   I'd like to ask you about the situation in Europe. The other day, when I asked Tomy Company why they had not changed their full-year profit forecast given their positive first 6 months, they quoted their European local marketing subsidiaries and told me that, while they are, of course, referring to toy business, the demands are there but they are regulating their shipment in terms of potential risks in collecting the funds due to the worsening circumstance surrounding the local retailers. Don't we have to consider such risks when we review your future performance?
A 1

Satoru Iwata (President):

  There appear to be two aspects to that question, I believe. One is the difference between all toys and video game businesses. Another is potential credit risk for each of the European retailers. First of all, in such an economic circumstance as today, what will become of our year-end sales season is, needless to say, one of the biggest business concerns, so we have been exchanging opinions with a number of our local retailers. Most say that there will be an even more distinct division between the products that sell and don't sell. Fortunately, the retailers are counting Nintendo DS and Wii as products that will sell, so their sales prospects are rather bullish. So, while they are taking bearish attitude to some products, when it comes to video games, especially Nintendo DS and Wii, they are not anticipating the negative effects of the economy in Europe. That is one thing.

  Another thing is the credit risk issue with retailers. This must be an independent issue for each retailer. In each country, there are retailers who are enjoying good business and those who are not, and there are retailers who can smartly cope with the changing circumstances and those who cannot. I do not think it is necessary to refer to specific retailers here but we are hearing a variety of stories. As a matter of course, we are not willing to deal an aggressive business with those with higher credit risks. We are dealing with each of the retailers by taking into consideration the circumstances surrounding them. The financial prospect we have disclosed are based upon our estimate by taking these points into considerations.

Q 2   Because Nintendo has been proposing new ideas one after another in the past through today, it feels like this trend will continue into the future, I'm wondering if you have a specific project team that is tasked to come up with them? Or, does it get decided elsewhere such as at a bar over drinks or do you have such things as Opinion Boxes where employees can post new proposals? Could you tell me how Nintendo has been able to come up with the new ideas?
A 2


  There has been no fixed pattern. Sometimes, Shigeru Miyamoto comes up with an idea. Sometimes, I come across a good idea when I am talking to people inside the company. There have been many cases.

  What I am trying to be very conscious of is that people like Shigeru Miyamoto and myself who are supervising all the software development at Nintendo must be perceptive to a variety of different ideas that are generated by people at the forefront of the developments. Specifically, whenever there is an interesting idea, we try to make sure we quickly respond to it to ensure that certain resources are allocated to start the project. As the project moves forward, we learn that some ideas have really good prospects and some contain various issues for it to materialize, contrary to original expectations. I believe the important thing is to make the appropriate judgments at the appropriate time.

Shigeru Miyamoto (General Manager, Entertainment Analysis & Development Division) :

  I think we have to be light on our feet. More specifically, it is important to have small meetings very frequently. After all, having frequent communications is the key. From that perspective, I believe we are currently able to manage the company which is light on the foot. We are making it a point to meet with many different people at many different opportunities, and I sometimes eat lunch with them at nearby restaurants. As long as we have the sense of urgency that we have to have some conclusions to something all the time, the important thing is to be light on our feet.


  I just hit upon one thing that I'd like to add. Even when we hit upon some idea that we think will be really interesting, sometimes, it takes an extreme amount of time for that to be commercialized. This particular example is no secret at all since we have already included it in one of our topics disclosed in our official web site, but Wii console contains a functionality for players to draw their caricatures, which, I believe, is the results of Shigeru Miyamoto's tenacity for nearly 20 years.

  More specifically, about 20 years ago, when we were selling Disk System attachment for Nintendo Entertainment System in Japan, Shigeru Miyamoto started saying that drawing caricatures of players would be fun. So, he experimented, but at that time, there was no appropriate mechanism to market it. When we were selling Nintendo64, we sold a disc drive attachment called 64DD in Japan. We made a software with which you can draw your caricatures, but we were not able to market it also. Then, when we were selling GameCube, we experimented with a software which placed a camera on GameBoy Advance. We called it "Manebito" or "Stage Debut" but they were not commercialized either. Most people would have given up. However, when we were developing Wii, Shigeru Miyamoto once again started saying, "I think drawing your caricature would be fun." As a result, staff members at the forefront of the product developments must have said to themselves, "Not again." However, when some idea truly has the potential to be interesting and when the only problem is that we cannot find a way to commercialize it, it can happen that the solution suddenly comes to us. As soon as we found the way to make it happen, we were able to assign the necessary staff members to complete it very quickly.

  So, we should not ignore the importance of the tenacity to tackle with one idea persistently. I believe that the accumulation of keeping that attitude for many themes results in the difference.

Q 3   I am expecting that a number of new game software will launch that will take advantage of the camera and music play back functions of DSi. Since DSi has yet to hit the market, different views may be held by third parties over its prospects. Please let us know about the third parties' reaction to and motivation to develop applicable software for DSi.
A 3

Shinji Hatano (General Manager, Marketing Division) :

  We started disclosing the specs just around the time of our announcement so we have yet to receive concrete proposals from the third parties. We have just started providing them with the development tool kits. While they have not shared with us any concrete ideas on how they would like to use the camera and music functions, most of the Japanese developers and the influential overseas developers are telling us that they see the possibility to create some new software.

  That's about all that I can tell you about the current situation. In reality, it will take some time before they can come up with a concrete game plan. I think they will need time, at least about one more month before they can do so. This is not because the platform is Nintendo DSi. Whenever we launch new hardware, or a hardware with new functions, the developers first need time to review the specs to think over something new that they can create. Then, they experiment based upon initial concepts before they finalize the game's development strategy. From past experiences, I think we won't be seeing proposals for some time.

  As long as their initial reactions are concerned, they told us that it will allow them to create new types of software and that it seems entertaining.

Q 4   I hear that the level of Japanese game software makers' development abilities are lowering. When I pose this question to different companies, I'm told that they will not be able to compete in the future unless they are making software with photo-realistic graphics for high performance systems. Sometimes, they even attribute the lowering of developing ability to the penetration of Wii, which has been decreasing the opportunities for developers to work on more sophisticated systems.
  If that is really something which determines each company's developing competitiveness, I find it very strange because it implies that none other than Nintendo itself must be the company with the weakest development ability with the least competitive edge because Nintendo has been developing software only on such platforms as Wii which applies only to standard definition(*1) TVs, applicable only to "fixed shader"(*2) with fixed function pipeline and which can be only compared with something like DirectX8(*3). Given that you have already sold 9.5 million copies of Mario Kart Wii and that you have already sold 6 million units of Wii Fit in the overseas market, I cannot believe the notion that working on more sophisticated systems contributes to building of the international competitive edge.
  So, I would like to ask Mr. Miyamoto about what he think is the international competitive edge Nintendo has from the software development perspective. And to Mr. Takeda, from the hardware perspective, I understand that the ability to discover ideas of WiiRemote and Wii MotionPlus can hardly be found among ordinary hardware manufacturers but that they are more oriented with the venture corporations. What is Nintendo's competitive edge in such an area? Finally to Mr. Iwata, I would like to ask him of the overall perspective, from both hardware and software development.

(*1)Standard Definition: Average Resolution for analogue TVs
(*2)Fixed Shader: Three-D graphics display function, drawing procedures of which have been fixed by hardware. Fixed Shader means the function before the advent of Programmable Shader, the drawing function of which can be freely modified by programming, when both are compared.
(*3)DirectX8: Graphics Display Environment provided by Microsoft and its version number. As of November 2008, the latest version is 10.
A 4


  As you said, emerging technologies become difficult to catch up with once you stop the relevant development, so it is necessary to continuously research and study the new technologies. On the other hand, as long as the technologies that you have just mentioned are concerned, most of them are the ones that are owned by development tool makers and that comes with individual developer. If an entire company just pursues them to increase the overall development level, will the capable developers of the company really be willing to work for it for a long time, when the developers' mobility is this high even between the different countries? Isn't it true that simply hiring talented developers from outside will be easier solution to such competitive edge issues? We also have to think in terms of these questions when we need to decide how much resources we should spend in order to achieve and maintain a certain level of so-called international development competitive edge.

  Of course, internally at Nintendo, we've been continuing such efforts. Perhaps, major third party software publishers are doing the same. However, the question is, will the software made in that fashion really become the software with that competitive edge? Also, even when they compete on the market, will it make economical sense in terms of costs spent by the company? After all, only a handful of software among the ones with competitive edge eventually win in the market. Between the technological ability and an unique idea, I think that many critics evaluate products with a bit more bias to the technological side than to the unique ideas.

  What I'd like to recommend to our licensees is this: When a certain level of technologies are readily available, many software begin to look alike. What counts in such a situation is how we can bring out its originality, and the developers of a particular software becomes important. Even inside an organization, we should once again recognize the importance of management to provide an environment where unique ideas of individuals can be applied. Simultaneously, it is also necessary to establish a company's corporate culture and determine what kind of products it should develop as it is not possible to commercialize every unique idea from an individual developer. The company should let its developers know about its corporate culture and encourage them to be engaged in creative activities in line with that goal.

  I had an opportunity to speak at a Japanese developers conference called CEDEC the other day. It was a closed conference, where a number of young developers gathered. I spoke on a similar topic that each individual developer must continue to create and disseminate ideas to people around the world.

Genyo Takeda (General Manager, Integrated Research & Development Division) :

  In regards to the question of where Nintendo's international competitive edge exists, one of our strengths is the fact that the software development team headed by Shigeru Miyamoto who is sitting to the left of me and our hardware development team both work in the same company. For example, when we determine the technology for how we want our customers to interact with a system, our team is able to frequently discuss with the software developers in the same building how the technologies we present to them can be used and which aspects we should strengthen to better deliver to our customers. To put in another way, we are in a position to develop technologies not for the sake of the technologies themselves but for the sake of the customers' experiences. Even when we look around the world, it is very rare to have people in both areas intimately working in one building, which I think is one of Nintendo's strengths.


  All six people in front of you are students of Hiroshi Yamauchi. He has always been telling us and himself that "Doing the same things as others will get you nowhere in the entertainment business." Whenever we developed something and brought it to his attention, he would make it a point of asking us how is it different from the others already in the market? The worst answer which would upset him was, "It is not different but just a bit better." He thoroughly insisted that that kind of thinking was the most foolish in the entertainment business. So, doing something different from others is a motto deeply engraved in our DNA. From that perspective, the competitive edge we have must be the ability to always explore something with all our might that others are unlikely to do but that has the potential to be appealing to great many people.

  Meanwhile, I would have to completely disagree to the notion that our competitive edge is waning due to the Wii, which has been preventing us from developing software for more powerful systems. As Shigeru Miyamoto talked about it, if everyone in a company ceased to work on new technologies necessary to create software for more sophisticated hardware with beefed-up CPU processing abilities, the entire company will not be able to make progress in that direction. However, as new technologies continue to evolve, each company needs only to appoint people who are tasked with keeping up with them to avoid being left behind.

  (When we were developing Wii,) simply because Shigeru Miyamoto and I concluded that merely intensifying the horse-power of the system would never differentiate us from the others and that we would not be able to create a system that would be attractive enough to sell, we have deliberately chosen another way. Please don't misunderstand us - we are not saying that we dislike nor hate high performance technology. When we are presented with beautiful photorealistic picture, we sincerely appreciate its beauty. We are anticipating that the time will come in the future when anyone can manipulate these technologies without any difficulties and when we can market the software at reasonable price points, and so we are already thinking about how we can make use of them. So, we are preparing for the future, and I do not feel like we were left behind at all. However, always keeping up with the emerging new technologies for the future is one thing, and creating something today that is distinctly different and attractive to our customers' eyes is another, so we should not mix them up. Trying to compete with the others in the same battle ground can always end up being the tiring war of attrition, and even if you win, you can't keep winning forever. Accordingly, we are trying to create a new battle field altogether for ourselves, which I believe is more of Nintendo's style.

Q 5   Even today, whenever some unusual case is reported, the articles often blame video games for the cause. As an analyst, I have been saying that it is not the case. My hope is that Nintendo will be more willing to take a stand that video games are much safer and an enjoyable form of entertainment than others might misunderstand. What is Nintendo's position on this?
A 5


  In a sense, there appears to be no better way to solve such misunderstandings than having those who used to have no interests in video games think that video games are much more entertaining than they thought before playing. In the past, I myself also had many such sad and frustrating experiences but, however hard we may try to state that video games are not bad at all, people with no video game experiences will just refute by saying that Nintendo would only say positive things as it is their business. So, when someone who thought that video games were bad without trying for themselves starts saying to others that video games are actually fun, there seems to be no better and effective ways to prove otherwise.

  Although expanding the gaming population is Nintendo's basic corporate strategy, I believe as a principle that it is also the strategy to heighten the social status of video games in general.

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