IR Information

Semi-Annual Financial Results Briefing for Fiscal Year Ending March 2012
Q & A - Oct. 28, 2011
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Q 7

  You have a grand strategy of “gaming population expansion," and I would like to ask you about your targeted consumer base again. Naturally, the value of a product is to be judged by its users, and the key to growing a business and creating consumer demand is matching a product function to what is highly valued by users. What is the consumer base you are currently aiming at, and has it recently changed? Please let me know your view on your position regarding consumers.

A 7


First of all, we would like to keep pursuing “gaming population expansion" as our fundamental goal for the future because we believe that it is worth continuously aiming at and that it will grow the market, expand our business and improve our financial results, which could give our shareholders much return.

  On the other hand, we do not think that developing video games for casual or light users is the only way to expand the gaming population. There was a misunderstanding that Nintendo was dedicated to such games at some stage of the lifespans of the Wii and the Nintendo DS. We have made efforts to develop video games that are in tune with various consumer tastes; however, we have not been able to gain adequate consumer understanding regarding our intentions, while in the common perception there are no or few core users playing Nintendo platforms, which is not the case.

  To explain again about the consumer base we are trying to reach out to, our efforts for gaming population expansion are aimed at offering software that can be accepted by a wide variety of consumers, irrespective of age, gender or past gaming experience. As it is natural that Nintendo alone cannot provide every kind of software, we would like to achieve our goal in cooperation with various developers. A more important point we believe is, among other things, that a consumer's tastes are not permanent at all, and they will vary over time. Every avid game player was once a beginner, or in other words, there are no born advanced player. Unless we create a flow from beginner to expert by offering an entrance for beginners and the processes for a beginner to become an intermediate user and from an intermediate to an advanced player, the video game industry will gradually shrink. We must therefore consider how we can create such a flow. However, the symbolic stories of how “Wii Fit" and “Brain Training" made non-users start playing video games were overemphasized, and many other cases that such beginner players tried the “Dr. Mario" series next and eventually reached “New Super Mario Bros. Wii" attracted little attention. We hope to improve our efforts to explain that even though such titles initially triggered beginners’ interest to play video games, they will possibly try various kinds of games as their tastes change.

  This issue is linked to the question on the utilization of social media, which I received from another person a short while ago. Since we are simply a developer and seller of products, some consumers are skeptical about our product recommendations no matter how much effort we make. In order to attract their attention to the new potential of our products and break down the barriers of gaming preferences or skill level among various video game players, a relationship among users where they can exchange information and learn from one another is vital. At the same time, we feel that such a relationship could be more easily established if we could improve the coordination between video game systems and social media. When we say “gaming population expansion," we bring a variety of consumers, or even everyone, into view. Our challenge is how to periodically produce software that can satisfy each one of them.

Q 8-1

  The types of the users of the Nintendo 3DS must have changed since its hardware price cut. I assume that, initially, Nintendo fans and avid users purchased the hardware, and I would like to know what kinds of changes have taken place since the product became more affordable thanks to the hardware price reduction. Also, the Japanese software lineup includes “Monster Hunter 3(Tri)G" (Japanese title) which can appeal to a wider range of consumers, but in the United States and Europe, it appears to me that the two titles of “Super Mario 3D Land" and “Mario Kart 7" are standing out much more than other titles. Can I expect to see the strategy in these territories to appeal to a wider audience just as we are observing in Japan?

A 8-1


First, just as you pointed out, it is true that the consumer demographic of the Nintendo 3DS has changed since the hardware markdown. To be more specific, at the beginning, the main consumers were those who could afford to purchase a 25,000 yen (the MSRP in Japan) hardware system at times other than Christmas, or namely, a number of avid male game players, who are earning a living and have relatively more disposal income, were making these purchases. Of course, many Nintendo supporters, regardless of age or gender, also responded to our offers from the beginning.

  After the markdown, the first thing we noticed was the increase in the number of purchases by children, followed by female consumers. Such changes can be clearly seen through our Club Nintendo data. Also, we launched the new “Misty Pink" hardware in Japan the other day, which must have been awaited by many female consumers. When it comes to the composition of the Club Nintendo registrants, there are more male consumers than female consumers to some extent. Yet, those who have registered with the Misty Pink hardware are predominantly female. Perhaps, more than three-quarters of all the purchasers (of the Misty Pink colored Nintendo 3DS hardware) are female. When it comes to the software which was most commonly purchased with the other colors of the Nintendo 3DS hardware, “Legend of Zelda: Ocarina of Time 3D" is ranked number one. As for the Misty Pink hardware, “nintendogs+cats" is the software which was most often purchased with that hardware. So, the trend for this color is very different. Also for example, “Professor Layton and the Mask of Miracle," is ranked highly, too. So, the consumer preferences have started to expand in wider directions. The same trend that the product is starting to be purchased by female consumers and a younger demographic can also be found in Europe and in the U.S. Having said that, however, there are typically only a few opportunities for (the majority of) children to be able to obtain a video game system such as birthdays and holiday gift-giving seasons, and as for Japan, the Japanese New Year holidays, when parents and relatives give money to children. Therefore, we have yet to see a massive purchase movement by that age demographic. However, we have come to know through various kinds of qualitative and quantitative research, that the number of children who would like a Nintendo 3DS system as a Christmas gift is rapidly increasing, and this is one of the factors with which we can now look forward to strong year-end sales.

  As for your next question, I can understand the sentiment that, while the Japanese market can look forward to “Monster Hunter 3(Tri)G," the overseas markets do not have such a title and the two Mario software titles alone may not be able to appeal to a sufficiently wide consumer base. On the other hand, I feel that this sort of question is often asked only in Japan.

  To give you some background information, I understand that Mario had a rather childish image in Japan. I recall that it was my second year as the president of Nintendo, when we did research on Japanese consumers which showed us the result that they have this childish image of Mario. Of course, we really appreciate the fact that our characters are loved by children. On the other hand, it does not make us happy if adult consumers say that Mario is childish. They felt that our products were too childish to be relevant, which was the issue we needed to work on. I believe that the situation surrounding this image has largely changed. Initially, our research in Japan suggested that 3D Mario was childish but that the original 2D Mario, who was drawn in the NES era as a group of pixels, was cool. The company tackled this issue in various ways at such occasions as the 20th anniversary campaigns for the Japanese launch of NES and by the reintroduction of the original “Super Mario Bros." game for Game Boy Advance. Such efforts led to the smash hit of “New Super Mario Bros." for the Nintendo DS. This title became the first huge-hit Mario game in a while in Japan since the original “Super Mario Bros." game. From this sales result, we can say that Mario has become a franchise which can be accepted by both adults and children.

Wii Japanese User Population
Wii American User Population
These graphs are from the slides used at the Financial Results Briefing on May 8, 2009.

  However, there still is an age group which shows less support for our offers in Japan, and they are male junior-high, high-school and college students. So, when you look at the age-demographic charts of our consumers in Japan, it looks like the back of a two-humped camel. Namely, there is a significant number of users in the children’s age demographic but a dint in the high-school and college student age groups and then the number of our consumers increases once again in the adult demographic. “Monster Hunter 3(Tri)G" must appeal with great affinity to that group of consumers, and I believe you can appreciate that. Now to your question of, “Will Nintendo be ok without a title that is the equivalent of Monster Hunter in the overseas markets?", I should first confirm that there is not such a dent in the U.S. and Europe.

  In other words, the phenomena that consumers show less interest in Mario during their junior-high, high-school and college years can be observed only in Japan. Of course, adding software which is inherently different from Mario games must add to the solid software lineup for the Nintendo 3DS in the upcoming year-end sales season, but since Mario action games and the Mario Kart series have been welcomed by most age demographics there without the similar dents as in Japan, I do not think that the overseas sales will not go well because of the absence of a software title like the Monster Hunter software. In Japan, regarding the age demographic (to which Nintendo has attracted less attention than other demographics), Nintendo software and Capcom’s “Monster Hunter 3(Tri)G" will supplement each other in order to generate strong appeal overall, while in overseas markets it’s our expectation that the two titles of “Super Mario 3D Land" and “Mario Kart 7" will be widely accepted in terms of age demographics. Needless to say, we are making efforts to prepare a wider software lineup, including software with a charm not typically provided by Nintendo, in order to satisfy the needs of many different consumers. Please understand, however, that if anyone has the notion that the absence of Monster Hunter will create a less enthusiastic market condition in the overseas markets than in Japan, it is different from my belief.

Q 8-2

  Can I expect to see the launches of Nintendo 3DS titles from the overseas third-party publishers which are aimed at avid game players next year?

A 8-2


As a matter of course, it requires more time to develop such titles. Since in Japan, the importance of software for handheld systems among the entire video game business is larger than that for home console software, handheld software is the main battlefield for Japanese publishers. On the contrary, for the U.S. and European publishers, software for home console game systems is the main arena. Therefore, putting a higher priority on spending development resources and allocating teams to the development of software for handheld game systems can be decided only after a decent market is created for the handheld hardware. If the Nintendo 3DS had been able to sell a lot more in the beginning, third-party publishers would have announced by now which software they would launch. But due to the slower-than-expected sales start, everyone was in a wait-and-see mode. The situation is starting to change, and (after they see the results of the year-end sales season,) there will be more changes from next year and beyond.

  If I may add one more remark in this regard, about the quality Nintendo 3DS software made by Japanese software publishers, this is the great opportunity for them to expand their market to outside Japan. Nintendo has been creating its software in Japan but these software titles have received strong support in various markets around the world. I think one of the very important jobs of Nintendo is to identify the third-party software made in Japan which, we believe, will have a strong affinity with the tastes in the overseas markets and, thus, have a strong market potential there, and we will collaborate with them to make these titles into hits. So, with these different efforts, we would like to enrich the software lineup for the markets outside Japan as well from next year, which will become one of the contributing factors for our improved profitability in the next fiscal year.

Q 9

  Looking from the outside, your company appears to have two challenges: One is, I feel that the company has less foresight for the new technologies and the needs of the public. As an example, I feel that 3D viewing itself does not have a great affinity with video games. Another thing is, I feel that the company needs to accelerate its speed at which you comply with the changes in the world. More specifically, the company has been unable to comply with the social gaming era. What is your recognition on this point, Mr. Iwata? (Note: At the Q&A session, Satoru Iwata asked for the clarification of the question, but since it is not helpful for the readers of this Q&A, that dialogue has not been included here.)

A 9


First, regarding your question on the compatibility of games and 3D, please first play “Super Mario 3D Land" and “Mario Kart 7." I am looking forward to hearing your impression after playing these games. Of course, not 100 players out of 100 will say that 3D is wonderful. But we have confidence in these two titles, and we believe that majority of people will realize how 3D viewing can be used in video games.

  Having said that, however, if anyone asks, “Shouldn’t these titles have been at the hardware launch?," we cannot disagree at all. I mean, since we were offering the world such unprecedented things as 3D gaming, we needed at least one of such titles at the launch of the hardware. But we failed to offer such a software title at the launch, and as a result, because it (the attractions of 3D) cannot be understood unless people have hands-on experiences, such comments as “I hear it is tiring on your eyes," “I hear it gives you a headache" or “it is said to be bad on your eyes" prevailed more than the real appeal of the products (among those who had not played the Nintendo 3DS yet). We could have done a better job in this regard. However, now that such software titles will be launched in the year-end and New Year seasons, we believe the value of 3D will be appreciated more. Also, since 3D viewing varies for each individual, the existence of the 3D Depth Slider will enable them to adjust the intensity of the 3D settings to their liking.

  Being able to anticipate future technologies and trends is, in a sense, a “lifeline" for Nintendo. If the company actually lacked this ability, Nintendo would not survive. We would like to make further efforts so that we will be able to receive a positive response from the public.

  And, when someone says, “Nintendo must have been late in riding on the trends because it was unable to foresee the emergence of the social gaming era," there must have been a mixture of several different things in their minds, such as, “"Nintendo is not producing so-called social games" and “dedicated gaming devices may or may not be necessary now that smartphones have this huge installed base" and “Nintendo appears to have been unable to take advantage of social networking services so far." Taking this opportunity, I would like to explain what kind of stance Nintendo is taking regarding these questions.

  One impression we have as a result of reading articles on Nintendo recently is that these articles are confusing the effect of social games and the effect of smartphones and discussing them together although they are two different subjects which must be discussed separately. For example, the majority of social games, which have expanded in Japan, are not available on smartphones today. The fact is, the majority of such games are played on multi-functional cell phones that we Japanese often and uniquely call “Galapagos Cell Phones" or, more recently, “Feature Phones." It appears these two different devices are mixed together in their arguments.

  Regarding the effect of so-called “social games," it seems that so many people believe in the causal relationship between the decline in Nintendo’s business performance and the rapid expansion of social games just because these two events have happened simultaneously. On the contrary, we do not believe that they are a big factor in our slower performance today. Since I have repeatedly explained about this in this type of opportunity (*), I do not intend to repeat the same explanations but, as we continue our research even after making such an explanation, we have never found any research data which show any meaningful differences in the attitude towards or in the frequency of playing with the Nintendo’s handheld game systems as a result of playing with social games. Accordingly, we have to think that there are no causal relationships. Game businesses are largely affected by the availability of a hit title. At the upcoming year-end sales season, where we have multiple software titles which have the potential to become hits one after another, we believe that we can pull the trend to our side. We really want to show a year-end sales result that can more effectively communicate to a number of people that the growth of social games has no causal relation with Nintendo’s performance.

  Next, about smartphones. Smartphones in Japan have entered into a cycle of rapid expansion this year. In the U.S. such a trend was found earlier. Among younger generations in particular, smartphones have become the contemporary must-have items, and it has become rather common for us to switch to smartphones at the time we need to exchange our existing cell phone for another. With smartphones, you can play games without purchasing a dedicated game system, and these games are offered either free of charge or at extremely low prices. In this regard, there is no doubt that the bar has been raised higher than before for us to encourage consumers to spend several thousands of yen for a video game in Japan.

  However, approximately a decade ago, a number of people used to say exactly the same thing. Namely, they said that, with the ability of cell phones back then being able to run a variety of software applications, dedicated handheld game systems would not be purchased any more. The fact is, their forecast has not become a reality. This time, the basic structure is the same. Nintendo has been recognizing that video game systems are something that consumers are obliged to buy in order to play with the software they want to enjoy. Therefore, the most critical thing for us is to periodically propose software that can encourage people to have the mindset of, “I really want to play it." The circumstance surrounding us has not changed in this regard. On the contrary, we now have a means to communicate our information rather effectively to our consumers directly. So, as I said today, we are currently considering how we can best take advantage of this media, and our attempt to put Nintendo eShop on the Web is one of such efforts.

  As for the opinion that game dedicated handheld devices are not needed any more as long as you have a smartphone, I cannot say that no one holds such a belief; however, the results of our research have not shown any meaningful differences between the game play attitudes of consumers that do own smartphones from those who do not. Accordingly, as long as the Nintendo 3DS can offer gaming experiences that can not be realized on smartphones, and if they are attractive enough, we can ask our consumers to purchase the Nintendo 3DS. The important thing for us is to make these proposals by taking advantage of our position of being able to make unique offers based upon the integration of both hardware and software as we are making both.

Playing Less/More Than 3 Years Ago

  So far, as I have made these explanations based upon Nintendo’s own research, I was concerned that you might not feel that they have strong credibility. Accordingly, I would like to introduce you to some different data (which was reported to us from Nintendo of America) today. In the United States, there is an organization called the Entertainment Software Association or ESA for short, which is similar to what CESA (Computer Entertainment Supplier's Association) is in Japan. They are the industry body for a group of entertainment software developers. Every year, ESA conducts a survey regarding interactive entertainment hardware and software. What you can see now is some of their research results of this past April, showing whether or not people are playing more video games in comparison to three years ago. The darker blue represent the people who play more than three years ago, and the consumers represented by the lighter blue answered that they play less than before. The top bar labeled “Total" indicates the total number of people who answered this survey. There were about 1,300 people. The second bar, “Dedicated Console" means such home console game systems as the Wii, PlayStation 3 and Xbox 360, and about two-thirds of the total respondents fall into this category. The next bar is “PC" which most of the respondents own. The next one, “Dedicated Handheld," means such portable game systems as the Nintendo DS. The “Wireless Device" beneath it includes iPad and iPod touch (with which you can play video games by connecting the device to Wi-Fi networks.) The bar at the bottom, “Smartphones," are such devices as iPhone and Android. (Approximately one-third of the total respondents are included in each of “Dedicated Handheld," “Wireless Device," and “Smartphone" categories. Answers from the owners of multiple devices are reflected in each of the applicable groups.)

  Here, I’d like you to note that, when it comes to the percentage of people who play with games more than three years ago, the biggest increase is found among the owners of dedicated handheld game systems. Isn’t this reality rather different from the impression you had? For your information, in this survey, the question was about whether or not the respondents played games on the subject device more. Please note that a number of the owners of systems in the “Dedicated Handheld" bar must also own home console game systems because, in the United States, more home console games, which are played in front of large TV screens, are played than handheld games. (In the U.S., where the expansion of smartphones is taking place more rapidly than in Japan,) survey results which oppose the generally-conceived idea that “there will be no more demand for dedicated handheld game systems" are found here.

Plan on Buying 3 or More Games in 2011(%)

  In the same survey, another question, “how many software titles are you planning to purchase this year?" (as of April this year) was asked. Those who answered “three to five" are identified with light blue, while the dark blue answered “six or more." Once again, the owners of the “Dedicated Handheld" group intended to purchase the largest number of software titles. As I said, a number of dedicated handheld owners must also be the owners of home consoles. They are actively playing with both kinds of dedicated game systems. The survey result does not support the generally-conceived notions that, now that the digital age has come, people are buying less packaged software for dedicated video game systems and that they will be willing to buy less of them from now on. Overall, there is no doubt that the importance of digital business is increasing in the industry. However, the situation is not as simple as that the packaged software sales will decrease and digital distribution will increase or that the lifespans of dedicated game systems are coming to an end and general-purpose devices are the future. Our consumers are not showing such a trend. What the industry will look like 20 years from today may be a different story. But as far as the ongoing trend is concerned, I do not think that our understanding of the overall game industry and consumer attitudes is greatly different from the reality. I thought that the survey results I have just shown you could prove our point, so I used this opportunity to share them with you.

* Please refer to the following:
A8 - September 29, 2010 Nintendo Conference Q & A Session
A2 - April 26, 2011 Financial Results Briefing for the 71st Fiscal Term Ended March 2011 Q & A
A6 - June 29, 2011 The 71st Annual General Meeting of Shareholders Q & A
A1 - July 29, 2011 First Quarter Financial Results Briefing for 72nd Fiscal Term Ending March 31, 2012 Q & A
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