Corporate Management Policy Briefing/Third Quarter Financial Results Briefing for Fiscal Year Ending March 2012 Q&A

Corporate Management Policy Briefing/Third Quarter Financial Results Briefing
for Fiscal Year Ending March 2012

- Jan. 27, 2012

Outline | Presentation by the President (Text) | Q & A

3	You told us that you are considering the future possibility of digital distribution of packaged software. Are you going to make the prices of such downloadable software and packaged software different, like PS Vita? What about the difference in the release dates? Also, I understand that the wholesalers and retailers will face a decrease in their sales opportunities, including the decreased sales of the packaged software, but will the spread of download sales actually have the potential to decrease the distributors’ sales opportunities? What is your take on this?
3	Iwata: What I told you today is that we already have the necessary infrastructure to digitally distribute the software on a scale as large as the packaged software. We can start it as soon as we decide to do so. We have prepared the structure because we anticipate that it will increase in importance in the future, and I wanted you to know as a part of my presentation today that the company is not denying the future possibility of doing such activities. As for the actual digital distribution method, we need to consider what kind of cooperation we can make with wholesalers and retailers, but we think that there must be various solutions other than just positioning digital distribution as an enemy to them. Upon close consultation with them, we would like to determine the details of our digital distribution. We therefore have nothing to tell you about the differences in prices or release dates. Some argue that a downloadable version to be sold at the same price as the MSRP (Manufacturer’s Suggested Retail Price) of a packaged version is not competitive because packaged software is often sold at a lower price than the MSRP. Downloadable versions that are too cheap will create a different problem, while no one will want to buy games online at a price that is too expensive. As the spread of speculation caused by our remarks on undetermined things might have a negative effect on our business, we would like to hold back from making more comments until when we can actually start such digital distribution. Please let me tell you one thing again: there must be a solution other than positioning digital distribution as an enemy to wholesalers and retailers. When we find one, we think that the solution will provide an interesting future in which both of us can benefit.

You told us that you are considering the future possibility of digital distribution of packaged software. Are you going to make the prices of such downloadable software and packaged software different, like PS Vita? What about the difference in the release dates? Also, I understand that the wholesalers and retailers will face a decrease in their sales opportunities, including the decreased sales of the packaged software, but will the spread of download sales actually have the potential to decrease the distributors’ sales opportunities? What is your take on this?

Iwata:

What I told you today is that we already have the necessary infrastructure to digitally distribute the software on a scale as large as the packaged software. We can start it as soon as we decide to do so. We have prepared the structure because we anticipate that it will increase in importance in the future, and I wanted you to know as a part of my presentation today that the company is not denying the future possibility of doing such activities. As for the actual digital distribution method, we need to consider what kind of cooperation we can make with wholesalers and retailers, but we think that there must be various solutions other than just positioning digital distribution as an enemy to them. Upon close consultation with them, we would like to determine the details of our digital distribution. We therefore have nothing to tell you about the differences in prices or release dates. Some argue that a downloadable version to be sold at the same price as the MSRP (Manufacturer’s Suggested Retail Price) of a packaged version is not competitive because packaged software is often sold at a lower price than the MSRP. Downloadable versions that are too cheap will create a different problem, while no one will want to buy games online at a price that is too expensive. As the spread of speculation caused by our remarks on undetermined things might have a negative effect on our business, we would like to hold back from making more comments until when we can actually start such digital distribution. Please let me tell you one thing again: there must be a solution other than positioning digital distribution as an enemy to wholesalers and retailers. When we find one, we think that the solution will provide an interesting future in which both of us can benefit.

4-1	You explained about Nintendo’s policy on micro-transactions as a software developer several times. If a system for micro-transactions were available on Nintendo’s platforms, third-party developers could use it in various ways. In that case, micro-transactions, like the ones in so-called social games, would naturally be an option, which eventually would bring consumers using Nintendo’s platforms to have contact with them. What do you think about this issue from the perspective of Nintendo as both a software developer and a hardware manufacturer?
4-1	Iwata: As a hardware manufacturer, or platform holder, it would be better to present third-party developers with as much freedom as possible. Some say that the guidelines and regulations we previously established are too strict and behind the times, and others say that Nintendo should not put too many restrictions on the features of software targeting the consumers who are familiar with micro-transactions. Therefore, we plan to ensure a relative level of flexibility for the Nintendo 3DS and the Wii U software compatible with the Nintendo Network as long as the developer has built a trusting relationship with consumers, except for the cases that consumers will be too disadvantaged. On the other hand, the reason I refer to Nintendo as a software developer is that we have a belief that our games should be a trusted brand for a very wide variety of consumers, including children and casual users who are not so familiar with the trends of video games. Therefore, we would like to have regulations with a certain degree of strictness so that consumers will get a sense of reassurance from our games. I am not saying that Nintendo is better than third-party developers. Each developer has its own customer base, and we should be more careful with this point for Nintendo consumers. Shinji Hatano (Senior Managing Director, General Manager of Marketing Division): Third-party developers worldwide have recently been interested in micro-transactions and many of them are considering doing some business in this field. My team has exchanged information with domestic developers about what they would like to do. Each developer has its own desire, but basically, not only Nintendo but these developers share the same idea and have no objection that we need to establish the reliable system for the consumers on which they can feel safe and comfortable when they select the software. We will start organizing the various requests from developers and working with them to create new and interesting software. Please wait for some time for announcements from each developer.

4-1

You explained about Nintendo’s policy on micro-transactions as a software developer several times. If a system for micro-transactions were available on Nintendo’s platforms, third-party developers could use it in various ways. In that case, micro-transactions, like the ones in so-called social games, would naturally be an option, which eventually would bring consumers using Nintendo’s platforms to have contact with them. What do you think about this issue from the perspective of Nintendo as both a software developer and a hardware manufacturer?

4-1

Iwata:

As a hardware manufacturer, or platform holder, it would be better to present third-party developers with as much freedom as possible. Some say that the guidelines and regulations we previously established are too strict and behind the times, and others say that Nintendo should not put too many restrictions on the features of software targeting the consumers who are familiar with micro-transactions. Therefore, we plan to ensure a relative level of flexibility for the Nintendo 3DS and the Wii U software compatible with the Nintendo Network as long as the developer has built a trusting relationship with consumers, except for the cases that consumers will be too disadvantaged.

On the other hand, the reason I refer to Nintendo as a software developer is that we have a belief that our games should be a trusted brand for a very wide variety of consumers, including children and casual users who are not so familiar with the trends of video games. Therefore, we would like to have regulations with a certain degree of strictness so that consumers will get a sense of reassurance from our games. I am not saying that Nintendo is better than third-party developers. Each developer has its own customer base, and we should be more careful with this point for Nintendo consumers.

Shinji Hatano (Senior Managing Director, General Manager of Marketing Division):

Third-party developers worldwide have recently been interested in micro-transactions and many of them are considering doing some business in this field. My team has exchanged information with domestic developers about what they would like to do. Each developer has its own desire, but basically, not only Nintendo but these developers share the same idea and have no objection that we need to establish the reliable system for the consumers on which they can feel safe and comfortable when they select the software. We will start organizing the various requests from developers and working with them to create new and interesting software. Please wait for some time for announcements from each developer.

4-2	Is there a possibility that third-party developers will release software with micro-transactions like the ones in so-called social games?
4-2	Iwata: If third-party developers would like to adopt this form of micro-transaction, and if this kind of business relationship between the developers and consumers is commonly accepted in Japan, we have no intention to decline it. Please understand that this is totally up to each developer, and I am not in the position to say yes or no. Again, we will not turn down such requests by third-party developers as far as they can establish an appropriate relationship with their customers.

4-2

Is there a possibility that third-party developers will release software with micro-transactions like the ones in so-called social games?

4-2

Iwata:

If third-party developers would like to adopt this form of micro-transaction, and if this kind of business relationship between the developers and consumers is commonly accepted in Japan, we have no intention to decline it. Please understand that this is totally up to each developer, and I am not in the position to say yes or no. Again, we will not turn down such requests by third-party developers as far as they can establish an appropriate relationship with their customers.

Outline | Presentation by the President (Text) | Q & A

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