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Financial Results Briefing for the 73rd Fiscal Term Ended March 2013 - Q & A
Q & A

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Q 1

You talked about Nintendo’s digital business in the presentation. I remember you said that in addition to the packaged software business, the digital business could be a core business for Nintendo. Could you please give an indication as to how much you expect to generate in digital sales this fiscal year and the next? Also, apart from replacing packaged distribution with digital distribution, I understand that you are developing network-based products such as "Wii Street U powered by Google." Do you expect to be able to make hit network-based products and create a buzz in society?

A 1

Satoru Iwata (President):

Regarding download sales, I cannot tell you the specifics, as we have not announced any concrete figures for this fiscal year or the next. On the other hand, a quarter of the sales of "Animal Crossing: New Leaf" in the last fiscal year came from its digital version, while the download sales ratio of "Tomodachi Collection," which was released only very recently, stands at approximately 10 percent after its first week. Although this figure will vary depending on whether the software in question has qualities that can well be enjoyed digitally, it can be said that already 10 percent of Japanese consumers are willing to opt for our digital versions. In this sense, we are already seeing changes that would have been inconceivable, say, about a decade ago. In consideration of the fact shown in my presentation that, once people have chosen a download version, they tend to choose another download version the next time they purchase software, I still feel that the digital ratio will change dramatically in two or three years’ time, as I did when I initially made this remark.

Also, as you pointed out, we think that digital distribution of packaged software is only the first step in expanding our digital business. We will not simply change our existing packaged software distribution channel. Rather, we might have many other types of business models in addition to packaged software. For example, we might see more games that are similar to free-to-play games, games that cost much less or games that require a monthly subscription fee. Digitalization allows for greater flexibility, whereby having more ways to make payments, both software developers and consumers have more options. And Nintendo 3DS and Wii U have flexible systems to handle such trends, so it is now a question of putting these ideas into action. I can definitely say that Nintendo will make new offers that go well beyond simply replacing packaged software with digital software.

Actually, "Wii Street U powered by Google," which you referred to in your question, has been developed with open web technologies like HTML5 and JavaScript, which we announced as "Nintendo Web Framework" at GDC (Game Developers Conference) the other day. We already performed an update after releasing the software, and we are planning to release another update in the near future. It would have been impossible to offer to our consumers products that underwent updates at a pace like this in the traditional style of game development. But we are now in a position to, for example, realize various ideas conceived by people in the company who had tried "Wii Street U powered by Google." This software is currently offered at no charge and those who downloaded it for free will be able to continue to use it for free, but we have already announced that we would make it paid content at some point in the future, and at that point, we will make new offers by combining various features. And I feel that the possibilities may go beyond simply charging our consumers a certain price at the time of download.

Also, I talked about JR East’s public transport e-money card "Suica" today, and I feel that the impediments to making small payments on Wii U will be reduced dramatically if one can make payments in this fashion. If this becomes a reality, it will be easier for consumers to pay for products and services such as, "Wii Street U powered by Google," add-on content for games or pay-per-view options in VOD (Video on Demand) services, and I feel that there will be more ways for consumers to take advantage of these options.

I think that those who already own a Wii U system are starting to understand the advantages of having a game console that is connected to a TV as well as the Internet and, together with a device with touchscreen controls that you can hold in your hands, integrate to form one system. As a platform holder, Nintendo anticipates that as the system becomes increasingly convenient for consumers, the number of business opportunities taking advantage of these features will grow. We do not do business under the concept that "digital business" equals simply replacing packaged software with digital software, or, put another way, changing our distribution channels.

Q 2

I have two scenarios of my own that I feel Nintendo may eventually follow. One is for Nintendo to abandon the strategy of the expansion of the gaming population and instead focus its business efforts on children and families, an audience with whom Nintendo has had consistent success. The other scenario is for Nintendo to acquire a cloud gaming company and become a cloud gaming company itself. I feel that these are both possible scenarios, but could Mr. Iwata please tell us, to the extent possible, what he thinks of these ideas?

A 2


First, families and children are some of the most important consumer groups for Nintendo with whom we have been trying to expand the gaming population, and Nintendo has shown and would like to continue to show a strong presence among these groups. Families and children are indeed very important audiences for Nintendo. This policy will never change.

As for your remark about cloud gaming, I believe that there are games that have an affinity with cloud gaming and games that do not. Of course, we constantly pay attention to the advances and changes in cloud gaming technology and Internet infrastructure. On the other hand, I don’t think that our games, particularly the types that have strict requirements in terms of real-time responsiveness, can offer high-quality services using cloud gaming technology because of unavoidable network latency, which I mentioned last time. We will of course continue to see how this technology develops, but in order to decide whether cloud gaming is something that we should be interested in, we will need to closely follow the changes in technology and also the business environment. However, at this point in time, I do not think that acquiring a cloud gaming company will in any way improve our performance, so we are not moving in that direction.

Q 3

You mentioned in the presentation that you were planning to place Nintendo’s overseas operations under your direct control. In the overseas markets, it seems that packaged software, for home consoles in particular, has been facing a severe situation. What do you think about it? In addition, would you please let us know more specifically how you will change your overseas operations by putting them under your direct control?

A 3


I decided to refer to our plan to place our overseas operations under my direct control here because, in evaluating the notice regarding changes of directors, I thought that you might wonder who will replace the retiring general manager of the International Division and who will supervise our business in the U.S. after Mr. Kimishima, current chairperson and CEO of Nintendo of America Inc., comes back to Japan to replace Mr. Mori as a managing director.

I already communicate very frequently with those working for our overseas subsidiaries, but I will try to intensify the communications with them to make their marketing strategies and tactics more aligned with the management decisions at the headquarters. I will also inform them about the products under development on a more timely basis so that they can take advantage of the sales potential of such products in their business territories.

As there has been a downturn in the video game industry for the past two years, some, specifically in the U.S., say that video games themselves have entered a difficult phase. This is probably due to two elements.

One is that consumers have a higher psychological hurdle to paying a certain sum of money for software. Many people attribute this to smart devices, but I don’t think it is the only reason. We try to offer various kinds of software for a video game platform, and the games are improving steadily each year, but these improvements are becoming less noticeable. In short, what one platform can offer will eventually become saturated. Every consumer will inevitably become tired of and get less excitement from the same type of entertainment. It has become more difficult for a game which developers in this industry, including us, created with the same or greater amount of energy, to move or amaze consumers. Lowering software prices and a rise in the number of devices you can play games on without a dedicated gaming machine are gradually setting the bar higher for us to encourage our consumers to pay a certain sum of money for software.

The other element is the lowered sales level of the entire video game market as the current non-Nintendo home consoles are nearing the end of their product cycles. These factors combined have caused the current situation. I believe the future of the video game industry depends on the number of games developers release that consumers consider to be fresh and worth paying for.

We originally planned to release a few first-party titles for Wii U during the first half of this year, but no big titles are scheduled for release before "Pikmin 3" in July because we decided to take time to add the final touches to ensure that consumers fully feel that they are valuable titles. The brand of a franchise would be completely degraded without customer satisfaction. This is why we delayed the release schedule of such games.

We have recently reaffirmed the fact that a delicately crafted game will never fail to appeal to consumers. A good example is "Animal Crossing: New Leaf" we released at the end of last year. "Tomodachi Collection" has also made a good start in its first week, probably because many people have felt that it contains new types of fun and excitement even if the basic structure of the game is similar to its prequel for Nintendo DS. In this way, what is happening cannot be accounted for by the idea that casual users playing games with smartphones will not buy games targeted at them for dedicated gaming systems. The reason why "Fire Emblem Awakening" and "Luigi’s Mansion: Dark Moon" have been well received by consumers in the U.S. and European markets is that they still respect the value of games that have been carefully developed to take advantage of dedicated gaming machines. It is true that the overseas video game market has been in a downturn for the last two years, but we believe that there is a way to buck the trend.


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