Nintendo E3 Analyst Briefing

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4	During a strong period for the company, I heard you say that the ability to hold your cash balance is necessary for times when a generational shift to a new product is not progressing smoothly. I think that you are going through one of these periods now. Please tell me how you will utilize your cash if the software lineup you announced here at E3 doesn’t provide adequate support for your hardware.
4	Iwata: It is up to consumers to ultimately make judgments about our entertainment business. Therefore, before we launch new products, it is difficult to accurately predict which ones will do well or how long it will take until they spread explosively. We work hard to lower the impact that this unpredictability has on our business by launching various titles throughout the year. Nonetheless, it is still possible that we will experience times when, for example, the demand for a hardware system is significantly lower than the number of units manufactured, or we have to make a substantial investment in marketing. In such an unstable business environment, I think that we are only able to take risks because we have a strong cash position. I think the essence of the entertainment business is that you cannot expect big results if you do the same things as your competitors or follow what they have already done. Therefore, I think that the significance of holding a strong cash position is to enable us to take risks and achieve good results. When Nintendo developed a dual-screen handheld game device and made an entirely different controller for the Wii console, did you not question why we would do such a thing? These endeavors went against the grain at that time and majority of people in the industry believed that Nintendo would not succeed. A strong cash position is necessary for us to be able to make such decisions without facing a crisis after just one misstep. Once you understand this, I think it will help you to understand Nintendo’s business more.

During a strong period for the company, I heard you say that the ability to hold your cash balance is necessary for times when a generational shift to a new product is not progressing smoothly. I think that you are going through one of these periods now. Please tell me how you will utilize your cash if the software lineup you announced here at E3 doesn’t provide adequate support for your hardware.

Iwata:

It is up to consumers to ultimately make judgments about our entertainment business. Therefore, before we launch new products, it is difficult to accurately predict which ones will do well or how long it will take until they spread explosively. We work hard to lower the impact that this unpredictability has on our business by launching various titles throughout the year. Nonetheless, it is still possible that we will experience times when, for example, the demand for a hardware system is significantly lower than the number of units manufactured, or we have to make a substantial investment in marketing. In such an unstable business environment, I think that we are only able to take risks because we have a strong cash position.

I think the essence of the entertainment business is that you cannot expect big results if you do the same things as your competitors or follow what they have already done. Therefore, I think that the significance of holding a strong cash position is to enable us to take risks and achieve good results.

When Nintendo developed a dual-screen handheld game device and made an entirely different controller for the Wii console, did you not question why we would do such a thing? These endeavors went against the grain at that time and majority of people in the industry believed that Nintendo would not succeed. A strong cash position is necessary for us to be able to make such decisions without facing a crisis after just one misstep. Once you understand this, I think it will help you to understand Nintendo’s business more.

5	I have the feeling that some games, even though they are announced to be released in the near future, will eventually take more time to develop than originally expected. I think this has something to do with the current unsatisfactory hardware sales. Is development taking more time because you are still trying to discover what is uniquely interesting about the new hardware, or is it because you are trying to make games that are as high-quality as possible? Please elaborate on this point.
5	Iwata: First, I think it is becoming increasingly more difficult to have consumers understand and appreciate the value that a particular game offers than ever before. For example, it is now common to find on smart devices a large volume of products categorized as games selling for one dollar. With countless games offered for free, consumers are far more careful than ever to decide whether it is worthwhile to spend dozens of dollars to buy one game. Under these circumstances, we feel that it is important to offer games that are even more polished than before in terms of quality to have consumers buy our products, understand the value that they offer and recommend them to others by word-of-mouth. It now requires incredibly high-quality products to satisfy consumers to the level where they feel compelled to recommend them to others; the barriers are indeed higher than before. Moreover, it is not an easy task to regain the trust of the fans of a franchise once you lose it. Therefore, it is critical for us to improve and re-polish any game that we feel is still lacking in quality. Failing to do so, we feel, would be detrimental to what makes our strong franchises the valuable assets that they are. We had to push back the releases of some games because it has become more difficult to satisfy the quality standards that we feel are necessary for games to satisfy before they are released. It was not because it took us more time to take advantage of what is unique about the hardware. On the other hand, we have become more experienced as we continue to develop software on our platforms, and we have gradually been able to predict more accurately how long it will take a particular game to meet our quality standards. There has been a software shortage in the past two years (for Nintendo 3DS and Wii U) in the early stages of their product lifecycles because it took us time to meet our quality standards.

I have the feeling that some games, even though they are announced to be released in the near future, will eventually take more time to develop than originally expected. I think this has something to do with the current unsatisfactory hardware sales. Is development taking more time because you are still trying to discover what is uniquely interesting about the new hardware, or is it because you are trying to make games that are as high-quality as possible? Please elaborate on this point.

Iwata:

First, I think it is becoming increasingly more difficult to have consumers understand and appreciate the value that a particular game offers than ever before. For example, it is now common to find on smart devices a large volume of products categorized as games selling for one dollar. With countless games offered for free, consumers are far more careful than ever to decide whether it is worthwhile to spend dozens of dollars to buy one game. Under these circumstances, we feel that it is important to offer games that are even more polished than before in terms of quality to have consumers buy our products, understand the value that they offer and recommend them to others by word-of-mouth. It now requires incredibly high-quality products to satisfy consumers to the level where they feel compelled to recommend them to others; the barriers are indeed higher than before. Moreover, it is not an easy task to regain the trust of the fans of a franchise once you lose it. Therefore, it is critical for us to improve and re-polish any game that we feel is still lacking in quality. Failing to do so, we feel, would be detrimental to what makes our strong franchises the valuable assets that they are.

We had to push back the releases of some games because it has become more difficult to satisfy the quality standards that we feel are necessary for games to satisfy before they are released. It was not because it took us more time to take advantage of what is unique about the hardware. On the other hand, we have become more experienced as we continue to develop software on our platforms, and we have gradually been able to predict more accurately how long it will take a particular game to meet our quality standards. There has been a software shortage in the past two years (for Nintendo 3DS and Wii U) in the early stages of their product lifecycles because it took us time to meet our quality standards.

Presentation | Q & A

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