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Corporate Management Policy Briefing/Semi-Annual Financial Results Briefing for Fiscal Year Ending March 2011
Q & A - Oct. 29, 2010
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Q 4   I'd like to ask you about Nintendo 3DS software. As I looked at the lineup, I could not find many software titles which have the capability to change the definition of gaming such as how "Brain Training" did for Nintendo DS and "Wii Fit" did for Wii. How will your company tackle such a game field for Nintendo 3DS? As my question is on Nintendo 3DS software, I'd like to ask this to Mr. Miyamoto: When I compared "Super Mario" games on Nintendo DS and Wii, my understanding is that the 2D versions are outselling the 3D ones. What will the future of Super Mario on Nintendo 3DS be like? Can you give me a hint?
A 4


  One of the first discussions we had as we started developing Nintendo 3DS was the issues that we were not able to solve in our process of "gaming population expansion" and in the progress of how Nintendo DS and Wii were expanding in the market. More specifically, when we developed Nintendo DS and Wii, we prioritized on points other than the most gorgeous-looking graphics or the highest possible processing power, so these systems were not able to fully cater to the needs of the consumers who had been looking for more beautiful graphics and more processing capability. As a result, the current global market is not driven by a single, most-expanded hardware platform. In each market (Japan, the U.S. and Europe), consumers' interest in the hardware are being diversified to a certain extent, even though the user compositions are different in each market.
  Nintendo has been trying to expand the gaming population. When it comes to the difference between veteran players and novice players, or new entrants, we do not believe there is any clear wall separating them, such as, "Up until here are the games for novice players and beyond this line are the games for the players with gaming proficiency." There is no clear-cut distinction point between these users. However avid players they may be today, they were beginners at the outset. For the sound growth of the video game industry, it is important for new consumers to enter into the market one after another. Because each consumer has his or her own taste, and the time and the energy one can spend on any one form of entertainment varies, we think it would be ideal if we could offer an entertainment system that could be enjoyed by each and every different consumer in his or her own way according to individual needs. However, when different platforms are needed to cater to different gaming needs, it becomes difficult to create a healthy cycle.
  For this issue, Nintendo's people in the Licensing Department and other relevant departments have listened to many comments from our publishers and developers, such as, "While the sheer installed base of Nintendo DS is attractive, with the specs as they are, we can't make the software that we really want to make." We developed Nintendo 3DS in order to respond to these needs of the developers and, at the same time, to make it so that this device can offer something attractive even to those consumers who have never played video games before.
  And, you said that you are yet to see the software lineup for Nintendo 3DS which can be compared to representative titles for Nintendo DS such as "nintendogs" and "Brain Training" that were announced around the time of the launch of Nintendo DS, which were originally not conceived as games. In fact, however, I think that we have already shown you a glimpse. For example, "AR Games" (temp; direct translation from the Japanese) that we showcased at Nintendo Conference 2010 is one of our new trials in such endeavors. How such new trials shall be materialized in the form of packaged software is something which will become important in the second phase of Nintendo 3DS proliferation. By now, because more Nintendo 3DS software which will cater to the needs of avid game fans has had a lot of public exposure, you may hold the impression that our Nintendo 3DS software lineup currently lacks such software (which has the potential to change the definition of video games). The company, of course, has been paying attention to such software. On the other hand, for those who seldom play video games, the fact that they can see 3D moving images on Nintendo 3DS itself must have a tremendous impact. I understand that those who have had hands-on experience feel the same way. So, Nintendo 3DS will probably be appreciated first with such functions, and then, as the next step, we will need to launch software that can expand the users.
  I know your next question will be, "So, what will such software be like, exactly?" I'm sorry but if I were to answer such a question, other publishers could launch similar software before we do. So, please understand that I have to refrain from answering this question. With that, let me ask Mr. Miyamoto to talk about Mario in 2D and 3D.


  This is not confined to Mario games, but when a game is made in 3D, we can make the players feel that the game is more alive, and the developers are able to incorporate more tricks for the players to enjoy. For its ability to provide the players with more choices or freedom in the gaming world, 3D is more suited.
  On the other hand, there are also people who can't stand even the slightly more complicated looks of 3D. In fact, with 3D games, game-play control has to become more complex. When the developers include all the functions in order to cater to the anticipated demands from the players who, as they gradually progress deeper into the 3D world, will want to do more and more, the game in the end inevitably will look extremely complex for the novice players. I mean, even though players will realize that the games are not complex when they actually play them, 3D games look complicated for those who see them for the first time.
  From that perspective, as you indicated in your question, the consumer base of the "Super Mario" series has narrowed from when we launched "Super Mario 64." However, we've been striving to make 3D games which can enable you to have the "I'm actually in the game field now" feeling and which can provide you with more fun options to choose from in the game field and, at the same time, which can be played by anyone. We've been developing the "Super Mario Galaxy" series with such a mission in mind. By launching "Super Mario Galaxy 2," we have invited a number of people who didn't use to play any 3D games to the world of 3D Mario, I think. Simultaneously, we have been making 2D games because leveraging upon and making improvements on 3D games alone cannot satisfy all the game players. We have made "New Super Mario Bros." for Nintendo DS and "New Super Mario Bros. Wii" with such an objective. These 2D games are easy to understand and accessible to anyone. Even if the players only play for a short time, they can feel satisfied. After all, video games are not only about conquering all the stages. What is more important is the fun the players can feel as a result of the play. The 2D games have the advantage of delivering that sensation more easily to the players.
  As for Nintendo 3DS, of course, we'll be making both types of games. It's not the issue of which is more attractive because each one has its own appeal. In the past 3D "Mario" games, and 3D "Zelda" games for that matter, if there were several floors at the same height, it was hard for the players to tell if each one of them was located with the same distance between them or if just one was further away and higher than the other floors. On Nintendo 3DS, you can readily understand the height and distance of the next floor in front of you. You can feel the difference by switching between the 2D and 3D modes. You might have had a hard time trying to jump on a stump or to hit a floating question-mark block in 3D Mario until now, but you will be able to do so easily on Nintendo 3DS. In addition, Mario and Link will both have more vivid presences. When I make games, I take great care of such details as the body weights of the players' characters. When the character jumps, can the player feel the weight? When the character lands, does the land feel like it is acting as a cushion? How long should the character stand still in order for the player to feel the weight of the character's body? I think about a number of such details. By making 3D games on Nintendo 3DS, such minute details can be felt, and the players can feel as if the world exists.
  Talking about 2D games on Nintendo 3DS, those who have played 2D Mario so far can understand that the developers were unable to do a lot of tricks which made use of the depth of the screen. For example, when "Wiggler" or "Bullet Bill" fly towards you from a distance, if the developers try to incorporate the depth of the screen, you cannot tell if and when these characters hit you. But such tricks shall be available on Nintendo 3DS.
  We have tried many things, including when we made games on Virtual Boy. We have some ideas for a "Mario" game which has depth in the screen. So, for both 2D and 3D games, we are excited to be able to make new tricks on Nintendo 3DS.


  Mr. Miyamoto's answer has gone into more detail than I expected. That's also new information to me.


  Oh, Shouldn't I have said all of these things here? Please don't share my answers with gaming media, then. (laughs)

Q 5   You mentioned today (during your presentation) that this year-end sales season will be short and condensed. Looking back at last year's holiday sales season, you had evergreen titles, you marked down Wii hardware, you launched "New Super Mario Bros. Wii" and some retailers, such as Walmart, supported your sales with their independent campaigns. As for this year, on the contrary, because I think you have some disadvantages, such as consumers holding off purchases of Nintendo DS in advance of the Nintendo 3DS launch, I'd like you to explain your strategy for the year-end sales. Also, I anticipate that the so-called "late majority" will be the core target for this upcoming year-end sales season. Will that affect the launch of Nintendo 3DS which, I think, will be first pitched to early adopters?

  On a separate subject, I also hear that you are planning the capital spending of 17 billion yen by April next year. Could you be more specific as to where you will build, what kind of manufacturing facility it will be and for what purpose? Also, as a result of this, how will you change the development resources?
A 5


  Let me first discuss the consumers who are going to newly purchase Nintendo products at the end of this year. We already have large installed bases for both types of hardware. We have a number of evergreen titles. Apart from the new software titles, now that so many people have already purchased our products, who is going to be willing to newly purchase them? They can hardly be impulse purchasers. They must be the people who do not immediately purchase our products even if they start to have some interest in them. Or, they must be people who need some reason or trigger, such as peak shopping seasons or the influence of people surrounding them. A variety of things could be triggers, such as campaigns which give consumers the impression that, "this surely is a bargain." Those who are patient enough to purchase products until they have some strong incentive are the consumers who can be described as the "late majority." Your statement is probably true that the late majority will be the core audience for our hardware during the upcoming year-end sales season. I tell you this because a significant amount of our Wii and Nintendo DS systems have already been sold around the world.
  So, how are we going to sell our products to these consumers? For one thing, our proposals must be simple and very easy to understand. We tend to think that more options are better. It is true that for those who are knowledgeable about something and who aggressively pursue relevant information, more information is better. On the other hand, I myself can relate to this sentiment, but when we do not have any particular interest in something, and if there are a number of options to choose from, it is difficult to actually select just one. It is often said in the world of behavioral economics that, with too many options, people tend not to make a selection and tend not to make a decision. For example, when we plan for a trip, as we open a travel pamphlet and notice that there are many options, it must be good for those who can afford to use sufficient energy for researching the best option, but for those who do not have time to choose, it becomes a challenge. Knowing afterward that we didn't choose the best selection will make us feel very uncomfortable, so we cannot make an immediate decision.
  Accordingly, conveying our message, "this is the software we can recommend to you," in a way which is very easy for our potential consumers to understand, will be the key. This is not something Nintendo can achieve only by itself. Of course, Nintendo will run TV ads and encourage our consumers to recognize that we have various products for them. In addition, we must be able to advise consumers about where the product is available, and which retailers have the best offer. Going to that extent will become important. So, TV ads will be important as always, but our ability to collaborate with our retailers will be especially important.
  On the other hand, you may have some concern that Nintendo 3DS may not sell well in 2011 if we put so much energy into selling our products to such late-majority people. I am not saying that there will be no overlap between those who will purchase Nintendo DS and Wii at the end of this year and those who will be quick to purchase Nintendo 3DS early next year, but I believe that the overlap will not be very big. After all, those who will kindly purchase Nintendo 3DS in the launch period will be the people who are interested in anything new on the market and who are always proactive in getting access to the relevant information and making the actual purchases. Because we will launch Nintendo 3DS in a period other than the peak sales season, not many of those who are willing to buy due to seasonality will participate in those initial purchases. In all, I believe we can approach different consumers in different ways.
  As for your question on our capital investment, just as we have not disclosed the details of each capital investment in the past, please allow me to refrain from disclosing the details of our planned capital investment this time.
  Finally, let me discuss your question on the allotment of our future development resources. If we focus only upon our efforts to create and launch very attractive and appealing software which can dictate the positive future of new hardware, it will become rather challenging to sell sufficient amounts of the hardware and make our business grow healthily. Still today, the fact that we definitely need a killer title, which can make our consumers feel like purchasing the hardware even only to play that title, is unchanged. However, launching such a killer title alone cannot solve all the issues today. For example, in addition to killer titles, we need to protect our hardware from illegal copies, we must prepare network services that can satisfy our consumers, and we must include some attractive features on the hardware so that consumers can enjoy the new platform even without purchasing any applicable software at all. Our consumers today have higher expectations of our new hardware and it must offer increased value for them. There is a gradual increase in the development work of things other than packaged software. About a decade ago, almost all the Nintendo development resources were spent on making killer software. Today, it is no more the case.
  Having said that, however, not all of the Nintendo titles have been created only among our own internal developers. We have actually been collaborating with a number of outside companies to attempt a variety of different projects, and the total development power has significantly expanded in comparison to the past. So, at a time when we need to allocate our development resources to newly emerging fields, and when the development of the software has become more complex than before, how we can tackle the increasing needs of development resources internally at Nintendo and work together with outside companies in order to launch the new hardware have become important. Efficient allocation of development resources has become one of the managerial decisions with extremely high priority. Because timely decisions on effective allocation are required for us to launch appropriate products at appropriate times, I am personally paying special attention to this.

Q 6   Please explain how you will deal with Nintendo DS after the launch of Nintendo 3DS. Nintendo DS already has a huge installed base. Even though some say that the software for Nintendo DS is not selling as well as before, it is still selling in huge volumes. On the contrary, Nintendo 3DS initially has to start from a small installed base. Even though you are ultimately intending to encourage all the existing Nintendo DS users to become Nintendo 3DS users, it will take several years. As for the applicable software, even with the availability of some of the flagship titles from the third parties, the actual sales of Nintendo 3DS are unknown at this point in time. If you will put the primary focus of your development and marketing activities onto Nintendo 3DS next year, and if you treat Nintendo DS as something old, it will cast some uncertainty on your financial performance. If you can successfully launch Nintendo 3DS, on the other hand, your financial performance will greatly improve, but this possibility is accompanied by an increase in the potential risk. In the first place, I think it would be a shame for you to not take advantage of the existing huge installed base of Nintendo DS. So, please tell me about how you will handle Nintendo DS in and beyond next year.
A 6


  We have not announced the prices of Nintendo 3DS in the overseas markets, but when you look at the suggested retail price of Nintendo 3DS in Japan, you can see that there are some price differences with that of Nintendo DS and Nintendo DSi in Japan. How the market can change with such price differences shall become important.
  We have experienced several transitions from one platform to a new generation in the past, but the speed at which such transitions were made greatly varied in different markets. Perhaps, the quickest of all the nations in this regard is Japan. In terms of speed, the U.K. is outstanding in Europe. On the contrary, Germany is very slow in this transition. In the U.S., so many people respond to new platforms quickly, but as for the entire video game market there, it appears to move rather slowly because there are also so many people who respond to new offers very slowly. The U.S. is a big market with such dual natures. Given the difference in the speeds at which each market shifts to a new platform, how Nintendo should spend what amount of energy in order to launch and market many new Nintendo DS software titles must be slightly different from market to market.
  We experienced something like that in the transition from Game Boy Advance to Nintendo DS. Actually, for all the platforms in the past, the speed at which the generational change took place was different in each country, and each country appeared to have certain traditional tendencies such as the ones I just mentioned. When we look around the world, the transition will not be identical. And, of course, for us to sell Nintendo 3DS to the extent that can be compared to the huge installed base of Nintendo DS, it will take time. So, naturally, it is desirable for us to be able to make some new offers to those who already own Nintendo DS. We have no plans to immediately cease any activities for Nintendo DS.
  On the other hand, if we should use too many of our development resources in order to maintain the Nintendo DS market, we would not be able to realize a sound launch for Nintendo 3DS. This relates to the previous question, but it will become very important for us to make the appropriate timely decisions on such issues as how we should make the allocation (of development resources), which types of software should be launched for Nintendo 3DS during and immediately after the launch period and which software needs to be developed for Nintendo DS. And the criteria to make such judgments shall be different for Japan and the overseas markets, especially the countries where the changes usually take place rather slowly.
  Another thing I'd like to supplement is that Nintendo's software is often made in Japan and launched first in Japan, and then localized for the overseas markets after confirming its marketability in Japan. Some Nintendo titles, such as the ones developed by Mr. Miyamoto and his team, have been made with the global market launches in view from the start of the development because people inside Nintendo believed in their global appeal. However, even some of the titles that Mr. Miyamoto was involved with, such as the original "Animal Crossing," were first launched only in Japan, and only after the localization teams outside Japan were able to appreciate the appeal of the software, our overseas subsidiaries requested us to launch the same titles in their countries. As a result, some software has already proved its marketability in Japan but is still not available in the overseas' markets, and for some software titles, our localization teams are currently spending time to localize them. Taking advantage of such software may be one of the ways to deal with your question about the transitional period from Nintendo DS to Nintendo 3DS.

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