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Financial Results Briefing for the 72nd Fiscal Term Ended March 2012 - Q & A
Q & A - Apr. 27, 2012
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Q 1

In terms of its play experience, is the Nintendo 3DS an improved version of the Nintendo DS, or is it something revolutionary that is different from the Nintendo DS? I would like to know the positioning of this product in your mind, Mr. Iwata. As you said during today’s presentation, it is true that the Nintendo 3DS has been selling well in Japan, and with the big titles being launched for it, I feel that the Nintendo 3DS will do well from now on too. On the other hand, I also feel as if such titles as the new “Animal Crossing” game for the Nintendo 3DS, “New Super Mario Bros. 2” and “Onitore” (temp.) are going to be improved versions of the ones you have already challenged with the Nintendo DS. Even talking about the digital business, while I feel that it is a new distribution format, I cannot see how it can change the way that we play and use the Nintendo 3DS. Would you share with me your idea or hint as to such questions as, “Will the Nintendo 3DS evolve to become something revolutionary and completely different from the Nintendo DS?” In the same regard, please advise us on whether the Wii U is an improved version of the Wii, or whether it also will be something different.

A 1

Satoru Iwata (President):

First, in designing and promoting the Nintendo 3DS, it must have been taken for granted that the company has made efforts in order to improve the good points of the Nintendo DS. I do not think it would be the right decision if we abandoned everything and started from scratch. The same line of thought should be applied to the Wii U. We have no such intention as to start from scratch and abandon the strengths of the Wii. As a result, however, people in the beginning may be able to see things that are highly visible and may wonder if it is merely an improved version of the Wii. When it comes to the changes that happen in a sequential manner, anyone can comprehend them as long as, for example, he or she observes the names in an established franchise series in the software lineup schedule, and the company does not have to elaborate on the detailed experiences to be realized with this new software. When it comes to the question of what is going to be revolutionary about each title, on the contrary, it is always hard for our consumers to understand until the time we can finally provide them with the actual and concrete proposals. We have designed and developed the Nintendo 3DS and the Wii U so that each of them is able to realize what has been impossible with the existing systems, and we believe that these systems will be able to offer consumers unprecedented experiences, in addition to providing them with improvements from the Nintendo DS and the Wii. Some argue that the Nintendo 3DS appears to be just an improved version of the Nintendo DS partially because the company is yet to provide what it has done for the Nintendo DS with the “Brain Age” series or for the Wii with “Wii Sports” and “Wii Fit.” However, just as not so many people were able to comprehend the potential of “Brain Age” or “Wii Fit” when the company explained about them before their launches, it is not easy for us to convince many people by explaining what kind of new experiences we are developing now. Furthermore, as people in the industry have observed what we have done in the past, if we prematurely disclose our development information, it is possible that products with similar concepts could be launched before Nintendo itself can finalize and launch the products. Please understand that Nintendo cannot elaborate on what we are working on until the time we are ready to make the official announcement because doing so would negatively affect the real impact of our products when they are released into the market. In the end, we have to prove ourselves with results, namely, we have to make it so that you will see the results and agree in the future that the Nintendo 3DS is not only an improved version of the Nintendo DS but also is a brand new offer from the company. Having said that, however, we have not designed them (the Nintendo 3DS and the Wii U) to be mere improved versions of their predecessors. We have designed them so that they can realize what has been impossible.

Some of the differences that must be rather easily comprehensible with the Nintendo 3DS are such features as “StreetPass” and “SpotPass” communications, which have realized the positive surprises which were not possible with other prior devices. When the company can finalize the development of the software which takes full advantage of these unique functions, for example, if we can do so with the new “Animal Crossing” for the Nintendo 3DS, our consumers will be able to feel and realize that the new “Animal Crossing” is not only a richer version of its predecessors but also how positively such functions can affect their play experiences. At one of the previous opportunities like this, I received such questions as, “Is 3D a good fit for gaming devices?” At that time, I answered by saying, “Please see and play with ‘SUPER MARIO 3D LAND’ and ‘Mario Kart 7’ to make your judgment.” I think that many have been convinced by the actual examples of how 3D viewing can be effectively used in games. We are making efforts so that people in the future will see and play the software, and say that Nintendo has used the exclusive functions of the Nintendo 3DS and the unique functions of the Wii U in a smart way.

Q 2

I have a question about the digital sales of packaged software. You just said that digital sales of packaged software would be available for the Wii U as well. With the comparatively smaller memory capacity of the Nintendo 3DS, I think that a rather short amount of time is necessary for packaged Nintendo 3DS software to be downloaded. On the other hand, I assume that the Wii U packaged software will hold 10 gigabytes or so of program memory, which must take a very long time to download. For this reason, when I think about it as a consumer, I hold some doubts about the digital sales of packaged software for home video game systems. I would like to know your opinion about my concern. Also, you said in the past that Nintendo would collaborate with other companies in the fields that the company alone cannot fully cover with its own internal resources, and I recall you specifically implied possible collaborations with external resources in order to assure the social nature of your products. Would you share with us your idea about how you will expand such social commerce activities by collaborating with existing SNS (social networking services)?

A 2


First, about your comment that digital download sales of packaged Wii U software may not be so attractive to consumers because of the amount of download time, it is true that downloading software with 10 gigabytes of memory cannot be done in an instant today, even with broadband connections. So, compared with the situation of portable gaming devices, where comparatively compact-sized software can be downloaded, we have to ask our consumers to wait for a longer time before the download process is completed. However, consumers will be able to use the Wii U effectively by finding convenient times to download software such as when they are sleeping at night. Some consumers prefer to download digital software so that they can play with them on their system anytime without the need to exchange the games’ storage media. Some other consumers find it easier to purchase the medium at a retailer and play it as soon as they insert it into the game hardware. These consumers think it advantageous that they can exchange games with their friends. In order to offer consumers options to choose from, it is important for the company to first make the situation (where digital downloads of packaged software are offered to our consumers in addition to the existing packaged software sales) a reality, and we are ready to offer these options now.

Regarding your question on the social nature of the Wii U, while we take it as a must for the Wii U, as I have already confirmed during my presentation that I would not discuss anything about the Wii U today, please allow me not to share an answer now.

Q 3

You explained during your presentation today that the company is intending to apply the same price to digitally downloaded software as its physical, packaged counterpart because what the company is selling is the value of the contents, not the physical medium to which the contents are stored. In my view, however, consumers might consider the value of the digitally purchased software lower than packaged software because the digital software can run on the purchasers’ gaming systems only. With such an understanding in mind, the retailers may need to run the risk of having to sell digitally distributed titles at a discount rate in comparison with the packaged versions. Am I correct in assuming that the margins for the retailers will become lower (for the digitally distributed software) if your wholesale prices are the same (with that of the packaged software) and if the retailers apply a lower retail price (for the digitally downloaded software)?

A 3


First of all, regarding your remark that the digitally downloaded software has less value than the traditional and physical, packaged software, I hold doubts about whether it is exactly correct. When I think about it as one of the consumers, for example, I find the value in being able to store a number of software titles in a hardware system and being able to bring them with me wherever I go and, therefore, I may choose this option. Different people value different things. If we said, “This is the only proposal we will make so you have to take it,” it would be a problem as there would be no options for the consumers to choose from. On the contrary, what I explained today is that we are proposing the two formats of sales mechanisms from which our consumers can make their own choices. The needs of society shall be determined by the choices to be made by the consumers. We do not hold such a premise that digitally distributed software has less value. In fact, as we have discussed this with a number of software publishers around the world, we have found that their opinions are completely divided on the topic of the price points of the digital distribution of packaged software. Some publishers believe that the digital versions should be cheaper while others insist that both versions must be set at exactly the same price. So, it is not only Nintendo’s idea. Each publisher has various ideas on this point and, among them, Nintendo is now offering both versions at the same price point (the same suggested retail price).

When it comes to the concrete terms and conditions, such as the wholesale price ratio of the suggested retail price, the company has not publicly disclosed this information in the past, and I have to refrain from discussing any such information. If I may add one thing, however, I picked up an example of the POSA system during my presentation today. If the retailers can sell our software without having to shoulder the inventory risks, it is natural in fair business transactions that there will be changes in their margins, for which the inventory risks are taken into consideration.

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