IR Information

Second Quarter Financial Results Briefing for the 73rd Fiscal Term Ending March 2013
Q & A
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Q 7

Even though I assume you have answered this question dozens of times, I would like to ask you whether smartphones and tablet devices are friends or foes of Nintendo. The yearly sales figures of the Nintendo DS and Wii systems peaked in the fiscal year ended March 2009, when there were no iPhones, iPads or social games. I am aware of various distinctions between smartphones and tablet devices, and dedicated gaming platforms, and those between social games and video games, but I also feel that both hardware and software have been imitated more rapidly due to technological innovation. Under these circumstances, I would like to know what the value of experiences available only with the Nintendo 3DS and Wii U systems is, and how appealing these experiences are to the vast majority of people who are passive to games. I am certain that "StreetPass" for Nintendo 3DS and "asymmetric gameplay" for Wii U are very innovative and that "Nintendo Direct" is a very unique and effective activity. From the viewpoint of the AIDMA theory,* which starts with "Attention" and ends with "Action," it seems that those passive to games have recently had a very high psychological hurdle before buying video game systems and software. I hear that "Miiverse" will be available on Nintendo 3DS, smartphones and PCs as well as Wii U. In addition to the seamless release of attractive software, which has been a routine strategy, are you thinking of more actively taking advantage of smartphones and tablet devices as a method to have consumers and their families understand the value of new games and convince them to actually make purchases?

* AIDMA theory: A marketing hypothesis on the process of shopping behavior which shows how consumers learn about a product and decide to buy it. AIDMA stands for Attention, Interest, Desire, Memory and Action.

A 7


Smartphones and tablet devices, collectively "smart devices," have been exerting a strong influence on various things around the world. It has already been said that the evolution of smart devices would affect car navigation systems and digital cameras as well as dedicated gaming platforms. In other words, the focus of the discussion has been whether multi-purpose devices, with which you can do various things, can drive dedicated devices out of the market or not.

I think it totally incorrect to discuss the influence of smart devices and social games together as one topic, and I always try to distinguish between the two. Smart devices have both pros and cons for our business. Take the "Animal Crossing: New Leaf Direct" video I mentioned before, for instance, those who are interested in the Animal Crossing series, but are not aware of Nintendo Direct might have seen a tweet about the video and the link to it on their Twitter timeline and actually accessed it on their smartphone. In this context, smartphones are nothing but our friend. On the other hand, some say that they do not need dedicated gaming systems because they can play a number of games for free or for 85 yen each on smartphones. We believe that neither Nintendo nor dedicated gaming systems are worthy of existence unless our games give consumers unparalleled fun, which games for free or for 85 yen do not supply. As I referred to before, when i-mode for cell phones started in Japan, many people said that, as application software including games worked on cell phones, everyone would play games only with their cell phones because they are practical items they always carry, which would eventually eliminate handheld gaming devices. We were asked about this matter many times and answered that we would try something that cannot be done on cell phones. After that, we were able to see the positive result of the Nintendo DS system. On the other hand, it can be said that the fact that Nintendo DS was able to demonstrate the new potential of touch screens, and as a result, created our new rivals called smart devices, I really feel that history is repeating itself. Above all, we have two things to do: to offer consumers gaming experiences which smart devices cannot realize and to actively try to make smart devices our allies, not our enemies.

"Miiverse" is a new network service which connects those who play games, and we plan to start it at the same time as the launch of the Wii U system. As it would take me a long time to elaborate on "Miiverse" here, we are currently preparing a Nintendo Direct video to explain about it in detail before the launch of Wii U. Please let me tell you why Nintendo is making a strong effort for "Miiverse," how it will change our platforms and how it will relate to smart devices.

The fun of a game derives from not just enjoying playing it but communicating with others about topics relating to it and empathizing with one another. You might remember that you exchanged information on secret tricks for Mario games in your youth or that you were excited to talk about your progress in "Dragon Quest" with friends in school. "Miiverse" is a new network service where you can communicate and share your gaming experiences with others, and we will provide it integrated into the Wii U system at the launch of the console. After booting up Wii U, the screen we introduced as "Mii Wara Wara" will be automatically displayed with comments from other consumers enjoying Wii U. Also, without any specific development work, all Wii U games are supposed to be able to invoke "Miiverse" without being shut down and utilize basic functions of "Miiverse." Further development work in a game could create more opportunities for communication and empathy among users. In addition, for our past platforms, users had to exchange a number called a "Friend Code" with each other to build a Friend relationship, where data could be transferred between two specific devices. This process was set up to prevent users from being harassed by the few people who like to behave in an inappropriate manner when playing games. For Wii U, as those who have empathized with each other can create a Friend relationship, the important mission of "Miiverse" is to increase the number of friends to play games with. Here’s an example. Who has more opportunities to go drinking, a person with three drinking pals or one with 20? The same can be said for golf pals or traveling pals. Anyway, as you have more friends to enjoy something together with, you have more topics and experiences related to it and as a result, you will have more opportunities to invite them or be invited to enjoy it. That is to say, more friends to play games with mean more opportunities to enjoy them. As "Miiverse" is not confined to dedicated gaming platforms and will be available on smart devices in the near future, we hope that, even on a train where many people are using smart devices, you will know how your gaming friends are enjoying their games. Our consumers are not confined to the people who actively search for information on video games to find the next game to enjoy and typically never fail to see Nintendo Direct once they become aware of it. After the expansion of the gaming population, due to Nintendo DS and Wii, I referred to our challenge of helping consumers find the next game to play in our Financial Results Briefings. We had tried various actions and were able to show some results, but unfortunately we could not come up with the perfect answer. Then the use rate of the hardware gradually decreased and people were starting to stop playing games during the gap period between releases of highly-anticipated game titles. This is the problem all gaming platforms faced, not only Nintendo DS and Wii. However, if you have more friends to play games with, you will inevitably have more chances to encounter new games. What is more, this will be caused not by publishersEadvertisements, but visualization of the feelings of those you have empathized with. As there are many excellent but buried games in the world, and you must be impressed by some of them, the important mission of "Miiverse" is to create opportunities to let you know about such games without spending our finite advertising budget on it. To sum up, we hope that "Miiverse," where you can emphasize with others about video games, will work to increase the fun of each game and keep the high use rate of the hardware even while new big titles are unavailable. For this to happen, we need to involve smart devices as well as dedicated gaming platforms. "Miiverse" will increase the number of opportunities the user will experience of finding the next game to play and therefore create a business environment with potentially more game sales. Various people pointed out that playing Wii games alone was not as fun as playing them in a group. For Wii U, even when you are not with your family or friends, you can play games connected to various people around the world through "Miiverse." We are aiming to have consumers enjoy Wii U with people even when they are physically alone. We believe that this is what we should do in this period when smartphones and tablet devices have spread. We are not considering selling the software we released in the past for smartphones and tablet devices.

Q 8

My question is about the Wii U software. How do you think the compatibility of Wii U with the big-selling Wii system will affect its tie ratio? In addition, as many third-party software titles seem to be available for Wii U, would you please tell me how the third-party ratio will be changed from Wii? You will start download sales of packaged software for the Wii U system just after its launch, but you mentioned before that download sales would not contribute to Nintendo’s profits in the short term. What is your current view after seeing that the download sales in the first half totaled approximately 5.1 billion yen? Also, as the number of add-on content downloads and the sales figure for paid add-on content for "Fire Emblem Awakening" were disclosed at the Tokyo Game Show, I would like to know what role such add-on content will play in the next fiscal term and later.

A 8


As you mentioned, a big difference between the launch of Wii and Wii U is how many third-party software titles are available for the system. Way back when we launched Wii six years ago, while "Wii Sports" might have looked like something fresh and interesting, few people believed that the Wii system would become the top-selling platform among all the consoles that would exist in the market then. Fortunately, we achieved a good result even though it was said that we were in a heavily disadvantaged position, one in which we had no choice but to depend on our own software titles with a few exceptional third-party developers. I think that the ratio between first-party titles and third-party titles this time will be drastically different from then. The first-party ratio was very high at first for both the Nintendo DS and Wii systems, and this trend has continued until now for Wii in Japan. For Nintendo DS worldwide and Wii overseas, the third-party ratio gradually increased as time went by. I expect that it will be high at a relatively early stage for Wii U.

With regard to the backward compatibility with Wii, we think that product compatibility is a very important element during the transitional period from one platform to another. The software lineup for a new platform is not very rich during such a period and many consumers do not want to throw away the software they bought for the previous platform. As there is usually no space for many video game consoles on a TV stand, some even hate to buy a new one unless they can move the previous one to another location or store it in the closet. Compatibility is of great significance in these respects. There are many Wii software titles that are still enjoyable, and when you have never played a game, you can enjoy it as nothing but a newly released game. We would therefore like to take advantage of business opportunities to sell software for a previous console.

As for the download sales, we do not have an exact targeted number for this fiscal year. To say the least, however, they will reach an all-time high because the download sales of packaged software will be boosted as we start them from the launch of Wii U. The size of the download sales business could be totally different from when we sold mainly the "Virtual Console" software and "WiiWare." I think we should somehow disclose our outlook for the download sales when we have reached a stage where we can make specific forecasts, and doing so will allow download sales to be recognized as one of the growth areas for Nintendo.

Before Mr. Unozawa from NAMCO BANDAI Games Inc. delivered a speech at the Tokyo Game Show just after he became the chairperson of CESA (Computer Entertainment SuppliersEAssociation), I was asked to tell him the figures related to the add-on content for "Fire Emblem Awakening." We usually avoid disclosing such information for each game title, but I made an exception in order to congratulate him on his appointment to the position. Actually, I also confirmed these figures at the Osaka Securities Exchange yesterday. At that time, I was asked if the figures Mr. Unozawa referred to were true, so I confirmed that they were. As we have already seen such results as the ones yielded by the Fire Emblem title, we will see more downloadable content and add-on content from now on. However, we do not intend to make downloadable or add-on content available for every type of game. We would like to supply consumers with only add-on or downloadable content which they are happy to pay for as compensation for creative work. For example, some might say that it would be unbelievably profitable to provide paid add-on content for "Animal Crossing: New Leaf," but we were concerned that a game in which you enjoy yourself more by the power of money would not be suitable, and we decided to avoid such a feature after an intensive discussion with the development team. On the other hand, we are selling sets of new courses for "New Super Mario Bros. 2" by download and obtaining a very good response from those who have actually bought and played them. We see vast potential in this sort of add-on content. In short, we would like to find the type of add-on content consumers will find enjoyable in each game. We intend to basically create add-on content with which we will be able to make long-term relationships with our consumers.

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