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Financial Results Briefing for the 74th Fiscal Term Ended March 2014
Q & A
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Q 6

Mr. Iwata has just explained that the company aims to regain Nintendo-like profit levels from the fiscal year ending March 2017, and the new health-themed business platform also is expected to contribute to the company’s business performance from the fiscal year ending March 2017. Does this mean that you envisage the three main pillars and sources of profit for your company in three years’ time to be the existing gaming business, utilization of character IP and the new business platform? In other words, do you consider the profitability of your existing gaming business to be more vulnerable than in the past?

A 6


Regarding the profitability of any video game business, there is no basic demand for games, so it greatly depends on changes in the business environment. Just as it was difficult to forecast the performance of Nintendo DS or Wii before their respective launches, which both proved to greatly exceed our expectations, at other times, our products do not meet our expectations, as is the case with Wii U. This is inevitable in the entertainment business. Currently, Nintendo has both the home console and handheld platforms, and we would see great results if both of these platforms performed very well; however, our business would become mediocre if one of them faltered, and if both of them were to falter, it would very negatively affect our business. We have decided to establish new business platforms not for being pessimistic about the future of the video game business, but to prepare for a challenging situation. Without other pillars, the faltering of the video gaming business would directly have a negative influence on our financial results and the market would respond with harsh criticism. Considering the situation, I would say that Nintendo should consider establishing other pillars that leverage its strengths. As I said earlier today, people, including ourselves, have considered Nintendo to be a video game company for the last 30 years. However, I believe that the intrinsic nature of entertainment is much broader than how we see it today. We believe that we may be able to establish some sort of new core business if we consider our role as an entertainment company in a broader sense. Again, we are not pessimistic about the future of the video game business, nor have we given up on earning profit from the existing video game business. Rather, it is an expression of our determination to become a more stable company, constantly achieving better financial results regardless of the fluctuations in our video game business.

Q 7

As for the approach toward new markets, there is talk about the Chinese game market opening up to foreign corporations, and other companies are moving in to take advantage of this. What is your opinion on new markets, including China, and their potential? Also, what kinds of projects for the new markets are in motion at Nintendo? For example, will business in the new markets become another pillar for Nintendo in the fiscal year ending in March 2017?

A 7


Previously, we distributed products to new markets after they had sold well in Japan, the U.S., Europe and Australia and a steady production scheme had been established. In other words, we have sold the same products in the new markets, at the same price range: 150-300 dollars for hardware and 30-60 dollars for software. Of course, a number of users are willing to pay these prices, including passionate Nintendo fans, and we are very grateful for this. However, in making sure that our products have a large mass-market presence in these new markets, since hardware production costs have become increasingly high compared to the selling price, and in terms of software, having users pay 30-60 dollars is more difficult in the new markets than in developed ones, we cannot simply localize the same product for distribution in the new markets as they would otherwise never become true mass-market products. Moreover, if we are to do business in the new markets, we have to satisfy their individual market needs regarding features, price range and marketing methods. We think that simply localizing the same approach that has been used in markets in which the game culture has been established for 30 years will not create a large market for our products. Therefore, as I explained at the Corporate Management Policy Briefing in January, we will be making changes to our approach for the new markets on the premise that we need something specific for them. We think we need a new approach overall, including hardware, so it will be difficult to show you a specific suggestion and produce results immediately this year.

As for the special economic zone in the Chinese market, there have been changes as reported in the news, and we are doing research into it. However, in looking at the details, there are some unclear points for us. When we made announcements about our business in China in the past, the process of translating our original Japanese statement into English and then into the Chinese languages produced misleading information on a number of occasions. So, when we are able to announce our future business activities in China, we would like to announce them in China in the Chinese languages. I cannot elaborate on the specific details today, but please note that we are now in the research phase.

Although I cannot talk about the actual approach to the new markets, or the specifics of the product, price and timing, at the moment, we would like to utilize some other occasion in the future to talk more about this topic.

Q 8

My question is on the Wii U business and the Nintendo 3DS business. According to this fiscal year’s forecasts, Nintendo 3DS sales are projected to fall slightly from last year. With regard to Wii U, I understand that its forecast reflects the minimum level of sales that Nintendo wants to achieve with titles such as “Mario Kart 8,” but looking at the unit shipment estimate of 3.60 million in its third year, it is difficult to imagine that sales will grow to, for example, 5.00 or 10.00 million units in the following fiscal years. Do you think that Nintendo will have to simply persevere by setting lower targets and reducing expenses and manufacturing costs, until the transition to a new business or a new system takes place? Or do you think that, depending on future titles, Nintendo will be able to realistically aim to achieve unit shipment estimates of, say, 10.00 million units in the next or the following fiscal years?

A 8


In setting our financial targets for this fiscal year, we have taken into account the fact that in the last fiscal year, we established a target of 100.0 billion yen in operating profit and set sales forecasts to achieve Nintendo-like profits, but we failed to show the results despite having worked hard to meet these goals, and Nintendo has now failed to meet its own financial forecasts for a few terms in a row, and in this sense, by trying to set rather conservative goals we are perhaps using conservative estimates about our unit sales. This does not mean that Nintendo 3DS sales will definitely fall this fiscal year when compared with the previous fiscal year. We have set our estimates for this fiscal year by considering the amount that we are confident we can reach, so it is my hope that we will also do our best with regard to Nintendo 3DS, too, and exceed its sales estimate. In order to show that Nintendo 3DS sales have not yet peaked out and are not to simply decline in the future, we want to exceed last fiscal year’s figures.

As for Wii U, we estimated 9.00 million units of hardware in sales in the last fiscal year, but many of you must be aware of the actual results, and the Wii U market has experienced a sharp downturn. In order to recreate momentum and sell 5.00 million or 10.00 million units of hardware annually, there are indeed challenges that we must overcome. And in the face of these challenges, announcing more optimistic figures before we actually release the Mario Kart and Super Smash Bros. titles to consumers, would not be compatible with our original stance to provide rather conservative figures, so once again we set our estimates by considering how much we could realistically hope to achieve with our software lineup. The fate of a video game system is often influenced greatly by the introduction of a single title. As many of you probably remember, before the release of the Pokémon game, Game Boy had been showing slow growth, and many people wondered whether it was the end of Game Boy. But the Pokémon game singlehandedly changed the landscape of the system, which then started to show the strongest sales in the lifecycle of the system. As I explained back in January, it is true that we cannot draw up a good business plan for Wii U by assuming that Wii U will sell more than Wii did. Therefore, we will need to think very carefully about the balance of revenue and expenses and try to operate by controlling overall costs. On the other hand, we do not believe that this year’s estimate of 3.60 million units of Wii U hardware will be the peak of its lifecycle, and we would like to work hard to make sure that we give sufficient momentum to the system so that we can expect good results in and after the next fiscal year, too. However, as for this fiscal year, as I explained before, the figures you see have been determined by rather conservative estimates.

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