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Corporate Management Policy Briefing /
Semi-Annual Financial Results Briefing
for Fiscal Year Ending March 2015
Oct. 30, 2014

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Thank you for attending our Corporate Management Policy Briefing despite your busy schedules. I am Satoru Iwata, president of Nintendo.

As we announced before, I underwent an operation for an illness in June and took sick leave for some time. After the mid-August Bon vacation, I returned to the office and have now resumed work as usual. Thank you for your concern.

As Mr. Tatsumi Kimishima has just explained in the financial figure outline, the balance of revenue and expenses improved in the second quarter. While operating income was close to break-even during the low sales season of this six-month period with few key title releases, it moved back into the black in the three-month period of the second quarter.
As a general trend, for Nintendo 3DS during this six-month period, there were few key titles which had a meaningful impact on the market compared to the same period of the previous year. As a result, sales units of the Nintendo 3DS hardware and software declined. On the other hand, for Wii U, the release of “Mario Kart 8” in May and announcements at E3 in June contributed to improving people’s expectations for the Wii U platform. As such, the Wii U hardware and software are selling more than the level of the previous year.
Even though the balance of revenue and expenses improved, total net sales decreased in comparison with the previous year.

The main cause for the decrease in sales for the first half of the term is that the sales of Nintendo 3DS in Japan have temporarily been slow moving and declined compared to the last term. In 2012 and 2013, we maintained a very high level of sales in the domestic market for Nintendo 3DS throughout the year. As you can see from the software sales in the first half of each of the past three years, we have kept our software business at a certain size regardless of the release timing of big titles, but the hardware sales have had less momentum this year.
The sales from the launch of New Nintendo 3DS and New Nintendo 3DS XL on October 11 are not reflected in these graphs. These products have made a good start, which I will elaborate on later. We anticipate that we will get out of the temporary lull of the domestic Nintendo 3DS market and catch up in the latter half with penetration of the new hardware.

Unlike the previous Corporate Management Policy Briefing held in January, we are now in the period just before the year-end sales season, the largest sales opportunity for the video game industry. I therefore would like to take some time to tell you about the current situation and our prospects for the upcoming sales season.

Let me begin with Nintendo 3DS.

First, I would like to mention “Super Smash Bros. for Nintendo 3DS” released in September in Japan and in October overseas. The global release went very well thanks to consumer acceptance. It marked 3.22 million units in global sales from Nintendo at the end of September, and we are confident that it will continue to sell in the future.

I think the good global start for “Super Smash Bros. for Nintendo 3DS” has several implications.
First of all, it proved that the “Super Smash Bros.” series, which has been popular for home consoles, can have a strong presence for handheld devices. Before the release, some in the video game industry were skeptical of the sales potential of “Super Smash Bros.” for handheld devices, but now I can say that they were worrying about nothing.
Secondly, the initial sales pace was faster than either Nintendo or anyone in the industry could expect and we are afraid that the lack of stock caused inconvenience for some consumers for some time after the release both in Japan and the U.S. After a vast number of consumers started this game at one time and it spread by word-of-mouth, Nintendo 3DS has been used more actively, and we have noticed increased attention and enthusiasm in the entire market for the device. Considering that the software was released just before the year-end sales season with many anticipated titles scheduled, we believe it has really contributed to improving the momentum of the Nintendo 3DS market.
Furthermore, since characters from various Nintendo games appear in “Super Smash Bros.,” consumers naturally get to know the entire lineup of Nintendo IP and this title could make them interested in other game franchises. In other words, the more this game is played, the higher the overall value of the Nintendo IP lineup becomes.

In addition, we have had very strong pre-orders for “Pokémon Omega Ruby” and “Pokémon Alpha Sapphire” to be released around the world in November. As you can see from the slide comparing them with those for “Pokémon X” and “Pokémon Y” released last year, the momentum of pre-orders has been robust regardless of the region.
Many people in the industry would anticipate that however dramatically “Pokémon Omega Ruby” and “Pokémon Alpha Sapphire” have been remade, their sales would be lower than those of “Pokémon X” and “Pokémon Y,” which were completely new titles, but the trend of pre-orders has gone against their expectations so far. In particular, they have been surpassed by far in Europe.

Please let me show you an interesting hypothesis explaining the reason for such strong pre-orders: Those who have enjoyed the “Super Smash Bros.” series and those who were impressed with “Pokémon Ruby” and “Pokémon Sapphire” as the first “Pokémon” title are of the same generation and overlap substantially with each other. We call it the “Hypothesis of the same-generation of “Super Smash Bros.” and “Pokémon Ruby/Sapphire.”

The “Super Smash Bros.” series had not been considered as a dominant title for which we could forecast huge initial sales until we released the second installment of the series, “Super Smash Bros. Melee” for Nintendo GameCube. It was released in November 2001 in Japan, in December 2001 in the U.S. and in May 2002 in Europe.
Afterwards, “Pokémon Ruby” and “Pokémon Sapphire” for GameBoy Advance were released in November 2002 in Japan, in March 2003 in the U.S. and in July 2003 in Europe. For reference, it took longer to localize games then and we could not realize a simultaneous release at that time.
As I indicated, these two titles were released at intervals of approximately one year, and there were many consumers of the same generation who enjoyed both.


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