Nintendo's Reggie on Wii Core Games, Wii HD, Shortages & More
IG: I wanted to ask you about some comments from analyst Michael Pachter, who said recently that the Wii's year-over-year decline this past month is not simply a result of shortages and that products like Wii Fit had “historical lows.” He also said that for the rest of 2010, while Microsoft and Sony have catalysts in their upcoming motion controllers that Nintendo seems to “lack a big upcoming catalyst” to spark its business. What's your reaction?
Reggie: First off, I know exactly what's happened to our business in January and February. What's happened is that we had such a strong holiday period that it left us from an inventory situation in a position of having to play catch up. And that's true not just for hardware on Wii, but it's also true for Wii Fit Plus, and it's true for Wii Remotes (which are included in Wii Play). Just think about it – we sold 3.8 million pieces of Wii hardware and 25 million pieces of software from first and third party all in the month of December. Our warehouses were dry, retailer warehouses were dry, and so we're in the process of essentially replenishing to catch up. And so when you look at the month of February and see a fairly modest number for Wii Fit Plus, that's because of all the product that was sold in December and a fairly large amount of product that was sold in January. We simply have no inventory to put on the shelf. The same is true for White Remotes; you could go find a Blue Remote or a Pink Remote right now, but standalone White Remotes and Wii Play are short right now in the marketplace.
I have a lot of respect for Michael; we go back and forth a lot – but the fact of the matter is, as we sit here today, the Wii platform continues to have an exceptional level of demand. It's a level of demand right now that we can't meet. So our first catalyst is meeting that consumer demand. Our second catalyst is our very strong lineup of first and third-party titles that we've already announced now through the end of June. Think about it – Super Mario Galaxy 2, Metroid: Other M, Sin and Punishment. For some publishers that might be a good year, or maybe a good back-half calendar, but that's our first-half calendar. On top of that, there's Monster Hunter Tri and the partnership we're doing with them to bundle in the Classic Controller Pro, and for Red Steel 2 some will come packed in with Wii MotionPlus. So we've got a number of strong catalysts for the first half of the year, and certainly we'll share more about the back-half at this year's E3.
IG: I think what Pachter was hinting at is that although this is going to be a longer console cycle, and the motion controllers from Microsoft and Sony will help extend it, that Nintendo would need to be first to upgrade to HD or just come out with a more powerful system before the competition. And I know you said recently in another interview that you're not even thinking about the next console, but we all know that Nintendo is always thinking about what's next.
Reggie: The benefit that we have with hardware developers side-by-side to software developers is that for us, when Mr. Miyamoto and his team come up with an idea and they say, 'I can't do it on the current platform,' that's when for us hardware development kicks into high gear. And we're not at that point yet. We're nowhere that point. So for us, it's not a time-based decision; it's an innovation-based decision and a software-based decision. That's how we think of any system's lifecycle. And we believe that for the Wii, there are tremendous ideas that we'll be bringing to the marketplace to continue exciting the consumer. The other comment I'll give you to the question you pose is that I hope what people see with the Wii and the DS is that technology by itself is not what moves the consumer and it's not what moves this industry. If that were true, then DS would not be the leading handheld platform in this current generation. If that were true, the Wii would not be the leading platform in this home console generation. What motivates the consumer are great, innovative, entertaining experiences. So to me, I think what our competitors are doing is quite interesting but it's always going to come down to the software. And I've yet to see a piece of software [from the competition] that's an innovative experience for the consumer.
IG: Well, to tie that back into what we were discussing earlier, you're right it's about the software and if you're looking to get a BioShock or a Mass Effect or a GTA, I bet you that if you said to publishers, 'We have this more powerful system now with HD' it would be much easier for Nintendo to attract that sort of core third-party support.
Reggie: You may be right, but we would argue that simply doing a Wii in HD is not going to advance us vs. the current path that we're on from an installed base standpoint. In our view, HD by itself is not enough for the consumer to upgrade vs. what they have today in terms of the Wii.
IG: I was going to ask you about PlayStation Move, because it's sort of like Wii in HD. The controls are pretty similar but the graphics are much better. And I guess Sony is hoping that people will upgrade from Wii because of those motion controls. Sony wants Wii consumers to say now, 'Hey let's go get a PS3.'
Reggie: And why would they say that? That's the piece that to me is very interesting. So I'm a consumer and I'm having a great experience with my Wii. And we know that's the case – we look at the software that's being purchased. Consumers love the Wii. What's going to motivate them to spend minimally $300 for a new [PS3] system, plus minimally $100 for the Move motion bundle? So [as a consumer] now I'm into this for $400 and I still have to spend money on software. What's going to motivate me to do that?
IG: Well, I can't speak for the consumer, but I played around with Move and it's an interesting product.
Reggie: I'm sure it is.
IG: Have you had a chance to play around with it?
Reggie: I have not had that chance. One of the things I find very interesting about this industry is that people don't seem to want to look at propositions from the consumer viewpoint. And I think that's very troubling. We're constantly thinking about how the consumer is thinking about the product. How do they approach it? What's in it for them? Why should I as a consumer open my wallet or pocketbook to buy product X? We constantly think about that, because in the end, if the experience isn't compelling enough, if the value isn't strong enough – and value meaning what you get for what you pay – then there's nothing in it for the consumer. And a product will die. I can look back over the last 2-3 years with products that have died in the marketplace, because they were not thought of from the consumer point of view.
IG: Right, to Nintendo's credit, you wouldn't be where you are today without that mindset. Switching gears for a minute, one of the big buzz words in the industry now is social gaming. I wrote an op-ed a while back suggesting that Nintendo should bring its IP to Facebook. I realize it's a completely different business model, but Nintendo in my view could do amazingly well in that social space. Imagine the power of Mario, Animal Crossing, Pokemon or Zelda on Facebook. Look how well Zynga's done with FarmVille. Would Nintendo want to get into that space?
Reggie: You know, we are very fortunate in having fantastic franchises. And we believe those franchises are integral in driving our installed base and creating an environment where we and third-party publishers can create business opportunities. The social gaming space is very interesting, and the elements within that space of truly bite-sized, morsel-sized entertainment and micro-transactions is very interesting. But the concept of our franchises being leveraged in that way is, at least right now, something that we have absolutely no interest in. We want the next great Zelda experience to be on one of our own platforms. We want the next great Pokemon experience to be on one of our platforms. For us, that's what motivates the consumer to buy software, buy hardware and to create this environment for us and others to participate in. Now, that's not to say that we're not looking at the social gaming phenomenon, looking at micro-transactions – I mean, we have to in order to continue being leaders in this industry. But it's not a place in the near-term that you'll see our franchises.
IG: I realize we're almost out of time, so I'll finish by asking you about the DSi XL. Your favorite analyst Michael Pachter told us a few weeks ago that he didn't think the XL would be a success at launch because the pricing is too high. He believes that pricing it just $10 below the Wii is a bad move and makes the handheld a much less attractive purchase. So what is your thinking on the DSi XL price point and what it offers consumers?
Reggie: First factoid: In Japan, where the DSi XL has fabulous momentum and is currently outselling the base DSi model and outselling it pretty substantially, the price point for the DSi XL is exactly the same price as the Wii home console. So what that suggests to us is that the value proposition inherent in that system – 93% larger screen, wider viewing angle, essentially a more sociable gaming experience in a handheld – is certainly resonating with consumers, at least in Japan. We think that will resonate here in the U.S. So we believe the $189.99 price point is consumer relevant; we think the $20 premium vs. the DSi is the right level of difference and we think it's going to do quite well here. Personally, I believe that our DSi business will continue to be the largest part of the DS family. I don't think we'll have that same phenomenon that Japan has had, but I could be wrong.
And one of the things that I love about Michael, as well as all the analysts that cover this industry, is that they can make some pretty bold pronouncements and not be held to going back and looking at how good the batting average is. Our batting average has been pretty high. And we believe that not only the hardware, but the software that we're launching concurrently with DSi XL – everything from WarioWare D.I.Y. to America's Test Kitchen, Picross and 100 Classic Books coming shortly thereafter – we think we've got a great software lineup to drive the installed base of DSi XL.
IG: Thanks very much for your time Reggie.
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