Satoru Iwata is very excited about your heartbeat. The chief executive of Nintendo wants to capture it on his new Wii Vitality Sensor, an add-on peripheral for the Nintendo Wii, so that video games can tune in to your level of excitement or relaxation and make use of that as a kind of control in future Nintendo games. While Sony and Microsoft announced motion-control devices that were trying to catch up with or leapfrog the Wii’s motion-sensitive controller, Iwata was showing a path to a new kind of gaming he hopes will continue the broadening of the video game market that has allowed Nintendo to sell more than 50 million Wiis and 100 million handheld DS units. In a one-on-one interview, we caught up with him today at the close of the E3 trade show in Los Angeles. He talked about the iPhone, the recession, free games, and how Nintendo is still trying to set itself apart from the pack.

VentureBeat: What did you think of the dueling press conferences this week between Nintendo, Sony and Microsoft?

Satoru Iwata: The common topic at this year’s E3 has been that the motion-sensing controller has finally become the industry standard. Nintendo started this idea three years ago, and now the other platform owners are doing the same. It’s a good thing because we believed that we were doing the right and now others have validated that. The video game industry as a whole now has a chance to further expand.

VB: It looks like there’s been a switch from racing to find the best graphics to racing to build the best motion-sensing control system. How does that change the typical console life cycle?

SI: The industry used to believe in a five-year cycle for graphics. That depended on the evolution of silicon chips. While the overall cost remained the same, we figured out how much more graphics could be done with the newest chips. Nowadays, dependence on computer graphics improvements isn’t as important as it used to be. That must be why the other companies are now paying attention to motion-sensing controls. As you know, a lot of people in this industry believe that the life cycle for consoles should be longer than five years. However, when it comes to the platform cycle, Nintendo has different opinions from the other companies. I think we have a different criteria about when to shift to a new platform. Technology companies would tend to focus on a technology roadmap about when certain technologies will be available at a given cost. Then they lay out their plan to make a certain kind of hardware. That’s how PC makers decide how to make PCs. With Nintendo, developers like [Shigeru] Miyamoto decide. As long as they are comfortable with the current technology’s ability to deliver meaningful surprises to the users, we don’t need new hardware. However, when they start demanding something new, when they see the existing hardware can’t provide what they need, then that is when we decide to launch the new hardware. As for timing, it may be three years from now, five years from now or eight years from now.

VB: You have one task to accomplish which the other console makers have already done. It seems that you need to develop a console for high-definition graphics.

SI: If we have an opportunity to make a new console, it will probably support HD because it is now common throughout the world. However, as far as the Wii is concerned, we have not found a significant reason to make it HD-compatible at this time. What is the significant meaning to the users? I don’t think we should do it unless we find that reason. If we decide for other reasons to make new hardware, then HD is one of the things we would naturally add.

VB: Do you feel you need to stay ahead of Sony and Microsoft on motion control? They clearly seem to be trying to leapfrog the Wii’s capability. With Microsoft’s Project Natal and Sony’s new motion-sensing wand, doesn’t that force you to do a more accurate form of motion control?

SI: I don’t share that feeling. We don’t have any information about when they would introduce these things and at what kind of price. Until we know exactly what they will do, it’s harder to understand what we would need to do. What Nintendo has to do is make software that takes advantage of the Wii MotionPlus and make efforts to make the public understand the benefits of the Wii MotionPlus controls. As the pioneer of motion-sensing technology, what Nintendo has to do is provide new surprises in the next year and two years from now.

VB: And one of those new surprises is the Wii Vitality Sensor?

SI: The sensor doesn’t have a direct connection to Wii motion sensing. But let me say why we made an announcement about it at this time. Take the example of Wii Fit. When we talked about it two years ago, a lot of people thought the Wii Balance Board was crazy. They thought Nintendo would start selling a bathroom scale. But Wii Fit became a success because we saw a “blue ocean strategy.” But now a lot of companies are fighting in the red ocean of follow-up exercise games. [Note: As discussed in the Blue Ocean Strategy book, too many sharks in one area make a red ocean; but innovators who swim in the blue ocean have no rivals]. When we introduced the Wii controller, we were in the blue ocean and this year is still the blue ocean. But the year 2010 may become the red ocean for motion-sensing controls, based on what Microsoft and Sony say. The advantage for Nintendo is that we always try to do things that other companies don’t try to do. That is something that the general public appreciates. That’s why we have to introduce this Wii Vitality Sensor. A lot of people must be wondering what the hell this is about. But that’s exactly the way people felt two years ago with the Wii Balance Board. Looking at the history of video games, and game controllers in particular, you have always controlled it consciously. That’s what the name implies. Starting from the movements of your fingers to the shifting of the body mass, you always control it consciously.

VB: How is this going to be different?

SI: We have been trying a variety of different technologies and possibilities. We have found that a lot of information can be found through the pulse of a human being. The pulse is not the simple measurement of just your heartbeat. It provides a number of other signals through your body. It can show how your automatic nervous system is operating.

VB: Your nervousness or calmness?

SI: Not exactly that. Your automatic nerves. You can’t control it consciously, but your heart always beats. You may sweat. Your body may shiver. Those are signals of your automatic nerves. By trying to sense the nerves, it can tell a lot. The pulse can include this information. You may feel totally relaxed. Maybe you will play a horror game and the sensor can tell how scared you are. Several other things can be learned from the pulse, like if you are breathing in or breathing out. We may come up with interesting new software that we sell with the new Wii Vitality Sensor, much like we sold the Wii Balance Board with Wii Fit. Sometimes you are physically tired at night but your brain is functioning too much to go to sleep. If you can have software that helps you understand how you can shift from such a tense situation to being more relaxed, then that would help. At some point, what is invisible can become visible. You can learn your level of relaxation.

What we have inside the Wii Vitality Sensor is an optical sensor. It sends light through your finger and detects the amount of blood that it passes through. If there is more blood, the more light is blocked. We can calculate a relaxation level, through my heartbeat and my breathing in and breathing out. With yoga, they try to calm the nerves through meditation. If you can become conscious about it, you can control it. Some of our employees see their vitality go up at the end of the week because they may be looking forward to the weekend. Normally, this is invisible. A long time ago we sold something called a Love Tester. A boy and girl would shake hands to see how passionate they were. I think boys simply wanted to touch girls’ hands. There was no science behind this. Now we may be able to do a real Love Tester.

VB: I would guess you will talk about a game that uses this soon?

SI: You can see we are already working on a lot of this. Maybe we will announce the game next year.

VB: There are two areas of potential threats, or red ocean, that I want to ask about. There are an awful lot of free games out there. In the last year, more than ever.

SI: Because of this? [Shows off his iPhone]

VB: It’s also because of the web. Bobby Kotick, chief executive of Activision Blizzard, said that we’ve seen prices for games and prices for consoles hold up longer in this console cycle than in the past console cycles. Yet we have a recession. It seems that is dangerous for the console business. Something else could come along and undercut the prices of console games.

SI: If we stay in the red ocean, then free games would have an impact on our business. There are countermeasures to this. If we fail to provide experiences that can never be duplicated by free games, then we will not be able to survive. I don’t think that free games are something new. On the PC, there have always been free games. But finding them was not always easy. With the popular products like the iPhone, now it is easier. Apple has highly promoted the size of its free software library, so people are becoming aware of it. My opinion is that the iPhone has suddenly changed the picture. We are asking people to pay. Getting people to pay is always a matter of survival. We have to provide something new and surprising. We cannot stay where we are today. We have to be different tomorrow.

VB: Do you believe there is direct competition between the Nintendo DSi and the iPhone?

SI: If I thought our companies were in direct competition, I would not use a Mac in my presentations. I have never thought the two companies were in competition. The features of the iPhone and the DSi may overlap. But if we look at our differences, the areas of overlap are small. If, in the future, this overlap becomes bigger to the extent we should call it direct competition, I have to be more careful. I can’t bring out the iPhone during an interview anymore. Today, I don’t worry about it.

VB: How concerned are you about the recession’s impact on video games? Especially in the last two months in the U.S. Is there a specific action Nintendo can take to lessen the impact?

SI: The cause for the so-called slowing down was really not due to the recession, but to the availability of strong titles that can lead the whole industry. In my view, recession is not the main factor. If the recession were the cause, then the DSi would not have sold so well. Within one month, we sold more than 1.4 million DSi and DS Lite products in the U.S. Also, last year, we launched strong titles like Super Smash Bros., Mario Kart and Wii Fit in March, April and May. They became the best sellers of the year. And we were not alone. Grand Theft Auto IV was also launched last year on the Xbox 360 and the PlayStation 3. Accordingly, my understanding is the lack of such strong titles this year is what led the industry [astray] in 2008. We should recognize the difference in the launch schedule. This year, we are launching strong titles in the latter half of the year. Then the momentum of software in the second half can drive hardware sales. The buzz of a few titles such as Wii Sports Resort, Wii Fit Plus, and Super Mario Bros. for the Wii should create some excitement in the second half of the year. We are currently expecting that we should have a sufficient supply of hardware in the second half of the year, something we didn’t have in the past two years because of shortages. It was the timing of software titles that caused the slowdown in momentum in the U.S.

VB: So you believe cutting prices is not the answer. Broadening the market is the answer to this problem?

SI: Right. As of now, I don’t think changing the price will change the picture of the whole industry.

VB: What is your Wii Fit age?

SI: [Laughs] 31.