I would like Mr. Miyamoto to explain New Super Mario Bros. Wii. Also, please let me know what kind of genres or platform you are focusing on most at this moment. Also, where and how do you get your inspirations? I heard previously that you were gardening when the idea for Pikmin came to your mind. And when will you likely be releasing them?
Satoru Iwata (President):
Actually I often tell Miyamoto not to talk about his hobbies in public, in order to prevent (Nintendo's) future (software) lineup from leaking... Let us ask him to talk as much as he can disclose at this moment, firstly about New Super Mario Bros. Wii.
Shigeru Miyamoto (General Manager, Entertainment Analysis & Development Division) :
Well, thank you for your question. Now I would like to start my PR activity for the New Mario title. First, I want to ask if you already have any information on the title, New Super Mario Bros. Wii. If you have, please raise your hand! Well, how many of you...? (Looking around the raised hands of the audience) Thank you. So let me explain with the premise that there are people who do now know much about the title.
You may want to consider New Super Mario Bros. Wii, as New Super Mario Bros. DS, designed for Wii, as it is a 2D platformer Mario game, which every kind of player can easily enjoy and get excited.
And the key feature is the multiplayer mode up to four players. New Super Mario Bros. DS, a 2D Mario game that simply uses the D-Pad and A and B Buttons, is actually so easy for everyone to understand and enjoy. Everyone could feel the fun of reaching to the goal. I believe that's why it became so popular that about 5 million copies in Japan and approximately 20 million copies around the world have sold so far. Now that people can play such a game on Wii in a living room, we wanted everyone to not only see other people playing but play together.
On transporting such game play into a living room, I would like to cite "Mario Brothers", not Super Mario one, as an example. Mario Brothers was an arcade action game before the NES days where twin brothers named Mario and Luigi fought around turtles. Players can, of course, cooperate with each other. Or, the game can get overheated and the players can end up beating each other flipping the turtle from underneath to interrupt the other player. It was unfortunate when the game ended quickly because it was an arcade game, but players had a hard time walking away. I think it was a pioneer of arcade games like "Street Fighter 2" or "Virtua Fighter", which players needed to keep inserting coins again and again to keep playing and which made arcades wealthy. This Mario Brothers was also transported to NES. After that, we developed Super Mario Bros. upon the original, into a 2D platformer. But the Super one was only single player!
After that, on every Mario project we have discussed the possibility of having two players play together simultaneously. On the latest title, Super Mario Galaxy a second player can help the main player who is controlling Mario by shooting a Star Piece. It was a system where dads can help kids or kids can help moms. But this time, those two are at last able to play equally, and everyone surrounding them can enjoy watching.
It was all thanks to the graphical capacity of Wii console. If two players or more are simultaneously controlling Mario and Luigi in the same screen on a platformer game, the slower player will be left behind by the faster player, beyond the game screen. This time the screen zooms in and out accordingly, thanks to the capacity of the Wii console. The camera can zoom out as far as three times wider where you can see a very small Mario running around, and zoom in to show huge Mario and Luigi. The camera will work automatically and simultaneously, according to the position of four players. That's how we realized a Mario game which can be played by up to four players at the same time.
Another challenge was a gap among players. Nintendo DS has brought many brand new players to the world of video game. Along with them, there are also veteran players who have never stopped playing video games. We have developed New Super Mario Bros. Wii for both kinds of players... but it was challenging to balance between the difficulty levels that would be challenging enough for veterans and entertaining enough for novice players. So our idea was to develop a game that everyone can enjoy equally, not what everyone with various skills can equally clear as that is impossible.
The multiplayer I believe is a good solution. If there is one veteran player among four players, he or she can lead the other three and they don't have to do much. People can enjoy a kind of play like peeking inside Bowser's castle to see how scary it is. Another thing is the "Otehon System" (Super Guide mode), which is similar to a strategy book, where Luigi will show players an example for a solution after the players fail so many times. I believe this system has made challenging-for-veterans courses enjoyable even for novice players. Now I anticipate New Super Mario Bros. Wii to be enjoyed in a large number of households at the end of the year!
Well, now a short answer after a long one... I strictly refrain from commenting on our future development. As for Nintendo DSi LL we have announced yesterday, we have found that a fair amount of DS owners are playing IN their home. Thus one of our ideas is an "in-house DS game play". Another idea is what I have been calling as a public space application. Currently we are focusing on DS as a game console that can be used outside of the home. Actually because Dragon Quest IX made Passing-By Connection much more popular, there has been an increase in people carrying around their DS, and we are trying to develop something unique around that factor. And, recently I have cats. That's all!
Iwata:
He left significant hints...
Please explain the impacts of such devices as Magic-Coms or R4 had made on DS software market. Personally I have heard that considerable impact has been taking place in Europe. I would like you to explain how large its penetration and impact are, and how you are going to deal with them.
Iwata:
I recognize there is more software piracy, playing downloaded software data without purchase, than some years ago, on many of the current platforms including Nintendo DS. You have noted one of Magic-Coms (dedicated to DS), but I think I can declare that software piracy impacts ALL video game platforms today. As for the piracy itself, it is said to be hard to precisely figure out the total impact as it is done underground.
Actually piracy has become more widespread in Europe than in U.S., especially in specific European nations where piracy regulation is restricted by the law. Thus we should assume that Europe is seeing a larger impact than U.S.
Of course we are developing video games very hard for the sake of customers' enjoyment and so are other software companies. Thus it is our important role as a hardware manufacturer to establish the environment for healthy video game business.
As for specific measures, we have two ways; technological and legal measures. They tend to become a cat-and-mouse chase; as the piracy itself is underground, someone somewhere finds out the solution to evade our measures. When we shut one hole of the mice, they have dug a new one somewhere else. We have acknowledged that this is an endless battle, and we believe the best measure is to keep fighting it technologically and legally. As for the details of specific measures, I'll refrain from disclosing them here, as this conversation will be public online and the pirates will be able to find. I will however promise to keep acting legally and technologically, with patience.
Please give us an explanation of Wii and DS's Internet connection ratio including WiiWare, DSiWare and Wii no Ma.
Iwata:
As for Internet connection ratio, there are slight gaps between regions and periods - from right after the launch of the console when eager users are the majority to when the console starts to get popular. If Nintendo takes no action at all, the ratio will gradually decrease. As the console spreads, many people will buy, including those who are not really interested in the Internet, and the ratio will decline.
And so far we have taken various measures. When we announce that the Internet Connection gives you a variety of entertainment options or release a title which becomes more enjoyable with the Internet connection, the ratio actually rises. On a rough analysis basis, the connection ratio of Wii is around 35%, in the Japanese market. And that of DS is probably, 20% or so. It had increased with the measures like Nintendo Zone with McDonald's to lower the hurdle for connection, but has not reached the 30% mark.
And regarding your question about the download sales including WiiWare and DSiWare, so-called digital distribution in English, there is actually a variety of views about how much it will replace retailers and package software. Most radical people even dare to say that retailers will be replaced by digital distribution in no time. But personally, I think it will still require a significant amount of time. In other words, it will require many years and months for the majority of video game purchase to become digital. In short, in 20 years or so I might say it will have probably changed. But in 5 years or so, I do not totally agree with opinions that no one will purchase titles at retailers by then. Habits of life do not change such radically and quickly. Especially for the expanded audience of various people, to whom we are and will be trying to appeal, I believe their habits will change more slowly.
Personally, what I believe is the most important factor for Internet connection is expanding titles' lifespan rather than replacing the packaged software to digital distribution. With the Internet connection, players can purchase additional features or receive extra services. As a result they will play a single software for a longer time without feeling bored and will not sell it to the used-game shops, which will then contribute to more software sales. I believe such a utilization of the Internet connection is one of the major directions we should aim for and we will continue to try and raise the connection ratio.
As for the future plan of our approaches such as the one with McDonald's, hopefully we can further broaden Nintendo Zone. I believe it is very important to establish an environment where Nintendo DS owners can easily connect to the Internet without having to set anything up. Actually when we ask customers to set up something in your home, many of them refuse, saying that it's too difficult for them. But when we ask them to just bring their Nintendo DS to a specified location as we actually do, they actually bring them if there are meaningful contents. Thus by broadening such an environment, we can have many Nintendo DS owners feel the value of being connected. Afterwards, we can expect more of them to want to do it at home since they now understand the value of being connected. So this is the process that I imagine (for spreading Internet connection on our platforms.)
And as for WiiWare and DSiWare, they have not established a notably large market yet. The current situation on Wii Shopping Channel or Nintendo DSi Shop is like a purchase with specific intent, where customers who already know the name and information of the game they want directly seek out what they want and bring it to the register to purchase. Internally we have been discussing that we have to engage customers with less information to purchase. And as an experiment, we will be offering demo versions of specific titles next month on a trial basis to see if it can widen the customers. But I don't think that the demo version is the final solution. I believe that until customers have a reason to visit Wii Shopping Channel or Nintendo DSi Shop without purpose, digital distribution will not become popular.
Our basic ideas are to add value to the hardware in order to add value to the software, rather than replacing packaged software to digital distribution.
Finally as for Wii no Ma; after its launch in May, 930 thousand households or 2.48 million people have experienced it as of October 26th. I think it is a decent first step because these numbers reflect the number of views by users in front of whom we have set fairly high hurdles, from downloading the channel to watching and voting on the video. Of course this service is still in its early stages and we are still figuring out what we should have done at first. We are planning to update the Wii no Ma Channel within the year for pay contents, and thinking about some new measures for increasing the penetration rate. Wii no Ma is one of the approaches to give a wider audience an opportunity to play with the Wii console. If more customers are not playing games on the Wii but actually using the Wii console, it will contribute to the spread of video games in the future, and we will continue to work on this initiative.
Mr. Miyamoto, what can be enjoyed with the Wii Vitality Sensor, which Nintendo announced at E3? Please give me at least a hint.
I think you are developing a new The Legend of Zelda for Wii. Please provide some clues about the development process and some of the new things you are trying out.
Miyamoto:
I was hoping you'd ask about the most recent Zelda for DS. On December 23rd in Japan we are going to release The Legend of Zelda: Spirit Tracks, a sequel of Phantom Hourglass. It's really fun and challenging. On the other hand it might be a bit difficult for many new Japanese Zelda players who experienced their first adventure on Phantom Hourglass. I believe Spirit Tracks have achieved a unique style and I think you can anticipate the core value of Zelda!
And the new Zelda for Wii is beyond that. On developing the recent Zelda for DS, I found out that one of Zelda's core appeals is its uniqueness. Of course we are preparing gorgeous graphics for the sake of users' anticipation for a grand role-playing adventure. But what I believe is very important is the realistic, actual feeling players have experienced themselves; the feeling to have really been on an adventure, to have explored the unknown terrains, to have solved the puzzle through trial and errors, to have themselves grown through various experiences! In that sense, a personal sense of creativity is becoming important among us. We have assembled one of the most creative team for the recent Zelda for DS, and we want to be as creative as possible for upcoming Wii Zelda.
And on a more tangible note, we are utilizing Wii MotionPlus. What has been disclosed so far is that we are finding the most efficient way to utilize Wii MotionPlus to realize the realistic and actual feeling of fighting with the sword. As for targeting, we are utilizing the pointing system of Wii Remote on the previous title. This time we are planning a more convenient and comfortable pointing system.
And as for Wii Vitality Sensor, I think Iwata will explain later since he is hard at work on it. Based on my experiences, to measure something invisible and have it turn into something tangible like a number like weighing myself on Wii Fit, or to give a numeric value to something invisible in our daily life will be materials of new plays which will feel familiar to us or can improve our lifestyles. We are currently developing an efficient utilization around that factor.
That is all that I can say for today.
Iwata:
Please let me add some notes. If Wii Vitality Sensor is simply a pulsimeter, we did not need such a grandiose announcement. It is a tool to analyze various biological signals by scanning the pulse, in order to make something invisible visible. The point with that is you can figure out your current conditions. I believe many of you have figured out with "Wii Fit", by weighing yourself every day you could figure out how the weight would change according to what you had done. Personally I have figured out how dining-out exactly affects my weights. And there are still more invisible factors, which Wii Vitality Sensor can make into something visible, by putting your finger on that every day.
I have to refrain from disclosing too much to keep the surprises of announcement; but please note that Wii Vitality Sensor is not a simple pulsimeter. I have a strong feeling something fun will appear around this gadget, and am planning to put it as one of the next year's main topics.
Under the current condition, investors require more than 2 million and some hundred thousand yen to purchase a minimum unit of Nintendo's stocks. It highly exceeds the level recommended by the Tokyo Stock Exchange. There are not a small number of individual investors or fans of your companies who want to buy the stocks but can't afford 2 million-and-some yen. Even among institutional investors, smaller funds can't deal with the weight. Actually the current unit of exchange is too large to buy or sell. Do you have anything to update on lowering the unit of exchange?
Iwata:
Actually I recognize we are receiving such opinions as for revising the unit of exchange. Along with that we are researching how the lowering will affect the stock price, according to past examples. I think I should put it on as best of a condition as possible if we will do so. Including timing, it is our subject of consideration. Please understand our idea is not that we will never lower that under any circumstances.
During the presentation today, I heard that game software sales for home console video game machines in Japan have been slowing down. As I interviewed with several people, they say it costs them easily more than 1 billion yen in order to develop a PS3 or an Xbox 360 software, and in terms of the current Japanese video game market size, the resulting software cannot pay off at all. They also say that they are also facing a hard time to recover the development costs even with Wii software as less and less Wii software they are making can sell in Japan and that it is becoming difficult to receive the green light of their Wii software development from the management.
When you need to intensify the hardware performance, you will probably need to comply with HD (High Definition TV). However, I think that you may rather want to stay with the graphical performance for SD (Standard Definition) and add upscaling functionality to the hardware.
I would like to know Mr. Takeda's opinion about the future including his assessment on the upscaling on the graphical functionality.
Also, we are now seeing the limit in the advancements in semiconductor technology. Traditionally, we could rely on increasing the clock. However, increasing burden is expected on the developers as parallel processing and others are increasing. I understand that you have been reviewing state-of-the-art technologies as a matter of course and that you are aware the increased burden on the programmers. I would like to know from Mr. Miyamoto, or from Mr. Iwata who has the programming experiences himself, if it will be possible to decrease the burden and to create more stuff with less cost.
Iwata:
First, from Mr. Takeda, about the hardware.
Genyo Takeda (General Manager, Integrated Research & Development Division) :
Since our division has been reviewing and developing a number of hardware, we are looking into many different things, including HD and SD. Also included is the review over the systems with which the creators can easily create video games with limited budget and resources. However, we have not come to the stage where we can announce which is the most appropriate means. Since an increasing number of the TV sets at home around the world are becoming HD today, it will be natural for a machine to be able to generate graphics that people will be accustomed to see on HD televisions. Since the ordinary TV programs are now shifting to HD, moving to HD appears to me a natural flow.
Will it be better to prepare graphics for HD from the beginning, or will it make more sense to prepare the graphical materials for SD and convert them to HD by upscaling? What do you currently compare (in terms of the balance between the quality and the development costs)? When I look at the existing software for other HD video game machines, (even though they say they are HD-applicable,) too many of them, in fact, appears to be the simple upscaling from SD to HD.
Takeda:
I believe that we should take the most appropriate balance. We are not too much concerned about if the technology itself is the state-of-the-art or rather old-fashioned. If we can find out the most appropriate medium, between SD and HD, and flexibly move around them depending on the game's contents, it will be good, I think.
Miyamoto:
As long as my way of making games are concerned, all I am concerned about technologies is, we probably cannot swim against the tide. The customers' tastes will become more and more refined. Even today, many customers who have seen HD once say they cannot go back to SD. On the other hand, quite a few of us are accepting 5.1 channel even though they are not true 5.1 channel or embracing HD even though they are not true HD. In other words, when the majority of people around us say it is OK, we are content with the situation. I have to doubt how many of us can actually tell them apart. As long as graphics are concerned, it is comparatively easier to tell them apart. When they purchase a new TV, they change how the same programs are compared with other programs. So, if we try to intensify that portion, if we are simply intensifying what is actually SD to look like HD with the hardware support, it can be understood rather easily. So, development costs associated with HD graphics will have to further increase.
We may need to go back to the basics of the issues. If we make a Wii game solely by targeting the Japan market, it will be hard to pay off, and we cannot afford to do so. I explained about Super Mario Bros. games earlier. Looking back the past sales, for example, when it sold about 5 million in Japan, approximately 20 million units were sold globally. In case of Zelda, unfortunately the software does not enjoy the high popularity in Japan that it does elsewhere, and about 5 times as much or more of the Japan sales can be expected in the overseas markets. So, even when the Japanese sales of a Zelda game were about 500,000, there was a case that global sales could reach around 5 million units in the past. In case of Mario, the global sales can be about 4 times larger than that of the Japan sales. So, if we want to, I believe the Japanese companies are still in a position to make games that can be accepted by the overseas markets. There may also be the issues within the companies about how the managers and the developers try to approach the game creations.
Regarding the question of SD or HD, it must depend on each software. For example, we have to ask ourselves if HD is really necessary to develop Wii Fit. Won't HD be better for the games like Pikmin? The developers should choose the most appropriate graphical format depending on the software they make. To Nintendo, our theme is how we can prepare the SDK library to cater to the needs of the developers, with which the developers can more easily develop their games. In fact, Nintendo has been working with such mission.
Iwata:
Next, let me talk a bit from an engineer's viewpoint. I want Mr. Hatano to follow up from a business perspective. I was originally a software engineer. Among all the 6 members sitting here on the podium today, I think I have the most experiences when it comes to making computer software. To put it rather simply, there are two types of computer programs: One is a program that the programmers wonder why a person is going through this trouble when this sort of thing can and/or should have been done by a computer. Another type is a program which naturally makes us feel that it is the programmer's job, not PC's, to make them. When we say we were able to design a good hardware, it is the hardware which gives least amount of trouble to the programmers in order to make the required applications. Of course, there is the opposite case.
I hate to tell this as Mr. Takeda is sitting next to me today, but in the days of Nintendo64, we were not able to make the program run properly without us making a lot of extra and seemingly unnecessary efforts. However, Nintendo GameCube and Wii are made so that programmers do not have to beat our brains out or making many extra works, so I feel that the programming has become fairly easy. Mr. Takeda himself has learned from Nintendo64 and has been specifically focusing on how possibly the hardware people can make the platform which gives the least amount of hardship to software engineers. I would like to believe that he will keep this spirit for any future products.
Finally about the business perspective, I previously showed an example of Professor Layton. I wonder how many in this industry were able to foresee the current sales situation in the overseas market even after observing the domestic sales in Japan. I also wonder if anybody was able to feel that Nintendogs and Brain Training software could be a success even after seeing the great sales in Japan. Aside from how we develop a new software, there is the point in asking how we market the software. In terms of our relationship with the third party partners, that aspect is becoming increasingly important. The number of opportunity when I discuss this with Mr. Hatano internally within our headquarters is increasing lately. So, I would like to ask Mr. Hatano (who has a long history of communicating and negotiating with the software makers) to express what he thinks lately.
Shinji Hatano (General Manager, Marketing Division) :
Each company and each developer must have its own opinion about how they develop games as well as how they conduct their businesses. Some companies have internally consistent opinions, and some others have different opinions among the developers and engineers as to HD or more sophisticated graphics. When a company believes in the need of advanced graphics in order to differentiate itself from the others, which is commonplace, the development cost naturally increases.
It may not be an appropriate comparison, but in the early days of NES, a typical software had a memory size of 24 kilo bytes. Today, when you try to use up the memory capacity of Blue-ray disc of PS3, you will need to make the program worth 54 giga bytes. If 24 kilo bytes of NES software can fit into 200cc tea cup, you will need enough water to fill a 25 meter swimming pool in order to make full use of a PS3 disc because the memory size of a game software has increased 2.25 million times as large as an early NES game. Of course, this is just a comparison, and I am not saying that everyone is trying to fill this large memory size although it must make sense for them to challenge this. But the general trend appears to be increasing memory size for a software. On the other hand, what has become of the sales per software? It has increased for sure, but it has not increased 1 million times, let alone 2 million times. It can easily be understood that making profits is becoming harder and harder.
If the trend shall continue like this, what kind of relationship should Nintendo establish?
Mr. Iwata explained a little bit about the example of Professor Layton. It has become challenging for one software to pay off the development cost with the Japan sales alone. The presence of the Japanese software companies is not what it used to be. The Japanese domestic sales are, of course, important. But the third parties have better grip on the Japanese market, so it may make sense for Nintendo to cooperate in their overseas marketing, for example, by us cooperating in both promotional and marketing activities.
We have been thinking in this manner, and we have already cooperated with some third parties. We did it last year and will do so this year on Mario & Sonic Olympic Games with Sega. The original Nintendo DS and Wii versions of Mario & Sonic Beijing Olympic Games together sold more than 11 million units last year. This year, the new Mario & Sonic Winter Olympic Games will be marketed by Nintendo in Japan and by Sega in the overseas markets. Nintendo is also doing some supportive activities for their overseas promotions too.
So, at a certain time in their development phase, when we can learn the substance of the software from the third parties, we try to think what we can do and how in order to maximize the sales. In the days when it is difficult for a software to pay off in Japan alone, we need to tackle the challenges with the software publishers. As I explained by comparing the memory sizes of a NES game and Blue-ray as an example, the development costs are increasing for the third parties. Recognizing the circumstance, our position is to cooperate wherever appropriate in order to realize the most desirable results.
Iwata:
In that regard, I anticipate the relationship between software makers and Nintendo as a hardware manufacturer to change from now. In regard to the relationship, I often discuss with Mr. Hatano lately that we cannot foresee the future by saying, "It must be like this because it used to be that way in the past." It is time we have to invent new ways.
Would you give us more concrete timing for the change?
Iwata:
I do not foresee that to happen too far away in the future because quite a few of the software makers are significantly concerned about the current situation.
Hatano:
I cannot elaborate on the details, but let me talk about one title with which we have come to a basic agreement. Nintendo will collaborate with Square-Enix on the overseas sales of Dragon Quest IX that they launched in Japan for Nintendo DS in July this year. For the U.S. and European sales, we would like to fully cooperate with them.
Nintendo would like to play a key role in expanding the Dragon Quest title in these markets because our preposition is that such quality title could and should sell more in the overseas markets. That is the basic agreement, and we will decide the details from now.
You mentioned the lack of strong software titles as a reason of not having been able to meet your expectation for Wii hardware unit shipment and of having lowered the annual shipment forecast. However, I understand that the company has launched titles that were originally anticipated. In spite of that, how do you analyze the reason why you were not able to increase the unit shipment? Why were you not able to launch strong software titles while you had been aware of the importance of doing so and had raised it as an important theme? What will you do to tackle with the status quo? Won't you change, or do you have different strategy? Please advise.
Iwata:
First, Nintendo's basic business structure is to have a relatively small number of titles that sells all over the world for a very long time and that each sells a large volume to drive hardware and software sales and, as the result, revitalize the market.
Talking about Wii, if Wii Music and Animal Crossing: City Folk that we launched late last year had been able to sell for a long time and to build up a steady sales volume, we might not have to say that we lacked strong software in the former half of this year. One year ago, Wii Fit and Mario Kart Wii continued their strong sales. However, if they had not sold in that fashion, we might have said that Wii had lacked the software to support the hardware at that time. In other words, it is not the question of the quantity of the titles. What matters here is, whether or not we have the software that continuously sell, and whether or not we are able to construct the circumstance in which these titles can steadily make their ways into the hands of new customers.
Of course, Nintendo wants to have a perfect batting average, and I believe Nintendo's developers have been trying to pick up interesting ideas and themes, polish them and to offer them as the final product. Unfortunately, since we are human beings, we cannot make every one of them a 100% hit title. That, and also other factors did not work well, either. The atmosphere toward the entire gaming industry had been cooled down for a while, more so than we had anticipated. As of spring this year, we were already anticipating the general atmosphere to cool down. Honestly speaking, I thought in summer that I didn't expect the extent to which the market had be cooled down, on that, I had misjudged. However, as I shared the data with you today, Wii Sports Resort has been functioning in order to regain the momentum in the excessively cooled-down market. I understand that it takes time to heat it up again once it has been cooled down this much. The general atmosphere in the world is not that people want to snap up a Wii, so it will take time. Thinking in this way, we came to conclude that we would not be able to reach the unit hardware and software shipment that we had originally expected, and we revised our forecasts downwardly.
Next about the question of how we will prevent the situation where we are unable to prepare the strong software lineup, as a matter of course, we are preparing for our arsenals for the next year right now and, we are confident that we have a fair chance of winning. We are currently considering how we should prepare our weapons the year after rather than next year.
Right now, as a marketer, we are focusing upon how we can maximize Wii Fit Plus sales around the world and how we should sell New Super Mario Bros, Wii. As a manufacturer, we are preparing for next year so that what software we will be able to sell then are already in sight to a certain extent. In other words, if we cannot be very sure right now if we will be able to sell them next year, these titles probably won't hit the market next year. As of now, we have been considering what we need to prepare in order to do our business in 2011. Of course, the fact that we were unable to put long tails to the software we had launched in late 2008 was what we regret and we would like to make efforts not to let it happen once again.
Even after your presentation, I cannot completely understand how you are going to learn from the past mistakes and what you will change and how. I agree that it is impossible to make every single game you develop the great success, and I do not think that the mistake that was made was detrimental. However, when I think about the examples of Facebook application, surge of iPhone, motion sensor introduced by Sony and Microsoft at the E3 show and other changes in competitive landscape, I have the impression that you are one step behind in taking such countermeasures as the following markdown of Wii, if I can be rather blunt.
I also feel that you are a bit late in addressing changes in the industry structure such as polarization of software that can sell and that cannot sell, the cautious attitude that major retailers take toward the purchase of the stock and illegal copying of software. While I fully understand the potential room for the gaming population expansion including those in newly emerging nations that you have been explaining to us for some time, I still cannot foresee the product or the service that can trigger the expansion or re-expansion.
I know I should not ask today about the details of the new proposals that will surprise us, but when I was reading the articles this morning regarding your financial announcement, I came across such expressions as the turning point. So, I would like to know if a decrease in the current financial performance is rather temporary and, with the strong software lineup, will you be able to put the company back to the growth orbit?
Iwata:
Our business is to challenge something that others would think that our commonsense tells that it won't work. And when that something can make the great unexpected hit for any reason, our business has the potential to significantly grow.
It is already a long time ago, but did any one of us think that Pokémon would be a global hit? Who was able to tell that "Brain Training" could sell all around the world? How many people in the world were able to foresee the actual sales number of Wii Fit before its launch? The fact that the original purchase orders for "Tomodachi Collection" from the Japanese wholesalers were 100,000 meant that the Japanese experts determined 100,000 would be enough to comply with the demand for a while. What matters is how we can create something which can destroy such a notion, but the software development does not always work out as calculated.
On the other hand, since I am managing a listed company, I am responsible for realizing a certain high level of batting average and for aiming to increase sales and profits. Naturally, I understand that there are such criticisms that Nintendo was late in addressing various issues. However, I also have to analyze if the company really owns enough resources in order to take the first move in any and all the fields. Since Nintendo does not have very many employees, we have to focus upon the things which we are good at. If we had to take measures and countermeasures in any and all the possible business fields, our resources could be dispersed very quickly and easily. Rather, my job is to find out the potentials in something that others could not find a possibility, to secretly pour the resources into them and to realize the situation that the products have already become great hits before no one else know. If we can realize such a situation at or above a certain level, the company can be publicly appreciated. If not, people would look back and say, "It was certainly a turning point for the company."
We are developing one product after another, and we are aiming to make each one of them an unexpected hit. Otherwise, we would not have spent more than 3 years developing "Tomodachi Collection." However, not all the software can be a hit like "Tomodachi Collection" just because we spend three or more years for their developments. Identifying such potentials is one of the most important jobs for me and for Mr. Miyamoto. The fact that we have actually been able to make them unexpected hits at a certain percentage so far has pushed Nintendo to where we are today. So, for us to be able to dispatch our messages in the market, we need to ask you to believe in our records in the past few years to identify the unknown potentials and ask you to trust the possibility that the company will continuously propose something that may eventually be unexpected hits in the future as well.
Nintendo cannot afford to disclose all of our business secrets that we are preparing for you next year and two years later and still to insist to all of you that you have to be surprised when we actually launch them. So, we cannot constantly deliver the message (as to precisely what we are making now.) Also, we ourselves are finding out the seeds just while we are running. We internally exchange such conversations as, "I can feel something uniquely interesting potential with this idea." The charm of some of these ideas suddenly emerges to the surface during development, when we make the decision whether or not we will further challenge with that. Mr. Miyamoto and I often say at such an occasion, "well, with this idea at the current stage of the development, we will be able to finish the development and launch this in 8 months or 10 months." That is a kind of timescale with which we think about the developments.
So, when I said earlier today that the company has already made the preparation for the arsenals for the next fiscal year and, right now, we must think about the year after, it was my real feeling. It is not that we do not have a means to reinvigorate our sales from now. Please at least understand this point.
I cannot understand at all why some people come to think that Nintendo has lost its edge as soon as they hear such news that other companies are newly applying for motion sensing technology. If fun and interesting software to take advantage of the technology could be created that easily, a number of other titles which are more fun than Wii Sports must have been already launched for Wii. Why in real life are not so many? The total power factor to combine both the technologies and software at the appropriate level must be the reason why Nintendo has been appreciated in the marketplace, and when someone argues that Nintendo has lost its edge when the actual products have not been launched yet, I feel something must be wrong here.
The same thing can be said about the talks over iPhone and iPod Touch. Some articles suggest that Nintendo is trying to leverage the Nintendo DS business because iPhone and other game machines are gaining momentum. As I explained to you with some data today, it is true that the current Nintendo DS business is not that heated up as it used to be sometime ago, when no one could tell how far ahead Nintendo DS might be able to grow. On the other hand, the data also showed that Nintendo DS has not lost its footing at all. Actually, it has been even increasing its footing all around the world. Under such a circumstance, I do not know why some people make such a remark. I have to feel that, probably, there are people who want to write the story that Nintendo is competing against Apple, and they are picking up fragmented information here and there and connect them to write their own stories. I cannot agree to such an argument. I want to believe that some of you who have listened to my presentation were able to understand our position.
I am paying attention to such unique structures of "Wii no Ma" as where the viewers can immediately return their assessment on the program and link to the advertisers' web sites because such functions are not attached to the existing TV programs on the terrestrial channels. How are the advertisers and program creators feeling about "Wii no Ma" right now?
Iwata:
Usually, people watch TV programs only passively. In other words, except when we choose the channel, we are just watching the programs. On the other hand, video distribution is a proactive viewing activity where nothing starts unless the viewer takes the action to select the video.
In case of "Wii no Ma," some people are annoyed or do not think it's a good idea when they are asked to vote after watching videos, and some people agree that this kind of proactive viewing is worthwhile. In fact, we can understand how many people in which age demographic have seen the entire program, and in case they stop watching them halfway, when they stopped. And the assessments are given to the program creators.
From the video creators' viewpoint, in accordance with the degree at which they want to know the reaction from the viewers, the feedback from the viewers is stimulating, they say. In fact, I hear from those who are operating the "Wii no Ma" that some of the creators who could not receive the expected feedback are shedding bitter tears and some others who received good assessment are very happy. That reminds me of Club Nintendo. We have been able to receive direct opinions from our customers about the products they purchased. When the opinions are circulated among the development teams, they read through them very seriously. The creators always want to know how their works have been appreciated by the customers. Of course, since our job is to give pleasant surprises to the customers, we do not intend to incorporate any and all the opinions into our future products because such products cannot surprise the customers. On the other hand, we would like to know how our customers actually felt about our products. Because we are working to give some excitement to people, if our customers are not excited, we would like to know and face the truth. If you are excited, we would like to know which part of the product was able to reach that part of your mind. Doing so will increase the creative level, we believe. The video creators who share the same feeling with us are very positively reacting to this particular feature of "Wii no Ma." On the other hand, not all the video creators are very happy about the feature. I feel that the video creators are totally divided when it comes to their opinion to this feature.
As for the advertisers, I heard they are feeling this is a unique and unusual media which is situated between Internet advertisements and TV ads. This is something we have been feeling since we conceived the original concept for "Wii no Ma" but it appears to have a very interesting characteristic as "a device to validate the hypothesis." More specifically, we can learn, very quickly one after another, what kinds of response are made with what kind of visual presentations. Some advertisers have realized that possibility and are now requesting that they would like to try this and that by commenting that this is very interesting because they can receive the more immediate and more direct responses than any other means they tried on the Internet.
We have been trying not to blame the economical downturn when our business is not good, but as long as "Wii no Ma" is concerned, we regret having to say that the "Wii no Ma" service made the start right at the worst timing that we could possibly imagine. More specifically, "Wii no Ma" was started right when all the corporations had to cut down on advertisements and when even the companies which have been spending so much on ads had to declare that they would not try any new things for a while. In other economical situation, more number of companies would have tried "Wii no Ma" by now. Even though people in charge loved the potential, when they tried to persuade the company management, they were requested to prove the cost-benefit performance first. But they couldn't because the service itself was yet to start. They might be able to prove it as soon as they were able to start, but some companies are prohibiting to start any new project unless the cost-benefit performance can be proved. Due to this circumstance, it is true that we have not been able to create the flow in which new advertisers one after another are able to start their new trials with "Wii no Ma". Having said that, however, we already have some solid feeling about the possibility of the "device to validate the hypothesis" which no other existing media were able to provide so far. From now, when the environment changes a little bit and many corporations can start to feel that they should tackle with something like this more proactively or that they should challenge something new, "Wii no Ma" may be able to become a very unique and interesting means. This is my observation.
Apple's iPod was able to borrow the power of telephone to morph into iPhone. And E-reader(electronic book reader) devices, such as Kindle from Amazon, were able to be connected with 3G a (collective term to refer to the 3rd generation cell-phone communications systems, used by the current digital cell phones) and selling at a rapid speed. I'd like to know if Nintendo thinks, for example, portable gaming has the potential to be able to explode its sales when your games are connected with wireless waves. Do Nintendo platforms and contents have chemistry with wireless?
Iwata:
Between the two, I have more interest to Kindle-style business than iPhone-style one because the former is proposing a new business model without asking the customers to shoulder the communication fees.
I myself am one of the iPhone users, and I understand that iPhone keeps a certain market share in the cell-phone market and that iPhone is the most successful product in the smart-phone category. On the other hand, because the original iPod business itself was big, my view is that Apple was able to leverage a very good timing to expand its business to telephones just when the original iPod business was nearing its saturation point. In other words, in my opinion, iPhone did not grow itself to a huge business, but something already grown up was able to prevent its growth speed from slowing down. However, the customers are confined to rather affluent ones who can afford to pay several thousands yen every month. Realistically, Nintendo does not try to reach out only to those who can afford to pay several thousands yen monthly. We are making entertainment commodities. The business model which requires our customers to promise to pay several thousands yen every month for the next two years does not suit well for the entertainment commodities.
On the other hand, I find the business model of Kindle rather interesting. Once you buy the hardware, the 3G communication functions are already inside, so you are able to do a sort of the cell phone's packet communications. However, the customers do not pay money (directly for the communications.) When the customers make the download purchase of a book, that packet fees are included in the charge of the book. On the other hand, I read somewhere that they are yet to make a profit. Nevertheless, in this business model, customers are not required to shoulder the cost. And the service is now being expanded beyond the U.S. to the world. I do not know if the Japanese companies, say, telephone carriers, are happy about the business model. Probably, they are unhappy. Still, I think they were able to come up with a business model which is not bad.
We are not saying we hate 3G technology. We are not denying the possibility of being able to increase what our customers can enjoy by connecting our products with wireless communications but it is subject to the condition that we do not have to ask our customers to pay monthly fees. Realistically, doing so will increase the hardware cost. We have to set the price of portable game machines that are affordable to the customers. Today, some people are already starting to criticize by saying that Nintendo, whenever it launches new model, is increasing the suggested retail price. Including the need to assess such questions as, "can portable gaming devices be more expensive than home console gaming machine?," as one of the future possibilities, we would like to review the possibility of being able to be connected wirelessly and how the trend in the technologies evolve in order for us to come up with our own solutions that can smartly take advantage of new technologies but does not require monthly payments by the customers. Wireless communications and portable game devices go hand in hand very well. We would like to continuously think about that in this fashion and hope to have our answer.
Whenever I received the question, "Won't Nintendo integrate cell-phone functions to its portable game devices?", I always answered, "It will be OK if our customers do not have to make monthly payments." Basically, I have not changed that answer.
For the current fiscal term to end at the end of March 2010, Nintendo is expecting the Operating Income to decrease by 33% year-on-year. Can you show us the basis that next fiscal year will not see another decrease like that? Tell me about your prospect for the next fiscal year.
Iwata:
To share with you the concrete prospect for the next fiscal year, it has to wait until the time the end of the year sales season is over and, without knowing the situation of each market then, we are unable to share with you any concrete figures.
Having said that, however, we do not side with the so-called market platform cycle theory that video game business is making a certain cycle within so-so years and that, because Nintendo has already peaked out in this theory, the business will simply go down. To put this in another way, we are not making our plan with the premise that our business next year will be down. Instead, we are making our plan by considering how we can achieve increased sales and profits next year. When it comes to the concrete forecast for the next fiscal year, once again, we need to review and analyze the actual year-end sales. Most probably, we will share the concrete numbers next spring, after we will be able to determine the annual financial results.
Some are now launching so-called social games in SNS, such as from GREE, mixi and DeNA as well as Facebook from abroad, and they are expanding. I feel that they are making some impact upon the competitions among platforms. Do you view these SNS operators as the emerging competition? What kind of impact, if any, do you foresee to your business in the future?
Iwata:
There are a number of free games playable on cell phones today. If Nintendo DS can only provide the same fun and satisfaction that the players can experience on the cell phones, our business model is destined to break down. This is similar to the situation many years ago, when cell phones started to advertise its feature to be able to play with video games on them and when many forecasted our Game Boy Advance business would be swallowed by the cell phones.
A number of features that past Nintendo games were offering to its players were incorporated into free cell phone games, and these companies rely on another business model to receive the fees. From a certain perspective, it may be called a new competition. However, the key here is not to consider how we should confront with these companies. Rather, we have to ask such questions to ourselves as, "How can we ask our customers to be willing to pay their money in order to play software on Nintendo platforms?" and "What are the attractive experience that can be only realized on our platform?" If all what we can offer to our customers are similar to what free cell phone games or a number of iPhone games can offer, Nintendo's future is not bright at all. If, on the other hand, we can continuously offer the unique fun and attractiveness that only Nintendo platform can realize, Nintendo DS and any future products will not be swallowed by SNS-type game business, just like Game Boy Advance and Nintendo DS had not been swallowed by cell phones.
Having said all these things, however, it does not make a lot of sense to us if we see them as the only competitors. We are regarding any and all types of entertainments as our rivals. We are always looking at them to ask for ourselves, "Is what we are proposing more worth the customers' time and money?" In other words, we do not see any one particular service or product as being a particular threat or rival for Nintendo. In the end, what matters to us is never to stay in the same place. If we had stayed just where we were with Game Boy Advance, and if we had failed to create such innovations as with Nintendo DS, Nintendo could not have come to the place where it is today. The situation has not changed, and we have to evolve all the time.
