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Iwata on payroll, company bonuses during a rough financial period

First I would like to explain about the directors’ compensation as I recognize that there is a partial misunderstanding. As you can see (in the slide), this is the total compensation for all the directors. The 72nd fiscal year is the most recent fiscal year ended in March 2012. The 71st fiscal year is the previous year and the 70th fiscal year is the year before that. Financial results for the 70th fiscal year were good. Accordingly, the variable compensation was a significant amount and the total directors’ compensation was larger. Total compensation to all the directors for the 72nd fiscal year was 302 million yen, which is 439 million yen lower than the total of 741 million yen for the 71st fiscal year. The main reason for the reduction is, since the full year operating income result was in the red, the performance-based variable compensation, which is what is defined as the directors’ bonus, is not payable at all at the end of June this year. So, if I can refer to the premise of the question that as much as 300 million yen of directors’ bonuses are paid to the board of directors, I would have to say that it is not the case. Of course, we have no intention to say we put up with this financial result because we did not receive any bonus. In this situation, it is our intention to firmly direct our company to the path it should follow and we will continue to make every effort to be able to say, “Our financial result was revitalized this way” when we report the financial results next year. In addition, there is a portion of fixed compensation (to directors). At the time of the first quarter financial results announcement, for the fiscal year ended March 2012, at the end of July last year, when we announced the significant price reduction of the Nintendo 3DS and then financial forecasts for the fiscal year were revised downward significantly, we also announced that, for the fixed compensation, a 50% cut would be made for the president, a 30% cut for the other representative directors and a 20% for the other directors. With respect to Nintendo’s way of thinking about directors’ compensation, in the 67th Annual General Meeting of Shareholders, it was approved that compensation payable to directors consists of fixed compensation of up to 500 million yen per year and performance-based variable compensation of up to the amount of 0.2% of the consolidated operating income of the fiscal year. This variable compensation is directly linked to the operating income, as I mentioned earlier, so no amount is payable for the fiscal year ended March 2012 based on the computation. Fixed compensation to each director, within 500 million yen per year, is determined by the board of directors based on his duty position and the contribution he has made in previous years. Specifically for the last fiscal year ended in March 2012, as I just mentioned, fixed compensation to directors was also reduced. As a result, the total amount was 302 million yen, which is 99 million yen lower than the previous year. For your information, during the period of April 2011 through March 2012, reduction of fixed compensation was made in August 2011 and after then. Therefore, the compensation reduction was effective for the eight months out of a 12-month period. Taking the current business environment into consideration, the fixed compensation reduction is determined to continue for this current fiscal year. As a result, the compensation reduction is applicable throughout the fiscal year starting from April 2012. We would like to tell you that this means a further fixed compensation reduction. Meanwhile, we were asked a question about whether there are any directors whose annual compensation was more than 100 million yen last year. In case you ask the same question, I would like to say that there is no one who receives annual compensation of 100 million yen or over now. The only director who was applicable in that respect last year was Satoru Iwata and my total annual compensation for the fiscal year ended March 2012 was 45 million yen. This is the whole compensation since Nintendo abolished the retirement benefit system (for directors and auditors) at the 65th Annual General Meeting of Shareholders and does not have non-cash compensation such as stock options for directors and auditors.

Another point raised in the question was “Does Nintendo pay bonuses to its employees in this situation?” For our employees, they have their own lives, and the bonus to our employees was not drastically raised when our financial performance was very good and when Nintendo could pay a large sum of dividends to our shareholders. The video game business is known for the characteristic that it is pretty hard to forecast a sales outcome before the subject product is actually launched in the market. If employees cannot work comfortably due to a concern for the fluctuations of their compensation condition in accordance with such ups and downs, we cannot create a working environment where they can steadily create unique, out-of-box products because although these products may be called revolutionary later on after being widely accepted in the world, they are more likely to be criticized as crazy ideas in the beginning. In order to create such a product steadily, it’s our policy not to place our employees in a situation where they have to be excessively influenced by our immediate financial performance. Even when our financial performance was improving, we did not raise their bonuses drastically and, by the same token, we do not reduce the bonus immediately when our financial performance is in a downturn. Nonetheless, since we were experiencing a severe loss situation on a full-year basis, in terms of bonuses to employees, we don’t think what we have done before can be applied to the current situation as a pre-owned right for the employees. Therefore, we made reductions to employees’ bonuses to some extent. We are not indulging our employees. Thank you for your understanding. - Satoru Iwata

Nintendo on the 'vicious cycle' of fighting hackers, working to boost 3DS/Wii U security

I deeply regret to learn that you had a very unpleasant experience while playing one of our products, and I would like to apologize for having lacked the ability to prevent it from taking place. What happened, I believe, is that a player circulated such modified data for “Animal Crossing” for the Wii, and meant for it to be a bad joke, only to cause a very unpleasant experience for those who witnessed what these modified data did with their game. To explain why this sort of incident happens, video game platforms are equipped with various security features to prevent unauthorized modifications and acts of piracy to play games for free, and in the beginning, these features were effective on the Nintendo DS and the Wii. However, there are people who share information with others through networks and try to break through security as a hobby, and eventually announce the results of their hacking activities through the Internet, resulting in a vicious cycle in which more people are encouraged to use these unauthorized methods. Once they break through our security, we make an effort to fix the security hole, but this turned out to be a futile cat-and-mouse chase as they quickly managed to make a hole in our security system again. As a result, we have been unable to put a complete halt to the circulation of such modified data.

In developing the Wii U and the Nintendo 3DS, we recognized that security is an extremely important factor for the sake of our business and in making sure that our consumers feel that playing our products is safe. While some acts of piracy are still possible in its DS-compatibility mode, as we had to ensure that the Nintendo DS software could still be played on the Nintendo 3DS, the Nintendo 3DS itself still maintains a robust security system, even after this much time has passed since its launch. Various attempts have so far been made to compromise the security of the system, but of course, security is like a multilayered fire door. Even if the outermost layer is wrenched half open, as long as there are other layers behind it, I do not believe the system will be hacked in an overly short cycle. Of course, security that is designed by humans is never perfect, but at the same time, should our security fail, we have to come up with a way to update the system. These days, hardware features can be “updated” through a network by downloading a new system itself and replacing the old system with the new one. This does indeed enhance the overall security of the system, but in fact, all of our devices before the Nintendo 3DS had one major problem. They were structured in such a way so that unless the user proactively performed a system update him/herself, the update could never be done.

Although consumers knew that it was better to perform system updates, many did not perform them, as it was often the case that they were simply never made aware that they were available. As with smartphones, tablets, computers and operating systems, many devices today have an auto-update feature, where updates are automatically downloaded when there is an Internet connection, and put on standby, and a message that says “Updates are available for your system. Would you like to proceed?” appears later before the user finally installs the updates. At the moment the Nintendo 3DS’s security remains robust, but we have prepared ourselves to minimize the damage should our security fail. Please note that, in a sense, we learned a very bitter lesson from the Nintendo DS and the Wii, and we have put it to good use in designing the Nintendo 3DS and the Wii U. - Satoru Iwata

Nintendo not planning to get back into board games anytime soon

I interpret your question as rather a proposal that the company might want to consider developing not only digital products but also analog ones in order to expand the gaming population. From the perspective of Nintendo’s business deployments in the world, computer software games offer exceptional conveniences to our business, as they can be easily mass produced once the hardware becomes popular enough and can be delivered to many people at a time. Further, our products have the advantage that they can organically combine the other technologies in line with evolutions of digital and network technologies. Of course, I am not saying that we will never consider the possibility of deploying any analog-based entertainment at all. In fact, Nintendo, as the company which originally manufactured and still has been manufacturing analog playing cards (both Western- and Japanese-style), will continue to manufacture them. I would like to take your question as advice that the company may be able to find an interesting and fun opportunity when it combines our current strengths in computer-based interactive entertainment with the analog ones. - Satoru Iwata

Nintendo Says Game Consoles Have Been TV ‘Parasites’

When you play a console video game, you generally need a television. And when you use that television for a console video game, you generally can't use it for anything else.

Nintendo's Wii U, an upcoming video game console whose controller is embedded with its own screen that can be used to play games, hopes to change that. You'll be able to play some of its games both on the television and on the controller in your hands, and you'll be able to switch between the two at will.

Speaking to shareholders during a Q&A this week, Nintendo president Satoru Iwata had some choice words about the Wii U's advantages here (bolded words bolded for emphasis by me):

I am not sure this is an appropriate expression, but video game consoles have long been "parasites" of TV sets at home. In other words, game consoles have used TV sets in a family instead of being equipped with their own screen. However, the Wii U will be the first console free from TV sets, in which you can play the Wii U while someone else is watching TV or you yourself can watch TV while using the Wii U. As you can experience deeper entertainment with both the Wii U GamePad and the TV screen, we would like to enrich it but, at the same time, we hope to furnish it with games you can enjoy only with the Wii U GamePad.

In addition, games on two screens are not just the same with what we did for the Nintendo DS. As the TV screen can be distant from the Wii U GamePad, not like the Nintendo 3DS, we can offer different options for use. Also, in multiplayer games, a player with the Wii U GamePad will play a different role from those with Wii Remote controllers. We are thinking of what we call "asymmetric game play," in which players have different roles in one game, like in Tag. The player with the Wii U GamePad will be able to know what other players are doing when they are playing on the TV screen. The Wii U GamePad will work as a window where you can communicate with other players in their living rooms. We say that the Wii U GamePad could be a "Social Window," or a window to link your living rooms to others'.

Furthermore, the Wii U can change the way you use the TV set in your living room, although the Wii U is a video game system in its nature and this is just an added component. More specifically, there are currently many videos on the Internet, many of which are very interesting and suitable for family entertainment. You have seen them by PC, smartphones or tablets, but with the Wii U you can search a good movie on the Wii U GamePad, tell everyone there to see it and easily move it to the TV screen. In this way, a video-sharing website can be a great form of entertainment.

In addition, the Wii U can make it easier to use video-on-demand services, where you can enjoy films and TV programs through the Internet and which are more popular overseas than in Japan. Not only by competing with other platforms only in regard to the machines' spec. figures but proposing various ways of using the Wii U, we would like to create a future so even family members who have never touched any video game systems will consider the Wii U something that is convenient to use so that we can maintain its competitiveness for a long time.

So Nintendo is staying on target. At E3 last month, creative mastermind (and Mario creator) Shigeru Miyamoto told Kotaku they want people to head for the controller's screen first:

"With Wii U, really the hope is the screen on the Wii U game pad is the screen people will go to first in the living room. If you think about a device that is the screen people go to first in the living room and the things it can do, it becomes sort of this window, whether it's social or a bulletin board where you can read messages from the family or whether it's a channel guide or something or you can do whether it's gaming or Internet or video, that type of experience is something you don't understand the benefit of until you really start to see that take form in the house."

What do you think? Will the Wii U really be that different an experience from standard console gaming?

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