Nintendo Co., Ltd. - Corporate Management Policy Briefing : Q&A (3)

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Q12

How long a lifecycle are you expecting for DS Lite? What will be the average life span of portable game machines in the future? What kind of new functions or mechanisms are you contemplating to add to DS Lite in the future? If Microsoft enters into the portable video game market as some reported, how will the portable market change?

Iwata:

Whenever we are ready to launch a new hardware, that hardware development team starts working on something new. As long as Nintendo's internal hardware developers are concerned, they are always trying to think or actually developing something new. On the other hand, if we should develop and market any and all such new hardware ideas, an unrealistic number of new hardware would be launched, so we won't do so. Many ideas are being exchanged, and so many experiments are being conducted internally at Nintendo at any given moment. Among them, we will select a few ideas that have the biggest potential to be welcomed by the market or have the biggest appeal to the software creators and they are going to be materialized to become the actual commodities. For example, Nintendo launched Game Boy, Game Boy Color and Game Boy Advance, but there had been a number of prototypes internally developed but never revealed to the public. Now that the development of Nintendo DS and DS Lite were over, the DS development team must be working on a multiple new projects. Of course, we are thinking about what we will do next. We are not lazy not thinking about the future. But I can't tell today which one of them will be actually commercialized. You asked about the expected lifecycle of DS but, to be honest with you, I doubt if it is right for us to think of portable games from the viewpoint of any expected lifecycle. The actual life span of any portable game machine must be more dependent upon various factors such as whether or not the market still demands it or demands new product or upon the cost factors of different major components and relevant technologies. We have to determine the launch timing of new products also by looking at the availability of relevant new technologies and infrastructures to support the new features of the product. In other words, we are not thinking like, "We will need to complete the development of a new product around that time because the life span of DS is expected to finish then." Further, forecasting the life span of DS is difficult and doesn't make much sense now that it has been expanding the new market. More specifically, we don't need to make new hardware simply because one of our competitions are trying to make a beefed-up version of their existing machine. So, we will be working on a variety of different projects on an ongoing basis. And then, when the time comes when we think, "the software creators are having a hard time coming up with unique ideas with the existing hardware but we can create brand-new hardware with this new basic technology we have worked on which will encourage software creators to make brand new applications," that is the time we will use some of the technologies to develop the new hardware. This is our basic thinking on the launch timing of new hardware.

If you ask me today how Lite will evolve from now, I cannot answer. Those who have actually developed DS Lite are working on a variety of different ideas on Lite, not knowing if any of them will be commercialized. We have no answer what will be used in the end.

I understand that the possibility of Microsoft's entrance to the portable game machine market has been a topic in this industry. As I showed you today, there is an apparent shift of the game market from console business to portable business. It is the trend in the whole video game market. As a background, contemporary men and women are becoming increasingly busy and cannot afford to sit in front of TV set for a long time, which makes it difficult for game developers to make games that require the game players to do so. Also, while we can expect one house to own one video game console at maximum, we will be able to sell multiples of portable game machines if several family members have come to love them. Actually, Game Boy Advance has shown that kind of family penetration, and DS is showing up similarly at the moment. So, even if Microsoft, which has been consistently saying that they would never introduce a portable game machine, will announce that they will do so, it won't surprise me. About your question on how the market will change in the event Microsoft will have launched its portable machine, basically Nintendo won't change because Microsoft has done something. Nintendo should be proud of the fact that we were the very first in thinking and exercising how we can expand the number of people who play video games. There are a number of things we can do and we must do for that mission. Until the time that a lot more Japanese people will love to touch and play with Nintendo hardware, until the time far more people around the world will do so, we think that Nintendo will just continue doing what we believe is right, and it doesn't look like we need to change this policy easily.

Q13	What is your opinion about home game console machine after Wii?

Takeda:

We had a good response to Wii at E3 this year, better than we had expected, and I am reminding our developers that the Wii development project isn't over yet. So, right now, I am keeping them motivated on Wii by saying that there must be a lot more we can do, even though we are always searching for something new and fun. In our division, we are not allowing them to talk about the next machine yet but rather motivating them by saying, "It's not over but, rather, the Wii project has just started."

Talking about the process on how we come up with new console ideas, Wii development was the hardest in my own experience. Nintendo has developed NES, Super-NES, N64 and GameCube, and when we looked back, I felt that we were just rushing forward following Moore's Law, or just making new products in the linear extension line following the evolution of semiconductors. It took a long time, but we have finally realized that, while we thought we were making products out of our own will, we were actually moving around within the technological boundaries. It is natural for engineers to always seek something better, something faster and something more high-tech. However, when we look around, the technologies themselves are not necessarily expanding in just one direction. If we should simply go ahead to the linear extension following Moore's Law, many people would end up getting tired of the resulting entertainment because it cannot feel fresh. Now that we have broken away from the boundary, we are committing ourselves to see and exploit the technologies in order to extend the entertainment into any direction. I think we have reached the level that will allow us to do so. To answer to your question, what comes next will not hit upon ourselves out of blue. Rather, we should go back to the basics and ask ourselves, "What is the entertainment?", "Who are the users?", "What will be the role of us hardware developers?" and "What will software creators have to do?" I think Nintendo has rather clear future road map. And then, we'd like to carefully monitor how consumers respond to our proposals and adjust our approaches.

Q14	How do you feel about the general remark that only Nintendo titles have sold well among the DS software and third parties' don't.

Iwata:

In Japan we currently have 10 DS titles which top the million-sales mark. Among them, 9 are from Nintendo and 1 is Tamagocchi software from Bandai, so the general impression must be that Nintendo's software alone are doing well. If we see the software market share at this point in time, it may be true. However, please understand that developing software and making great sales takes time. As of now, quite a few software publishers are making DS software. However, they saw the explosive sales of DS only from the end of last year. So, if they realized at that time that DS will be the one they should put their software development priority, these software naturally should not be ready by now. Also, some of the third parties are very strong in making games with a full volume of contents, which take more time than the others. For example, Square-Enix announced at our DS Conference (in October 2004) that they would launch Final Fantasy 3, but the actual launch will take place this summer. So, we hope everyone will look at the sales of the software which will be launched for the year-end sales season this year in order to judge if it is just Nintendo software that can sell or if third parties software will sell as well or even more. In case of Nintendo, because we really had to make it a successful product, even before no single DS hardware was available in the world, we had put so much energy to create software with our internal developers and with our second-party developers. As I showed you today, the market had been driven by PS2 until middle of 2005, so third parties were focusing their software resources for that platform. A few outside developers started DS software development then, and their software will be launched from around this time. So, the current market situation should not be considered as the final form to judge the DS software market share. One other thing I would like to note is that there is a difference in the speed of starting and developing new DS software between the development teams which are making better versions of existing software and the teams which are trying to create something unique and fun. Some developers are wondering how to materialize their unique ideas. For such developers with unique ideas who cannot tell how to make a good game from them, rather than waiting for them to develop games, Nintendo should proactively approach them and make some concrete proposals on DS or Wii. I often discuss this with Hatano. Actually, such approaches have already begun, and we would like you to look forward to seeing the results starting from next year, not this year.

Q15	What is Mr. Miyamoto interested in now? How are you spending your leisure time nowadays?

Iwata:		Miyamoto, who made Pikmin when he was gardening and Nintendogs after owning a dog, will answer his hobby today (laugh).
Miyamoto:		What am I interested in now? I am interested in many things. Maybe you'd love to hear that I recently owned a cat or lizard (laugh). But these are not the decisive factors for me to think about next games. Talking about Pikmin, for example, we were doing a lot of experiments on GameCube by having some concepts which were eventually resulted as Pikmin. It was just that I was doing gardening at that time, so I thought, "Maybe this might fit into the concepts that we are experimenting now". It is not that we made the game system because I wanted to incorporate my gardening hobby. This is similar to the remark Takeda made today. I like dogs and since I owned my dog, I thought that dogs could be a game. However, fact of the matter is, we could not think about the concrete way to make it a fun game. We, then, encountered the DS hardware and realized that we can finally make an application on that dog concept. I was a typical Japanese husband who has been neglecting family lives, but I am spending more time with my family now. I am now interested in how a family enjoys in one house, and that interest pretty much suits well with the concept of Wii hardware. In that sense, Wii will become a hardware which will satisfy my interests of the past 20 years or so, so that I am enjoying making software right now. Finally, I am doing something lately, but I think I need to refrain from talking about it today. Hopefully, I can tell you what it is in 6 months or so.

Q16	What are your expectations toward Reggie, who became the new president of NOA (Nintendo of America Inc.)? What kind of strategies is Nintendo taking in the different markets of Europe and in the U.S.?

Iwata:

If we would take different strategies in each territory, we could not go ahead with the unified path and development resources would be dispersed. So, we are globally sharing one strategy. "Expanding the gaming population" is our globally common strategy. Even though our attitude can be taken as heretical in today's game industry, doing something different from the others means that we have the chance to offer commodities which will not have any immediate competitions, so we would like to take this strategy globally. NOA is the organization which has a splendid track record in marketing existing types of video games. Because of this, however, NOA has already established a fairly systematic organization When such a company is instructed to market completely different commodities, there surely will be a confusion in the first place. Even in Japan, there is confusion. However, I am dealing with any issues on a day-to-day basis here and all the representative directors sitting here today are joining forces. So, even if things were not moving ahead perfectly at first as I had been hoping, we have been making steady progresses in Japan as a whole. I think this is one of the reasons why Japan was the fist territory where DS sales exploded. In case of the U.S. and Europe, because gamers' drifts had not been so obvious, it had been relatively difficult for anyone to understand that they must change what they have been doing. When the need to change was not so obvious, the Japan headquarters were requesting completely different ways to be taken. Naturally, they are a bit confused. Reggie has been working for Nintendo for three years. We wanted him to be the face of NOA who speaks English as mother tongue. We also wanted him to dispatch and explain Nintendo's global strategy to people who are working at NOA. We believe that the appointment of Reggie as NOA president will accelerate the understanding of Nintendo's strategy inside the Nintendo group. For a strategy to work, it must be first understood by people inside of the organization and the partners fully. Then, we can work out each tactic after sharing the common strategy. If we should need to instruct each different tactic from Japan headquarters, it wouldn't be a desirable corporate situation because each territory has its own culture, circumstance and different level of acceptance of our offers. Now that more Nintendogs are selling outside Japan and Brain Age appears to be riding on the steady sales track, as I said, there must be a number of Japanese successes that can be translated well in the U.S., Europe and elsewhere.

Q17	How do you evaluate 1.8 million cumulative sales of Game Boy Micro?

Iwata:

The sales of Micro did not meet our expectations. Micro showed different sales in and outside Japan. In Japan, initial sales of Micro were rather good and it did become a rather hot topic. So, there was the possibility for this product to grow in Japan. However, toward the end of 2005, Nintendo had to focus almost all of our energies on the marketing of DS, which must have deprived the Micro of its momentum. This is why Micro couldn't meet our expectations in Japan. Overseas, we were unable to dispatch the real attractive nature of this product in the first place. More specifically, we showed this product at E3 2005 for the first time to the public, and those who have watched Micro were pretty much impressed. Because a number of people, distributors, software developers and publishers were all saying that Micro could sell, we somewhat believed that we would just need to take the ordinary marketing approach, say, by saying that we will launch the new Game Boy model. Fact of the matter is, however, those who were impressed with Micro were the ones who have physically touched and felt Micro in their hands. However, the actual consumers had to evaluate Micro without touching them. In the end, we failed to explain to consumers its unique value and they concluded that Micro is not worth the price they have to invest. Whichever hardware we talk about, platform business is the business of momentum. If we fail to build an initial momentum, we will have hard times. Simultaneously, it was the time when Nintendo had to expand DS sales, so we had to put more effort on DS, which were not contributing to the sales of Micro. We have to learn the lesson that we overestimated the success potential of Micro. Also, we had to be more careful about how we should evaluate the impression of people who have actually touched and felt our products and who have watched some of our advertisements only.

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