Iwata on the success of digital sales, retail has issues but not ditching packaged games
Nintendo has seen great success with digital releases thus far. In Japan, almost 800,00 copies of Animal Crossing: New Leaf were sold through the 3DS eShop.
Now, even though Nintendo is experiencing positive growth in the digital space, the company has no plans to ditch packaged games. Iwata did, however, acknowledge that there are issues at retail during the company’s latest financial results briefing.
Iwata noted that there are difficulties in forecasting sales. In the end, retailers are typically left with a surplus of stock “which ends up being sold at a huge discount or, in contrast, software shortages could cause lost sales opportunities for retailers.” This unfortunately leads to hesitation on the part of retailers since they are “less willing to accept the inventory risk.”
This shows the digital download sales transitions. For the current fiscal year, we have just finished the third quarter, but the digital sales have already reached 11.1 billion yen so far, and it is certain that in this fiscal year we will see our largest digital download sales. Another peak in digital sales you can see around the center of this graph is when Wii was widespread and Nintendo DSi had just been launched. In spite of the fact that the current installed base of Nintendo 3DS is still much smaller than how popular Wii was back then, we are already seeing the growth in digital download sales mainly for Nintendo 3DS, which, I believe, is an encouraging trend. I have no intention of simply replacing the packaged business with the digital download one, but it is also true that there are several issues with the current packaged software distribution business. For example, before launching a software title, no one can precisely forecast how many units of software will sell in the market. Everyone develops and launches a software title with the hope to make it a smash hit, but when it comes to the actual sales in the market, even the most seasoned marketers cannot forecast the figures accurately. As a result, retailers are often left with surplus stock, which ends up being sold at a huge discount or, in contrast, software shortages could cause lost sales opportunities for retailers. With these kinds of issues becoming increasingly challenging, retailers are less willing to accept the inventory risk. In this situation, even when a developer has created software with high potential to become a smash hit, it is likely to fall short of its real sales potential. Or, even though a quality software title can successfully attract the interest of potential fans, making and shipping just a little more than the actual demand can lead to a big discount in the marketplace and, thus, destroy the game’s brand. We have seen repeated cases of these. When I discussed with Shinji Hatano (Senior Managing Director, General Manager of Marketing Division) the company’s endeavors with the POSA card to expand our digital download sales outlets to retail shops, he stressed that it would provide distributors with a huge opportunity to solve the existing issues. A fairly large volume of “Animal Crossing: New Leaf” for Nintendo 3DS was sold in the form of a POSA card, which is activated only when it goes through POS registers at retailers and therefore the retailers do not have to shoulder the physical inventory risk. The growing sales of the POSA version of this game must have helped retailers see the business opportunity for video games with such a business structure. We therefore expect that our publishers may be interested in selling POSA cards for some titles they are publishing as download-only titles and that they will want to make more games available in POSA card format. Although convenience stores have limited shelf space to spare for a number of video game POSA cards, retailers with more shelf space might expand the areas designated to the video game POSA cards. They might even educate their customers who are not familiar with digital download software. We can expect to see a number of new possibilities. We expect our digital distribution to increase in importance and become an important revenue source.
