Iwata’s full explanation for the 3DS price drop, salary cuts
As we reported on a few hours ago, Nintendo president Satoru Iwata held a Q&A session for Nintendo’s Q1 2011 financial results earlier today. Although he didn’t prepare a presentation, he did provide a few opening remarks, mainly focusing on the 3DS price drop. Iwata also discussed salary reductions for executives, including himself.
If you’re interested in seeing Iwata’s comments in summary form, head on over to this link. It also contains additional details from the Q&A session.
Iwata’s full opening statements can be read below.
Good morning. Before accepting questions, there is one thing that I would like to address here.
Since the first fiscal quarter has limited importance within the annual business of game companies, it does not make much sense for me to make a detailed presentation on the business in that quarter, so I have not made such preparations for today. On the other hand, a number of people must have such doubts as, “Why does the company have to make such a drastic markdown now?” Please let me talk about that before the Q&A session.
First of all, we have made the decision to markdown the Nintendo 3DS because we recognize that the current situation surrounding the system is different from that before the launch and immediately after the launch.
Having strong momentum is very important for game platform businesses. Once momentum is lost, great power is needed to change that trend.
As we announced at the E3 show, which was held in Los Angeles this past June, we have a strong software lineup for Nintendo 3DS toward the end of this calendar year, with which we were thinking that we would be able to boost the hardware sales, but in terms of the current situation, for us to be able to help Nintendo 3DS to become a sound successor to Nintendo DS, and to get it back on track to its originally-anticipated sales pace for its wide expansion, we concluded that we needed to take drastic measures, and we decided to make the markdown.
Since we will carry out this markdown in a period when Nintendo 3DS does not have such anticipated titles as in the year-end sales season, some seem to have interpreted it as a hasty move.
It is true that a great portion of our sales and profits are generated during the year-end sales season. If we just focused on maximizing the impact of the markdown, it might make more sense for us to do so when a number of anticipated titles are to be launched. In fact, thinking in that way must be the norm, and a number of people must have anticipated that we would make the markdown during the year-end sales season or in fall this year. However, there are some specific reasons why we have decided to make the markdown at this time.
First, since the launch of Nintendo 3DS, one of the things we have learned is that it has taken longer than we had originally expected in order for the appeal of this product to widely spread. We feel that those who have experienced the system appreciate its attraction, but this appreciation has not necessarily been expanding at the speed which we had expected. For us to maximize the effect of the anticipated titles of this year end, it is necessary to greatly expand the installed base (before the launches of the anticipated titles) so that the appeal of the new software will be able to spread to consumers in a short period of time. Without creating such a circumstance, we would not be able to realize explosive sales in the year-end sales season. This is one reason for the markdown.
Another reason is, we thought that eliminating the concerns of future hardware expansion early on would make a great difference to how retailers and software publishers will allocate their energies. The retailers worldwide decide the allocations of store shelves and which products to focus on for the year-end sales season by looking at the results of the summer sales. Software publishers are currently reviewing which development teams will work on which projects, and the results of which shall be launched next year and beyond. Removing their concerns on the sales of Nintendo 3DS hardware will be very critical for us to be able to enrich the applicable software in the years to come. In fact, immediately after our announcement yesterday, Nintendo employees started to receive feedback from retailers and software publishers around the world, and this feedback is, in general, rather positive.
In short, we have concluded that, for Nintendo 3DS to expand enough to become the successor of Nintendo DS, we have to take a drastic approach.
Accordingly, we hope you will look at the long-term effect of the markdown, rather than the short-term one. More specifically, I hope you will at least try to see how it will play out over the next four months, until the end of the year-end sales season, before making any judgments.
On the other hand, a drastic markdown like this, before the mass-production effect can take place for the hardware, will naturally generate red ink on the hardware sales. As a result, a significant minus effect is expected on the profitability of the current fiscal year. Even though we understand this, for us to elevate Nintendo 3DS to be the platform that can sustain our business, we have concluded that we need to take the best possible measure we can take now, even at the cost of short-term profitability.
From Nintendo, “SUPER MARIO 3DLAND,” to be launched in November, and “MARIO KART 7” in December are going to be two main titles for the year-end sales season. These software titles can appeal to a wide variety of audiences and have the potential to be purchased by a number of people. Also, the software lineup from the third-party software publishers will be enriched before the year-end sales season.
It is quite unusual for us to change the price in less than half a year from a product’s launch. I am aware that realizing both the short-term and the mid-to-long term profits is one of my responsibilities as part of the management. I feel greatly accountable for having to make the markdown shortly after the launch, for having damaged our consumers’ trust, for having made a significant impact upon the financial forecasts, for the annual dividend now being expected to be significantly less than originally expected and for now forecasting that there will be no interim dividend.
We would like to fulfill our responsibilities by getting Nintendo 3DS back on its originally-expected sales track, to make it the successor to Nintendo DS and to recover the sales and profits in the next fiscal year and beyond.
However, for the management to show its accountability for the level of the operating loss of this time and the prospect of no interim dividend, we decided at the directors’ meeting yesterday that we would reduce the compensation we will receive as the directors of the company. The directors’ compensation of the company constitutes a fixed portion and a variable portion which is decided by the actual results of the business performance. The decreased profit of the company is reflected as the decreased compensation in the variable portion or, more specifically, the bonus to be given at the end of this fiscal year. However, we understand that the management responsibility this time is heavier than usual, and we have decided to reduce the fixed compensation as well, by reducing it by 50% for the president, or me, a 30% reduction for the representative directors and a 20% reduction for the other directors.
Needless to say, the deduction of the fixed compensation is what we volunteered to do in order to show our sincere attitude and to fulfill our responsibility. We really must recover our financial performance and take Nintendo back into the position in the marketplace where it is well appreciated.
This is all that I wanted to tell you. Thank you.
