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Iwata on challenges with smart device games, benefits, Nintendo’s IP strategy

Posted on May 14, 2015 by (@NE_Brian) in General Nintendo, Mobile, News

Satoru Iwata closed out the Q&A portion of Nintendo’s latest financial results briefing by further discussing the company’s smart device software strategy. Iwata was asked about how often titles will be released, and how long service will be obtained.

Here’s the full question from one of the investors:

In my mind, I already have a clear-cut image as to what will happen in a year or two from today, but I hope to be able to correctly understand your mid-term smart device software strategy. Although you emphasize that the aspect of “service” is stronger with smart device games (as they, unlike packaged software for dedicated game systems, require constant content updates after release), we often see that some of them have shown temporarily good results immediately after their releases by climbing to the top of the download chart. On the other hand, as I hear what Mr. Iwata has said so far, I feel as if the company is willing to increase the relevant revenue gradually over a long time. Does your strategy involve constantly releasing three or four titles every year or will you limit the total number of titles to be released to around at least five at the start and maintain the service operations for such limited number of software for five or even 10 years in order to steadily increase the revenue?

Iwata’s complete response – covering Nintendo’s smart device plans and related benefits, plus IP strategy – is posted below.

You said that some of the smart device games climb the hit download chart immediately after their releases. I think this is something many of you as users of smart devices can relate to, but it is a fact that, without being ranked highly in the download chart, few smart device games will be downloaded in the first place. The fact that there are many options to choose from is certainly good for consumers. On the other hand, because there are too many choices, we tend to pay attention only to the games that appear in high positions of the rankings. Because of this reality, it is a requisite for our smart device games to be downloaded by many smart device users immediately after their releases. Another sad reality about smart device applications is, however, that, even if they are downloaded, after being played once for about 15 minutes, most of them are never played again. In other words, even after being downloaded, several additional challenges still exist for smart device applications such as having to persuade the players to activate and play the game again, motivating them to feel like playing every day, making the gameplay part of the player’s daily routine and convincing them to play even by paying money. By my emphasizing the “service” nature of smart device software, I have never thought light of realizing the situation where so many users of smart devices will actually download free-to-download software title immediately after the release that many other users are tempted to download the game shortly afterward. However, the more important things for us to consider are how we can encourage them to continually activate the application and how we can encourage them to be willing to pay money to continue activating and playing with it. We also have to consider with what kind of payment mechanism our consumers will be convinced to pay and how we can establish a relationship with them. I think this is the essence of “service.”

Right now, nobody can tell how much longevity our first smart device application will enjoy. No one can foresee how many years our consumers will keep on playing it without getting tired of it. Naturally, we want to make it so that consumers enjoy it for as long as possible, and it makes good business sense for our smart device business too. Instead of having to consume our content by releasing a number of titles one after another, it will be good for each application to enjoy a long life, as being able to continually exist in the world means it can become entry software even for those who have never played games before and can be recognized by many as a software title which must be played before playing any others. Furthermore, if our IP is recognized by a great number of people thanks to its exposure in the smart device application, Nintendo will be able to make better use of the IP in other business areas, including Nintendo’s main dedicated game system business and other activities such as the Universal Parks & Resorts attraction we just announced and, who knows, the IP may be used in movies and other visual businesses as well. Overall, it will be beneficial for our Nintendo IP activities, so we hope our smart device applications will become evergreen. From a business perspective, of course, we cannot afford to continue our services by paying the costs forever if there are no consumers. So, while we hope that our smart device applications will be enjoyed by consumers for as long as possible, whether we can actually continue the service for one title for five or even 10 years will be decided by our consumers or by how our games are accepted by them. Accordingly, especially when we have not released any smart device applications yet, we cannot tell if our initial title will be there for five or 10 years. On the other hand, releasing no new titles at all is not an option for us. We will release new titles periodically. But when we use the term “periodically,” we cannot specify how long the intervals between the two releases will be partly because it will be influenced by the longevity of each application on the market. Instead of discussing how many titles a year we are intending to release, we would like to first confirm how consumers evaluate and accept the first four or five titles from us. Many of the publishers who have successfully released their first hit applications on smart devices have been struggling to release a second successful application. If several of the Nintendo applications we initially release for smart devices effectively use the popularity of Nintendo IP and are recognized and appreciated by many as “hit titles” in a short period, many in the world will become aware of that and hopefully appreciate our endeavors. We would like to generate multiple hits in a short time, and only after being able to do so, depending on how long each software title will likely be played, we would like to adjust the pace at which we release new titles.

While we are on this subject, because I have heard from our investor relations team that a lot of people appear to misunderstand Nintendo’s IP strategy, here is one thing I would like to clarify. We announced that Nintendo would actively use its IP (at the Corporate Management Policy Briefing in January 2014). Some misinterpreted this “active usage of Nintendo IP” as our effort to engage in character licensing activities and to maximize the royalty revenue by exposing Nintendo IP in as many places as possible. As a result, some of you must have such questions as, “So, what is the difference with the IP usage strategies of other companies?”

The active use of Nintendo IP is our strategy for the sake of Nintendo’s game software business of the dedicated game systems and, from now on, of the smart device business too. When it works well, the game software business yields high profits. For example, regardless of whether a game sells 2 million or 10 million copies, Nintendo’s investments on the game development and for the initial marketing are much the same, but the revenue greatly varies depending on the unit sales, and when one software title sells well, it can significantly improve Nintendo’s business performance. It happened when Nintendo was able to improve its business performance with Wii and Nintendo DS. We are trying to bring exposure to Nintendo IP in various places in order to create a situation where a wide variety of different people will have the opportunity to play with our games. Should we aim to maximize our license revenue, we would prioritize how we could increase the number of merchandising products. This is not our priority. Because the most profitable business for Nintendo is its software business, we put emphasis on considering where and how we should use and give our IP exposure so that as many people as possible will recognize and become familiar with them. In addition, we have to be careful that the way we use Nintendo IP will not end up decreasing or consuming its value but actually will increase the value in the mid-to-long term, not just for the short term.

I just said that our smart device games should enjoy long lives. I said so because, if it ends up having a short life in the market, that particular content can be regarded as obsolete. This year marks Super Mario’s 30th anniversary. Even 30 years after its original release, Super Mario is enjoying a long life. Its inherent value has not significantly decreased from its peak. On the contrary, in terms of the number of people who recognize it, Super Mario may now have the largest number of fans in its entire history. This longevity is one of the values of Nintendo IP, and whenever we actively use our IP, we aim to increase their value. Unlike the common license business that aims to maximize the license revenue, Nintendo actively uses its IP to maximize the number of people who play with Nintendo games and increase the value of Nintendo IP in the mid-to-long run. If you understand this and see our future activities, or when Nintendo will not use its IP in the fields where other typical licensing activities are commonly carried out, you will understand the reason why we will or will not do so. Since the same policy is also applied to our smart device games, I took the liberty of sharing this supplementary information with you now.

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