Iwata talks Nintendo’s digital business
Nintendo has been doing some interesting things in the digital space. As an example, Wii Sports Club offers different price points, Pokemon Bank will carry an annual 500 yen fee, and the company has even started to dabble with the free-to-play model.
One analyst asked about these products and its digital business in general during Nintendo’s financial results briefing Q&A last week. Satoru Iwata commented with a very lengthy response, which you can find below.
When we market our packaged products through physical distribution channels, we have to consider physical costs and the subject commodity must generate a certain level of profit margin for distributors and retailers. As a result, we have limited flexibility in setting prices. This is one aspect that does not exist for the digital business. On the other hand, just as the “Free” author Chris Anderson suggests in his book, there are some people who insist that digital products tend to become cheaper and eventually become very close to being offered for free. In other words, deflation in prices in the digital business can increase if you are not careful enough.
Digitalization is progressing in a variety of different entertainment offerings, including Nintendo’s. Here, I am not specifically referring to the games available on smart devices. Such proposals as offering content free of charge or subscription fees to enjoy certain content for a fixed period are becoming more prevalent, so I can understand why some consumers might feel that the prices of packaged software are relatively higher than before. In today’s video game market, packaged software that is well received by consumers tends to have even higher sales than before but, on the other hand, the number of medium-scale hits is decreasing and recent iterations of game franchises that used to sell very well tend to sell fewer copies these days. As a result, game sales tend to polarize.
Under these market conditions, although the mainstream idea regarding the digital business in the industry before we actually started selling software in both digital and packaged formats last year was that the digital version should or must be priced lower than its packaged counterpart, we decided that, since the contents are the same, the company would offer the software at the same price, be it the packaged version or the digital version. This is because we want consumers to value software as highly as possible and because we have been trying to heighten the value of our software whenever we produce it. Prospective consumers can easily anticipate that games from established franchises such as Super Mario and Pokémon are worth the price, even before they start playing them. In fact, “Animal Crossing: New Leaf,” which we released last year in Japan, and “Luigi’s Mansion: Dark Moon,” Capcom’s “Monster Hunter 4” and Nintendo’s “Pokémon X” and “Pokémon Y” released this year, have shown both strong digital download and packaged software sales, which shows that there are a number of people who believe that digital content holds the same value as its packaged counterpart. In addition, we have already found that once consumers have made a digital download purchase, many of them tend to make another one. They notice such conveniences as the ability to always carry around the games and not having to worry about losing the physical game cards. On the other hand, when we offer a new proposal to consumers, say, when we launch a brand-new IP or when we release a game with well-known characters but with brand-new gameplay that our consumers are not familiar with, it is hard for them to anticipate and appreciate the value of the content before actually purchasing and playing with it. For these titles, if we take the ordinary approach of selling the packaged software, the software might not reach its full sales potential, and even when we are able to create something interesting, the games often can just fade away without being noticed by consumers. When we offer our consumers such new play experiences exclusively in a digital format, we intend to have wide flexibility in terms of their prices and ways to market them. With this in mind, as for the software you just mentioned, namely, “Darumeshi Sports Shop,” “Wii Sports Club” and “Pokémon Bank,” we are challenging ourselves with new pricing and sales endeavors. We are hopeful that a wider range of consumers will appreciate these unprecedented offers. Specifically concerning “Wii Sports Club,” we understand that there will be players who will play it almost every day just as they did with its predecessor, “Wii Sports,” while others will only play it when friends visit their home. We are now trying to increase the software’s sales potential by offering two different options for the people who will play it occasionally and those who will play it frequently. I do not deny the possibility that “Wii Sports Club” may become packaged software in the future. However, for the future of Wii U, we have prioritized releasing tennis and bowling by the end of this year.
Finally, regarding our Nintendo 3DS software campaign in Japan, those who purchase two Nintendo 3DS games and register them in Club Nintendo can select one game from a list of 14 titles and download it free of charge. I should mention that there are two aspects to this campaign. People often want to purchase something, but then do not end up buying it. This must have happened to you with a CD, DVD or a video game. Often you cannot recall any special reason that prevented you from doing so, but you just did not purchase it. Now that many people own a Nintendo 3DS system and we have a rich lineup of quality software for the platform, we really want to do something to encourage our consumers to make the final decision to purchase two games or more instead of one. This is one reason for this campaign.
Another factor I need to mention is that still only a portion of our consumers have actually purchased the download version of a packaged game. Having many consumers experience for themselves the download and installment process will be a positive step towards increasing digital sales in the future. As you pointed out, we discussed whether doing so could potentially destroy our software’s inherent value, but as we have been able to prepare a number of quality games this year, particularly for the end of the year, we have concluded that if many consumers can experience a digital download for themselves, we will be able to maximize the potential of Nintendo 3DS and pave the way for an even brighter future for the system. Of course, we are taking these steps with the understanding that, without the utmost care, these sorts of price tactics can go too far and can ruin the inherent value of software.
