If you plan on playing Xenoblade Chronicles 3D, you should be aware that the game apparently lacks the Japanese dub. The original Wii game allowed players to switch between the Japanese and English voices. Just to be safe, we’ll try following up with Nintendo of America to confirm that the situation.
Mr. Iwata, how do you think the demand for entertainment will change from now on? Earlier you mentioned consumer behavior, and the way consumers collect and receive information has changed. For the last few years, I think that for the overall entertainment industry, various key trends have transitioned. I would like to know how you think the ultimate demand is changing.
I think that the demand itself for entertainment is increasing rather than decreasing. Now that smart devices are a means of entertainment consumption for a number of consumers, I think the total time and consumption of entertainment is increasing. However, the tough issue for this platform is that the platform holders are not so interested in maintaining the high value of the content and instead feel that the cheaper the content, the better or even that the content should be free. On this point, I can empathize with Mr. Kawakami, the chairman of DWANGO Co., Ltd., as he often uses the expression to describe the situation of the content for smart devices with “the eggs are on sale at the supermarket.”
In the music and video industries, they made more profits by selling content before, but, because of the digitalization trend, it has become much more difficult to make profits by just selling the content. For example, artists whose CDs sold over one million copies in the past can sell less than one-tenth of them now. It is said that whether they can maintain the revenue or not now is up to the number of people who attend their concerts and other events. Consumers spend money on one-time events like concerts, but once they have regarded as a norm that they can digitally obtain content free of charge, we cannot easily change their minds regarding content value. As for video content, once services offering a library of tens of thousands of videos for only a few hundred yen per month become mainstream, DVDs will not sell as they did in the past. I have heard a Hollywood movie producer say that profit structures for movies have changed, and it is difficult to expect profits from selling DVDs.
My question is about the company’s internal marketing structure. It seems that New Nintendo 3DS has had a good launch in the U.S. and Europe, but focusing on the year-end sales season, I get the impression that Nintendo could have done more. For example, Nintendo may have had more of the chance if the launch of New Nintendo 3DS in the U.S. and Europe was in time for the year-end sales season, or Nintendo could have struck more of a balance between handheld devices and home consoles because home consoles tend to perform weakly when handheld devices are strong. I believe Nintendo plans to provide new services and diversify its business, but I would like to know specifically how you plan to change the marketing structure, or if there is no need to change it, do you think that your current sales and marketing structure can keep up with the changes that you explained in this presentation?
I think that each of our activities, whether it is product development, marketing or providing constantly evolving services, has unique issues it has to address. For example, if developers tended to think that even though they had created good products, incompetent marketing team members were the cause of poor sales or if, on the other hand, the marketing team members thought that the products were not selling well because the developers had made unappealing products, then we would be seen as a bad company with a culture in which everyone tends to lay the blame on someone else. Since such an organization should never exist, I have been encouraging everyone internally to first consider what more they themselves can do. A company is a group of people, so it is impossible to completely eliminate these kinds of opinions in challenging circumstances, so I repeatedly make this kind of remark internally. This is not something I would usually say externally, but I thought I should share this internal message with you today.
To your question about our marketing issues, many of the people who are now leading the marketing teams have had the experience that products sell well if awareness is built through TV advertisements, so it is inevitable that they have a tendency to continue proven methods from the past. However, this does not mean that the managers of the current marketing division are being adamant and inflexible. On the contrary, everyone is conscious that they have to change. Recently, as you know, Nintendo has been taking new approaches such as making use of social media, utilizing our own direct consumer channels like “Nintendo Direct,” and digitally taking pre-orders soon after disseminating relevant information through “Nintendo Direct.”
Mr. Iwata, you continually stated that Gaming Population Expansion was Nintendo’s corporate strategy. However, it seems as though you have not mentioned it recently. If you have set a new strategic goal for the company, I would like you to tell us about it. I understand that when you started to discuss Gaming Population Expansion about 10 years ago, it was to ensure that people didn’t stop playing video games. What challenges is the company currently facing?
I aimed to talk about Gaming Population Expansion persistently, both internally at Nintendo and externally, until people thoroughly understood it. I would show the slides with the Gaming Population Expansion message on them whenever I made a presentation. I verbally used this term so often that even I myself was concerned whether the audience would be fed up with it. I did so because, as the leader of an organization, I believe that my message cannot soak deeply into people’s minds if I do not repeatedly convey the same message to the point that the audience are fed up with it. At some point in the past, I decided that I would dare to repeat the same message without worrying about people saying, “he’s been saying the same thing again and again” or “he must have forgotten that he has said that before.” Only after I had repeatedly talked about Gaming Population Expansion, people both inside and outside the company finally started to be aware of it even when I did not talk about it. On the other hand, for the last few years I have been wondering whether people inside the company have a clear image as to exactly how we could expand the gaming population. We could not show a significant difference to our consumers as long as we were repeating similar things that we had done with Nintendo DS and Wii. We released “Wii Sports Club” and “Wii Fit U” for the Wii U system, but they did not have the same strong impact that the original Wii versions had. Those who have tried these Wii U games know that we have actually realized a variety of new things, but at a glance, they look just similar to their predecessors. I realized that we would have to redefine our definition of video games in order to cope with this situation. When we were aiming to expand the gaming population, we were, in fact, also announcing that we would expand the definition of video games, and we actually made video games out of nurturing dogs, training your brain, playing sports by moving a remote control, and weighing yourself and exercising every day. I know I do not need to explain to you the games to which I am referring. So, even though we had been expanding the definition of video games, I recognized that we would need to expand this definition further.
Please tell me your thoughts on the potential of the existing businesses. You have explained that you would regain Nintendo-like profits in the fiscal year ending March 2017. I would like to know the expected balance between the existing businesses, Nintendo 3DS and Wii U, and new endeavors, such as more active utilization of character IP and QOL. Based on the latest financial results, I presume that it would be difficult to turn a stable and significant profit from the existing businesses because Nintendo 3DS has entered the latter half of its product lifecycle and Wii U is expensive to produce. Would you give me some clues about your outlook for the fiscal year ending March 2017?
First of all, we have never thought that the future of dedicated video game platforms would be bleak so we should migrate to a new business area. On the contrary, we continue to consider what more and better we can do to attract consumers to our dedicated video game platforms or to have them understand the value of our platforms.
Following the generally accepted theory on platform lifecycles, it is natural for you to presume that the sales of Nintendo 3DS will drop X percent each year or we cannot expect a huge increase in Wii U sales. On another front, we have witnessed one single software title completely change the entire picture of our business many times. I believe one of the most impressive stories was the time when people thought the Game Boy platform was virtually over. However, a software title called “Pokémon” turned things around for the platform and ended up creating the biggest annual sales for Game Boy in the latter half of the platform’s eventual lifecycle. Therefore, we do not believe that the situation so far means that there will not be a bright future. However, we should learn from our experiences of not being able to perfectly respond to certain social changes such as changes in the way consumers collect and receive information.
Please explain the current structure of the development divisions and the direction you, Mr. Iwata, are taking in order to establish an ideal one. You once told us that the two hardware development divisions had been consolidated. I have heard that other software development companies mainly adopt a studio, project or division-style development structure. Please explain Nintendo’s current structure, and how you, Mr. Iwata, are planning to change it.
Currently Nintendo has four development divisions and one of them is for hardware development. Years ago, there were two different hardware divisions – one for handheld devices and one for home consoles, with few personnel interactions. In fact, we had to use completely different technologies for handheld and home console development at that time. Technologies that were suitable for handheld devices or home consoles had nearly nothing in common, so it was reasonable to divide hardware development into two divisions. However, with recent technological advances, technologies for both systems are becoming more similar. Also, just because they are home consoles does not mean today that they can consume as much electricity as they possibly can. In fact, we have already been proactively working to reduce the consumption of electricity since the Wii era. Furthermore, the Wii U GamePad has a large screen, a battery pack, control inputs and wireless modules inside, so in technological terms, it required very similar know-how to that required for developing a handheld device. Based on such experiences, we had been working toward consolidating the two divisions for a while and started the process two years ago. Of course, it takes time for two divisions to completely assimilate, and we now are confident that it has progressed very well. Senior Managing Director, Mr. Takeda, is in charge of the hardware development division.
