Two weeks ago the head-hanchos at Nintendo held a behind-closed-doors media briefing in Japan. At the presentation Nintendo put much focus on the success of the DS as Nintendo president Satoru Iwata displayed how the DS has sold 8.43 million units in just 18 months in Japan–outpacing the adoption rates of the both the PS2 and Nintendo’s best-selling platform, the Game Boy Advance.
Iwata then went on to trumpet the success of the Touch Generation series of DS games, particularly Brain Age: Train Your Brain in Minutes a Day, which has had phenomenal success in both Japan and America and how it has defied the usual downward postrelease sales trend.
Nintendo has now released the full English transcript of the question and answer session that took place there. And now, for your reading pleasure, the very long Q&A session can be read below in it’s entirety.
Q1 – When will Nintendo announce the exact price and launch date of Wii? Is your policy that you sell Wii hardware at or over the cost?
Iwata – I believe we will need to announce the precise price and launch date of Wii in or before September this year. Because we are saying that we will launch Wii in the fourth quarter of 2006, or during the October-December time period, we will need to make these announcements before then. So, we are contemplating to make these announcements in or before September. Let me now talk about your question on whether or not we will sell Wii hardware below cost. Some take it for granted nowadays that video game hardware is sold below cost, at least initially, but I don’t think it should be regarded as common sense.
Of course, if manufacturing costs are expected to be reduced so small red ink in the beginning will be soon offset as a whole hardware-software business, it is one idea. However, some people somehow think that hardware always loses money. Nintendo is taking some distance away from that approach. If you ask me, “Will Wii be sold at or over the cost?”, I cannot tell today if we won’t lose even one yen by selling one Wii hardware. However, we do not intend to lose a great deal of money from the hardware sales. Any loss must be recovered elsewhere, of course. We are making our overall Wii plan so that we can develop it as a healthy business from the first year.
Q2 – I recall GameCube received a warm welcome by the software developers before the launch. Comparing with the pre-launch period of GameCube, how differently are the third parties evaluating Wii now, and does Nintendo deal with the third parties differently?
Hatano – As Iwata said in his presentation, the majority of the third parties were putting game graphics as the top priority. However, especially after observing the sales trend of DS since the end of last year, their priority appears to be shifting to the unique game ideas. I believe those who have attended E3 this year among today’s audience will understand that Nintendo was the only company that showed different exhibits based upon different concepts from any other exhibitors.
I understand they (third parties) were wondering before the E3 show what future course they should take, and the general impression the third parties have had with E3 this year, as I understand it, was that it was helpful in mapping a future course. Since E3, almost all the domestic software makers have approached us and requested detailed information on Wii and requested hands-on experiences with the Wii software we showed at E3 for those developers who did not attend E3.
Such developers requests are increasing. Since the end of last month until around the 20th of this month, we have been conducting hands-on opportunities either at our Tokyo branch or at their facilities depending on their conveniences. I’m sure they will come up with unique ideas to create great software, and we are more than willing to cooperate with them. We are also intending to provide them with a dev kit at an inexpensive price, say, at little more than 200,000 yen. We cannot disclose the software manufacturing price for third-party publishers, but they will be at the same level of GameCube.
Q3 – Mr. Iwata, you said four years ago (2002) at this Corporate Management Briefing that you were concerned about the tendency of lowering software prices, as it could lead the industry to destruction and that the industry probably does not need to lower the software price as long as it could develop the commodities, the value of which were worth the price. Could you elaborate on your view toward the lowering software price today? Listening to your presentation today, I got the impression that you will prepare different price points for Wii.
Iwata: Maybe the question is based upon the fact that Nintendo is selling Brain Age at 2800 yen in spite of the fact that I had expressed my opposition towards the tendency of lowering software prices. The reason why I expressed my concern was because the game software with huge contents that were made by spending a long development time would be sold at very high price point at the beginning but they would be significantly discounted soon after the launch.
I was referring to this kind of unhealthy product cycle The real value of the software must be judged with its contents, not with the medium on which the software is stored. Our business has been based upon the fact that we are asking consumers to appreciate the value of the contents, not the material cost of the optical discs, which are much cheaper. If we put the low price tag for software, the value of which are much more, or if we were lowering the price soon after the launch of the software regardless of its inherent value, I said it was unhealthy.
We believe that each software should have its own price point depending on its volume, theme, contents or energies and time spent for the development, namely, the development costs. For example, the majority of portable software is being sold at around 4800 yen now. Especially when we approach non-users and offer them more compact games, the development time for which was much shorter than the other software, having different price points, or more inexpensive price points, has the wider impact to arouse their interest and to cause the expanded sales than simply offering 4800 yen as the almost standard retail price.
To put it another way, many in this industry once appeared to believe that marking down hardware prices or attaching free software was the only way to expand the installed base. What is notable today is, people are actively purchasing a 15000 yen DS or a 16800 yen Lite just because they want to play 2800 yen software. So, what I really meant was, we should be in a position to choose the most appropriate price for each software depending on its mission, volume or development costs. Once the suggested retail price is announced, we should stick to it. Of course, we should be flexible. If the software was first introduced 5 or 10 years ago, we don’t need to stick to the original price. However, if the suggested retail price of any and all software is marked down in 6 months or 9 months, the customers will learn the cycle and wait for the discounting, which will simply aggravate the decreasing sales of new software. We need to be cautious about this.
Q4 – How many Wii hardware do you plan to sell in three years from the launch?
Iwata – I do not intend to declare how many Wii we will be selling today, but Wii will be a failure if it cannot sell far more than GameCube did. In fact, we shouldn’t continue this business if our only target is to outsell GameCube. Naturally, we are making efforts so that Wii will show a far greater result than GameCube.
Q5 – One game company person referred to Wii and told me, “It was just like starting to compete with completely different rules, as if we started playing with soccer rules just when we were engaged in baseball.” Nintendo has the history of introducing many different hardware such as DS, GameCube and Super NES. How do you think consumers will react to Wii? Will they react more positively than the past products?
Miyamoto – My impression may be too subjective or personal, but I haven’t felt any significant difference when I see Wii from purely the standpoint of a man who has been making something. I have just been trying to make something fun. When I was working on Donkey Kong, I was impressed with the fact that I could make completely different things on the same hardware just by working on the software as long as we are using computer as the platform to make things.
Of course, Nintendo has been developing a variety of different hardware and peripherals such as Virtual Boy and Kirby’s Rumble and Stumble (known in the U.S. as “Tilt & Tumble”), but our basic approach has been to make new things by working on the software. When many people are trying to improve things within a limited area, a few limited things are becoming more and more sophisticated. Now that you referred to soccer, in case of a soccer video game, developers would make the games more and more interesting just for those who know about real soccer games. The same formula has been applied to action games, role playing games and many other genres. We believe that we have already reached to the stage where we need to show the new vision for the whole entertainment.
This is why we have decided to alter the game control interface significantly, not just slightly. Now that we are going to drastically change the control interface, we thought we should also aim to change things from different perspectives as well, such as seeking new ways to package software just as Iwata mentioned today. It will also be fun for us, game designers, if we think in terms of altering the overall way how players play with home console games with what kind of images. On the other hand, this is nothing new for us. After all, Nintendo has been making commodities this way for a very long time.
So, we have been making a variety of different software for Wii and we exhibited some of them at E3 this year. Many of you have had the hands-on experience of Wii today. I know many people in this industry do not play video games even though some of them are running video game companies, but I have seen them enjoying playing with Wii without any hesitations. Looking at them, I can feel that we can change the way people play. We are trying not to increase the number of buttons the player has to manipulate. We are trying not to be constrained by conventional rules. We are trying to make games so that anyone can enjoy playing easily. I am sometimes sharing this view with third-party developers. Sorry, I was spending a long time to answer to you.
Iwata – The person in your question appears to be puzzled with the changing rules in developing software. At Nintendo, changes are nothing new. Nintendo has always been trying to create things from the perspective of making uniquely fresh, fun entertainment. Though the hardware may change, we don’t feel that we need to see things from a completely different angle. Looking outside of Nintendo, however, there are people in this industry who have been spending their energies always to make improved versions of the existing games, say for 10 years. Some of them have become the authority in certain game genres that nobody can compete.
Many developers are so capable of doing their jobs perfectly in the traditional way of making games. Some of them may not have been able to determine how they can utilize their know-how when Nintendo offers a completely new platform. This will change as the time goes by. Even inside of Nintendo, not everyone could get accustomed to it when a completely new platform was presented. In case of DS and also in case of Wii, some of them could adapt easily and some of them needed time. In the end, however, everybody learned how to adjust themselves, so I’m sure that the same thing happens outside Nintendo as well.
At E3, I felt the same way as Miyamoto did. When the brasses at major publishers visited the Nintendo booth, they used to see games by crossing their arms at the tail end of the crowds. This year, the majority of these top executives were the first people to hold and swing the Wii Remote to play. I was really impressed.
Q6 – Will Nintendo be able to renew the profit record after launching Wii? If so, when?
Iwata – As long as the current fiscal year is concerned, we have Nintendo DS which has already been entering into the significant expansion period, and profitable Game Boy Advance for which the development costs have already been depreciated so that we can expect them to significantly increase our profitability for the portable business. As for the home console business, we announced that we expect to ship 6 million Wii hardware and 17 million Wii software during this fiscal year.
Even when these numbers are met, their contribution to our overall profitability is limited, as long as this year is concerned. I do not think that DS will be peaking out this year so, if we can make the successful launch of Wii this year, we can look forward to increasing the profitability next year. Your question is when we will make the record profit, but renewing the profit record is not the immediate goal for us at this point in time. As long as the home console business is concerned, Nintendo has been a challenger during the past 10 years.
Our priority is to determine the strategy from the challenger’s perspective on how we market Wii to make it the best-selling machine. We should refrain from committing ourselves as to when we are targeting to renew the profit record at this point, although we are hopeful that such a day will come sooner and we are making the efforts.
Q7 – Nintendo has increased R&D budgets in the last couple years. What will be the R&D spending like in the coming years?
Iwata – Technologies evolve and change very rapidly today. Our internal development resources alone are not enough to make attractive enough commodities for the customers. We need to invest our R&D budgets to a variety of different fields. Some of the investments will be materialized as software to be sold this year, some of them will be launched three years later and some of them may be introduced many more years later. This is how we had to increase the R&D costs in the last few years.
When we launched GameCube, the initial sales were good, and all the hardware we manufactured at that time were sold through. However, after this period, we could not provide the market with strong software titles in a timely fashion. As a result we could not leverage the initial launch time momentum, and sales of GameCube slowed down. To avoid repeating this with Wii, we have been intensifying the software development, both internally at Nintendo and at developers outside the company, in order to prepare aggressive software lineup for Wii at and after the launch. In case of DS, I don’t know if Miyamoto agrees if I say this but I’d like to use the term, “slowly” here (laugh).
We want them to take sufficient time but while Miyamoto and others are “slowly” developing Mario Kart DS and Animal Crossing DS, we still need to provide the market with sufficient amount of software and, to make this happen, we spent R&D costs. Basically, we are doing the same thing for Wii. We believe it is important to provide the market with strong software without a long interval in order to keep the launch time momentum. Accordingly, I expect the R&D costs to increase a little bit rather than decrease significantly. On the other hand, I do not expect our R&D spending to be doubled or tripled because we do not have any immediate intention to build semiconductor manufacturing plant or something like that.
Takeda – We have been discussing what range of R&D costs will be the most appropriate one for the company from both hardware and software perspectives. What we are targeting to realize is to make the Wii hardware relevant to each one of the different family members in one household. As we are trying to reach out to people beyond the traditional game players, we need to spend on other fields than the traditional game hardware and software developments in order to make Wii the nontraditional home video game console with dynamic appeal to anyone. Another thing I should add is that we are taking advantage of the new technologies in untraditional ways. We believe that we are spending appropriate amount of money to make the Nintendo Difference, and we are always trying to be more efficient in doing so.
Miyamoto – Yes, I’ve been developing games “slowly” (laugh), thank you very much. When we started working on Nintendo DS, it was going to be the third important product for Nintendo in addition to the existing two home console and portable platforms, so I felt that we would have issues with our ability to produce a sufficient amount of software for all three platforms. The addition of Wii makes it four that we need to make software for. While I feel that we need more internal software development resources at Nintendo, we have not increased the number greatly.
When we combine the total number of people working for Nintendo’s first-party and second-party titles, however, there are far more than 1,500 people working on the titles today. Looking outside of this group, to tell you the truth, a number of people are having a difficult time selling the traditional types of game software. Whenever we can find people who have good talents and experiences, we are eager to support them so that they make games for Nintendo. That kind of R&D spending is also happening.
This may sound imprudent but, honestly, I don’t know how much we will need to spend in the end. As a software maker, the primary goal is to make great hit games. If there is a possibility of yielding a great profit, we should not hesitate to invest in that title. My own philosophy is that we should invest in people if they have the potential to make something interesting. I myself thought that I would work for Nintendo because the company could be a good patron for me to make something I would really want to make. To make hit software, we will need to spend on R&D in the future as well. Having said that, however, I am a very cost-conscious person, as you know by now. I have never spent money for non-prospective activities such as for building a movie studio. I’d like to decide the field where we can expect the efficient return for our investment so that our investors will be happy. Rest assured that I won’t spend money the way you feel worried.
Q8 – This question may be rather vague one, but is Nintendo really challenging when you look around the world?
Iwata – This may have something to do with what Miyamoto told you right now, but our business is very special in various ways because our customers can never tell what we should make. In the majority of the other businesses, you are told, “You should ask the customers because they know the truth.”
So, you will thoroughly ask your customers what are the issues they feel about your products and try to make a hit product by solving the identified problems. In case of video games our job, in a sense, is to surprise the customers. Asking our customers, “what will surprise you,” is the silliest question. Our customers will be surprised and happy when we can provide them with something they have never expected. For us developers, there is no way to expect what will sell and what won’t. Having foresight, or the ability to forecast what works out well and what won’t is a very important talent for the software planners in the entertainment business.
Fortunately, Nintendo has been recognizing the importance of foresight for many years to run the company. This hasn’t changed even after I succeeded Mr. Yamauchi’s position, and Nintendo has been able to succeed in introducing a variety of unprecedented products. Of course, not every new unprecedented products Nintendo launched was a success. Something worked out, something didn’t. In the end, however, the overall success ratio was higher than the average in the world, I think, and it must be because Nintendo has been sharpening up its ability to determine which unprecedented things may be likely to succeed.
Miyamoto was talking about this when he said that he would like to invest efficiently. For example, we would forecast that making huge investment to that company won’t yield the due sales result, so we shouldn’t make the investment. As a result, those who are looking Nintendo from the outside may misunderstand that Nintendo is always investing on the safe-looking fields. The fact of the matter is, on the contrary, Nintendo has been investing in the unprecedented areas where no result is assured.
I don’t know if this is a good example, but when we announced Nintendo DS, the unanimous reaction were, “What are we supposed to do with two screens?” and “I don’t think the touch-panel can change the way how we play games nor create new entertainment because that technology has been available in the world for many years.” Nintendo alone was thinking differently and betting that our unprecedented approach would succeed and be the right one.
The handwriting recognition application for DS had been developed at Nintendo even before we started discussing the possibility of making Brain Age software at all simply because we thought that such an application could surely be useful someday in the future. When we decided to work on the Brain Age theme, the necessary technologies were already available to be used for the software and, accordingly, we were able to complete the Brain Age development in such a short time like 3 to 4 months and the software was launched in a timely fashion.
We have been working on a variety of different products, even when no exact usage is anticipated, as long as our foresight tells us that we should go for it and that it will be useful someday. So, I cannot agree to the idea that Nintendo is not challenging.
When I am surfing on the net, I often see such terms as “Web2.0” lately and feel that the world of the internet has entered into a new phase since last year. Looking at how video game companies are using Internet technologies, we have been wondering if it is the right approach to consistently use them just to compete against each gamer for 5 or 10 years. This is how we came to propose WiiConnect24, which will use the Internet for people to enjoy sharing information.
I am yet to know what kind of revolutionary entertainment can be created with WiiConnect24, but we will not stop challenging these unprecedented things. You may feel that Nintendo has been doing things that it did not used to. You will be feeling the same way in the future as well. Whenever we sense that users’ new needs must be there or there’s got to be unique opportunity for us to surprise customers, we would always like to be an aggressive challenger.
Q9 – You said that you received a variety of different reactions about the name, “Wii.” Do you think you should have named it differently?
Iwata – I am one of the people who have decided this final product name. Of course, I am not the only person to make this decision, but I have never thought that it was a mistake to name it, “Wii.” I understand that a great many people have already accepted this product name. When someone has some hesitation today, we’d like to make efforts so that they will come to like this name in the end.
Q10 – How many DS hardware units will you ship in Europe and America during this summer?
Iwata – I can’t make the regional breakdown today, but we will be in a position to produce more than 2 million DS Lite hardware per month during the summer. We will allocate them for the global markets and that includes the ones to be kept for the year-end sales in each territory.
As I said before, our top priority is to solve the severe shortage problem in Japan so that our consumers won’t have difficulties in purchasing DS Lite at retail outlets. When I said, “more than 2 million,” it is the monthly production number for the global markets. For your information, at the peak time of Game Boy Advance, I recall that the monthly production was around 2.3 million. In other words, monthly production of DS Lite will quickly reach the level of one of Nintendo’s best selling game machines in the past.
Q11 – What are the reasons why Nintendo cannot produce sufficient amount of DS to meet its demand? Is it due to the limited manufacturing capability? Or, couldn’t you obtain sufficient components? Will things be different with Wii productions?
Iwata – As for the launch time shortage of DS Lite, a major issue we faced was that we could not achieve the expected level of the yield ratio with the bicolor molding. We could have made a lot more DS Lite if we had had compromised on the quality level, but we have never wanted to do so. We do not want to compromise on the quality level of our commodities. Because we wanted to market only the commodities that we could be satisfied with, the initial shipments were limited.
When we are talking about 2.2 million monthly production, no single element can determine the whole picture. Any further addition to this will require the drastic change in how to secure each and every component. We may be able to add a little more, but if you ask me whether or not we will be able to double the production, I have to say that we will have to face major supply issues for major components.
Talking about Wii, as I said today, whenever we launch new game machine, there are always initial early adapter demand, and that exists in Japan, Europe, America and elsewhere. We announced that we are planning to ship 6 million Wii hardware during this fiscal year and, among them, we are intending to ship 4 million or more by the end of this calendar year, and we are preparing to make the productions. If we can ship this number and if no product shortage will be experienced anywhere in the world, it can be regarded as a failure for a new game machine’s launch. In other words, we will be making efforts to keep the constant shipment to the markets so that severe shortage situation will not go on for a long time.
Q12 – How long a lifecycle are you expecting for DS Lite? What will be the average life span of portable game machines in the future? What kind of new functions or mechanisms are you contemplating to add to DS Lite in the future? If Microsoft enters into the portable video game market as some reported, how will the portable market change?
Iwata – Whenever we are ready to launch a new hardware, that hardware development team starts working on something new. As long as Nintendo’s internal hardware developers are concerned, they are always trying to think or actually developing something new. On the other hand, if we should develop and market any and all such new hardware ideas, an unrealistic number of new hardware would be launched, so we won’t do so.
Many ideas are being exchanged, and so many experiments are being conducted internally at Nintendo at any given moment. Among them, we will select a few ideas that have the biggest potential to be welcomed by the market or have the biggest appeal to the software creators and they are going to be materialized to become the actual commodities. For example, Nintendo launched Game Boy, Game Boy Color and Game Boy Advance, but there had been a number of prototypes internally developed but never revealed to the public.
Now that the development of Nintendo DS and DS Lite were over, the DS development team must be working on a multiple new projects. Of course, we are thinking about what we will do next. We are not lazy not thinking about the future. But I can’t tell today which one of them will be actually commercialized. You asked about the expected lifecycle of DS but, to be honest with you, I doubt if it is right for us to think of portable games from the viewpoint of any expected lifecycle.
The actual life span of any portable game machine must be more dependent upon various factors such as whether or not the market still demands it or demands new product or upon the cost factors of different major components and relevant technologies. We have to determine the launch timing of new products also by looking at the availability of relevant new technologies and infrastructures to support the new features of the product. In other words, we are not thinking like, “We will need to complete the development of a new product around that time because the life span of DS is expected to finish then.”
Further, forecasting the life span of DS is difficult and doesn’t make much sense now that it has been expanding the new market. More specifically, we don’t need to make new hardware simply because one of our competitions are trying to make a beefed-up version of their existing machine.
So, we will be working on a variety of different projects on an ongoing basis. And then, when the time comes when we think, “the software creators are having a hard time coming up with unique ideas with the existing hardware but we can create brand-new hardware with this new basic technology we have worked on which will encourage software creators to make brand new applications,” that is the time we will use some of the technologies to develop the new hardware. This is our basic thinking on the launch timing of new hardware.
If you ask me today how Lite will evolve from now, I cannot answer. Those who have actually developed DS Lite are working on a variety of different ideas on Lite, not knowing if any of them will be commercialized. We have no answer what will be used in the end.
I understand that the possibility of Microsoft’s entrance to the portable game machine market has been a topic in this industry. As I showed you today, there is an apparent shift of the game market from console business to portable business. It is the trend in the whole video game market. As a background, contemporary men and women are becoming increasingly busy and cannot afford to sit in front of TV set for a long time, which makes it difficult for game developers to make games that require the game players to do so.
Also, while we can expect one house to own one video game console at maximum, we will be able to sell multiples of portable game machines if several family members have come to love them. Actually, Game Boy Advance has shown that kind of family penetration, and DS is showing up similarly at the moment. So, even if Microsoft, which has been consistently saying that they would never introduce a portable game machine, will announce that they will do so, it won’t surprise me. About your question on how the market will change in the event Microsoft will have launched its portable machine, basically Nintendo won’t change because Microsoft has done something.
Nintendo should be proud of the fact that we were the very first in thinking and exercising how we can expand the number of people who play video games. There are a number of things we can do and we must do for that mission. Until the time that a lot more Japanese people will love to touch and play with Nintendo hardware, until the time far more people around the world will do so, we think that Nintendo will just continue doing what we believe is right, and it doesn’t look like we need to change this policy easily.
Q13 – What is your opinion about home game console machine after Wii?
Takeda – We had a good response to Wii at E3 this year, better than we had expected, and I am reminding our developers that the Wii development project isn’t over yet. So, right now, I am keeping them motivated on Wii by saying that there must be a lot more we can do, even though we are always searching for something new and fun. In our division, we are not allowing them to talk about the next machine yet but rather motivating them by saying, “It’s not over but, rather, the Wii project has just started.”
Talking about the process on how we come up with new console ideas, Wii development was the hardest in my own experience. Nintendo has developed NES, Super-NES, N64 and GameCube, and when we looked back, I felt that we were just rushing forward following Moore’s Law, or just making new products in the linear extension line following the evolution of semiconductors. It took a long time, but we have finally realized that, while we thought we were making products out of our own will, we were actually moving around within the technological boundaries. It is natural for engineers to always seek something better, something faster and something more high-tech.
However, when we look around, the technologies themselves are not necessarily expanding in just one direction. If we should simply go ahead to the linear extension following Moore’s Law, many people would end up getting tired of the resulting entertainment because it cannot feel fresh. Now that we have broken away from the boundary, we are committing ourselves to see and exploit the technologies in order to extend the entertainment into any direction. I think we have reached the level that will allow us to do so. To answer to your question, what comes next will not hit upon ourselves out of blue.
Rather, we should go back to the basics and ask ourselves, “What is the entertainment?”, “Who are the users?”, “What will be the role of us hardware developers?” and “What will software creators have to do?” I think Nintendo has rather clear future road map. And then, we’d like to carefully monitor how consumers respond to our proposals and adjust our approaches.
Q14 – How do you feel about the general remark that only Nintendo titles have sold well among the DS software and third parties’ don’t.
Iwata – In Japan we currently have 10 DS titles which top the million-sales mark. Among them, 9 are from Nintendo and 1 is Tamagocchi software from Bandai, so the general impression must be that Nintendo’s software alone are doing well. If we see the software market share at this point in time, it may be true. However, please understand that developing software and making great sales takes time. As of now, quite a few software publishers are making DS software. However, they saw the explosive sales of DS only from the end of last year. So, if they realized at that time that DS will be the one they should put their software development priority, these software naturally should not be ready by now.
Also, some of the third parties are very strong in making games with a full volume of contents, which take more time than the others. For example, Square-Enix announced at our DS Conference (in October 2004) that they would launch Final Fantasy 3, but the actual launch will take place this summer. So, we hope everyone will look at the sales of the software which will be launched for the year-end sales season this year in order to judge if it is just Nintendo software that can sell or if third parties software will sell as well or even more.
In case of Nintendo, because we really had to make it a successful product, even before no single DS hardware was available in the world, we had put so much energy to create software with our internal developers and with our second-party developers. As I showed you today, the market had been driven by PS2 until middle of 2005, so third parties were focusing their software resources for that platform. A few outside developers started DS software development then, and their software will be launched from around this time.
So, the current market situation should not be considered as the final form to judge the DS software market share. One other thing I would like to note is that there is a difference in the speed of starting and developing new DS software between the development teams which are making better versions of existing software and the teams which are trying to create something unique and fun. Some developers are wondering how to materialize their unique ideas.
For such developers with unique ideas who cannot tell how to make a good game from them, rather than waiting for them to develop games, Nintendo should proactively approach them and make some concrete proposals on DS or Wii. I often discuss this with Hatano. Actually, such approaches have already begun, and we would like you to look forward to seeing the results starting from next year, not this year.
Q15 – What is Mr. Miyamoto interested in now? How are you spending your leisure time nowadays?
Iwata – Miyamoto, who made Pikmin when he was gardening and Nintendogs after owning a dog, will answer his hobby today (laugh).
Miyamoto – What am I interested in now? I am interested in many things. Maybe you’d love to hear that I recently owned a cat or lizard (laugh). But these are not the decisive factors for me to think about next games. Talking about Pikmin, for example, we were doing a lot of experiments on GameCube by having some concepts which were eventually resulted as Pikmin. It was just that I was doing gardening at that time, so I thought, “Maybe this might fit into the concepts that we are experimenting now”. It is not that we made the game system because I wanted to incorporate my gardening hobby.
This is similar to the remark Takeda made today. I like dogs and since I owned my dog, I thought that dogs could be a game. However, fact of the matter is, we could not think about the concrete way to make it a fun game. We, then, encountered the DS hardware and realized that we can finally make an application on that dog concept.
I was a typical Japanese husband who has been neglecting family lives, but I am spending more time with my family now. I am now interested in how a family enjoys in one house, and that interest pretty much suits well with the concept of Wii hardware. In that sense, Wii will become a hardware which will satisfy my interests of the past 20 years or so, so that I am enjoying making software right now. Finally, I am doing something lately, but I think I need to refrain from talking about it today. Hopefully, I can tell you what it is in 6 months or so.
Q16 – What are your expectations toward Reggie, who became the new president of NOA (Nintendo of America Inc.)? What kind of strategies is Nintendo taking in the different markets of Europe and in the U.S.?
Iwata – If we would take different strategies in each territory, we could not go ahead with the unified path and development resources would be dispersed. So, we are globally sharing one strategy. “Expanding the gaming population” is our globally common strategy. Even though our attitude can be taken as heretical in today’s game industry, doing something different from the others means that we have the chance to offer commodities which will not have any immediate competitions, so we would like to take this strategy globally.
NOA is the organization which has a splendid track record in marketing existing types of video games. Because of this, however, NOA has already established a fairly systematic organization When such a company is instructed to market completely different commodities, there surely will be a confusion in the first place. Even in Japan, there is confusion. However, I am dealing with any issues on a day-to-day basis here and all the representative directors sitting here today are joining forces. So, even if things were not moving ahead perfectly at first as I had been hoping, we have been making steady progresses in Japan as a whole. I think this is one of the reasons why Japan was the fist territory where DS sales exploded.
In case of the U.S. and Europe, because gamers’ drifts had not been so obvious, it had been relatively difficult for anyone to understand that they must change what they have been doing. When the need to change was not so obvious, the Japan headquarters were requesting completely different ways to be taken. Naturally, they are a bit confused. Reggie has been working for Nintendo for three years. We wanted him to be the face of NOA who speaks English as mother tongue. We also wanted him to dispatch and explain Nintendo’s global strategy to people who are working at NOA.
We believe that the appointment of Reggie as NOA president will accelerate the understanding of Nintendo’s strategy inside the Nintendo group. For a strategy to work, it must be first understood by people inside of the organization and the partners fully. Then, we can work out each tactic after sharing the common strategy. If we should need to instruct each different tactic from Japan headquarters, it wouldn’t be a desirable corporate situation because each territory has its own culture, circumstance and different level of acceptance of our offers. Now that more Nintendogs are selling outside Japan and Brain Age appears to be riding on the steady sales track, as I said, there must be a number of Japanese successes that can be translated well in the U.S., Europe and elsewhere.
Q17 – How do you evaluate 1.8 million cumulative sales of Game Boy Micro?
Iwata – The sales of Micro did not meet our expectations. Micro showed different sales in and outside Japan. In Japan, initial sales of Micro were rather good and it did become a rather hot topic. So, there was the possibility for this product to grow in Japan. However, toward the end of 2005, Nintendo had to focus almost all of our energies on the marketing of DS, which must have deprived the Micro of its momentum. This is why Micro couldn’t meet our expectations in Japan. Overseas, we were unable to dispatch the real attractive nature of this product in the first place.
More specifically, we showed this product at E3 2005 for the first time to the public, and those who have watched Micro were pretty much impressed. Because a number of people, distributors, software developers and publishers were all saying that Micro could sell, we somewhat believed that we would just need to take the ordinary marketing approach, say, by saying that we will launch the new Game Boy model. Fact of the matter is, however, those who were impressed with Micro were the ones who have physically touched and felt Micro in their hands. However, the actual consumers had to evaluate Micro without touching them. In the end, we failed to explain to consumers its unique value and they concluded that Micro is not worth the price they have to invest.
Whichever hardware we talk about, platform business is the business of momentum. If we fail to build an initial momentum, we will have hard times. Simultaneously, it was the time when Nintendo had to expand DS sales, so we had to put more effort on DS, which were not contributing to the sales of Micro. We have to learn the lesson that we overestimated the success potential of Micro. Also, we had to be more careful about how we should evaluate the impression of people who have actually touched and felt our products and who have watched some of our advertisements only.
Q18 – You raised “Playing=Believing” as your E3 message. What kind of approaches are you conceiving so that many people will have hands-on opportunities?
Iwata – There is a Japanese counterpart for the English saying of “seeing is believing” This Playing is Believing is not just a pun from it but has turned out to be very persuasive slogan for those who have had the hands-on Wii experiences. In fact, those who have had played Wii were all showing happy smiles. I’m sorry that I couldn’t see you when you were playing Wii today, but according to our employees, you appeared to enjoy yourselves. As you could tell, Wii was accepted very well by those who have actually played. There is a difficulty of promoting Wii hands-on that is different from the case of promoting DS. We can bring DS hardware anywhere and show it to anyone, but we cannot do so with Wii.
On the other hand, there is a thing Wii can do better than DS. When a player is enjoying playing DS, it is hard for other people to know what the player is actually doing. When DS hardware is held horizontally like a book, it may tell the player is doing Brain Age, but that is about it. When a player is playing some other game, others cannot even see which software is being played on the screens. Wii is far more obvious. Our first mission is to encourage people to see the motions of a player or players when they are playing with Wii. And then, we will provide opportunities for those who want to play Wii.
If we can expand this hands-on opportunity to a critical mass, people will voluntarily encourage others to enjoy what they have enjoyed themselves. When we can reach that stage, then we can leave behind such issues as, “Wii is the unprecedented entertainment so marketing Wii requires extra effort.” I said today that we are intending to produce and ship 4 million Wii hardware by the end of this calendar year. If we can do so, and if these Wii units can satisfy the purchasers, this Playing=Believing message shall be thoroughly understood by a wide range of customers.
Q19 – You said you are hopeful that those who have Wii hands-on experiences will volunteer to spread the good news by word of mouth. When will you launch such software?
Iwata – If Wii Sports is the only such title we can sell on Wii’s launch date, it will be difficult for good news to spread by word of mouth. In fact, we are intending to launch multiple such titles on or shortly after the Wii launch date. It may be sold as packaged software, or it may be downloaded as Virtual Console software. These will be the titles which can be played by anybody even if they do not have past game-play experiences, knowledge and techniques. As soon as people see the software and are given the Wii Remote, they feel that they can do it. Those are kind of titles I am talking about. WarioWare has been a hit Nintendo game series in Japan. This kind of software should be launched by the end of this year in Japan, I believe.
Q20 – How will you allocate your resources between Wii and DS? Isn’t it hard for consumers to purchase both?
Iwata – As a matter of fact, several people told me at E3 after they had praised Wii that Wii’s biggest rival is DS, not the competition’s hardware, or that consumers may not care anything other than DS now that DS has become a social phenomenon. In Japan, more than 8.5 million people already own DS but more people are willing to buy one. We should take the situation as an opportunity to sell Wii, rather than as the rival of Wii.
More specifically, now that a number of people are now starting to become continual game players with DS, how can we persuade them to understand having Wii at home will enable them to have more fun experiences or to make their DS experiences even better? If we can do things right, we will be able to take advantage of DS, rather than cannibalize DS. If we need to sell DS and Wii from scratch and to market both products to the households which own neither of them, we may need to be more careful. However, DS already has a huge installed base and, in addition, the number of Wii hardware we can ship this year is limited, just as I said, so we will be able to craft smart marketing to sell both products.
Q21 – Mr. Miyamoto, aren’t you facing any issues when you are making software due to the fact that Wii is not HD-ready or haven’t you felt the Wii does not have high enough spec? How about you, Mr. Takeda?
Miyamoto – I have made demo software for E3 and I have been making Wii titles now, but I have never felt that Wii needs more processing power. Actually, whatever spec numbers you may be talking about, there are always some technological limit. If anyone makes a game for HD, the hardware machine power must become more than quadrupled just to make it HD applicable. A similar thing can be said about the memory size. When developers are told that they can use as much memory size as they want, someone use them indiscriminately without thinking how it will affect other development activities, and it is becoming difficult for game directors to control the whole game development process.
Such uncoordinated activities by each developer make the hardware work less efficiently and unnecessary development efforts must be taken for these activities. What we are trying to do is to create brand new freestyle entertainment that can be enjoyed by all the family members as well as by a single player. In making such entertainment, I have never felt stress about the power of Wii. Honestly, I have not been able to use 100% of GameCube’s power yet, so I am very happy with Wii’s far superior functionality.
Takeda – I don’t think we have any problem about the hardware. It’s just the matter of how you use the available technologies. We could use technologies to effectively process HD. In fact, Wii is using 90nano, SA and other state of the art technologies as well as DRAM integrated technology that others are also doing. Only the difference is, we are using these technologies differently from the others. Each company has its own idea on how they should use the technologies, and we believe our ways are the most desirable one for software creators.
Iwata – I am still a developer at heart, so allow me to add my comment. I think it is just a matter of the balance. As I said earlier, the notion to be able to make more beautiful graphics is tempting. High-resolution sounds tempting too. I myself can tell the resulted difference in these areas even if many others can’t, and I don’t say I don’t like technologies. I am one of the engineers so I am excited with new functionality. However, if I only listen to the voices of my engineer spirit, the resulted machine will be bigger in size, will take a longer time to start playing after turning on the switch and must be pretty difficult to employ such unique functions as WiiConnect24.
So, we made the decision by asking ourselves, “which would let us make more attractive proposals to the consumers?” and “which will be the more balanced way to use the technologies?” We did not include some functions but it is not because we couldn’t do so. It was just that we eliminated them to make Wii a better proposal. Of course, we have had very heated discussions. Now that we had decided to take this approach, after attending E3 and having listened to the feedback from so many people, we are convinced that the decision we made was the right one.
Of course, 5 years from today or 10 years from today, we will need to review and determine the new balance in order to come up with our new proposals in terms of the actual needs of the customers and many other factors including affordable price. I am not saying that Nintendo will never launch HD-ready hardware. Rather, it can happen. However, when we seriously look into the current penetration ratio of HD TV, the need to take a long time to start software applications after turning on the power, the big console body, heat, power consumption, etc., etc., we had to make a more well-balanced machine. So, we have no regret about Wii in terms of its well-balanced nature.