Nintendo's CEO talks about the companys fiscal prudence despite its incredible success. http://www.nintendoworldreport.com/newsArt.cfm?artid=18511 Nintendo CEO Satoru Iwata is at the helm of one of the biggest videogame companies in the world. He's overseen revolutionary hardware and software launches that have changed not just the industry, but its consumers as well, and his company has just posted record financial results in the wake of a worldwide economic crisis. But though he may be one of gaming's mightiest movers and shakers, Iwata was being very careful with what he said earlier this month.
"Today, if I should make such comments like 'the next product we will launch will be great,' that other CEOs are often making, people would have extraordinarily high expectations toward it," he explained during a Q & A regarding the company's profitable fiscal year results. With Nintendo's most successful software this generation easily moving more than 10 million units worldwide, Iwata was worried that observers would find the company's other games "not up to their expectations regardless of whatever product we will have launched." For example, Wii Music is widely seen as a misstep for Nintendo despite having sold more than 2.5 million units worldwide.
Despite his misgivings, Iwata still braved a range of topics in the question and answer session, providing insight into the challenges that Nintendo faced and their thought processes in tackling them.
On the economic environment's impact on software forecasts:
"I felt what had been affecting the environments surrounding us the most was that people in the distribution channels around the world were taking a very cautious attitude about holding inventory, and as a result, they were taking a conservative approach when it came to placing orders for products... When distributors and retailers become conservative, the type of the software which must be sold thorough in a short time period receive the inevitable impact... the situation today looks like it is calming down. So, I think such impacts will gradually weaken from now."
On the strategy of cutting prices:
"When I was referring to this subject the last time, it was in the context that it would not be a good idea for price cuts to be expected as a regular practice in the industry. Of course, I have never said that cutting the suggested retail price is not in the cards... price policy has become a global subject in the recent years. So, any price policy must be considered with the aim to maximize our global business... Also, while the price cut is said to surely increase demand, it must be clear from a variety of analysis so far that the effect cannot last very long. Accordingly, if we really do enact a price cut, it must be exactly when it can maximize the business. At least for now, I have no specific ideas about the price cut at all."
On how Nintendo will balance the DS and DSi hardware and software releases later this year:
"We still need some time before we can determine the sales ratio between Nintendo DSi and Nintendo DS Lite. In the U.S. and Europe, portable game machines can sell relatively well in June and first half of July. Sales last year during this period were high, and we expect the same level of sales this year."
On the company's prediction of a 40 million unit increase in Wii software shipments over the next year:
"I can say that it would be a mistake to think that the increase of 40 million units will be wholly attributed to first party titles. However, we can say that we are expecting the whole market to grow because Nintendo is preparing for its software."
On Iwata's conciliatory tone in Japan's Wii-no-Ma Video-on-Demand Wii launch video:
"My real intention was not to apologize but to make clear to the viewers that the company is openly accepting that there are problems in the current situation rather than deny them... Our Wii customers have kindly purchased our products by expecting new proposals to be made one after another. We must not be sitting back thinking that everything is fine because Wii is the best-selling hardware in the world today."
On launching software according to a schedule:
"Honestly speaking, whether entertainment software is good enough or not cannot be told until development nears completion... One of the reasons why Miyamoto is highly praised is because of his ability to stop, rethink about, and fix how he can convey the appeal of a software when he finds out during the latter phase of development that the software will not be good enough... However, he is not God and even Miyamoto himself cannot hit the mark every time nor always predict how long it takes to complete development."
Why third parties have been slower to make their mark on the Wii than on the DS:
"I understand that two things are different when compared with the situation of Nintendo DS. One is the time needed for development it often takes longer to develop software for a home console than for a portable system. Another thing is that home console software development teams of third parties were more focused on making software for other companies systems until quite recently... Nintendo thought that the situation would change in about two years after launch. While our assumption turned out to be correct with the portable system, it did not progress as we anticipated for the [Japanese] home console market. Fortunately, the U.S. and Europe are showing completely different scenarios in this regard."
On expanding to new worldwide markets:
"we had the hardware supply issue last year, so we were not in a position to actively deploy our products into newly emerging nations even if we wanted to do so... developing business in newly emerging nations is becoming a bit harder than before due to the rapid change in economic circumstance since last fall... Having said that, there is no doubt that there is a business opportunity in the future. When we see the time has come for us to tackle this, just like we have done so in South Korea, we feel the possibility that we will be able to create a new market by pouring massive efforts in a short time period."
On downloadable distribution:
"About online sales in general, if people ask such extreme questions as, 'Do you think that 20 years from now, customers will still be visiting retail outlets in order to purchase the majority of software in packaged format?', I will then have to answer, 'well, perhaps, the situation will be different.' However, if I am told, 'within a couple of years from today, there will be no retail outlets which will be selling packaged software,' my reaction must be, 'there's got to be something wrong with that assumption because I do not believe people's behaviors can change in such a short time.'"
On comparing Nintendo's DS with Apple's iPhone in the gaming market:
"For the customers with whom we have the most strength, it must be rather difficult for Apple to reach, and for the customer base where Apple has the biggest strength, Nintendo products would have a hard time in receiving their appreciations... My impression as the person who has used iPhone is, it is very attractive but, frankly, I did not feel that it was designed to be appreciated by a wide variety of people like how Nintendo has been designing its products."
On downlodable sales on DSiWare, WiiWare, and net connection ratios:
"we had certain expectation as to the number of Wi-Fi connections for Nintendo DSi, but our expectation has not been met so far in Japan. On the other hand, in the U.S., relatively high connection ratio has been reported from the start... we have to wrack our brains in order to come up with smart ways to deliver our messages effectively to a wide variety of different consumers. This thinking applies not only to Nintendo DS but also to Wii... In case of Nintendo platforms, (because the company has been challenging itself with several measures), net connection ratios have gradually been increasing as time goes by. We are making efforts with the hope that it will someday reach and go beyond the tipping point. The current situation, however, is that we are observing only a gradual increase."
On what topic or challenge most excites Iwata currently:
"Therefore, if you ask me what excites me most today, I must answer that it is the increase in number of users per household. To put this in other ways, I get excited when we find out some ideas with which our products can be talked about more at home, or people feel like encouraging other family members to try out, or feel like talking about it... So, the answer to the question of what excites me most is not such simplistic answers, not categories like online business nor video delivery service... And the fact that we were able to [expand gaming's demographic] to some extent was the big factor behind the changes taken place in the U.S. and Europe."
On staying involved in the development process:
"Because I myself come from a developer background, I am making it a point to meet with development teams whenever I find any exciting ideas and sharing the reason why I am excited about it and where I can find the potential. Furthermore, I ask the developers to let me experience first-hand the products they are working on in order to tell them how I feel about it as a customer or how I expect my family members will feel about it. To be involved in this development process itself is the most exciting thing for me."
On how Nintendo conducts the surveys that show use of their products:
"First, I myself have been involved and concerned about the accuracy of the survey results with extreme attention. To tell you the truth, our U.S. subsidiary had conducted a different survey once, prior to the ones I showed you today, but it did not provide the accuracy that I was looking for... We have been checking the accountability of the survey with a variety of different ways and now have become able to come up with survey results with a certain level of accuracy. What I have shared today are the results of the surveys only after we thought that we were starting to come up with accurate ones."
On people who start playing games and then stop:
"You may have some vague assumptions that those who started playing video games with Brain Training or Wii Fit must have stopped playing with any video games as soon as they got tired of these initial software and that those who have been long gaming fans must continuously be playing one game after another... we have not been able to identify any particular software, of which its purchase discourages the player to play frequently or becomes the primary cause for the purchaser to stop playing."
On games as fads:
"As you might recall, when NES, Super NES or Sony's Playstation was leading the market, people brought out their game systems from the closet in order to play with a Dragon Quest software after its launch, just to put away the system after playing the game through to the end... it appears to be not as simple as you said that software dealing with health or brain training tend to be a short time fad with a big risk of going in and out of style easily. Video games are, or any entertainment commodities are, supposed to go in and out of styles easily so we must periodically make new offers."
On how Nintendo approaches when to release new hardware:
"The ordinary technology-driven companies would write the technology road map to anticipate what kind of technology will emerge in the future in order to determine a new hardware launch timing based mainly upon the convenience of hardware developers. In Nintendo's case, however, the more decisive factor is when the software developers will start demanding for new hardware as they cannot create any more software with surprise factors with the existing one. Nintendo has always been making the hardware in order to prepare for that day to come."
On used game sales:
"I have heard a strong sense of concern from management of overseas software publishers over the situation that the number of major retailers who are beginning to place more importance on the used markets is increasing and that Amazon recently started to seriously deal with secondhand products... If [selling second-hand games] were illegal acts like piracies, we could criticize them. But, however hard we may express our concern about the secondhand market, as long as they are not illegal, it does not do us any good... On the other hand, this is one of the changes in the social circumstance, and it is our job as publishers to think of how to cope with the changes... Nintendo must continuously craft ideas so that our consumers will feel like owning the purchased products or think about how to motivate the customers to purchase new products instead of used ones."
On the bar being set higher for Nintendo than for others:
"I think Nintendo must be the only company in the world that, immediately after announcing record sales and profits in all accounts, is criticized for a potential lack of new ideas. I think this is because the company has been continuously making new proposals one after another and has raised the bar so high. We understand that we are always challenging ourselves with higher hurdles in order to give more surprises to people than ever."
On fostering new game creators within Nintendo aside from Shigeru Miyamoto:
"Certainly, when it comes to identifying and verbalizing some of the important major findings, few people can easily succeed him. For example, few people other than Shigeru Miyamoto can declare that weighing yourself everyday must be fun for everyone. However, the fact that Nintendo software is always full of unique and fun ideas attest to the fact that there are many good game creators at Nintendo. Together with Shigeru Miyamoto, all of them have been making what are called Nintendo software. So, I have never thought that we have not fostered game creators at the company."
On the company's practice of maintaining large cash deposits:
"Several years ago, some people in the stock market used to openly announce that there was no need for companies to keep cash deposits because you could borrow them whenever necessary. I think I can today say that the situation in the last 6 months has proved that they were wrong. As long as we are doing business where we have great risk at times, my belief is that we have to be cash-rich if we commit ourselves to continuing our business. So, it is very hard for me to imagine that Nintendo will abandon its cash-rich position all together anytime soon because doing so will significantly narrow down the options we can choose from in the future, which will weaken the competitive edge of the company towards the future."
For the detailed Q & A transcript, click here.
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