Satoru Iwata (President):

I would like to supplement this question for the shareholders who do not usually play games. Nintendo 3DS and Wii U software is sold through two sales methods; one is the “packaged version,” which we sell in the form of ROM cards or optical discs, and the other is the “download version,” which we sell by transmitting software content through the Internet. With respect to these products, this question is pointing out that the sell-through price of download versions may be higher than that of packaged versions because Nintendo eShop (where Nintendo directly sells the download versions) does not usually give discounts and retailers tend to give greater discounts on packaged versions than on download versions.

As for the prices of the packaged versions and download versions, we, at Nintendo, cherish the value of our software and believe that we should sell both versions at the same price because they have equal value (as software products). However, there are various viewpoints on this matter. For example, some software publishers lower the prices of download versions, giving weight to the fact that download versions cannot be sold to secondhand stores or that download versions are rarely sold at reduced prices in retail stores and even sometimes never discounted in the case of direct sales by the publishers. While the prices of packaged and download versions reflect the attitudes of software publishers, Nintendo would like to offer these products to our consumers at the same prices given that their software value is the same.

Now, the reason why the prices of the packaged and download versions are actually different is that the retailers take different levels of business risk with each of them. Retailers take inventory risks for the packaged versions from the moment they order these products. When it comes to the download versions, purchase and payment is completed at the same time when the consumer pays for the product and the download card (only available in Japan) is registered in the cash register. This system does not require the retailers to take inventory risks for download versions. Taking into consideration this difference in the retailers’ inventory risks between the packaged and download versions, our company sets a different wholesale price for these two versions. However, please understand that Nintendo does not decide the ultimate retail price, but rather the retail prices of those versions differ as a result of the decisions made by each retailer.

We understand that consumers who buy many download versions may not be fully convinced if all of these products cost more than the packaged versions. In the new membership service that we are now developing to replace “Club Nintendo,” we are thinking about providing a system where Nintendo can give (individual) offers to each consumer. I would like to explain the details when we have everything in place for the new membership service, which is targeted to launch this autumn.

Iwata:

In past annual general meetings of shareholders, we received comments that the minimum investment unit of Nintendo is too high and that a stock split or reduction of one stock unit would increase the number of shareholders and have a positive effect on the stock price as a consequence. We see it an issue to be considered. In accordance with a listing rule of the Tokyo Stock Exchange, we cannot change the current number of shares constituting one unit of Nintendo stock from 100 shares to one share or 10 shares, which was once allowed. In my view, the rule to standardize 100 shares as one unit of stock was established to avoid any confusion with the variety of one stock unit after various problems, including mistaken orders.

Therefore, a stock split is the only way for us to reduce the stock trading unit. Some people say that a stock split would work to broaden a company’s investor base and improve the liquidity of its stock, and it is a fact that some companies have achieved such goals. On the other hand, we have received some objections in past general meetings of shareholders and through investor relations inquiries that a stock split would damage the premium value Nintendo stock currently holds. We understand our shareholders have mixed reactions to it. On that premise, we hope to discuss carefully whether to split our stocks or not.

Iwata:

The situation for Nintendo 3DS and Wii U is in line with what you mentioned. For Wii U in particular, it cannot be said that it had a successful launch. As for Nintendo 3DS, in Japan there was a temporary slowdown but we managed to make a recovery by offering a number of initiatives collectively. On the other hand, Wii U has not been able to recover at this point in time. Because of this, the size of the installed base compared to the Nintendo DS or Wii eras appears not to be as solid and this is reflected in the company’s profitability. But taking a look back, it was not the case that Nintendo DS sold with huge momentum from the beginning. When it first started to lose momentum, we offered a number of titles from a new genre, such as “nintendogs” or “Brain Age: Train Your Brain in Minutes a Day,” and these titles were widely accepted even by those who had never played video games in the past. This sequence of events led to a very large business. The platform business can sometimes be referred to as a “momentum business.” Thus, it is ideal to have a jump start and drive momentum. Looking back at some of Nintendo’s past platforms, this ideal launch has been achieved 100 percent by perhaps only Wii. Even the Nintendo DS launch had areas in which we could have done better. I cannot disagree with your indication that Wii U is experiencing the most unfavorable situation.

Since the word “NX” has been mentioned, please let me elaborate. When Nintendo announced the collaboration with DeNA on March 17 of this year, I mentioned that Nintendo is currently developing a new dedicated video game system codenamed “NX.” The reason I mentioned this was, at that time, there were more than a certain number of people that thought that Nintendo would give up on the dedicated game system business and concentrate on smart device application development, or that Nintendo should take that path. In addition, such tone could be seen frequently through the media. I felt it was necessary to communicate that Nintendo is not pessimistic about the future of the dedicated game system business but rather more and more eager to continue it. On the other hand, details on the new platform essentially should come later. This is because the entertainment business has an aspect where there is value in surprising consumers. It is not convincing enough to the consumer if we describe how the magic works before actually showing it to them and then expecting them to be surprised or delighted. Having the element of surprise or doing the unexpected is the premise for introducing new ideas and having them welcomed with surprise. That is why I have been repeatedly saying that the next news on NX will not be announced during 2015 but will be announced in 2016. Nevertheless, since NX has news value, when I am interviewed on various occasions, I am asked about it almost every time. I will not share details on NX today but with regard to the launch of Nintendo 3DS and Wii U not necessarily having progressed well and not acquiring sufficient support from software publishers, we intend to offer NX through a Nintendo-like solution. Thank you for understanding that we are making various considerations and preparations in order to avoid what happened with the previous generations.

On a different note, I believe the standard for software publishers in selecting what hardware to provide their games for is the installed base after all. The larger the installed base or the more it is believed that the installed base will largely expand, there is an aspect that more software publishers are likely to join in. On the other hand, Nintendo is collaborating with various software publishers. At E3, which was held in the U.S. and is the largest trade show in the video game industry, we received many proposals for joint initiatives. In addition, Japanese software publishers have close relationships with our licensing department on a regular basis. As for collaborations with software publishers or their games, please consider that there are various ongoing projects below the surface.