Iwata:

  Although I think the financial analysts can receive a more accurate answer by asking the software publishers directly, 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 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, and this fact must be rather obvious to you too. You may want to contact third party publishers for any additional background, but what I can tell you today are these 2 differences.

  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 domestic home console market. Fortunately, the U.S. and Europe are showing completely different scenarios in this regard. With the current domestic situation as key leanings, we would like to take more time to study what we need to do for the future.

Iwata:

  As you pointed out, 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. However, we have been doing business in South America from before, and it represents a little more than 5% of the entire business in the American continent, but the actual market potential has yet to be realized. In Asia, we have been selling our products in several countries through sales agents, but they have not become a significant business.

  I may call South Korea as an exception. More than 1 million Nintendo DS for two years in a row and more than half a million Wii were sold in South Korea. Sometimes, it pays off when we focus upon one market and pour our efforts to develop the market there. In case of South Korea, we were first approached by chance for the promotion of local video game industry, which gave us the opportunity to interact with local software publishers in regard to the making of video games. With that as the starting point, we were able to start our business in South Korea.

  That was the time when Nintendo DS was experiencing significant growth in Japan. We localized two-years worth of Japanese hit software titles to market them in South Korea in about one year. With such a fancy lineup, Nintendo DS was able to secure local supports in a short time period. However, it is not very often that we can find these desirable circumstances where the stars are all aligned in the new markets. When we encounter such a good opportunity, we may try once again, but it is not something we can do immediately.

  Also, as I have mentioned this before, developing business in newly emerging nations is becoming a bit harder than before due to the rapid change in economic circumstance since last fall. For one thing, foreign currency exchange rates are fluctuating. I talked about the example of South Korea, but the rapid change in Korean Won's appreciation against Yen has come to the extent where it now can significantly impact our business structure. Similar tendencies can be observed in a number of other countries. Furthermore, I feel that the recent economic situations have not only impacted the exchange rates but also made it more challenging to propose something new to newly emerging nations than to existing advanced nations.

  I remember that around this time a year ago I was telling that deployment in the newly emerging nations would be the theme next year due to supply capabilities for Wii and DS. Due to the changes in the circumstance thereafter, I now feel that the time for us to face this challenge has been delayed a bit. Because of this, we have not accounted for any significant contribution from development in the newly emerging nations into the financial forecast.

  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.

Iwata:

  People often said that Nintendo and Apple share much in common and I've often been asked how I feel about Apple products because I myself have been using Apple products.

  Quite recently, media have been reporting that iPhone is a rival to Nintendo DS, but I do not strongly agree mainly because of the difference in the customers. 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.

  About online sales in general, if people ask such extreme question 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."

  Already today, a number of people are aware of and appreciate the convenience of online shopping. Accordingly, Nintendo must be making efforts to provide them with the new mode of shopping. Simultaneously, however, I do not believe the competitive edge that packaged software has today will easily be taken up anytime soon.

  Also, I do not imagine that iPhone will dominate the Nintendo DS market at once. 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.

Iwata:

  To answer your question, I really hope that every one of you will experience our services for yourself. We have been offering the 1000 point giveaway campaign where, if you access the Nintendo DSi Shop with your Nintendo DSi, you will receive 1000 Nintendo DSi points. You don't have to have Wi-Fi environment in your house. You can go to a retailer with Nintendo DS Station to access the Nintendo DSi Shop. Because of this, 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.

  This gap (between our expectation and actual connection rate) must have been caused by the differences in the speed with which the customers can realize the advantage of doing so and in how the information can spread. By all means, we need to encourage Nintendo DSi customers to try at least once, and only then can we push forward with the new appeal of Nintendo DSi that is added value to just playing packaged software and with the new concept of Nintendo DSi to make it your own DS. . We really want to make progress on this front. We will continue to offer new ways by all possible means in order to encourage our customers to be able to appreciate the real attractions of the Wi-Fi connections.

  I personally like new things and am a typical early adapter type who purchases a lot of new things on the market and try them out for myself. If everyone in the world were like me, companies which are offering something new would have an easier time with their businesses. But in reality, such customers like me are not many. So, 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.

  A number of early purchasers of new video game hardware tend to be those who love something new on the market, so the net connection ratio can be high at the beginning, but if we do nothing about it, it can gradually go down as the hardware increases its installed base. 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.

Iwata:

  Very profound question, I should say. First of all, regarding your assumption that Nintendo could have filled the opening of software lineup if it had used the same amount of management resources only to create more number of packages software, you may be right in terms of the outcome accountability since there were openings between software launches in the end.

  It was not just "Wii-no-ma" but also other projects on Wii Channel services and relating to WiiWare and Nintendo DSiWare that require software developers outside the company to cooperate with us for these efforts. Since the resulting works are introduced as Nintendo products, there has always been Nintendo's involvement. Especially with testing and others that were another topic today already, Nintendo always has to conduct the final checks before any of our products are introduced to the public. In that sense, there are limited resource and so must be fought over within the company.

  On the other hand, if you ask me if there will be a bright future for the video game market only by continuously offering products with the same structure but with different quality, or just by launching sequels to the previous big hit titles one after another, I would have to answer no.

  I brought what I really wanted to tell you today most to the final part of my presentation. That is, why Nintendo thinks much of the number of user per household and what it means if that number is high. In the past 5 years or so, Nintendo has been challenging itself to expand the gaming population, and we have come to believe that gaming population expansion can happen only when word of mouth recommendations can take place between different age demographics and between genders and that the future potential of the market will shrink if we are just looking at the people who are proactively accessing game-related information.

  Because of our belief that future of video games as a whole will not be bright unless we can encourage new customers to join, we challenged ourselves with many different things. During that course about three years ago was when we came to notice that the number of users per household could become an important criterion, and since then, we have been making much of this number.

  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.

  However, such a bud of an idea is not guaranteed to be a commercial hit. For example, Brain Training software in some sense may have drastically changed the Japanese, or even the global video game market. However, the concept of training your brain must have already been there before our Brain Training DS software. There might have been other people who had thought about the possibility of turning such ideas into game software. It was just by a chance that we were the first ones to propose the idea to the mass-market and receive strong support from the market.

  Whenever I encounter such an idea, I am excited. However, mere excitement cannot make a product. For example, I myself have several ideas that excite me now. But they have not been materialized. If they were completed and ready to be launched tomorrow, I could say today, "Look at what we have for you." You might then have a better prospect with the future of the company. Although we have several new proposals (that we are developing) today, they have not reached the point where we can announce today when they will be launched or show how completed they are.

  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-hands 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.

  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. I am excited when I find a new opportunity that may increase the frequency at which our products is discussed amongst family members at home or that may encourage the people categorized with a pink color (non-users in the game population compositions graphs used in the presentation) to become blue (active users in the same graphs).

  Perhaps, the video game market in the past simply concluded that these people in pink were not our customers, period, and conducted our businesses with the people in blue in mind. However, Nintendo has been thinking about how people in pink and yellow (sleep users in the graphs) might come to appreciate video games by some means even though it would not be easy. And the fact that we were able to do that to some extent was the big factor behind the changes taken place in the U.S. and Europe. Even today, there are many more people in pink and yellow, but until all the customers shit to blue, our challenge will continue.