Financial Results Briefing Q & A

Financial Results Briefing for Fiscal Year Ended March 2010

- May 7, 2010

Presentation by the President (Text) | Q & A

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1	I’d like to ask about the next home console system. You told us last year that fun games can still be developed on Wii, that the company was actually preparing for software to be launched in 2010, and that adaptation to HD was not considered as an imminent plan as it would have to wait for the next hardware. Now that a year has passed, I would like to hear an update from you. On another subject, a portion of the casual users that Wii and Nintendo DS have attracted might be flowing into the likes of social games. Asking them to own a dedicated home video game console and/or a handheld device might become obsolete in the era of cloud computing. Is it possible for the company to provide other platforms with your firmware or OS so that your software can be widely played on non-Nintendo platforms? Have you ever considered such an approach, or have you never had such an idea in the first place?
1	Satoru Iwata (President): We are developing new games all the time. Also, as soon as a new game system is made, we start thinking about plans for the next (game system). Because of this, whenever I am asked if we are developing the next home console video game system, I am making it a point of answering that we are. On the other hand, if I’m asked whether or not I feel that we need to launch it immediately, we are not feeling any urgency at all now. Because we believe that we have other things that we can do on Wii, I have no information to share with you today as to the prospects of the next home console video game system. Also, I have to say that the term Social Game that you used has a rather vague definition. Perhaps, I need to assume that it is the very casual, free-of-charge gaming service. We do not think that the combination of a game system and dedicated software will last forever. However, we do not believe that hardware dedicated to gaming shall (become obsolete and) perish in a few years. I personally think that kind of scenario is unthinkable. The reason why we have been making systems dedicated to games is because creating engaging experiences that can not be available on other devices is the lifeline for the company. From that perspective, providing versatile multimedia devices with our software is a business that captures the least of our interests because, should we do so, we would not be able to offer brand new and engaging experiences to our customers but would merely utilize Nintendo’s characters and past game assets for ordinary experiences, which becomes a very low priority for a video game software creator. Should we stop what we are doing, the current business configuration with a video game system and dedicated software could become obsolete. However, as we have been thinking and proposing new ideas one after another, we do not think that it will become obsolete at all. I have never thought that we will need to launch social games in order to avoid our offers from becoming obsolete.

I’d like to ask about the next home console system. You told us last year that fun games can still be developed on Wii, that the company was actually preparing for software to be launched in 2010, and that adaptation to HD was not considered as an imminent plan as it would have to wait for the next hardware. Now that a year has passed, I would like to hear an update from you. On another subject, a portion of the casual users that Wii and Nintendo DS have attracted might be flowing into the likes of social games. Asking them to own a dedicated home video game console and/or a handheld device might become obsolete in the era of cloud computing. Is it possible for the company to provide other platforms with your firmware or OS so that your software can be widely played on non-Nintendo platforms? Have you ever considered such an approach, or have you never had such an idea in the first place?

Satoru Iwata (President):

We are developing new games all the time. Also, as soon as a new game system is made, we start thinking about plans for the next (game system). Because of this, whenever I am asked if we are developing the next home console video game system, I am making it a point of answering that we are. On the other hand, if I’m asked whether or not I feel that we need to launch it immediately, we are not feeling any urgency at all now. Because we believe that we have other things that we can do on Wii, I have no information to share with you today as to the prospects of the next home console video game system.

Also, I have to say that the term Social Game that you used has a rather vague definition. Perhaps, I need to assume that it is the very casual, free-of-charge gaming service. We do not think that the combination of a game system and dedicated software will last forever. However, we do not believe that hardware dedicated to gaming shall (become obsolete and) perish in a few years. I personally think that kind of scenario is unthinkable. The reason why we have been making systems dedicated to games is because creating engaging experiences that can not be available on other devices is the lifeline for the company.

From that perspective, providing versatile multimedia devices with our software is a business that captures the least of our interests because, should we do so, we would not be able to offer brand new and engaging experiences to our customers but would merely utilize Nintendo’s characters and past game assets for ordinary experiences, which becomes a very low priority for a video game software creator. Should we stop what we are doing, the current business configuration with a video game system and dedicated software could become obsolete. However, as we have been thinking and proposing new ideas one after another, we do not think that it will become obsolete at all. I have never thought that we will need to launch social games in order to avoid our offers from becoming obsolete.

2	My question is about 3D and 3DS. First, I have a very simple question, which is “Can 3D games actually contribute to gaming population expansion as Mr. Iwata stated?” Because I have the strong impression that 3D games are more for heavy users, I’d like to know your opinion on this. I’d also like to know the impact upon development costs as I think that they will increase in general if games become 3D from 2D. Further, as the memory may become bigger, the IC chips price and software price may rise, so please also advise us on the impact. Finally, many think that 3D games might have some effect on the children. What does Mr. Iwata think of this? What kind of countermeasures does the company have?
2	Iwata: First, about your impression that 3D games are more for heavy users, I do not understand why you feel that way. When Nintendo offers a new video game experience, we are basing it on our gaming population expansion strategy and have been creating software that can be enjoyed by a very wide age demographic encompassing 5 to 95 years old. So, the company will be offering a software lineup, which will be strategically created to entertain many people regardless of age, gender and past game experiences. Accordingly, we do not think that 3D games will mainly be for the heavy users. I feel that what I am trying to say now must be very hard to understand unless we can show you something tangible that will make you say, “I see, 3D used in this fashion is accessible to anyone.” So, we’d like you to hold your judgment until we show you something concrete in the future. About the possibility of 3D games increasing development costs, when a game is developed with the real 3D space as its game field, it is done so by simply displaying two pictures, one for the left eye and another for the right eye. Accordingly, it is not very difficult for games originally with a 3D world to be converted to a 3D game. It may cost more if you try to make a 3D game out of a game that was not created with the real 3D world as its game field. However, I do not think this is the fundamental element. Making games in 3D alone does not make the games more fun. More important is to offer the interactive experiences in the 3D vision. I believe that people will find some entertainment value to them only when we can offer the unique and fun experience with that combination. Because this is a field not yet explored, we will need to go through trial and error. It is not confined to 3D graphics, but whenever we challenge ourselves to create a brand new entertainment experience, any developer goes through trial and error, which may increase development costs. However, this is an issue that can be solved by how you manage the development process. If you involve many people in the trial and error process, the development cost can inflate. On the other hand, if you manage to organize a compact size development team in order to repeat the initial experiments, and if you significantly enlarge the size of the team only after the initial small team has shown promising results, I do not think that the total development costs will be very different from today’s level. Today is not the time for us to discuss anything about software pricing nor memory sizes. The prices of third party software titles must be determined by the third parties in the first place. We will need a bit more time before we can discuss more concrete things. Finally, about your question on the effects on children, it is said that one out of tens of people, not confined to children and including adults, does not enjoy 3D graphics. Accordingly, even though Nintendo 3DS(temp) features 3D graphics, we are thinking about incorporating some tweak so that the 3D graphics function will not be mandatory and the players will have the ability to disable that specific effect to play games. By doing so, we can hopefully deal with concerns for children’s eyes or for those who have difficulties with 3D graphics in general.

My question is about 3D and 3DS. First, I have a very simple question, which is “Can 3D games actually contribute to gaming population expansion as Mr. Iwata stated?” Because I have the strong impression that 3D games are more for heavy users, I’d like to know your opinion on this. I’d also like to know the impact upon development costs as I think that they will increase in general if games become 3D from 2D. Further, as the memory may become bigger, the IC chips price and software price may rise, so please also advise us on the impact. Finally, many think that 3D games might have some effect on the children. What does Mr. Iwata think of this? What kind of countermeasures does the company have?

Iwata:

First, about your impression that 3D games are more for heavy users, I do not understand why you feel that way. When Nintendo offers a new video game experience, we are basing it on our gaming population expansion strategy and have been creating software that can be enjoyed by a very wide age demographic encompassing 5 to 95 years old. So, the company will be offering a software lineup, which will be strategically created to entertain many people regardless of age, gender and past game experiences. Accordingly, we do not think that 3D games will mainly be for the heavy users. I feel that what I am trying to say now must be very hard to understand unless we can show you something tangible that will make you say, “I see, 3D used in this fashion is accessible to anyone.” So, we’d like you to hold your judgment until we show you something concrete in the future.

About the possibility of 3D games increasing development costs, when a game is developed with the real 3D space as its game field, it is done so by simply displaying two pictures, one for the left eye and another for the right eye. Accordingly, it is not very difficult for games originally with a 3D world to be converted to a 3D game. It may cost more if you try to make a 3D game out of a game that was not created with the real 3D world as its game field. However, I do not think this is the fundamental element. Making games in 3D alone does not make the games more fun. More important is to offer the interactive experiences in the 3D vision. I believe that people will find some entertainment value to them only when we can offer the unique and fun experience with that combination. Because this is a field not yet explored, we will need to go through trial and error. It is not confined to 3D graphics, but whenever we challenge ourselves to create a brand new entertainment experience, any developer goes through trial and error, which may increase development costs. However, this is an issue that can be solved by how you manage the development process. If you involve many people in the trial and error process, the development cost can inflate. On the other hand, if you manage to organize a compact size development team in order to repeat the initial experiments, and if you significantly enlarge the size of the team only after the initial small team has shown promising results, I do not think that the total development costs will be very different from today’s level. Today is not the time for us to discuss anything about software pricing nor memory sizes. The prices of third party software titles must be determined by the third parties in the first place. We will need a bit more time before we can discuss more concrete things.

Finally, about your question on the effects on children, it is said that one out of tens of people, not confined to children and including adults, does not enjoy 3D graphics. Accordingly, even though Nintendo 3DS(temp) features 3D graphics, we are thinking about incorporating some tweak so that the 3D graphics function will not be mandatory and the players will have the ability to disable that specific effect to play games. By doing so, we can hopefully deal with concerns for children’s eyes or for those who have difficulties with 3D graphics in general.

3	I understand that you will show 3DS at E3(). Are you preparing for any other surprises? The other day, I attended an announcement of 3D LCD by another company. When I had the opportunity to talk to an engineer, regardless of whether their LCD may be purchased by Nintendo, he explained in general that fairly high resolution is required if 3D graphics are to be experienced naturally, and that high-speed MPU and accelerator would be requisites in order to not decrease the frame rate. If what this engineer told me is true, it appears to me that Nintendo 3DS will be a very powerful system, and the possible high development costs concern me. My speculation is that development costs vary between 2D and 3D. Please comment on my speculations. () E3: Electronic Entertainment Expo. Annual video game exhibition held in the U.S. This year, it will be held from June 15 to 17.
3	Iwata: First about E3, I cannot tell you even whether or not we are preparing for any surprises because, should I tell you that we are preparing for a surprise, I could end up disappointing you (as a result of heightening your expectations to an unreasonably high level). So, please understand that I cannot even tell you whether we will make some surprise announcement or not. Next about Nintendo 3DS, we must refrain from commenting when you ask me about such alleged explanations on 3D in general. If there is one thing I can say, as we embarked on making a platform called Nintendo 3DS, we are aiming to make it so that a wide variety of different applications, from fairly fancy games to very casual ones, will be available.

I understand that you will show 3DS at E3(*). Are you preparing for any other surprises? The other day, I attended an announcement of 3D LCD by another company. When I had the opportunity to talk to an engineer, regardless of whether their LCD may be purchased by Nintendo, he explained in general that fairly high resolution is required if 3D graphics are to be experienced naturally, and that high-speed MPU and accelerator would be requisites in order to not decrease the frame rate. If what this engineer told me is true, it appears to me that Nintendo 3DS will be a very powerful system, and the possible high development costs concern me. My speculation is that development costs vary between 2D and 3D. Please comment on my speculations.

(*) E3: Electronic Entertainment Expo. Annual video game exhibition held in the U.S. This year, it will be held from June 15 to 17.

Iwata:

First about E3, I cannot tell you even whether or not we are preparing for any surprises because, should I tell you that we are preparing for a surprise, I could end up disappointing you (as a result of heightening your expectations to an unreasonably high level). So, please understand that I cannot even tell you whether we will make some surprise announcement or not.

Next about Nintendo 3DS, we must refrain from commenting when you ask me about such alleged explanations on 3D in general. If there is one thing I can say, as we embarked on making a platform called Nintendo 3DS, we are aiming to make it so that a wide variety of different applications, from fairly fancy games to very casual ones, will be available.

Presentation by the President (Text) | Q & A

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