Iwata:

As a matter of fact, we have been granting merchandising licenses to other companies for the use of our intellectual property. A good example would be Mario plush toys, and there are many other products that feature Mario’s image as well. While we have been doing this for a long time, however, we are yet to do so in the digital fields, as it is very difficult to have clearly definable criteria to decide whether a certain product should be perceived as a game or not. For example, let us say that we just received a request to license Mario in educational PC software that will enable children to enjoy learning with their favorite character. However, children are not expecting Mario to be a teacher; they are expecting Mario to let them play games. This means that, while the publisher was perhaps originally trying to use Mario for educational purposes only, they may very well end up making PC games with Mario. So we deliberately set a broader definition for what we meant by “digital area” for which we decided not to license our game character rights. However, having Mario loved by many people in various settings is by no means a bad thing for our future, and if we can do that in the right manner, it will in fact help our business. The point is that we are not ruling out the digital area, and we want to think about it in a flexible way. On the other hand, it does not mean that we will license our character rights in every single case and I do not envisage a scenario in which we would license Mario out to another company to make a Mario video game. I would like to mention, just for reference, that there are examples in which we have licensed Mario as a guest character in some third-party titles on Nintendo platforms. We thought it was acceptable as long as Mario appeared only on Nintendo platforms and have continued to manage Mario in such a fashion, so Mario has already appeared in several games as a guest character.

Iwata:

With regard to Nintendo 3DS, we felt that it was only a step away from achieving explosive sales in the overseas markets because releasing “Pokémon X” and “Pokémon Y” worldwide in October had greatly increased its hardware sales and stimulated more active engagement with the hardware. Considering that we had already experienced such strong sales in the early stages of the season, we were confident about the ultimate sales volume for the end of the year, too, but sales did not grow as expected. In order to sell a 150 dollar or 200 dollar product in the year-end sales season when there are other gifts available, you need to make sure that your product is at the top of children’s wish lists, and I analyze our results as our inability to place ourselves at the top of the list. However, I think it would be wrong to say that we never appeared on children’s wish lists in the first place. Rather, I think that we did not manage to place ourselves at the top of these lists, and what we need to examine is why we failed to do so. On the other hand, there were regions in which sales grew extremely well, too. For example, while sales did not grow well in the U.S. and did not increase enough in the UK or Germany during the year-end sales season, they grew extremely well in France. Right now, we are examining what was different about France, and we would like to apply our findings to other regions.

As for Wii U, I would say there are two aspects to consider. For one thing, in Japan we were able to focus our energy on communicating Wii U in the year-end sales season to a certain degree because “Monster Hunter 4” in September, and “Pokémon X/Pokémon Y” in October had already boosted Nintendo 3DS sales. We focused our promotional efforts on encouraging people to get together and play with Wii U at the end of the year, and this led to bringing Wii U sales back to 100,000 units per week, which seems to have surprised many people. On the other hand, in the overseas markets, we had to boost Nintendo 3DS sales to an explosive level and we also had to do something about Wii U at the same time. As a result, we were not able to fully focus on promoting either of them. We initially planned to achieve solid sales for Nintendo 3DS around the time we released “Pokémon X/Pokémon Y” and then focus on Wii U promotion during the year-end sales season. However, this plan did not work and we had to spread our resources over two platforms. Because of this, neither of them achieved explosive sales, a point we need to deeply reflect on.

With respect to consumers’ attention, there is a difference between the overseas markets in which other companies launched new home consoles, and the Japanese market in which their launches have been held off until this year. I believe not many consumers wavered between Wii U and those new consoles from other companies because I believe that our user demographics are different to a certain degree. We tried to create a buzz in the overseas markets with Wii U that would encourage many people to look for information about Wii U, making it easier to get our messages across, but this proved to be more difficult than we had expected. I truly need to reflect on the outcome of this year-end sales season, which, in my opinion, was the worst year-end sales season in the overseas markets since I became president, and I would like to bring them back on the right track as soon as possible.

Iwata:

In talking about the benefits of pursuing an integrated hardware-software business model, the most important element of any entertainment offering is its ability to surprise and convince consumers that they have never experienced such a new, unique and entertaining proposition, and when we do succeed in making such offers, they achieve market penetration on an explosive scale. The key point is that pursuing an integrated hardware-software model in which we offer hardware as well as software provides us with more options in the video game industry in terms of surprising consumers. As the number of developers has increased beyond the capacity of our corporate headquarters, it has become a bit difficult for our hardware and software developers to work closely with each other for some recent years. However, we will soon have a new dedicated building at our headquarters for development which will enable our hardware and software development teams to work very closely in one building, through which I hope to demonstrate more clearly the synergy effect that comes from developing both hardware and software. As I explained earlier, we will make an effort to take advantage of smart devices and create an application that draws consumer attention, but since we will have no hardware in our arsenal to surprise consumers, we will use our strengths and imagination, and try something completely new. So, I am not claiming that Nintendo is unable to do anything without making its own hardware. However, as Mr. Takeda said earlier, I believe that combining software and hardware will “amplify” our strengths, and this becomes an advantage in the entertainment industry. The type of competition that exists in most industries requires one to respond to known needs of the consumers that consumers themselves are aware of, which, however is not the case in the entertainment industry. Entertainment flourishes when consumers are faced with something that they did not know that they wanted, so it is my view that the entertainment industry is slightly different from others in the sense that the more resources we have in order to surprise people, the more competitive we are.

Given that the company is not currently running at a profit, I find it unpersuasive to define our targeted business size by, for example, giving a concrete figure for the operating profit, so I will not give a number to what I perceive to be the right business size for Nintendo. Our software business alone could achieve that business size in, say, one or two years if we are fortunate enough to have some hit titles. However, it has been 30 years since Nintendo started its business of dedicated video game systems, and if I want to maintain that size for the next 10, 20 or 30 years, leading a software-only business would only put us at a big disadvantage, which is another reason why we insist on our integrated hardware-software model. On the other hand, the integrated hardware-software model has a significant handicap today, as the traditional way of explicitly telling consumers the investment they need to put in to buy hardware and software now comes across as being relatively more expensive due to changes in our environment. Although people may actually be spending more money (to play games on other devices not dedicated to video games), it is less visible, so the hurdle we have to clear in order to encourage them to purchase dedicated game systems has comparatively become higher. As with games that are free-to-play, or “free-to-start” as we like to call it, there is a tendency within the entertainment industry to make gaming as easy as possible to start playing. Because our hardware and software are integrated, we first need consumers to purchase our hardware to get our business off the ground, a challenge I outlined when I talked about changing the way we sell our products. Our mid-term goal would be to give an answer to this question in a way that had never been seen before.

I do not think that hardware-software integration is equivalent to making people smile, and I do not intend to say that making games on smart devices will not lead to putting smiles on people’s faces. There are games on smart devices that are indeed making consumers smile, I think.

However, only two years ago, many people urged Nintendo to follow other companies into what was then a very lucrative area, but no one says so any longer. In a similar vein, those who now claim that we should make games for smart devices might or might not be saying so in three years. It is our determination for our mid-term future to make efforts to devise our own solutions different from others.