Satoru Iwata (President):

Firstly, we base our thinking regarding profits for the next fiscal year on generating those that can be seen as typical of Nintendo, just as you mentioned. As investors should determine "Nintendo-like profits," I believe it is inappropriate for me to explain in public what level of profit this should be. However, many assess that generating an annual operating income of 100 billion yen can be considered a "Nintendo-like profit structure." As such assessments have been made, we will structure our plans for the next fiscal year to reach such a level. For the fiscal year that just ended in March 2015, we positioned it to be the year to balance revenue and expenses, and we managed to accomplish this. We set our financial forecasts taking into consideration the steps we should take this fiscal year if we are to aim for "Nintendo-like profits" in the next fiscal year.

Next, in terms of how much the smart device business will contribute to our entire business, we announced that we will begin the service for our first gaming application by the end of the calendar year, so looking at the entire fiscal year, it will only partially contribute to our business for this period. In addition, we will not release a great number of titles one after another at the beginning. As mentioned in the presentation, we will sequentially release around five titles by the end of the next fiscal year and guide each of these titles to become hits. In this sense, we have included the smart device business in our forecasts with a conservative assumption for this period, and its contribution to our profits for this fiscal year will be limited.

On the other hand, for the next fiscal year, the smart device business will contribute to our business for the full period. In addition, unlike packaged software for dedicated video game systems, sales and profits of smart device applications are not maximized at the time of release. Consumers gradually become aware of these applications, which then lead to them wanting to play with them. At the same time, service administrators gradually adapt to the business and profitability increases. Looking at smart device applications in the market that have become hits, I believe none of them maximized profits right after their services began. They gradually became profitable. Once a profitable situation is created, they sustainably contribute to revenue. Based on this premise, I believe that the smart device business will become a pillar for revenue in the next period. On the other hand, it is too optimistic to say that sales and profits will suddenly overwhelm the dedicated video game platform business in the next fiscal year. We will, as a first step, secure a trend of guiding the title we will release this fiscal year to become a hit title, and then create a situation where multiple titles are hits that contribute to revenue throughout the period of the next fiscal year. As a result, I imagine the smart device business will become a pillar that supports a certain percentage of our overall revenue.

As for the dedicated video game platform business, we are preparing for upcoming initiatives and preparing to make changes to some of the elements that are currently not working so well. Factoring in these areas as well, I believe that we will be able to generate results in the next fiscal year.

Iwata:

We recognize what the number of downloads, payment rate or the amount each user pays mean and that they have been generally used for a typical smart device business. Even though this data may be an indicator, if we focus on such numbers alone as the basis of our thinking about what actions will be most effective, it means that we will analyze why certain game applications are selling well in order to make one with a similar structure, which means we will end up copying exactly what is already happening in the market for smart devices. I think many of you here already understand that while it was simple for many to earn revenue in the beginning just from creating a smart device application, the situation has been rapidly changing and now, with intense competition, generating revenue on smart devices is no longer easy. I don't think we can realize what we aspire to by simply imitating a past success formula.

Regarding "how we receive money" from our consumers, while we understand that there are some methods or elements we should learn from or consider among the existing ways proven to work well on smart devices, it will not produce long-lasting results if we simply combine existing ways with Nintendo IP, even though we might make some short-term revenue. From a viewpoint of the business by regions, while it might work well in Japan, it will not in markets overseas, including new markets. Recently, I read an article that a successful smart device gaming company outside Japan said the Japanese market was very unique and what has been done here was totally different in structure. As we at Nintendo aim to reach all consumers around the world, we have no intention to analyze and follow successful examples in the Japanese smart device market. My understanding of how to succeed in the Japanese market now is to find a limited number of generous consumers who are willing to spend a lot and analyze what encourages them to spend. However, if we did that, I don't think that we would be able to entertain hundreds of millions of consumers all around the world or to produce large and long-lasting achievements.

A key term should be "wide and small" rather than "narrow and large." The basis of our strategy will be how we can receive a small amount of money from a wide range of consumers. However, as people in general recognize that the narrow-and-large method has been outperforming the others, we are investigating where to change in order to surpass existing hurdles. We have had various discussions internally, I have challenged the developers with this issue and they have had many active discussions on the topic. We already have some specific ideas and will announce them in due course. Above all, as Nintendo is a family brand, we do not intend on changing the situation where parents and guardians can give Nintendo products to their children with peace of mind. In that sense, we want to pay very close attention to how we receive money.

As for your second question regarding the smart device application using Mii characters, we are still working on it. We will show you it and how you can use it when it is ready. Please understand that the smart device application using Mii characters is one of the ongoing projects at Nintendo, as we are working on multiple projects simultaneously.

Iwata:

The fact that we have not only executed a business alliance with DeNA but also a capital alliance with them seems to have had a certain level of impact. I mean, although Nintendo had been citing the possibility of such an alliance for years, we had not actually executed many and since we announced an alliance with a company that many of you didn't expect, the announcement seems to have been received with surprise and had an impact on you. Nintendo is a company that, when considering possible alliances, believes that it must carefully review such factors as whether or not each company's strengths and weaknesses will smoothly complement each other and if the corporate cultures of both companies will work in harmony, rather than focusing on the potential short-term advantages. Talking about alliances in general, most of them in today's business world, as I see them, have not worked out very well. More specifically, it is often the case that the corporate cultures of the two companies just do not integrate well or that even though the top executives have agreed to work together, the people at the forefront of the actual projects are not able to establish common grounds for working together. We believe that if we are going to make an alliance, we have to produce results. If we cannot produce results, it will not only make the alliance meaningless but also may hurt the company's corporate value in the mid-to-long term. In that sense, Nintendo is a fairly cautious and careful company. As a result, we spend a significant amount of time to comprehend the strengths and weaknesses of both companies and to confirm each company's corporate cultures. We not only carry out discussions with key people at the management level but also involve those who may actually work together in order to review if the alliance will be truly beneficial for both companies. We do so in order to avoid situations where we seemingly have the same interests but are in conflict behind the scenes. Because of such a thorough review process, some may say that we are slow in making alliances, but if we are going to make an alliance, we want to lay the foundations for the best possible results.

If I can talk a bit more about our just-announced alliance with Universal Parks & Resorts, we first met with them in April last year when I was visiting the U.S. on a business trip. We met with people from NBCUniversal who proposed the possibility of the theme park business to us. Even before then, the possibility of theme park attractions (with Nintendo IP) had become an often-discussed topic in society. Even inside Nintendo, the possibility had been discussed several times. But we had not made this a reality because, on each occasion, the time was not ripe yet or we were not able to find an appropriate partner with whom to work. In the case of our first meeting with Universal Parks & Resorts, they provided us with a very detailed proposal right from the beginning. Also, as we met right after they had opened the Harry Potter attractions, we were able to learn precisely how they had been created. We received a great deal of useful information from the first meeting for us to review if they possessed a corporate culture which would ensure us the ability to license our IP to them and to work well together. Since the proposal was so specific, as soon as I returned to Japan, I informed Mr. Miyamoto, of our company, and told him that I wanted to give positive consideration to it. Since then, we have met with them several times in Japan and in the U.S., and not only me and people who carry out our negotiations but also members from each company's creative side, namely, people who will be assigned to make the actual attractions and Nintendo's game producers who have been creating our games for many years. As a result, we confirmed that we share a lot of common ground between our corporate cultures, and because parts of the proposal made us really excited, we have decided to work together on a long-term basis.

Back to your questions, various alliances are possible, not only for software development but also for hardware and for the active use of our IP. In fact, we have received quite a few proposals for business collaborations as well as the proposals that take advantage of Nintendo IP. On the other hand, the probability that these proposals will eventually materialize as a business alliance or IP license is not very high. When it comes to capital alliances, since they require the decision to make a deeper relationship between two companies for the mid-to-long term, we foresee even less probability. Having said that, however, our basic idea is that if our partnering with another company will enable us to do something that we cannot do by ourselves, we should do it. When we enter into a business alliance, if we are able to establish a firm capital relationship by wisely using our treasury shares, it is an important option for us to consider, and we will not rule out that possibility for the future, either. If we conclude that we should do so, we would like to boldly make that kind of decision. Accordingly, I hope you understand that (when we consider our business alliances) Nintendo makes decisions only after spending a considerable amount of time thoroughly reviewing whether or not we will be able to establish a favorable mid-to-long term relationship, if the corporate cultures of both companies blend well and whether or not the strengths and weaknesses of each company will complement each other.