The 74th Annual General Meeting of Shareholders Q & A

The 74th Annual General Meeting of Shareholders

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6	How is Nintendo planning to do business in the Chinese market, which could be a new frontier?
6	Satoshi Yamato (Director and General Manager of Marketing Division): Our business in China is focused on Nintendo 3DS, which is sold under the iQue name. Regarding the news reported last September that a pilot free-trade zone, which would open up the business of dedicated video game machines, would be established in Shanghai, we are currently looking into it, including the feasibility of implementing the same business model there as in the Japanese, U.S. and European markets. We hope you will wait for our future updates. Takeda: Please note that, when we announce something new about our business in the Chinese market, these announcements will be made in China.

How is Nintendo planning to do business in the Chinese market, which could be a new frontier?

Satoshi Yamato (Director and General Manager of Marketing Division):

Our business in China is focused on Nintendo 3DS, which is sold under the iQue name. Regarding the news reported last September that a pilot free-trade zone, which would open up the business of dedicated video game machines, would be established in Shanghai, we are currently looking into it, including the feasibility of implementing the same business model there as in the Japanese, U.S. and European markets. We hope you will wait for our future updates.

Takeda:

Please note that, when we announce something new about our business in the Chinese market, these announcements will be made in China.

7	I would like to ask about the lineup for Wii U software. For Wii, a few games like “Xenoblade” and “Zangeki no Reginleiv” (Japanese title), which provide more immersive experiences when played alone, rather than when played with your friends and family in the living room, were released in a row. However, there are no games like those ones for Wii U. Has the policy changed for Wii U? Regarding the type of games that you play by yourself, I know there are plans for the release of the sequels to “Xenoblade” and “Bayonetta 2,” but it has been two years since the Wii U was launched, and I would like to hear an explanation for this blank period. Mr. Miyamoto mentioned earlier that he does not like to use commonly used terms like “open world” for games, but I think that this is both Nintendo’s strength and weakness. People are hesitant to buy a game when the title and the game screens do not give any clues about the game content. However, if words like “open world” are used, for example, consumers will be more comfortable and will be more likely to buy the game, because they can relate to other “open world” games and imagine that it would be fun. Hereafter, how do you plan to appeal to such emotions when you develop games in which people enjoy playing by themselves?
7	Takeda: These questions cover different fields, so first, I would like the development division to answer and then the sales division will follow. First, let’s hear from Mr. Takahashi. Takahashi: Regarding your question on the lateness of Wii U titles for advanced game players, you are absolutely correct. However, at E3 this year, we announced “Xenoblade Chronicles X,” which is being developed under Mr. Tetsuya Takahashi from MONOLITH SOFTWARE INC. I hope you will think of this game as one in the “Xenoblade” series, not a sequel to “Xenoblade” for Wii. We are planning to announce details of this software’s content through various channels. Also, we announced “Devil’s Third” (temp.), which is being developed under Tomonobu Itagaki from Valhalla Game Studios Co., Ltd. The announcement of these titles may have been late, but I hope consumers will be able enjoy software titles like these ones from now on. Miyamoto: I received a comment on my previous remark, so please let me explain what I said. (Regarding the new Legend of Zelda title for Wii U,) I intentionally used the term “open world” so that it would be easier (for consumers) to understand, just as the shareholder has pointed out. Please understand I meant that when the development teams have discussions, I dislike heavily using terms that are commonly used (when developing something new and surprising). I suspect that software makers that develop game software (for advanced game players) for the game systems from Microsoft and Sony must have actually been having a harder time than we think. It takes a year for the development teams to get used to high-performance graphics using recent shader technology, and afterwards it requires two or three times the time and labor costs to develop a game. According to one theory, since some projects even require the budgets of over 10 billion yen, not all projects will be profitable. It is a harsh world, in which a game can hardly survive if it doesn’t make it into the top ten of the sales rankings. However, I am not saying that Nintendo will not work on this. As Mr. Takahashi previously said, our subsidiary, MONOLITH SOFTWARE INC., is working on several projects, and PlatinumGames Inc. has announced two titles for the “Bayonetta” series. It took time, but we are now able to develop software suitable for Wii U, and we would like to release new titles from now on. Yamato: Even if such new titles as Mr. Takahashi and Mr. Miyamoto mentioned are developed, if we fail to solidly promote them in the market, the games will not sell well. So, I would like to talk about our mindset on Nintendo’s sales. Over these past few years, the number of choices that consumers have for how to spend their leisure time has significantly increased. Accordingly, it is now more difficult than before for Nintendo’s products to rank high in consumers’ wish lists. Also, the way that consumers gain information about the products they want used to be mainly through television commercials, fliers in newspapers, and promotions (in stores, etc.), and Nintendo sent out information through those channels. The information flow has changed dramatically over the past few years, and I worry that Nintendo might not be able to keep up with these changes sufficiently. Regarding the previous question about how to deal with smart devices in the future, we have answered from the development division’s point of view. As for the sales division, we would like to utilize smart devices and social network services to advertise and run campaigns for new titles and their selling points, and deliver information to our consumers through these channels. As a result, we would like our consumers to thoroughly know and review our software more than before, and in turn, we hope this will help us achieve higher sales. We have a positive outlook, and we would like to make this happen as soon as possible.

I would like to ask about the lineup for Wii U software. For Wii, a few games like “Xenoblade” and “Zangeki no Reginleiv” (Japanese title), which provide more immersive experiences when played alone, rather than when played with your friends and family in the living room, were released in a row. However, there are no games like those ones for Wii U. Has the policy changed for Wii U?
Regarding the type of games that you play by yourself, I know there are plans for the release of the sequels to “Xenoblade” and “Bayonetta 2,” but it has been two years since the Wii U was launched, and I would like to hear an explanation for this blank period.
Mr. Miyamoto mentioned earlier that he does not like to use commonly used terms like “open world” for games, but I think that this is both Nintendo’s strength and weakness. People are hesitant to buy a game when the title and the game screens do not give any clues about the game content. However, if words like “open world” are used, for example, consumers will be more comfortable and will be more likely to buy the game, because they can relate to other “open world” games and imagine that it would be fun. Hereafter, how do you plan to appeal to such emotions when you develop games in which people enjoy playing by themselves?

Takeda:

These questions cover different fields, so first, I would like the development division to answer and then the sales division will follow. First, let’s hear from Mr. Takahashi.

Takahashi:

Regarding your question on the lateness of Wii U titles for advanced game players, you are absolutely correct. However, at E3 this year, we announced “Xenoblade Chronicles X,” which is being developed under Mr. Tetsuya Takahashi from MONOLITH SOFTWARE INC. I hope you will think of this game as one in the “Xenoblade” series, not a sequel to “Xenoblade” for Wii. We are planning to announce details of this software’s content through various channels.
Also, we announced “Devil’s Third” (temp.), which is being developed under Tomonobu Itagaki from Valhalla Game Studios Co., Ltd. The announcement of these titles may have been late, but I hope consumers will be able enjoy software titles like these ones from now on.

Miyamoto:

I received a comment on my previous remark, so please let me explain what I said. (Regarding the new Legend of Zelda title for Wii U,) I intentionally used the term “open world” so that it would be easier (for consumers) to understand, just as the shareholder has pointed out. Please understand I meant that when the development teams have discussions, I dislike heavily using terms that are commonly used (when developing something new and surprising).

I suspect that software makers that develop game software (for advanced game players) for the game systems from Microsoft and Sony must have actually been having a harder time than we think. It takes a year for the development teams to get used to high-performance graphics using recent shader technology, and afterwards it requires two or three times the time and labor costs to develop a game. According to one theory, since some projects even require the budgets of over 10 billion yen, not all projects will be profitable. It is a harsh world, in which a game can hardly survive if it doesn’t make it into the top ten of the sales rankings.

However, I am not saying that Nintendo will not work on this. As Mr. Takahashi previously said, our subsidiary, MONOLITH SOFTWARE INC., is working on several projects, and PlatinumGames Inc. has announced two titles for the “Bayonetta” series. It took time, but we are now able to develop software suitable for Wii U, and we would like to release new titles from now on.

Yamato:

Even if such new titles as Mr. Takahashi and Mr. Miyamoto mentioned are developed, if we fail to solidly promote them in the market, the games will not sell well. So, I would like to talk about our mindset on Nintendo’s sales.

Over these past few years, the number of choices that consumers have for how to spend their leisure time has significantly increased. Accordingly, it is now more difficult than before for Nintendo’s products to rank high in consumers’ wish lists. Also, the way that consumers gain information about the products they want used to be mainly through television commercials, fliers in newspapers, and promotions (in stores, etc.), and Nintendo sent out information through those channels. The information flow has changed dramatically over the past few years, and I worry that Nintendo might not be able to keep up with these changes sufficiently.

Regarding the previous question about how to deal with smart devices in the future, we have answered from the development division’s point of view. As for the sales division, we would like to utilize smart devices and social network services to advertise and run campaigns for new titles and their selling points, and deliver information to our consumers through these channels. As a result, we would like our consumers to thoroughly know and review our software more than before, and in turn, we hope this will help us achieve higher sales. We have a positive outlook, and we would like to make this happen as soon as possible.

8	My question is about hardware. I am working in the software field, and in my view, Nintendo has been putting a lot of effort into designing hardware for which software developers can easily create games since the days of Nintendo GameCube and Nintendo DS. In seeing the beautiful and smooth 60 frame-per-second graphics for “Mario Kart 8” released recently and “The Legend of Zelda” announced at the E3 show, I feel that you have designed Wii U to be very good hardware. Mr. Miyamoto commented on the cost of software development with new technology. Now I would like to ask Mr. Takeda how confident he is about Wii U in light of developing video games and how much it will act as a weapon for Nintendo to deploy its platforms.
8	Takeda: If you ask me about the most challenging aspect of designing Wii U, it was that the high-resolution graphics were anticipated by everyone and could not be an advantage. In addition, we are still having a hard time to make the best use of its new controller, the “Wii U GamePad.” On the other hand, it was a natural and inherent decision to aim for hardware efficiency, including a not huge capacity but low-latency memory, in designing Wii U, as we have done since the days of Nintendo GameCube. These sorts of things have been ubiquitous across the entire company; it is in our DNA. We want to pass on to our younger developers the DNA of offering unexpected and fun entertainment to consumers by doing things in different ways from others so the company can continuously produce unprecedented entertainment. This DNA should materialize in various forms. Sometimes it could be in the form of hardware, and at other times, it could bear fruit in other technology. Anyway, I want to ensure that this DNA is passed on throughout the company.

My question is about hardware. I am working in the software field, and in my view, Nintendo has been putting a lot of effort into designing hardware for which software developers can easily create games since the days of Nintendo GameCube and Nintendo DS. In seeing the beautiful and smooth 60 frame-per-second graphics for “Mario Kart 8” released recently and “The Legend of Zelda” announced at the E3 show, I feel that you have designed Wii U to be very good hardware. Mr. Miyamoto commented on the cost of software development with new technology. Now I would like to ask Mr. Takeda how confident he is about Wii U in light of developing video games and how much it will act as a weapon for Nintendo to deploy its platforms.

Takeda:

If you ask me about the most challenging aspect of designing Wii U, it was that the high-resolution graphics were anticipated by everyone and could not be an advantage. In addition, we are still having a hard time to make the best use of its new controller, the “Wii U GamePad.” On the other hand, it was a natural and inherent decision to aim for hardware efficiency, including a not huge capacity but low-latency memory, in designing Wii U, as we have done since the days of Nintendo GameCube. These sorts of things have been ubiquitous across the entire company; it is in our DNA. We want to pass on to our younger developers the DNA of offering unexpected and fun entertainment to consumers by doing things in different ways from others so the company can continuously produce unprecedented entertainment. This DNA should materialize in various forms. Sometimes it could be in the form of hardware, and at other times, it could bear fruit in other technology. Anyway, I want to ensure that this DNA is passed on throughout the company.

9	I do not understand video games and I even feel angry because, at Nintendo’s shareholders’ meetings, the shareholders always discuss things relating to video games or such childish topics as “what the future of video games should be,” while I, for one, was flabbergasted that Mr. Iwata continues to hold his position although he had said that he would resign if the company’s performance were bad. I hope that Nintendo’s shareholders’ meeting will become an opportunity where the shareholders discuss the company’s business operations from the viewpoints of capital gain and dividends. Regarding this part of the shareholder’s comment, please read the Q&A from the Annual General Meeting of Shareholders that Nintendo held in June 2013.
9	Takeda: I appreciate your tough comment. We, the directors of this company, believe that we should take responsibility by recovering our business’s momentum. I would like to ask Mr. Kimishima to comment on this valuable opinion from one of the Nintendo shareholders. Kimishima: The Annual General Meeting of Shareholders is an important opportunity for communication between Nintendo shareholders and the company’s management team. It is a place where we respond to the views expressed by shareholders, in order to discuss how we should develop the company from now on. From that perspective, talking about the company’s business operations is very important and, at the same time, as an entertainment company, it is also very important for us to inform our shareholders about the kinds of entertainment Nintendo offers, including video game content. Therefore, as the shareholder has just commented, we are and will continue trying to thoroughly discuss our business operations, and we will continue to respond to questions from other shareholders regarding the kinds of entertainment we are challenging ourselves to offer. We will try to further enhance the Annual General Meeting of Shareholders from now on. We appreciate your continued support of the company. Takeda: Once again, we appreciate these valuable comments from the shareholder.

I do not understand video games and I even feel angry because, at Nintendo’s shareholders’ meetings, the shareholders always discuss things relating to video games or such childish topics as “what the future of video games should be,” while I, for one, was flabbergasted that Mr. Iwata continues to hold his position although he had said that he would resign if the company’s performance were bad*.
I hope that Nintendo’s shareholders’ meeting will become an opportunity where the shareholders discuss the company’s business operations from the viewpoints of capital gain and dividends.
* Regarding this part of the shareholder’s comment, please read the Q&A from the Annual General Meeting of Shareholders that Nintendo held in June 2013.

Takeda:

I appreciate your tough comment. We, the directors of this company, believe that we should take responsibility by recovering our business’s momentum. I would like to ask Mr. Kimishima to comment on this valuable opinion from one of the Nintendo shareholders.

Kimishima:

The Annual General Meeting of Shareholders is an important opportunity for communication between Nintendo shareholders and the company’s management team. It is a place where we respond to the views expressed by shareholders, in order to discuss how we should develop the company from now on. From that perspective, talking about the company’s business operations is very important and, at the same time, as an entertainment company, it is also very important for us to inform our shareholders about the kinds of entertainment Nintendo offers, including video game content. Therefore, as the shareholder has just commented, we are and will continue trying to thoroughly discuss our business operations, and we will continue to respond to questions from other shareholders regarding the kinds of entertainment we are challenging ourselves to offer. We will try to further enhance the Annual General Meeting of Shareholders from now on. We appreciate your continued support of the company.

Takeda:

Once again, we appreciate these valuable comments from the shareholder.

10	The outcome of corporate management and business operations shows up as operating profit and loss. Because the company has posted operating losses for three consecutive fiscal years, I actually feel like questioning the business responsibility of the management, but instead of my doing so, today, although three months have passed already, I would like the management to explain this fiscal year’s earnings forecast and the forecast for operating profit and loss.
10	Takeda: We are deeply sorry for concerning all of our shareholders regarding our poor business performance in recent years. Mr. Kimishima will answer your question about this fiscal year’s earnings forecast. Kimishima: This fiscal year, in order to change the situation in which we have incurred operating losses for three consecutive years and to build a profit structure, we would like to aim for increases in both sales and profit by restoring the balance of revenue and expenses as our top priority. To be more specific, we would like to achieve the sales of 590 billion yen compared to 571.7 billion yen in the last fiscal year and the operating profit of 40 billion yen compared to an operating loss of 46.4 billion yen in the last fiscal year. Since over 43 million units of Nintendo 3DS hardware were sold globally, we would like to release many software titles this year as well to inspire consumers to buy many of them. We made a big forecast for Wii U hardware sales at the beginning of the last fiscal year, but the actual sales units were only 2.72 million. As Mr. Miyamoto explained, we will work to communicate the value of the Wii U GamePad in order to vitalize the Wii U platform, and propose a new play style for Wii U. Also, since we have such titles this year as “Mario Kart 8” and “Super Smash Bros. for Wii U,” which are indeed reassuring titles for us, we would like to boost sales of Wii U mainly with these titles. This year’s sales forecast is 590 billion yen, in comparison with 571.7 billion yen in the last fiscal year, so we are not expecting much increase in sales year on year. But, we are forecasting an increased operating profit. Since restoring the balance of revenue and expenses is our top priority for this fiscal year, we will further improve our cost management and aim to return to a profit structure soon. We are now diligently working to achieve this goal. Takeda: In summary, our answer to this question is, we will work to achieve the operating profit forecast that we set for this fiscal year.

The outcome of corporate management and business operations shows up as operating profit and loss. Because the company has posted operating losses for three consecutive fiscal years, I actually feel like questioning the business responsibility of the management, but instead of my doing so, today, although three months have passed already, I would like the management to explain this fiscal year’s earnings forecast and the forecast for operating profit and loss.

Takeda:

We are deeply sorry for concerning all of our shareholders regarding our poor business performance in recent years. Mr. Kimishima will answer your question about this fiscal year’s earnings forecast.

Kimishima:

This fiscal year, in order to change the situation in which we have incurred operating losses for three consecutive years and to build a profit structure, we would like to aim for increases in both sales and profit by restoring the balance of revenue and expenses as our top priority. To be more specific, we would like to achieve the sales of 590 billion yen compared to 571.7 billion yen in the last fiscal year and the operating profit of 40 billion yen compared to an operating loss of 46.4 billion yen in the last fiscal year. Since over 43 million units of Nintendo 3DS hardware were sold globally, we would like to release many software titles this year as well to inspire consumers to buy many of them. We made a big forecast for Wii U hardware sales at the beginning of the last fiscal year, but the actual sales units were only 2.72 million. As Mr. Miyamoto explained, we will work to communicate the value of the Wii U GamePad in order to vitalize the Wii U platform, and propose a new play style for Wii U. Also, since we have such titles this year as “Mario Kart 8” and “Super Smash Bros. for Wii U,” which are indeed reassuring titles for us, we would like to boost sales of Wii U mainly with these titles.
This year’s sales forecast is 590 billion yen, in comparison with 571.7 billion yen in the last fiscal year, so we are not expecting much increase in sales year on year. But, we are forecasting an increased operating profit. Since restoring the balance of revenue and expenses is our top priority for this fiscal year, we will further improve our cost management and aim to return to a profit structure soon. We are now diligently working to achieve this goal.

Takeda:

In summary, our answer to this question is, we will work to achieve the operating profit forecast that we set for this fiscal year.

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