The 74th Annual General Meeting of Shareholders Q & A

The 74th Annual General Meeting of Shareholders

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11	I do understand that Nintendo is planning to improve its performance with Wii U and Nintendo 3DS for this fiscal year and the next, but in the long term, I, as a video game fan who wants Nintendo to keep on running a game business, am worried that Nintendo might be going to become a manufacturer of health devices in the future. I would like to own Nintendo stock for as long as ten years, so please show game fans like me something that will convince us that the game business will have a bright future in that period. It seems to me that the hardware-software integrated platform business will not last forever. Is Nintendo not going to change this business model? If not, I am concerned that failure of the next hardware system could be critical. In order to wipe away my anxiety, I would like to hear about Nintendo’s dreams for the future, especially from Mr. Miyamoto.
11	Miyamoto: Thank you so much for expecting a lot from the future of the game business. My comment relates to the comment made by another shareholder today, and I believe that these kinds of questions on video games from shareholder are not irrelevant to our company management. This is because, for an entertainment company like Nintendo, the most essential question is not to improve our profitability but how to maintain a high level of sales and sustain the company over a timespan of, for example, 10 years. The entertainment business inherently has a lot of ups and downs. When I joined the company over 30 years ago, Nintendo had a great amount of debt loans. Now, it is sometimes said that Nintendo is too cash-rich, but this is essential for us to try new endeavors. I am sorry for the shareholder who just asked this question, but I cannot predict what is going to happen 10 years from now. It is true that I have a sense of fear in that “hand-me-down smartphones,” as pointed out by another shareholder, are becoming hardware systems on which to play games due to their prices being lower than that of our most inexpensive video game system in our history. However, I do not believe that will completely control the future of video games. Of course, it is important to gain profit in effective ways, but Nintendo always has to take seriously, for example, network security for children. Taking into consideration that more and more children have a good command of these kinds of media, which help these media to spread, the most important task for Nintendo is how to provide new styles of entertainment by using these technologies, and how to make these new kinds of entertainment yield significant sales and profits. It goes without saying that Nintendo has been trying to improve its profitability at the same time. For example, at E3 this year, we were able to obtain more page views on our website while considerably reducing our E3-related costs. About the prospects of “ten years from now” (which were mentioned in the question), I believe it will work itself out because new forms of entertainment are always born. But, we always need to work with a clear consciousness that we have to act now to make that happen. This consciousness is mounting high among people at Nintendo now, so please wait for our next move. I believe the appeal of video games is not transient and human beings have an instinctual love of games. I would like to keep on producing new products that surprise people all over the world. Takeda: Let me add some comments. Nintendo is in the entertainment business; our products are not daily necessities. Therefore, we have experienced many ups and downs so far, but we have also provided a lot of surprises to the world. The hardware-software integrated platform business, as we always mention, specifically means that we integrate software technology, hardware technology, ideas, art, music, graphics and even elements of psychology to produce our entertainment products. Thus, even though we stated that Nintendo is going to attempt to improve people’s health, we do not intend for consumers to just become healthy but aim to improve their health in enjoyable ways, which we believe, is another kind of entertainment. Please understand that we are not aiming to become a health device company (as you worry).

I do understand that Nintendo is planning to improve its performance with Wii U and Nintendo 3DS for this fiscal year and the next, but in the long term, I, as a video game fan who wants Nintendo to keep on running a game business, am worried that Nintendo might be going to become a manufacturer of health devices in the future. I would like to own Nintendo stock for as long as ten years, so please show game fans like me something that will convince us that the game business will have a bright future in that period. It seems to me that the hardware-software integrated platform business will not last forever. Is Nintendo not going to change this business model? If not, I am concerned that failure of the next hardware system could be critical. In order to wipe away my anxiety, I would like to hear about Nintendo’s dreams for the future, especially from Mr. Miyamoto.

Miyamoto:

Thank you so much for expecting a lot from the future of the game business. My comment relates to the comment made by another shareholder today, and I believe that these kinds of questions on video games from shareholder are not irrelevant to our company management. This is because, for an entertainment company like Nintendo, the most essential question is not to improve our profitability but how to maintain a high level of sales and sustain the company over a timespan of, for example, 10 years. The entertainment business inherently has a lot of ups and downs. When I joined the company over 30 years ago, Nintendo had a great amount of debt loans. Now, it is sometimes said that Nintendo is too cash-rich, but this is essential for us to try new endeavors. I am sorry for the shareholder who just asked this question, but I cannot predict what is going to happen 10 years from now. It is true that I have a sense of fear in that “hand-me-down smartphones,” as pointed out by another shareholder, are becoming hardware systems on which to play games due to their prices being lower than that of our most inexpensive video game system in our history. However, I do not believe that will completely control the future of video games. Of course, it is important to gain profit in effective ways, but Nintendo always has to take seriously, for example, network security for children. Taking into consideration that more and more children have a good command of these kinds of media, which help these media to spread, the most important task for Nintendo is how to provide new styles of entertainment by using these technologies, and how to make these new kinds of entertainment yield significant sales and profits. It goes without saying that Nintendo has been trying to improve its profitability at the same time. For example, at E3 this year, we were able to obtain more page views on our website while considerably reducing our E3-related costs.

About the prospects of “ten years from now” (which were mentioned in the question), I believe it will work itself out because new forms of entertainment are always born. But, we always need to work with a clear consciousness that we have to act now to make that happen. This consciousness is mounting high among people at Nintendo now, so please wait for our next move. I believe the appeal of video games is not transient and human beings have an instinctual love of games. I would like to keep on producing new products that surprise people all over the world.

Takeda:

Let me add some comments. Nintendo is in the entertainment business; our products are not daily necessities. Therefore, we have experienced many ups and downs so far, but we have also provided a lot of surprises to the world. The hardware-software integrated platform business, as we always mention, specifically means that we integrate software technology, hardware technology, ideas, art, music, graphics and even elements of psychology to produce our entertainment products. Thus, even though we stated that Nintendo is going to attempt to improve people’s health, we do not intend for consumers to just become healthy but aim to improve their health in enjoyable ways, which we believe, is another kind of entertainment. Please understand that we are not aiming to become a health device company (as you worry).

12	I would like to ask a question about the development environment. I believe that it was wise to merge home console and handheld device development. The integration will lower the software development costs and possibly contribute to higher-quality software, and that will lead to higher profit levels. On the other hand, I assume that Nintendo’s support for third-party developers, especially the overseas developers, is still weak. For example, I would say Nintendo faces the challenge in retaining overseas software developers. Also, I heard that though Nintendo has put effort into the Nintendo Web Framework so that people can develop software using web technologies, I heard that it is difficult to get licensed in Japan. I know Nintendo is a very powerful company itself, still Nintendo will be able to achieve higher profit levels by retaining third-party developers. For it is vital to increase the sales of hardware, I believe you need to increase the hardware sales by having other software developers release attractive software. I would like to know your vision from this perspective.
12	Takeda: The integration of development environments is quite technical, but in short, it is whether you use Nintendo’s original developing tool or a computer with readily available, standard developing tools when you develop video games for Nintendo platforms. Though we always try to create unique software content, we believe it would be efficient if we could integrate development tools. So, we are trying to gradually move toward the standard development tools from so-called “native” tools unique to Nintendo. Susumu Tanaka (Director and General Manager of Licensing Division): I would like to explain our approach toward the third-party software developers. As for the current numbers of software developers for our platforms, in the U.S. there are about 40 companies developing software for Nintendo 3DS, and about 20 companies for Wii U. The numbers of developers are almost the same in Europe. If we add companies that develop downloadable software to these numbers, in the U.S., there are about 130 companies for Nintendo 3DS and about 200 companies for Wii U. In Europe, there are about 160 companies for Nintendo 3DS and as for Wii U, about 115 companies. And in Japan, there are about 140 companies for Nintendo 3DS and about 35 companies for Wii U. I would say quite a few companies have interest in developing software for our platforms. Regarding Nintendo 3DS, since the end of last year, several titles developed by third-party software developers have sold more than one million units in Japan, and the number of titles is increasing. You may think there is a shortage of software titles overseas for there is no noticeable smash hit; however, the number of titles is greater than in Japan, even for packaged software. With regard to Wii U, it is true that the number of titles is still limited and there is no huge hit from software developed by third-party publishers. For one reason, this is because the penetration of Wii U hardware has been slower than expected and this situation makes developers a bit wary of developing software for Wii U. We would like to continuously develop strong first-party software to drive hardware sales so that other developers feel confident to move into Wii U software development. On the other hand, Nintendo 3DS has already shown significant penetration, with the Japanese market as the forerunner, and many companies are actively developing software for it. These days, applications originally for smart devices have been made for Nintendo 3DS and there are million-selling titles among them. App developers are more willing to develop software for Nintendo 3DS because of the situation, and we at Nintendo are also looking at the popular smart device applications with the prospect of expanding our line of Nintendo 3DS titles. I hope you keep looking forward to our upcoming titles. Thank you.

I would like to ask a question about the development environment. I believe that it was wise to merge home console and handheld device development. The integration will lower the software development costs and possibly contribute to higher-quality software, and that will lead to higher profit levels. On the other hand, I assume that Nintendo’s support for third-party developers, especially the overseas developers, is still weak. For example, I would say Nintendo faces the challenge in retaining overseas software developers. Also, I heard that though Nintendo has put effort into the Nintendo Web Framework so that people can develop software using web technologies, I heard that it is difficult to get licensed in Japan. I know Nintendo is a very powerful company itself, still Nintendo will be able to achieve higher profit levels by retaining third-party developers. For it is vital to increase the sales of hardware, I believe you need to increase the hardware sales by having other software developers release attractive software. I would like to know your vision from this perspective.

Takeda:

The integration of development environments is quite technical, but in short, it is whether you use Nintendo’s original developing tool or a computer with readily available, standard developing tools when you develop video games for Nintendo platforms. Though we always try to create unique software content, we believe it would be efficient if we could integrate development tools. So, we are trying to gradually move toward the standard development tools from so-called “native” tools unique to Nintendo.

Susumu Tanaka (Director and General Manager of Licensing Division):

I would like to explain our approach toward the third-party software developers. As for the current numbers of software developers for our platforms, in the U.S. there are about 40 companies developing software for Nintendo 3DS, and about 20 companies for Wii U. The numbers of developers are almost the same in Europe. If we add companies that develop downloadable software to these numbers, in the U.S., there are about 130 companies for Nintendo 3DS and about 200 companies for Wii U. In Europe, there are about 160 companies for Nintendo 3DS and as for Wii U, about 115 companies. And in Japan, there are about 140 companies for Nintendo 3DS and about 35 companies for Wii U. I would say quite a few companies have interest in developing software for our platforms. Regarding Nintendo 3DS, since the end of last year, several titles developed by third-party software developers have sold more than one million units in Japan, and the number of titles is increasing. You may think there is a shortage of software titles overseas for there is no noticeable smash hit; however, the number of titles is greater than in Japan, even for packaged software.
With regard to Wii U, it is true that the number of titles is still limited and there is no huge hit from software developed by third-party publishers. For one reason, this is because the penetration of Wii U hardware has been slower than expected and this situation makes developers a bit wary of developing software for Wii U. We would like to continuously develop strong first-party software to drive hardware sales so that other developers feel confident to move into Wii U software development.

On the other hand, Nintendo 3DS has already shown significant penetration, with the Japanese market as the forerunner, and many companies are actively developing software for it. These days, applications originally for smart devices have been made for Nintendo 3DS and there are million-selling titles among them. App developers are more willing to develop software for Nintendo 3DS because of the situation, and we at Nintendo are also looking at the popular smart device applications with the prospect of expanding our line of Nintendo 3DS titles. I hope you keep looking forward to our upcoming titles. Thank you.

13	I have been a shareholder of Nintendo only since last year and I am a bit surprised by the fact that Mr. Takeda, chairperson of this meeting, has no more than 200 shares of stock in this company and that except for Mr. Iwata, who owns 6,700 shares, the other directors also have only 100 or 200 shares each. I do not think such small stakes in the company will give you incentive to do your best, and I was wondering if you were just working as salaried employees. Why do you not increase the number of shares the management team holds?
13	Takeda: We believe that there is no connection between the number of shares a director owns and the enthusiasm he has for company management. I hope you will understand our resolve to improve our performance to return to profitability, regardless of the number of shares our management team holds. Thank you for your helpful comment.

I have been a shareholder of Nintendo only since last year and I am a bit surprised by the fact that Mr. Takeda, chairperson of this meeting, has no more than 200 shares of stock in this company and that except for Mr. Iwata, who owns 6,700 shares, the other directors also have only 100 or 200 shares each. I do not think such small stakes in the company will give you incentive to do your best, and I was wondering if you were just working as salaried employees. Why do you not increase the number of shares the management team holds?

Takeda:

We believe that there is no connection between the number of shares a director owns and the enthusiasm he has for company management. I hope you will understand our resolve to improve our performance to return to profitability, regardless of the number of shares our management team holds. Thank you for your helpful comment.

14	In the section titled “Issues to be Addressed” (in the Notice of the 74th Annual General Meeting of Shareholders), you indicated that Nintendo would utilize its abundance of character IP more actively, providing its IP with more exposure in places other than video games, while achieving a certain level of profit from its licensing business. I would like you to explain in more detail about the utilization of character IP and the expected profit levels.
14	Takeda: Mr. Takahashi will answer your question on how Nintendo is going to utilize its character IP and make it contribute to the company’s profits. Takahashi: As for the utilization of character IP, one of our latest projects is “amiibo,” character figures with built-in NFC functionality that we are going to launch at the end of this calendar year. They will be compatible with “Super Smash Bros. for Wii U,” and we also plan to make them compatible with other Wii U and Nintendo 3DS software from next year. I would rather not comment on the expected profit level because there are still various uncertainties that remain, and we are not able to estimate a concrete figure. Takeda: The first example of our active utilization of Nintendo’s character IP is going to be the character figures called “amiibo.” We named them “amiibo” after “ami,” a word that means “friend.” And, we can only say that the expected profit level from “amiibo” has not yet been determined.

In the section titled “Issues to be Addressed” (in the Notice of the 74th Annual General Meeting of Shareholders), you indicated that Nintendo would utilize its abundance of character IP more actively, providing its IP with more exposure in places other than video games, while achieving a certain level of profit from its licensing business. I would like you to explain in more detail about the utilization of character IP and the expected profit levels.

Takeda:

Mr. Takahashi will answer your question on how Nintendo is going to utilize its character IP and make it contribute to the company’s profits.

Takahashi:

As for the utilization of character IP, one of our latest projects is “amiibo,” character figures with built-in NFC functionality that we are going to launch at the end of this calendar year. They will be compatible with “Super Smash Bros. for Wii U,” and we also plan to make them compatible with other Wii U and Nintendo 3DS software from next year.
I would rather not comment on the expected profit level because there are still various uncertainties that remain, and we are not able to estimate a concrete figure.

Takeda:

The first example of our active utilization of Nintendo’s character IP is going to be the character figures called “amiibo.” We named them “amiibo” after “ami,” a word that means “friend.” And, we can only say that the expected profit level from “amiibo” has not yet been determined.

15	I liked to read the “Iwata Asks” articles on the Nintendo website, which used to be updated occasionally. It makes sense that the interviews are not being updated these days since Mr. Iwata has a health problem, but I would like to know why it has been updated less often recently than in the past.
15	Yamato: We make use of our website as one of the means to give our products wide recognition. Nintendo will continue to publicize our information directly and uniquely. In addition, we have ideas for new attempts to let as many consumers as possible know about our products through various collaborations with distributors, developing partners and so on. Just as we conveyed information directly and broadly to people in various sectors from E3 the other day, Nintendo will continue to look for new ways to pass on information to more consumers. I believe we can propose various ways of communicating from now on as well. Takeda: Since your question derives from the health status of Mr. Iwata, I would like to add some comments about his current status. We appreciate that everyone is concerned about his health condition. Unfortunately, he had no choice but to miss this Annual General Meeting of Shareholders, but in fact we have already started to communicate via email to discuss, for example, business decisions. Since he announced his absence from the Annual General Meeting of Shareholders to our shareholders on June 24, we have received many sympathy messages from all over the world via social media and other means. This is all I can tell you right now, and I know that he himself very much appreciates everyone’s concern for his welfare. After Mr. Iwata comes back, I believe that we will be able to provide new “Iwata Asks” interview articles. Miyamoto: Thank you for reading “Iwata Asks.” Actually, Mr. Iwata’s physical condition has nothing to do with the reduced update frequency of these articles. Since over half a year ago, we have been discussing our methods of disseminating information to understand to what extent “Iwata Asks” has been able to deliver our information directly to our consumers. As a result, we came up with the idea that Nintendo should try to attract a more broad audience through a wider range of methods. That is the reason why Mr. Iwata has not been updating “Iwata Asks” as frequently. As Mr. Yamato said, we are aiming for broader communication with consumers in ways that are more diverse from now on.

I liked to read the “Iwata Asks” articles on the Nintendo website, which used to be updated occasionally. It makes sense that the interviews are not being updated these days since Mr. Iwata has a health problem, but I would like to know why it has been updated less often recently than in the past.

Yamato:

We make use of our website as one of the means to give our products wide recognition. Nintendo will continue to publicize our information directly and uniquely. In addition, we have ideas for new attempts to let as many consumers as possible know about our products through various collaborations with distributors, developing partners and so on. Just as we conveyed information directly and broadly to people in various sectors from E3 the other day, Nintendo will continue to look for new ways to pass on information to more consumers. I believe we can propose various ways of communicating from now on as well.

Takeda:

Since your question derives from the health status of Mr. Iwata, I would like to add some comments about his current status. We appreciate that everyone is concerned about his health condition. Unfortunately, he had no choice but to miss this Annual General Meeting of Shareholders, but in fact we have already started to communicate via email to discuss, for example, business decisions. Since he announced his absence from the Annual General Meeting of Shareholders to our shareholders on June 24, we have received many sympathy messages from all over the world via social media and other means. This is all I can tell you right now, and I know that he himself very much appreciates everyone’s concern for his welfare. After Mr. Iwata comes back, I believe that we will be able to provide new “Iwata Asks” interview articles.

Miyamoto:

Thank you for reading “Iwata Asks.” Actually, Mr. Iwata’s physical condition has nothing to do with the reduced update frequency of these articles. Since over half a year ago, we have been discussing our methods of disseminating information to understand to what extent “Iwata Asks” has been able to deliver our information directly to our consumers. As a result, we came up with the idea that Nintendo should try to attract a more broad audience through a wider range of methods. That is the reason why Mr. Iwata has not been updating “Iwata Asks” as frequently. As Mr. Yamato said, we are aiming for broader communication with consumers in ways that are more diverse from now on.

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