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Xeodrifter diary #13

GN Podcast #480

EoD - Smash Wii U!
 

Iwata - 3DS goals, Wii2 secrets, improving WiiWare/DSiWare and first party promos

The following is an officially-translated wall of information from Satoru Iwata concerning a number of topics. We’ve heard these answers and discussions before, but they were all from a Japanese translation. Now we have the official wording from Nintendo themselves. That makes it kind of new, and kind of old. It’s nice to have Nintendo’s official wording though!

- We believe that Nintendo’s sound business development in the mid-and-long term will basically benefit all of the stakeholders. In other words, we need to regularly release products that can offer positive surprise to our customers and to try to make efforts to spread that meaningful surprise in order to maximize the number of our consumers who are willing to purchase our products. We should be responsible for solid results in every fiscal year in order to not have people worry about our future by saying that Nintendo’s rapid growth through Nintendo DS and Wii was just very lucky and nothing but temporary. If we can have our shareholders acknowledge in mid to long run that pure luck alone could not have yielded the actual sales results of Nintendo DS and Wii and that Nintendo is the corporate organization which has the ability to sustain such performances, it will dispel the concerns about our future business and, as a result, lead to a high valuation by investors in the long run, I believe. For the time being, we are concentrating on our new hardware, Nintendo 3DS, because it is very important to make Nintendo 3DS as popular as, or to make it more popular than, Nintendo DS which has been appreciated by so many people around the world. Of course, we are not focusing on just the new product that we have announced. For Nintendo DS and Wii which already have well-established installed bases, we are aware of the significance of developing quality software to continue to enhance their popularity.

- Naturally, we are developing new products all the time. Whenever asked, our answer is yes, (we are making new products.) Our development departments are dedicated to developing new products. Once we release a product, we will soon move to the development of the next. Since the launch of the original Nintendo DS, the company has introduced you to several new models, but we have to anticipate the life span of the Nintendo DS series will eventually come to an end someday. We have been studying and developing the next product for that day. In this context, Nintendo 3DS has been under development for the six years (since the release of the original Nintendo DS.) Speaking of other products, we are of course studying and developing the next console to Wii. However, there is a big difference between studying a product and announcing what it is and when we will release it. I am afraid to say that the history of entertainment is also the history of imitation. A great idea will promptly be copied unless protected through patents. At the same time, it is really important for our business to positively surprise people. Will you be surprised by our completed product if we told you how it is surprising three years in advance? Therefore, we basically disclose information on our products as late as possible. We believe this is the best approach for the entertainment products we are developing. Again, we are planning the next products for Nintendo’s continuous growth, but we cannot tell you what, when and how we will release it here. Thank you for your understanding.

- Talking about rivals in general, we used to be interviewed by the media about the competition with Sony and Microsoft. Recently, media reporters have often interviewed me with their own belief that Apple is Nintendo’s rival and have written articles accordingly. On the contrary, we ourselves, assume that our rival is everything consuming people’s interest, time and energy. If we were to consider one specific thing as our rival, we would do nothing but think of how to beat it. Thinking this way could allow us to fall into the trap of shortsighted business philosophies, saying, “how do we spoil the rival’s strength,” or “how do we do what the rival cannot do.” If Nintendo manufactured commodities of daily necessity and if there were some established methodology to have our products appreciated by the consumers, such approaches could make some sense. However, for Nintendo’s products, it is quite uncertain what is amazing and amusing to people. Even if we ask customers what kind of games they want to play and develop one game as they requested, it may not always greatly excite them. Instead, we should develop what is beyond their imagination and let them say, “This is unexpectedly interesting,” or “This is the very thing I have been wanting.” We can say that our business is very unique.

Therefore, rather than trying to identify a specific rival and to think about how to fight against it, it is more important for our unique business to always ask ourselves, and try to answer, such questions like “What does it mean to make people interested in something?”, “What is worth spending people’s time and energy on?”, or “What do people find amusement in?” We would be glad if you understand that, as the basis, we are not conscious of any certain rivals.

Specifically about the “Cloud Computing” that you referred to, the term is often seen in the newspapers these days. Please let me briefly explain about the term first. Now that the Internet and other telecommunication networks have been highly developed, you can have computers process complex transactions online and return the results quickly through fixed-lines and cell-phones. The cluster of computers online is called the “Cloud.” With the Cloud, you do not need an expensive computer on hand anymore even for the most complicated information processing. All you need is an input and display device. This is the concept of Cloud Computing. One of the advantages of Cloud Computing is the flexibility of the allocation of computers installed. It is said to be a very efficient technology for a business with volatile demand, for example, the demand of a service increasing ten times suddenly in a day and decreasing to only a fraction in three months again. On the other hand, in the world of (interactive) entertainment that we create, it is pretty true that what comes first is a quick response to players from the computer. The technologies we use in our video game consoles actually include some elements which are very suitable but others which will never be suited to Cloud Computing. With Cloud Computing, for example, customers would be irritated even by a slight delay in response after pressing a button. So, for what is suitable for Cloud Computing, we will take advantage of the technology in the future. It is also natural that we will align with a service provider of Cloud Computing, and not going through the trouble to develop our own facilities. Having said that, however, Cloud Computing would not conquer every field of entertainment because present telecommunication technologies inevitably involve a certain delay and limitation of transmission speed. We would employ Cloud Computing as far as it is useful.

- It is true that not only those in Japan and the other developed countries in North America and Europe but also those in several countries with rapid economic development can afford more entertainment than before. And it is vital for our basic strategy of “gaming population expansion” that more people in such countries as well as in Japan, North America and Europe, enjoy our video games and feel convinced to pay for them.

Meanwhile, some in newly-emerging countries do not have an established custom of paying for software. We do wonder if the traditional business model of the video game industry will succeed in such regions. If we do totally different business there with cheaper services and software than developed countries, people in developed countries would have negative feelings toward us and say, “why do we have to pay much more than those playing video games elsewhere?” This could be one of the biggest problems for us that would need to be solved. Needless to say, popularizing our video games throughout newly-emerging countries is indispensable for Nintendo’s growth in the mid-and-long term. We will take enough time to work on it.

Concerning the nationality of board members, we believe that there is a crucial difference between how many non-Japanese directors a company has and how internationally-minded a company is. If our management did not know or try to understand any countries outside Japan or travel abroad at all, this could be a problem. However, all director candidates here are very familiar with various international issues and actually go on international business trips for many purposes. Otherwise Japanese-born Nintendo DS and Wii would not have spread globally. Therefore, we are not concerned about our current management’s ability to respond to globalization. We will continue our efforts to communicate with our customers around the world.

- “Even the best entertainment is not known to everyone” is the very biggest challenge for us. To expand the gaming population, we have to break through the barrier of encouraging non-gamers to play video games. For example, most men cannot memorize a brand name of a cosmetic for women nor understand its effects no matter how many TV commercials on it they watch. The same is true for video games. It is hard to have those who are not interested in video games to see the fun of a video game with a number of TV commercials on it. The greatest obstacle to “gaming population expansion” is, so to speak, people’s lack of interest. The best measure to overcome this obstacle is a recommendation from someone close to them: families, friends and relatives. What you mentioned are some typical examples of word of mouth. Video games will not become more popular without such cases. In usual cases, furthermore, word of mouth will not easily spread except among those who are of the same generation and gender and belong to the same organization, school or office. We are focusing on increasing the number of people playing with our video game devices in a family where word of mouth could spread, thereby breaking down the barrier of generation and gender. For example, when a wife gets interested in a game her husband is playing, she might say to her friends, “The video game my husband is playing recently is unexpectedly interesting.” In this way, some of Nintendo’s products could partially breakdown the barrier. This is why Nintendo DS and Wii were made popular to some extent among those who had not been interested in video games before. As you suggested, our PR activities have not fully penetrated this barrier yet. At the same time, PR efforts with an infinite budget for a marginal increase in sales would be off balance. It is very challenging for us to come up with a method to efficiently convey the charm of a product to those uninterested. Taking the example of Nintendo 3DS, it would be difficult to promote the attractions of 3D play without the need for any special glasses through TV, newspapers or magazines. We therefore are thinking of letting people experience Nintendo 3DS in various places at the time of its launch. Thank you for your advice.

- I have mixed emotions about hearing “this may be just what Nintendo intends.” Of course, we should try our best to produce appealing products which keep users excited, but on the other hand, it is a big problem if such excitement causes family troubles or affects a user’s life balance. Please remember the graph regarding social acceptance I presented before. I believe that the social acceptance of video games will never improve if we just aim for user absorption without being aware of the potential problems. Considering that our long-term goal is to change people’s minds from “gaming disturbs study” to “gaming is unexpectedly good”, I think the current status is not perfect in several aspects. Now I’d like to tell a development story of Wii, which features on our website, named “Iwata asks.” Nintendo once seriously considered adopting a function which would force games to stop mandatorily, to prevent children from playing the game, at the time that parents had previously decided. However, we also considered how the players would feel if the game suddenly stopped during an exciting part. We finally determined to integrate a function to record the playing time instead of making the game shut down. More specifically, our message is, “As Wii records the playing time, and such records may be checked anytime, please communicate with your children by using Wii together” and “Through such communication, please come to a common understanding and a suitable arrangement for your family”. Unfortunately, Nintendo DS does not have such function because it was developed two years earlier than Wii, but in the case of Nintendo 3DS, we are contemplating incorporating some kind of system. Whether it will be similar to the one for Wii or we may add something more has not been decided, and I have nothing concrete that I can share with you today. However, Nintendo is seriously considering such measures - probably the most earnestly in this industry. Our arguments are so serious that people might be surprised if they were aware that a video game company like Nintendo is having such arguments internally. We believe that we will never be able to improve the social acceptance of video games without careful consideration of this challenge.

- Please look at this slide, which shows how the Japanese gaming population has shifted. The leftmost bar is May 2005 - around the time when Brain Training for Nintendo DS was released. The rightmost bar is January 2010 - comparatively recent. We have gathered this data by conducting interviews continually with 3,000 people in Tokyo and Osaka. We have been investigating how many people play or do not play video games, and if an interviewee does play, which machine he or she plays. In order to analyze the results of our “gaming population expansion” goal, we needed quantitative information. There was no publicly announced data regarding how many people continue to play video games, although we were aware of how many game machines were sold. Therefore, we had no other choice but to investigate it by ourselves, ongoing for five years now.

The blue portion shows the proportion of people who have played home video game machines in the most recent year. It refers to the people who have played not only Nintendo’s machines, but any and all video game consoles and handheld devices excluding cell phones and the like. The yellow represents people who used to play video games like Nintendo Entertainment System or Game Boy, but have not played in the last year. The pink refers to people who have never played video games in their lives. To sum up, the goal of “gaming population expansion” is to attract the people in the yellow portion back, or to invite the people in the pink area to the blue area.

At first, the proportion of people who were playing video games was only 35% among 7 to 64-year-old people in Japan, but this proportion has changed rapidly. We believe that the spread of Brain Training and the release of Wii have played very big roles.

The gaming population once peaked at 57%, but then showed a slightly downward trend in Japan. However, this trend seems to have recovered again since our New Super Mario Bros. Wii became a huge hit - like a social phenomenon - at the end of last year. It was very tough for us to develop a method to gather precise data in the U.S. In Japan, we could obtain data representing almost all Japanese people by conducting a study only in Tokyo and Osaka. But in the U.S., the regional or income differences are larger than those of Japan, and therefore, it took a long time for us to settle on the research methodology. We have been able to obtain acceptable data since the end of 2007.

As you can understand at a glance, the proportion of sleep users in yellow is very low. In other words, Japanese people are more likely to stop playing video games soon after they purchase them, whereas American people tend to continue playing for a longer period. Originally, the Japanese proportion of the gaming population was higher than the American one, but in recent years this relation has been reversed, and the American proportion has reached a very high 62%. For more information, this is explained in the color-coded graph showing the proportion of customers of Nintendo DS and Wii. We think this data is valuable as it explains the fact that Nintendo DS and Wii have helped to expand the gaming population in the U.S.

In Europe, there are huge differences among the countries. In the U.K., the size of the gaming population is comparatively high like in the U.S. Meanwhile, the German gaming population is very small. Social acceptance of video games seems to be very low in Germany, which means that there are still many people taking a hostile view towards video games. To some degree, it may be due to the large number of war-themed video games (in Western countries) which enable players to shoot guns. German society has strong feelings of rejection towards these things, partly because of their historical background.

France is in the middle position between Germany and the U.K. Additionally, the product-diffusion rate differs depending on the country. It is extremely fast in Japan and the U.K., while it is slow in the U.S., and much slower in Germany. The speed of customers’ acceptance of new products also varies. Therefore, we always try to face the European market with a deep understanding of each country’s unique characteristics, and we believe that this approach has helped us to expand our business in Europe.

- We think games like Nintendogs and Brain Training for Nintendo DS and Wii Fit for Wii were special titles in the history of video games. We produced these games to show the new potential of video games to the many people who were saying, “We don’t want to play games because we can’t move our fingers dexterously and aren’t interested in the themes of most popular video games.” These new kinds of games could invite some people into the world of video games, as well as make the people who have played video games think, “Wow, there are still many new uses of video games.” We have also received a lot of comments from customers saying, “Although my wife has never been interested in other video games, we now can enjoy Wii together.”

Regarding the cultural training type of games, explosively large numbers of software were released following Brain Training. Of course, however, the customer gets tired of playing the same kinds of products eventually. Since loss of interest is the greatest enemy of entertainment, we do not think that similar new products would result in larger markets than before. Therefore, the key is to develop new products that can not be viewed as being similar to the existing ones. For example, we are now promoting and selling Art Academy for Nintendo DS, though we have not sold many yet. This software teaches users who are not good at drawing, and advises them to, “Please just try to draw according to the instructions, and you’ll find that you’ve drawn a surprisingly impressive picture.” Customer satisfaction for this software is generally high. If we could spread these kinds of products, we would be able to create a new market. We think it is very important for Nintendo to discover and propose these themes regularly.

- Please let me start with some supplementary information about DSiWare and WiiWare as there might be shareholders who do not know much about them. For Nintendo DSi and Wii, there are software titles which can be bought through the Internet. These titles are comparatively small-scale and less expensive. As the physical, packaged software titles which are sold at the retail outlets today are comparatively more expensive and they are meant to be sold in large volumes, the publishers invest large amounts of money in the development and the advertising. Under this business model, it is difficult to develop small but interesting products. Therefore, we started the DSiWare and WiiWare system as an alternative method for selling the small-scale products with unique ideas, while we continue to sell the large-scale software in stores.

Through the operation of these services, we are now sharply feeling the difficulty of encouraging customers to move proactively. “Moving proactively” means that customers voluntarily start up the software called DSi Shop for Nintendo DSi or Wii Shopping Channel for Wii, then check the list of available titles, and finally choose the desired software from among a list. It is very hard to make customers complete this process willingly. As I have explained during a Q&A session on another occasion previously, the current system of DSi Shop or Wii Shopping Channel is a kind of “nomination buying” where customers, who already have enough knowledge about the product, directly seek out what they want and bring it to the cash register immediately. We feel that such a system does not capture any of the excitement of shopping at all. These services will not succeed unless customers have an enjoyable shopping experience. Another challenge is that customers may not access DSi Shop or Wii Shopping Channel even if it is enjoyable. I mean, if customers do not know about the release of new software unless they access DSi Shop or Wii Shopping Channel, do you think they would access it repeatedly if there was no new software when they visited? It is just not realistic.

We are thinking the release of new hardware should be good timing for a dramatic improvement of this situation. In addition to the function of “3D graphics without 3D glasses,” Nintendo 3DS will have enhanced wireless communication function. Nintendo 3DS will receive various pieces of information automatically if there is a chance of communication while a user carries it even when he or she does not try to start communication proactively by unfolding Nintendo 3DS. Please just think about the cell phones which automatically check whether there are any receivable emails, and if there are, vibrate or ring to notify users. By combining Nintendo 3DS with such function, we are now planning to expand our digital-distribution type of business. Regarding the other concern that the amount of software seems to have been decreasing recently or there seems to be no appealing software, we guess there are two reasons behind this - Nintendo’s lack of effort and that the potential of this channel hasn’t been realized by the third party software developers. Since Nintendo DS and Wii are still active platforms, we would like to do our best to fulfill user demand as much as possible.

- We think that our explanation regarding “Issues to be addressed” will respond to your first comment of unpleasant feelings at home. I mean, we are aiming to improve the social acceptance of video game, and consequently, expand the gaming population. Encouraging all family members to view video games positively is a very important mid-and-long term issue for us.

Regarding our character business, please let us explain the reason why Pokémon is handled differently. There is a company called The Pokémon Company, which specializes in the management and promotion of Pokémon characters. Pokémon became a major boom in Japan, the U.S. and Europe from the end of the 1990s to around 2000. Maintaining a character business is relatively easy when we just intend to gain short-term prosperity. However, there are remarkably few character businesses prospering in the long term. That is because many character businesses are operated in a manner that people consume the value of characters and when all the values are exhausted, another character is prepared alternatively. Naturally, there are a few exceptions of very long and valuable character businesses, but they are still the minority. We once felt a sense of crisis that Pokémon’s value would be diminished shortly if we continued the then-ongoing strategy at that time. Therefore, we established The Pokémon Company for the purpose of managing all associated character licenses, with its definitive role of considering Pokémon’s mid-and-long term future. I do not believe that Pokémon’s value would remain at such a high level if it had not been for those decisions we made ten years ago. It was fortunate that there was a suitable person who was able to manage the Pokémon character business.

Regarding the other Nintendo characters, of course we have to seek several possibilities and make operational decisions. One alternative is that Mr. Shigeru Miyamoto, who has developed a lot of software featuring Nintendo characters like Mario, become responsible for planning the other characters’ business promotion. In that case, however, he would not be able to spare as much energy as now for the development of video games. In the case of Pokémon, we could allot responsibilities well because the development of video games and the character business were incidentally handled by different people. When it comes to Mario, we do not believe that we could do it as well as this. If you thought that Nintendo has been keen on promoting characters of Pokémon but nothing else, this is one of the backgrounds of our attitudinal differences. Becoming more active in the character business is one of the future possibilities for us. But if we make mistakes in the character business, the value of the characters itself can be damaged. We believe that Mario’s value will be kept in a high level by letting him continue starring in the latest, most interesting video game every time. As for the other characters too, we think the most important thing is to determine their roles and let them shine in the world of video games first and foremost. We will operate a character business only after we are convinced that the value of our characters will never be damaged. In addition, we do not believe that it would be beneficial for Nintendo if Mr. Miyamoto used his energy for any other purposes than video games.

Regarding a theme park, we do not have any specific plans although it sometimes becomes a target of discussion, news or rumor. If we had a plan, it would be different to existing theme parks. If a method was invented to realize our unique and original park, utilizing our advantages in the video game field, it may be possible in the future. In other words, Nintendo has not ruled it out. However, please understand that it would not be always beneficial for Nintendo, as a whole company, to make a theme park which is similar to the existing ones, and only uses Nintendo’s characters.

- We have often been asked if we intend to provide Nintendo’s software for other companies’ hardware, and have sometimes received such kinds of offers. We really appreciate it because it is evidence that Nintendo’s software is highly evaluated. On the other hand, when we think about the reason why Nintendo has been able to receive a good reputation in this entertainment and video game field, it must be because we have both engineers for hardware and developers for software communicating with each other in the same building. Our software developers often make proposals of new hardware to the hardware engineers, and they continue to play a type of “idea catch ball”, which has resulted in unique and original proposals that only this company can make to the public, at higher frequencies than the norm. While the entertainment business is driven by software, ours is based on the integration of both hardware and software. The other companies’ devices often have characteristics which Nintendo will never adopt. It is not a question of which company is right or wrong, but rather that they have different philosophies. Therefore, at this point we do not have any intent to supply software for the other companies’ hardware. Such supply may be beneficial for Nintendo in the very short term, but in a longer term, we feel it would damage the value of Nintendo’s platform. As a result, it would not contribute to the creation of Nintendo’s future value at all. Alternatively, we would like to keep doing our best to invent our own entertainment with integrated hardware and software which will continue to positively surprise our customers.

Full interview here


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