Nintendo's Satoru Iwata
The full transcript of Nintendo president's recent conference call with investors
Statistically speaking, it is true that there are a small number of customers who feel that the flash memory is too small, while many others find that they have plenty of memory. However, because this small number of people are none other than the most avid players, we know we have to review the best possible solution to eliminate their inconvenience.
When we prepared the Wii software lineup from the end of last year to the first half of this year, we were very conscious of the fact that we had to make a strong enough lineup in order to expand the Wii platform install base. Of course, we are preparing for a variety of software for the latter half of this year. However, we are now feeling that the speed at which new information is consumed and made obsolete has become quicker than ever. When I think of today’s situation as a consumer, when I am exposed to new information too early on, I find that I am already tired of it when the product is launched. This is one of the reasons why we would like to keep news at bay until we really have to disclose them.
Rest assured that we are preparing for a variety of products for the latter half of this year and early next year. Also, you will begin to see the many results of our third party partners, who have since recognized that Wii will be a platform for their success. So, I am hopeful that there will be rich contents available for Wii software in general. I am sorry but we are not ready to announce the details today.
As that was one of the topics I discussed with you last fall, it would have been ideal if I could have shared additional details today. With regards to the use of DS in public spaces, however, there are elements Nintendo alone cannot complete. We were not able to complete the necessary coordination with our partners in time to prepare a detailed plan to be shared today. However, it is true that we are making progress, and we think that we will be able to start several experiments in the near future.
Of course, in the long run, we are hopeful that such new projects will yield (direct) profits to us. Before doing so, however, it is important for us to create situations to which we can point and say "if you bring your DS to a public space, there will be something nice for you" or "there a number of people playing their DS, making use of them and enjoying themselves in public" because it would imply that DS’ activity rates are on the rise. In other words, we would like to see a situation where DS usage will be ubiquitous, and this, for the short-term, will be the greatest benefit. Although more than 22 million DS hardware has been sold in Japan alone, what we are most afraid is a situation where people stop playing with their DS. Before DS launched, people lived without DS without experiencing any inconvenience back then. But as software caught their attention, provided entertainment, and the DS became a part of their daily lives, there is now an unprecedented phenomenon where those who had never played any video games have started playing and, on average, three people per household today are playing DS.However, whether or not we can keep this momentum is really important. Of course, we need to provide them with interesting proposals one after another in order to keep their interests. At the same time, we think it is necessary to increase the number of places where you can feel it more advantageous to bring your DS with you. This is a concept behind our idea of using DS in public spaces. Of course, we are not forgetting to consider it from a revenue source perspective, and they may be able to actually contribute to our financial results sometime in the future.
What I can say at the very least is that within this year, we are thinking of starting several projects.Nintendo licensed the arcade version of Mario Kart to Namco Bandai, who rolled out the game and with whom Nintendo has collaborated on many other fronts. For example, the Flash Focus software to which I was referring in my earlier presentation, was originally developed by Namco Bandai. Nintendo saw the potential for it to develop into an excellent software if it finished up well and, accordingly, we proposed to Bandai Namco to jointly develop it. As a result, more than 2.5 million units of Flash Focus software were sold on a global basis, and I imagine that they are as happy as we are. So, we are working together on many other projects, and the Mario Kart arcade project was one of the many collaborations with them, which cannot be compared to any other Mario Kart developments for the Wii or DS.
When any arcade software is developed, the application must provide players with unique, fun experiences that can be realized only by the medium of the arcade. As for Nintendo, it has been a while since we withdrew from the arcade business when Mr. Yamauchi was the company president. I myself have been concentrating upon how we can make DS and Wii appreciated by customers all around the world, so I have not had a time to think about arcades nor do I have any idea about arcade business at present. In the entertainment business, however, it is my fundamental belief that we cannot think that a form of entertainment cannibalizes another. People are attracted to a form of entertainment because it offers something that no other form of entertainment can offer. I think we should think in this way. In general, if I were to think about entering the arcade business, I would disregard Wii’s influence and first think about what it can offer that could never be experienced at home.
Looking back in history, it has been about 25 years since the current form of the U.S. video game business was established, during which economic conditions were good and bad. Based on our experiences, our business has not been largely affected by the ups and downs of economic climate. For example, people may say, "because the economy is bad, I should refrain from big purchases for now," "we should forget about travel this year," or "we will eat at home rather than dining out," but they hardly say, "we should cut back on spending on gaming." Rather, they may have opted for video games as a cheaper alternative. It is only our feeling, but it appears historically that our sales have hardly been affected by economic conditions. When we look at NPD data for this January to March, the whole U.S. video game industry sales were up 27% over the last year. While I assume that many other indexes in other industries in the U.S. for the same time period show downward trends, video games might have been an exception. Therefore, I feel that there will be small direct impact on video games’ sales, if any, of the U.S. recession, which was triggered by sub-prime loans. We are receiving weekly sales reports from the U.S. and Europe, but so far, there has been no sign of slow down for our sales.
I am feeling that there have not been direct influences. Of course, we have to be very sensible to any changes in the market and have been carefully monitoring the sales of software that have contribute to expanding the gaming population every week, but we have not found anything. Probably, as long as Nintendo’s projects are concerned, they are less susceptible to the changes in the economy.
I think there are few past examples of a company our size with a unique business style that has tripled its sales in two years. Without much reference I am thinking how to move forward day by day. When one business rapidly expands, there is always the issue of labour shortage.
On the other hand, we also have to consider whether increasing the number of people where we feel are short-staffed will really solve the issue. If we could split one person into two in order to double the number of employees, it should probably work out. However, merely recruiting a large number of external people who is not familiar with what Nintendo is about nor with the unique characteristics of the video game business would pose a danger to us because we would see a sudden increase of people at Nintendo who could not comprehend the unique Nintendo way or DNA which is sometimes regarded by the public as offbeat. So, I have been trying to reinforce Nintendo’s workforce by identifying the fine line between increasing head count and keeping the Nintendo culture intact.
Having said that however, I do not think that we have done everything possible to maximize individual productivity yet, even though we believe Nintendo is one of the more efficiently-operated companies. Although there is less now, there is still wasted energy in Nintendo. Also, I think we can do better in identifying what tasks Nintendo should take care of internally and what we’d like to share with our partners. Also, as being explained in the Theory of Constraints, the phenomenon that one bottleneck situation can determine the overall performance and through-put is found in a variety of businesses including ours. So, we have to always think, "What is the bottleneck?" and "How we can strengthen that area?"
It is true that our business has expanded rapidly in a short time period, so our workload has increased along with our potentials. There are things that we may want to do but have to refrain from doing so because we know that if we attempt to do everything that we want to, many of them would end up being just halfway done, so the final outcome will be worse. So, there are things that we could have done but have refrained from doing so. From an external point of view, Nintendo may be criticized as slow in development, but Nintendo would like to carefully identify our limit as to how far we can expand without losing our Nintendo style. However, please understand that we are aware of opinion like yours, and we have been making efforts and trying to implement our own unique tweaks in order to strengthen our productivity. I think I can also be proud of the fact that the total number of Nintendo’s productivity today is significantly higher than that of a few years ago.