Yesterday evening (Eastern Standard Time) Satoru Iwata briefed investors at Nintendo’s Corporate Management Policy Briefing for the fiscal year ending in March 2014. Mr. Iwata had much to say at the presentation from the challenges the Wii U has faced, smart device integration into Nintendo’s business model, expanding Nintendo’s business into new areas, and short-term, medium-term, and long-term goals of the company moving forward. As Nintendo has been facing some difficult financial times as of late, Iwata has been under a lot of scrutiny. Hit the jump to see how Mr. Iwata plans to remedy the situation and his vision for Nintendo’s future.
Mr. Iwata began the presentation by apologizing to shareholders for the changes in Nintendo’s sales numbers for the fiscal year, yet re-iterated to investors that Nintendo is optimistic about the future of dedicated video game platforms.
: Before getting to the main point, I would like to apologize to our shareholders for having announced a steep downward revision to our financial forecast for the full fiscal year due to unexpectedly weak sales particularly in the overseas markets in the last year-end sales season.”
: Since the revision to our full-year financial forecast, there have been various reports and comments about us. However, we do not hold a pessimistic view of the future of dedicated video game platforms.”
- Nintendo’s core business will continue to consist of dedicated video game platforms which integrate both hardware and software. There are no plans to shift Nintendo software onto other platforms.
- While in the past Nintendo has been able to focus on the strengths of how their products were able to integrate both their hardware and software, Mr. Iwata recognizes that the landscape of how people live their lives is changing, and Nintendo must adapt with people’s lifestyles and “change their definition of video games” in order to keep up with the times.
- Nintendo has a storied history of being able to adapt with the times and utilize available technology. They started as a playing card company, evolved into a toy company, and eventually further evolved into a company that produces video game platforms.
- Nintendo will continue to value self-innovation and by looking at their storied past, they hope to decide what parts of their history should be kept intact and what parts need to be dramatically altered in order to keep their core competencies intact.
- Because Nintendo is a relatively small company with only 5,000 employees, they feel that merely imitating current trends in the industry would not be beneficial to Nintendo’s success in the medium to long-term future. This is why as a medium and long-term goal, Nintendo seeks to create a new market with unique and innovative offerings.
- Before talking about Nintendo’s medium and long-term outlook, Mr. Iwata would like to address Nintendo’s short-term outlook with their existing platforms.
Nintendo Wii U
- The Wii U is currently not performing up to standard from a sales standpoint, but an additional price cut is not an option to help remedy the situation. Instead, Nintendo will “focus on enriching the most significant feature of the Wii U”, the GamePad.
- Nintendo has not been able to fully communicate the value of the GamePad and have not successfully addressed consumer’s questions about the differences between the Wii and Wii U and the advantages of upgrading to the new platform. Mr. Iwata recognizes that this is due to a lack of effort on Nintendo’s part.
- A small number of consumers even believe that the GamePad is merely an accessory for the existing Wii platform. It is a challenge to communicate the advantages of the GamePad to consumers who do not actively follow video games, but this is a challenge Mr. Iwata is keen to take on and have resolved by the year-end sales season.
- Nintendo intends to accomplish this task by developing software titles that fully utilize the unique features of the GamePad. Mr. Iwata stated, “This will be one of the top priorities of Mr. Miyamoto’s software development department this year.”
- The GamePad is the only video game device that is equipped with NFC (near-field communication) technology. So far, only one game has fully utilized this feature, Pokemon Rumble U. Nintendo plans to prepare a series of proposals this year for NFC utilization and will detail them at E3 in June.
- Nintendo realizes the 20-second wait for the Wii U start-up menu to load is much too long, so they are implementing a quick-start menu which will be released this summer with a system update. The quick start menu will allow gamers to start a game you have been recently been playing without having to access the main Wii U menu.
- Start-up time will be cut by at least 50% by using the quick start menu.
- After a year of research and development, Nintendo believes they have solved the technical problems that had previously prevented them from displaying Nintendo DS games on the Wii U GamePad.
- Nintendo plans to bring DS titles to the Wii U Virtual Console lineup, although no timetable is specified.
- Nintendo believes software titles that fully utilize the GamePad, full use of the NFC functionality in the Wii U GamePad, the addition of a quick-start menu with the GamePad, and bringing Nintendo DS software titles to the Wii U Virtual Console will enrich the value of the GamePad.
- Mario Kart 8 will be released globally in May 2014.
- The Nintendo 3DS was the top-selling game device in the world this past year, despite not achieving explosive sales overseas during the year-end sales season.
- NPD reported that lifetime sales of the 3DS in the United States has exceeded 11.50 million units.
- Lifetime hardware sales for the 3DS worldwide have reached 42.74 units.
- Software titles such as Angry Birds and Puzzles & Dragons, originally developed for smartphones, were brought onto the 3DS. This demonstrates that the 3DS has reached a scale and a level of success where there is business potential for software titles originally developed for other platforms to be brought onto the 3DS.
- Nintendo is continuing to aim to make the next two years a profit-generating phase for the 3DS.
Medium to Long-term Prospects
- One of Nintendo’s medium-term goals going forward is to re-define the concept of what a video game platform is. Mr. Iwata feels that this will play a critical role in deciding whether or not video game platforms will be able to adjust to an ever-changing business market.
- In the past, Nintendo would only have device-based relationships with consumers. The launch of Nintendo Network IDs (NNIDs) is Nintendo’s first effort to try and transform this relationship from device-based to consumer-based.
- Future platforms will connect with consumers through accounts, not devices.
- Competition for consumer’s time has become fierce, so Nintendo is looking at how to incorporate smart devices into their business model to connect with consumers and those who don’t own Nintendo products. This does not mean Nintendo games will be coming to smart devices though.
- This will allow Nintendo to communicate the value of their products and hardware, encouraging more people to engage in the Nintendo experience.
- The definition of a Nintendo platform will no longer be bound to a physical device, but will be virtualized in the form of NNIDs.
- Nintendo believes that bringing its first-party software to smart devices would hurt their ability to operate as an integrated hardware-software business and continue to conduct their same level of productivity in the medium to long-term.
- This is why Nintendo thinks the best strategy at their disposal is to use smart devices as a mechanism to communicate with consumers and expand their existing hardware-software business.
- There is a small development team working on smart device utilization. Iwata wants them to create something that is unique to Nintendo and that stands out, and as such, has given them no restrictions. He hasn’t even gone as far as to rule out making games or using Nintendo game characters on smart devices. This does not, however, mean that Mario or Zelda are coming to smart devices.
- Nintendo’s main goal is to release a smart device application this year that can communicate the value of their products and attract consumer attention.
- As Nintendo transitions from a device-based system to an account-based system, this also presents the opportunity to change the way that video game systems and video game software is sold.
- If Nintendo is successful in changing the definition of what a video game platform has been historically known as, they could use their account-based system to offer flexible pricing to consumers depending on, for example, how many software titles they buy in a year.
- This could allow more consumers to purchase more software titles per year and lead to more people playing with friends and would give software titles more visibility. On average, consumers play two to three titles per year. Nintendo wants to aim to establish this new business model to benefit both consumers and game developers.
- This is a medium-term goal, but Mr. Iwata would like to start experimenting with it in the early stages on the Wii U.
- Nintendo will be looking to expand their character IP licensing business. They will also try to be more flexible licensing in fields that they have not in the past, such as the digital field, as long as Nintendo can form a win-win relationship and is not in competition with their potential partner.
- This will increase exposure to Nintendo characters globally to consumers, having them appear places other than on video game platforms.
- When “dramatically” expanding Nintendo hardware and software into brand new markets with a new consumer base, a different price structure will be put in place than the ones found in existing markets in order to leverage Nintendo’s strength as an integrated hardware-software business.
- Connecting with consumers who do not yet own Nintendo products will be an important aspect of cultivating these new markets.
Expanding into New Business Areas
- Mr. Iwata wants to try to establish a new platform business where Nintendo can play up to its strengths, while at the same time independent of their video game platform business.
- In the past decade Nintendo has faced the challenge of consumer apathy. In order to deal with this challenge, they expanded the definition of what a video game was in order to expand the population of those who played video games.
- Mr. Iwata believes the purpose of entertainment is to put smiles on people’s faces.
- As the business environment is evolving with the times, Mr. Iwata feels that now is the time to expand the definition of entertainment.
- Nintendo has decided to expand their definition of entertainment as simply “improving people’s quality of life in enjoyable ways.” Nintendo is an entertainment company, so making people’s lives more enjoyable is a clear distinction than simply improving their quality of life.
- Nintendo’s goal over the next 10 years is to establish a platform business that improves people’s QOL (quality of life) in enjoyable ways. Video games are still one of the ways they will attempt to achieve this goal, but Mr. Iwata sees the first step into this new business venture as something different: “health”.
- Mr. Iwata wants to venture into “a new blue ocean” where no one else has gone before, using what Nintendo is referring to as non-wearable technology.
- Some may think of Wii Fit when they hear the keyword “health”, but Nintendo is aiming to incorporate ideas that they have not used in their existing platforms before.
- Nintendo’s new business domain would be able to provide preventative measures for those who already suffer from illness which would “require us to enable people to monitor their health and offer them appropriate propositions.”
- Health requires effort and is difficult to keep up with, but Nintendo’s strength as an entertainment company would give them the ability to keep people interested and engaged, aided by the non-wearable feature. These experiences would “integrate into people’s daily lives”, which would help Nintendo overcome the difficulties of keeping people engaged.
- If successful, Nintendo would be able to give feedback to consumers on a regular basis, “re-defining the notion of health-consciousness” and succeeding in achieving the goal of increasing the overall fitness of the population.
- Nintendo’s Touch Generations series, some of which included health-themed titles, has helped Nintendo learn how to keep consumers engaged and entertained and they can take advantage of this with their QOL platform.
- They feel that QOL could eventually present them with new themes which they will be able to turn into games on future video game platforms, although this would probably be two to three years after the implementation of the QOL platform.
- This will create increasing interaction between the two platforms which could lead to unique propositions.
- With the QOL platform Nintendo hopes to expand the amount of people who are conscious about their health as a mechanism to expand Nintendo’s overall user base.
- Mr. Iwata plans to explain a clearer vision of what “non-wearable” means later in 2014.
- The QOL platform will be launched within 2015.