Iwata is talking to investors again. One of my Nintendo spies hid a super secret microphone so we could overhear them. Let’s listen.
As you mentioned, we were developing Wii Sports Resort and originally intended to release it earlier. We wanted to release it with enough supply of Wii MotionPlus, and were confident that it would become much better with a little more time and effort.
Supply of enough Motion Plus was NOT the reason why Nintendo was rushing development of Wii Sports Resort. Nintendo fully expected Microsoft and Sony to unveil motion controllers at E3 2008 and, likely, have them released for the holidays of 2008. Since Microsoft and Sony did not do this, Nintendo breathed a sigh of relief and, once getting back, Miyamoto told everyone they could add more golf courses and all. Despite the meltdown on the Internet about Nintendo’s E3 2008,, Nintendo execs seemed relatively at ease.
It shows how incompetent Microsoft and Sony have been. They only showed off motion controller prototypes at E3 2009 and then with no release date or price and no real software. Shortly afterward, motion plus is in millions of people’s hands. They are WAY late. Any hope of them making a Wii Sports type game with better motion controls has been forever dashed with Wii Sports Resort. I don’t believe Microsoft or Sony have the talent to make games of Wii Sports caliber in the first place given their history.
However, Wii Music and Animal Crossing: City Folk did not fulfill our expectations and only sold through end 2.65 and 3.38 million copies respectively. Should those two titles have become long-term selling software, we would not have faced a shortage of software titles in the former half of this year.
Sales of those titles declined in a relatively short period, and Mario Kart WiiWii Fit continued to perform better and drove hardware sales. As for the result of last fiscal year, two powerful titles released in the beginning of the year kept driving the market and Wii hardware sales. However, no software title can maintain its momentum after a year or more from its launch. So we find that the reason of downturn in Wii sales can be attributed to two main factors – we could not launch Wii Sports Resort earlier and could not make the software launched in the last holiday season have longer tails. In order to maintain momentum in the market, we of course must release something new periodically, not just before Christmas, but on the other hand, we do not have foresight into the whole situation of a software under development. No one can tell which software titles during the planning phase will be able to deliver fun and surprise in the future. We often run into certain realization after the actual development process begins, which may delay the completion of the product. This time I think we have made such mistakes. and
As you can see, Iwata looks at software success only through the prism of momentum. He specifically says that Mario Kart Wii and Wii Fit continued their momentum but Animal Crossing Wii and Wii Music did not.
The NPD Group has been reporting that video game sales in the U.S. in March, April, May and June this year were weaker than last year. It is not simply because of tough economic times; rather other companies released hit titles like Grand Theft Auto 4 and we released Mario Kart Wii and Wii Fit, which all were ten-million-unit class sellers worldwide last year and made a significant difference between last and this year. Conversely for the latter half of this year, we believe we can expect even bigger sales with those ten-million unit class sellers on a worldwide basis. In fact, we recognize this Q1 result as not the strongest and closer to the lower parameters of our expectations, but we expect we can reverse the situation through the full-fiscal year and therefore did not revise our forecast.
Iwata is giving us his NPD analysis! He clearly does not believe the economy is the issue as it is the lack of software.
Now, both Iwata and Reggie have publicly stated their belief in the declining Core Market. However, they aren’t going to say this to their investors who wouldn’t know the disruption terminology. Looking at NPD charts in the last few years, it is clear that Nintendo was the driver of the growth. Interestingly, Iwata does not differentiate from the growth of the ‘game industry’ and growth of Nintendo products. They are now one of the same.
As for how Wii Sports Resort will affect Wii hardware sales, I hear it’s slightly driving the hardware sales, but not significantly. It has not doubled or tripled sales and I do not expect it to do so in the following weeks. We have developed some titles which sell well in the long term while driving hardware sales, starting with Brain Age. These software have some things in common; they take six to eight weeks to start driving the hardware sales. We can not logically explain why they take exactly six or eight weeks, however, we actually have data from our customers through Club Nintendo that shows whether a customer registered their hardware purchase on the week when they registered software purchase. We research the “hardware driving ratio” from that data. Almost every title has a very low hardware driving ratio right after its launch. After six or eight weeks from launch, if the title still maintains its sales momentum, its driving ratio starts to rise. That is, such long-term selling titles motivate customers to purchase hardware or to consider purchasing the title with the hardware.
In that sense, it is too early to tell if Wii Sports Resort is driving hardware sales now to what degree, before we have enough data in two months or so.
Wii Sports Resort is a killer game. However, so was Super Mario Brothers 2. If people didn’t buy the NES for Super Mario Brothers, the sequel in Super Mario Brothers 2 wasn’t going to light any fires. It did create excitement among current customers which overspilled slightly to new customers. Wii Sports Resort is doing the same.
Increasing current customers passion about the product drives others to it. So despite Wii Sports Resort being a sequel, it will drive up hardware slightly.
The reverse is also true. Depressed current customers make potential customers go away. That could help explain the “impact” Wii Music, Animal Crossing Wii, and latter 2008 had in general for Wii momentum.
Last year, we had some internal discussions about the close launch period of Mario Kart Wii and Wii Fit but we ended up launching them with the hypothesis that several major title launches in close proximity can produce a synergetic effect. As a result, it went very well. This year we hope to do well again as we will be launching three ten-million class titles consecutively, and would love to hear that “Holiday 2009 was the best one ever for Nintendo!”
Nintendo did this ‘synergetic effect’ with Mario Kart DS, Animal Crossing DS, other color DS systems (such as red or pink), and Nintendogs released months before to lead up to a crazy Christmas season. DS sold out in Japan, and it was then that DS began to outsell the PSP in America (I believe).
With Wii, it was Mario Kart Wii, Wii Fit, and Super Smash Brothers Brawl. That worked pretty well for America and Europe (I’m guessing on Europe since the sales situation there is harder for outsiders like myself to see due to lack of sales charts). But it did not work in Japan. So Iwata went the Monster Hunter 3/ Black Wii path to do something different for Japan.
It looks like this holiday, we will have another Iwata Triple Force attack. Starting with slow burner Wii Sports Resort (equivalent to Nintendogs sales?) and then have Wii Fit Plus (equivalent to Animal Crossing DS sales?) and then NSMB Wii (equivalent to Mario Kart DS sales?).
Best Nintendo Christmas? Not with all these sequels, no. The most promising game is NSMB Wii since that is the only game Nintendo is doing now that isn’t a sequel. People may protest, “But Malstrom, it is a sequel to 2d Mario!” Oh hush. Publishers will admit that sequels to games fifteen years ago are treated as if they are new IPs. Seriously! More 2d Mario is going to make this Christmas memorable. But I don’t see any other titles that will on Wii.
The best Nintendo Christmas would have to be when the SNES launched. You got a brand new 2d Mario in Super Mario World, a glorious game. You had a new console with new controllers and 16-bit graphics (drool…). F-Zero was kick-ass back then with its Mode 7 racing, and Pilotwings was damn cool too. My memory is hazy, but I recall other third party games at that time on the SNES were Contra III, Castlevania 4, Gradius III, Final Fantasy II (i.e. IV), and others I can’t fully recall. SNES had the best launch of any console I can rememeber. That Christmas was glorious! (The next most memorable Christmas I’d have to say the Wii. OMG the Wii launch is something people will be talking about for decades. Riots at Wal-Mart [no joke, police were called in]. Wii Sports was a smash hit and everyone in the family played. People flung their controllers demolishing their TVs. Zelda: Twilight Princess was released. I was going nuts over the Virtual Console classics and finally having a copy of Mario Brothers on a home console as I could never locate that game in the NES era.)
The Christmas of 2010 looks bleak for the Wii. Super Mario Galaxy 2? Yuck, especially if you weren’t impressed by Galaxy 1. Metroid: Other M? Ugh. Vitality Sensor? No one is going to sleep on the streets for it. Hopefully there will be some good third party titles, but we say that about the Wii every year.
As I have mentioned in past corporate management policy briefings and financial results briefings a number of times, it is my view that the historical lifespan of home consoles in no way decides the lifespan of future home consoles.
Iwata is peeved here. He is always asked about this, and he appears to be getting tired of answering it.
In the past, home consoles followed such cycles because the fifth year saw market saturation and customers were impressed with the improvement in graphics quality due to the advancement in semiconductors made with the same cost, Such factors created the five-year lifespan and the cycle continued.
Iwata is saying the console lifecycle is irrelevant to the Wii because Wii is not being sold based on graphics quality or advancement in processors.
In other words, Wii will have a longer lifecycle than the Xbox 360 and the PS3. The value of graphics is aging faster than the value of interface.
There are two major characteristics of the current generation; one is that improvement in graphics is not apparent for general customers and its value is not appreciated as much.
This is Core upgrades ‘overshooting’ the market. Iwata is talking disruption now!
Another is the expansion of user population and the change in its composition. As we try to expand the gaming population, we have seen those who have been relatively less interested in video games, do not proactively gather video game information, and do not dare spend until they find it interesting, become new game players. Expansion of user population means possibility of increased annual sales or changes in cumulative sales, which are actually taking place with the Wii and DS markets. With such circumstances, we are trying to think outside of the five-year lifespan.
Iwata’s answer to the investor’s question is actually just “disruption”. And the disruption is indicated in two ways: the overshooting of the market by incumbent qualities (being impressed by graphics is the incumbent quality for consoles) and the addition of “crappy consumers” (i.e. expanded audience) to the market being attracted to the new values (i.e. motion controls).
Iwata’s answer fits disruption too precisely.
Among the 295.6 million active users, 209.5 million people are playing with our products. To tell you the truth, we at Nintendo had set 200 million as an internal milestone, and we already surpassed it this spring! In addition, among 149.5 million of potential users – another room of expansion – there are 86.1 million people who have never tried Wii or DS yet. So numerically there is still a possibility to even double the current user population of Wii and DS. Thus we do not believe at all that the expansion has come to an end nor do we need a new console any time soon. So we have not set specific years for the lifespan of current game systems. Of course our employees are researching hardware and those in charge of hardware are already working on developing it. When our internal ideas and trend in the world match up, and when it’s clear that we would be able to manufacture an abundant amount at an affordable price, we will be able to publicly speak about next hardware. At this time, we do not think that is in the near future.
Iwata is trying to bury the talk that Nintendo can no longer expand the market with Wii and DS. It does sound as if Iwata is peeved about the ‘next console’ questions because ‘DS and Wii have hit their limits’. I’d be peeved too.
Look at this investor question:
This investor clearly can’t see anything outside the Core Market. NSMB Wii wouldn’t be appealing to customers? He might want to check out NSMB DS’s sales (19 million +).
And Iwata answers:
As for the overcrowding of titles after E3, if a customer is interested in all the titles we are going to release, and also those from other companies, I agree that there is a fair amount of title available during the latter half of this year. Of course money to be spent is of a concern, but these days, time spent is the issue.
Bingo. Time is the constraining factor, not money. Even if I wanted to play all these games that were showed at E3, I wouldn’t have time to do so unless I had no job.
It’s quite natural to demand for a game that you would spend money on to be enjoyable and to last a long time.
This is a golden statement. This is also why consumers will reject any transition to ‘digital distribution’. Consumers do pick out games basing on how much entertainment value in longetivity it will bring (such as replayability).
As for our 3 upcoming major titles – Wii Sports Resort, Wii Fit Plus and New Super Mario Bros. Wii – they don’t seem to overlap with titles from other companies and are not likely to cannibalize one another.
Blue Ocean games!
As for the media briefing at E3, of course we had many internal discussions after that. Honestly speaking, none of us at Nintendo thought that our presentation at E3 was as good as it could have been. It is apparent that we could not fully convey the charm of our products. In the past, Wii Sports and Wii Fit were naturally able to convey their appeal on stage since it was something no one had ever seen or imagined before. People seemed to capture the appeal of Wii Sports instantly and although there was some initial confusion with Wii Fit, its appeal did get through to the audience afterwards. This year, however, with the New Super Mario Bros. Wii, four people lined up with Wii Remotes was not a scene that no one had ever seen.
I rather liked the four people lining up to play NSMB. What I did not like was calling NSMB as “4D” as if Nintendo was scared people would think the series was going backwards since it wasn’t ‘3d’ (which might explain why we saw Galaxy: The Lost Levels there). I really enjoyed watching the four of them play.
As for improving the E3 show, I would recommend a “Jobs-To-Be-Done” approach. Look at E3 2006. While the show certainly had its spectacle of Miyamoto conducting with the Wii-mote, it began with Reggie laying down the “problems” of gaming to set up introducing the Wii. After all, the Wii is the ‘solution’, so the problem has to be established first. Wii Fit was instantly understood because people understood the problem it was trying to solve.
For example, to showcase the Vitality Sensor game, the establishment of the problem of stress and all should be shown (with Vitality Sensor game being shown as the ‘solution’). This is how I would present it. When Iwata talked about Vitality Sensor, it was poor because the sensor was introduced first before Iwata mentioned the problem it was supposed to fix. Iwata mentioned the problem at the end. So all that time, people were staring at the picture going, “What IS that!???”
There is no excuse that any game coming out for the holidays, including 3rd party games, should not be mentioned in some way. They can easily be spliced into a trailer. If they are not mentioned, they are off people’s radar screen. Even the few seconds of a game like Disaster at E3 2006 seared the game into people’s heads.
As for sales numbers and business talk, wrap it in the mantle of a movement, of ‘gaming revolution’ (again, see E3 2006). This will make it seem interesting and not dry.
Microsoft saying that they aren’t going to ‘talk about sales numbers’ isn’t because they are interested in being entertaining as it is that they have no sales numbers to brag about. If Xbox 360 was the market leader, you damn well better believe Microsoft would be mentioning it all the time.
E3 Press Briefing is supposed to indicate the company’s direction and show off their games, it is not supposed to be a hardcore circus.
It seems like the Wii Vitality Sensor is a kind of product which we are having some difficulty in addressing its product concept.
This is because there is no software shown for it. I wonder if Vitality Sensor was shown off just because Natal was. Nintendo PR people didn’t want E3 coverage to be all about Microsoft’s new toy, and they expected Sony to chime in as well. Nintendo had to show “something” in their eyes.
In my eyes, Nintendo ruined the surprise by showing the Vitality Sensor without software. By the time software is shown, no one will be surprised and it will never match the consumer’s imagination.
Traditionally, great games has made people excited and stimulated.
Vitality Sensor is to experiment the idea of sensors for the successor of the Wii. The successor to the Wii will likely be all about sensors.
Motion controls will, and may already, overshoot consumers. Non-stimulated gaming, which is what sensors could achieve, would not only create another Blue Ocean but also disrupt the Motion Controller Market. Nintendo must disrupt the Wii in order to save it.
We are hoping to make one such proposals a year, or every two years at best, to try and realize what no one has ever done before. As there was concern at E3 this year that people might misunderstand us as makers developing sequels only, we decided to make it (Wii Vitality Sensor) public at the media briefing. We would like to deliver the actual product not too late in the year next year. As I have mentioned, last-minute polishing is crucial for developing video games, so please understand that we’ll need to refrain from commenting on an exact release date.
So this is confirmation that Vitality Sensor was added to E3 2009 near the end to show that Nintendo ‘can make more than sequels’. Nintendo never shows hardware without the accompanying software. I don’t believe this explanation especially in how poorly Vitality Sensor was presented.
I have heard Nintendo execs do more and more damage control on Vitality Sensor than anything else that was presented at E3 2009. I hope they realize that showing Vitality Sensor at this time, with no software, was a mistake.
Nintendo has a policy not to show off incomplete projects. So why did Nintendo break it for Vitality Sensor?
We are attributing the current slowing sales trend of hardware to the difference in sales standard when strong titles launch in the market to when those titles have been in the market a while, and not to the lack of competitiveness due to overvalue pricing or weak product appeal. Thus we are not planning on changing anything on prices right now.
Poor Pachter. Poor analysts. There will be no Wii price cut.
Iwata is referencing the Blue Ocean when he is talking about ‘competitiveness due to overvalue pricing’.
Personally I now see that our decisive moment in China has been postponed a bit. Nonetheless, the Chinese market is still one of our most important long-term targets.
In the future, the territories of the video game market will likely be defined as India, China, and West (Japan, Americas, Europe). This is why all the people complaining about ‘casual gaming’ are going to miss this time period. One day, game companies will just ignore the old markets and just sell toward China and India.
Technological protective measures against piracy is nothing but a cat-and-mouse game.
This is another golden statement by Iwata.
We found that the marketing tactic with the exclusive packaging may have contributed and positioning as the next choice following Brain Age worked. According to our internal research, many of its owners are female and many of them started gaming with Brain Age.
Iwata’s discussion of Prof. Layton is very interesting. Specially designed box art for Europe describes it as ‘brain teasers’ as a type of ‘upmarket’ route for those who got into the DS through Brain Age.
I know there are some core gamers who like Prof. Layton. What do you guys have to say about Brain Age gamers moving up to games like Layton?
Casual Fallacy, there you go. Instead of remaining at the same level of ‘Brain Age’, these gamers are quite capable and hungry for a more complex experience. According to Iwata’s words here, Nintendo is intentionally moving ‘new gamers’ upmarket into slightly ‘deeper’ games.
In fact Mario Kart, The Legend of Zelda or new Mario action titles are important to Nintendo in that they make Nintendo’s hardware worth purchasing without a doubt. At the same time, it is also important that some unexpected titles perform well.
These other titles are ‘Expanded Market’ games. Iwata is dancing around disruption. But he is clearly putting stable Nintendo series on one side and ‘new’ games on another side, matching the ‘Core Market’ and ‘Expanded Market’.
An extreme example is the Tomodachi Collection to which I was referring earlier. We had started the development almost 4 years ago. When we started development then and the product was shaping up to some extent, we found that the function (to create caricatures) was interesting that we chose to integrate that feature in Wii, which ended up becoming Mii and Mii Channel.
Ahh, so that is where the Miis came from.
In that question, an investor whines about not having a five year cycle to do his capital investment on. Too bad.
For one year after the completion of Brain Age software, while we were continuously planning a variety of different products across departments, we came up with the idea of a “Face Training” software with the brand new concept to train your facial muscles of expression. The concept of Wii Vitality Sensor also came out around the same time.
So one year after Brain Age was made, when Iwata sent the Nintendo employees scurrying to make new types of games, the “Face Training” and Vitality Sensor were dreamed up.
For that matter, when Nintendo first introduced its Nintendo DS and mentioned that that the next portable machine has two screens, I felt that a great majority in the industry thought Nintendo had lost it.
This is so quotable. On the quotes page on my site, you should see the responses analysts had to the DS. DS was called the “Crazy Ivan” response to the PSP. PSP was projected to wipe the floor with DS, and Nintendo should have been third party by now.
Recently, however, (when we make some new announcement and) if there is no (positive) initial reaction from the market, I try to think of it as a good sign because that can be interpreted as people reacting to something groundbreaking. If the employees were always minding themselves to do whatever the market is requiring at any moment, and if they were always focusing on something we can sell right now for the short-term, it would be very limiting. We are trying to think outside of the box.
It looks like Iwata agrees with the “Hardcore Compass” I have: that when the Hardcore are throwing fits and stomping angry about something Nintendo does, that is often a signal that Nintendo is doing something VERY right. For examples, see the response to when the DS was revealed, when the Wii-mote was revealed, and when Wii Fit was revealed.
To be more precise, before the actual gaming population increases, there is an increase in those who do not play today but may do so in the future, in other words the group of people whom we call potential users. That is to say when we make an effort (to expand the gaming population), it does not have the immediate effect to increase the active game players but it first increases the potential users who think, “I thought gaming was not for me at all, but I may want to try in the future as it sounds a bit fun.”
This is interesting. As the Expanded Market grows, people who hated gaming become neutral and more open to it.
Nintendo is pushing back on the frontiers of disinterest!
Question 11 is the best question of the entire briefing. It is asking Iwata about getting the ‘hardcore’ gamers. Let us see how Iwata responds…
Another important challenge is maintaining the current active customers. As you pointed out, this is a very important point. Nintendo is not naïve to think that those who have become active players will continue to be active players without us doing anything.
Iwata: “What do you think we are? Stupid?” hahaha
When they visit video game sections of retail stores and notice, for example, that there are actually 500 Nintendo DS titles, the issue for them is to know which software they should pick up. When they ask the shop clerk for “English training software” or “Kanji training software”, the clerks would show 5 to 10 different software that fall into that category and they cannot tell which one is the best for them. I have heard of a research that people cannot decide if there are too many choices. We believe it is very important that our customers can pick up the one title that we recommend with which the customers will be satisfied. If Nintendo picks a few software titles and make recommendations to the customers, third party software publishers would feel that we are arrogant and that we have no right to do such a thing. So, we will need to come up with a different method.
This is an interesting problem. This could be solved by bundling a ‘flagship’ game with the system like how Wii Sports was bundled with the Wii (in America and Europe).
I’d like to talk about “Everyone’s game.” General marketing wisdom says that customers need to be segmented. For product planning, the target audience needs to be identified and narrowed down. For marketing, segmentation is critical and necessary for media buying. Anything that has been segmented is always perceived as good. If Nintendo had 500 different development teams inside the company, that approach might work as each team might be able to cater to a different niche. The fact of the matter is, Miyamoto is the head of one R&D division, which can only launch a few titles each year. To maximize the result, we have decided to counter the common marketing wisdom and go anti-segmentation if everyone else is segmenting everything.
This paragraph is GOLD!
All you people who go blah blah blah about ‘demographics’ and like to segment the market into age groups, into genders, into groups, were having problems understanding Nintendo because segmentation isn’t what Nintendo is doing in the first place!
Note how Iwata says that Nintendo does not desire to create a billion different types of ‘niche’ games but to make games that appeal to ‘everybody’.
This is easier said than done. It is a huge challenge to make a game that will please and be fun for both veteran gamers with the expected depth and novice gamers who say “I don’t get it” but provide them with particular depth that can lead them to deeper points just as they become eager to play longer. Nintendo would like to tackle this enormous challenge. This is one of the reasons why we spent time fine-tuning Wii Sports Resort and this is also the challenge with New Super Brothers Wii. When we can finally demonstrate to the world that these products can satisfy different types of people at the same time, you will probably understand what Nintendo was talking about. For your information, when I talked about this “Everyone’s game” concept at this year’s E3 media briefing, I really did not get any response from the audience. Maybe it was a sign that people do not believe it would be possible.
No, it is because the “Game Industry” is stuck in the Casual Fallacy. They see gaming only through the lenses of segmentation, an either/or type situation. The universal game concept does not apply to them.
In addition to the lack of strong Wii titles which caused the weak sales, it was also affected by the conservative attitudes of our customers in channels. As a principle, we do not want to blame the economy for our performance. Video games have been relatively inexpensive commodities and the business has been less susceptible to the changes in the economy. Blaming it on a once-in-a-hundred-year depression sounds to me too easy of an excuse. Although I do not want to attribute it to the bad economy, if there was any economic influence, I should point out the fact that the retailers are taking a very deliberate attitude towards holding their inventories. When weekly Wii sales declined in comparison with that of last year, they naturally tend to judge that what used to be the appropriate level of inventory is no longer appropriate.
Oh man… The bold, the bold!
You want to know the TRUE reason why Iwata does not blame performance on the economy? Come closer, I will tell you.
The “economy” is a word that means nothing more than an ‘average’.
So who fails when the economy goes down? AVERAGE COMPANIES.
How do you be successful in a down economy? Simple. Don’t be average.
If Iwata blamed the economy, he would be admitting Nintendo was an average company. This, of course, cannot be the case.
Iwata: (Laughs)