Posted by: seanmalstrom | February 3, 2014

Investor Q/A 74th Fiscal Term ending March 2014

Shhh, keep your voice down, reader. Iwata is having his question and answer session with the investors. We weren’t invited, but we’re going to show up anyway!

Above: Malstrom prepares his ladies for the Nintendo Investor Q/A

The goal of our application on smart devices is not to generate profit, at least in the short-term. The biggest point is to create consumer awareness and use that opportunity to have consumers know more about our information. As I mentioned in the presentation that people’s lifestyles have changed, we are beginning to see big generational differences in terms of how they watch TV and how often they interact with TV commercials. Consumers who acquired information only through TV or other mass media in the past now get their information through smart devices or the Internet.

Translated: women and children get most of their information through smart devices or the Internet. He cannot be referring to Malstrom because I’ve been on the Internet since the 1980s. Iwata is talking about marketing here, not about designing games for smart devices.

But why the sudden uptake in expenses from Nintendo, Iwata?

Regarding the research and development expenses for this fiscal year, many people seem to have been surprised by such a sudden increase and I heard from the IR team that they received many questions on this topic from financial analysts. Yesterday, I received the same question when we made our financial announcement at the Osaka Securities Exchange and answered that we decided to increase our forecasted expenses this fiscal year in order to tackle some of the areas that we feel we are not strong at, and this is an investment toward the future. I will not, however, go into detail about these specific areas since doing so does not benefit Nintendo or our shareholders. Please also note that the rise is unique to this fiscal year and it does not signify a general rise for and beyond the next fiscal year.

Iwata: “I don’t want to tell you!” Hahaha.

The operating loss that we declared for this period is due to the current situation that the amount of expenses is disproportionate to the income, which is to say that we are incurring expenses as much as we did when our sales volume was high while sales have become low, especially in the overseas markets. In the Supplementary Information about Earnings Release of the Financial Results Briefing, there is a page named “Foreign Currency Transaction Information” where sales volumes in U.S. dollars and euros are shown. Consolidated net sales in U.S. dollars at the end of the third quarter were 2.3 billion in the previous fiscal year but are 1.7 billion in this fiscal year, and the net sales in euros were 1.4 billion in the previous fiscal year but are 1.0 billion in this fiscal year.

Iwata: “It’s not the lack of sales that is causing the expenses, it is the deflation.” To those who do not know, the reason why nations are going crazy with their financial policies is because deflation is becoming more and more of a threat. Here is a good article on it.

From that article:

Those who think deflation is harmless should listen to the Bank of Japan’s Haruhiko Kuroda, who has lived through 15 years of falling prices. Corporate profits dried up. Investment in technology atrophied. Innovation fizzled out. “It created a very negative mindset in Japan,” he said.

Japan had the highest real interest rates in the rich world, leading to a compound interest spiral as the debt burden rose on a base of shrinking nominal GDP.

Nintendo’s situation isn’t as simple as ‘bad sales’. It is more like ‘bad sales and macro-economic deflation’. Even if Nintendo was doing good sales, they would not be doing well financially. If what is going on inside Japan will hit the rest of the world, which they appear to be doing, things are going to get very bad.

Back to Iwata:

Regarding Nintendo 3DS, we did not sell as much as we expected in the last year-end sales season.

3DS is not doing ‘well’. Nintendo sacrifice much profitability to bring down the 3DS hardware price. Prior Nintendo handhelds have always been profitable from my understanding. That 3DS install base came at a hefty price.

With regard to Wii U, it is not realistic to hope that it will sell 100 million units in the same product cycle as Wii.

Iwata is so funny!

On the other hand, when a platform loses momentum, various forces work against it. Nintendo DS, while it struggled in the beginning, achieved a turnaround later. With Wii, we were fortunate enough to cross the chasm* between early adopters and early majority, something one must overcome in order to popularize products, including video game systems, before we even knew we did. Nintendo 3DS had a difficult beginning, but we managed to turn it around later. So far, we have not been able to do so with Wii U.

Ohhhhh. Iwata is referencing a business book. We’ll have to check it out later, reader. The book is “Crossing the Chasm” by Geoffrey A. Moore, published in 1991

Now Miyamoto speaks:

I interpret the question as asking whether we are making the same mistake every time we launch a new hardware system.

I’m just laughing at how he says this (not at him). They are using such legalistic language here. I ‘interpret’ that to mean X. Then he responds to X.

When we launched Nintendo 3DS and Nintendo DS, we were unable to release any games from any of our main Nintendo franchises to coincide with their launches. With Wii U, however, we released, along with the hardware, “New Super Mario Bros. U,” as well as “Nintendo Land,” which was a very unique proposition. If you look beyond, we also released a new installment in the Pikmin series after a long interval, and we also had “Super Mario 3D World” at the end of last year. By the end of this year, we will have “Mario Kart 8,” as well as “Super Smash Bros.” Therefore, I feel that we have managed to overcome the challenge of releasing enough first-party franchises on Wii U.

Bzzzzzz! WRONG.

Also, despite their sales falling below our expectations so far, I do not think that these games were not well-received because they lacked appeal. We received a top score for “Super Mario 3D World” from Metacritic, a site which gives weighted average scores for games, at the end of last year, and our games are highly praised for their quality. The fact that they did not lead to generating wider consumer interest among the general public is, however, something that we have to take very seriously.

Great mushrooms! Miyamoto is citing Metacritic! Hahahahahahaha.

As readers of this site know, the purpose of first party software is to sell the hardware. ‘Quality’ software is software that moves the hardware. 3d World isn’t doing that. Therefore, we can’t consider it ‘quality’. The job of Nintendo’s first party isn’t to get high metacritic scores. Who CARES about high metacritic scores? Look at what Metacritic gave Wii Sports. 76! 76 for the best selling video game of all time! Metacritic is the average of crap.

If you look at just Japan, however, “Super Mario 3D World” was very well-received by children, with Cat Mario gaining ground.

Who cares???

Consumers also seem very excited about “Mario Kart 8,” and I am confident that they will want to buy it once they have played it.

Didn’t he say this for 3d World and Pikmin 3?

 Our biggest downfall last year was that we failed to communicate the true value of Wii U, failed to make children persuade their parents to buy our products for them, and failed to offer products that parents could not resist.

Typical Miyamoto. “It’s the marketers’ fault! It’s not my fault!” Who decided to make MORE 3D Mario? Who decided to make Pikmin 3? Those were extremely expensive games to make. No one is buying the hardware to get to those games. In fact, no one buys hardware to get to 3d Mario or Pikmin. So why does Miyamoto make them? He’s the executive in charge of software. The software buck stops with him. Why is Miyamoto approving games where there is clear market evidence that they are not desired?

In terms of our efforts toward ensuring that we supply the market with adequate titles at all times, although it may come across as an excuse, I would like to mention that Wii U has massively evolved from Wii technologically. Using shader technology, for example, has significantly changed our development environment as well as our developers themselves and the time to develop games, all of which are areas toward which we have been making significant reinforcements. Although we have recreated some of our past games for Wii U, we are actually trying to use many outside developers to help us do so, while we focus our internal resources on making new games.

Nintendo had an extra generation to prepare during the Wii Era. Why wasn’t this done??? Miyamoto doesn’t answer. He just goes on.

Moreover, we are trying to cut down the time it takes to create a suitable development environment as it has proven to be a huge bottleneck, and we are continuing to make improvements in this area across the whole company, too.

We hear this every generation. Yawn.

Iwata now speaks. Listen, reader.

Many people say that when a platform loses its momentum, it tends to receive little third-party support, but I think it is not a matter of the number of titles but the real problem lies in the availability of popular software that is selling explosively. You might somehow misunderstand that Wii had a lot of games from the start, but Wii and Wii U had a similar number of titles in their launch periods. However, Wii had “Wii Sports,” a title that could be enjoyed alone or with a group of people, whose appeal was easy to understand and communicated itself widely.

This isn’t exactly true. Nintendo specifically viewed Wii in the context of the PlayStation 2. They realized they needed to flood the console with games. Why? It is because you never know where the next game may come from. The larger number of games for a console exponentially increases the odds of ‘breakout hits’.

In addition, Nintendo deliberately focused on 3d gaming and ‘hardcore’ (Gamecube-esque) gaming. Why was Pikmin 3, a sequel to a Gamecube franchise no one cared about, made? Why was Wind Waker, a Gamecube game, remade? Why was Mario in 3d World made after the disappointing non-hardware momentum sales of Mario Galaxy 1 and 2?

What Nintendo is damn sure to never admit that they wanted one of their ‘omg 3d’ or Gamecube-esque games to become a ‘breakout hit’. They wanted Pikmin 3 to become a breakout hit. They wanted Wind Waker U to become a breakout hit. They REALLY wanted Mario in 3d World to become a breakout hit (and Nintendo’s sales projections of the Wii U, as ridiculous as they were, was a Nintendo wetdream of everyone wanting to buy 3d Mario).

Nintendo doesn’t want other games to be breakout hits. NSMB U, the sequel to the massive momentum building NSMB Wii, was intentionally sabotaged as NSMB Mii and as a launch game. Why? Because no Nintendo developer wants to make it. They think the game is ‘beneath them’ and a waste of their time. Miyamoto also decided that NSMB U should be the game for Nintendo DLC. There is no respect for the non-3d non-Gamecube-esque Nintendo fans.

What about the sequel to Wii Sports and Wii Sports Resort? Nintendo broke up the game and sells each one, digitally, in parts. No one asked for this. Nintendo doesn’t care.

And with Nintendo Land, a big reason why it didn’t succeed is because it was slathered with Nintendo IPs. Wii Sports was successful because it subtracted the Nintendo IPs. Yet, a deliberate decision was made to ram the Nintendo IPs at people. The sales of Wii Sports and Wii Fit are screaming that Nintendo IPs can hurt games and turn people off the products. We want Mario in Super Mario Brothers, not in tennis or golf. Imagine if Punch-Out had Mario as the star or Nintendo IP as characters?

It’s clear to me that Nintendo didn’t like the implications of the Wii sales. The software that was selling on the Wii was everything that wasn’t ‘omg 3d’ and ‘Gamecube-esque’ games. Just like how a diet has us to eat any food we want so long as we don’t like it, Nintendo was in denial that to make best selling games, they had to make games they didn’t like. The 3DS and Wii U were Nintendo developer joyrides, not calculated efforts to win in the market.

Still, I am not sure if the form factor (the size and configuration of the hardware) will be integrated. In contrast, the number of form factors might increase. Currently, we can only provide two form factors because if we had three or four different architectures, we would face serious shortages of software on every platform. To cite a specific case, Apple is able to release smart devices with various form factors one after another because there is one way of programming adopted by all platforms. Apple has a common platform called iOS. Another example is Android. Though there are various models, Android does not face software shortages because there is one common way of programming on the Android platform that works with various models. The point is, Nintendo platforms should be like those two examples.

This is very interesting. Iwata is hinting that future Nintendo consoles might share the same architecture. I would like more options in the size and configuration of the hardware. I want the option of different controllers for the home console. N64, Gamecube, and Wii U tend to say only one form of controller is allowed. If you don’t like that controller, for any reason, you are screwed.

Licensing Mario in digital areas would mean that there is a possibility that Mario will appear in stamps or wallpapers for smartphones, and I will not rule out this kind of business. This is because we believe that this would not be in direct competition with Nintendo’s business and would not threaten our video game platform business which integrates hardware and software.

I could buy a Mario wallpaper for my computer. Oh noes! “Nintendo has gone third party on the PC!” media will write.

Particularly, if we are able to manage and recognize customer relationships in terms of accounts, or individuals, we can clearly differentiate those who only played one game in the lifecycle of a system from those who played, say, 10 or 20 games, and predict their engagement levels when they purchase their next systems. Among other things that we are considering, we feel that this will enable us to provide hardware to consumers in new and flexible ways.

Nintendo is not going to like the data which it returns. They’re going to discover, to their horror, most people have gaming habits closer to Malstrom than to your average Gaming Message Forum user.

On the 3DS sales at the end of year…

For example, while sales did not grow well in the U.S. and did not increase enough in the UK or Germany during the year-end sales season, they grew extremely well in France. Right now, we are examining what was different about France, and we would like to apply our findings to other regions.

France just has to be the outlier, wouldn’t it?

We tried to create a buzz in the overseas markets with Wii U that would encourage many people to look for information about Wii U, making it easier to get our messages across, but this proved to be more difficult than we had expected. I truly need to reflect on the outcome of this year-end sales season, which, in my opinion, was the worst year-end sales season in the overseas markets since I became president, and I would like to bring them back on the right track as soon as possible.

This could become a new meme.

And that’s it for this question and answer session. The most telling thing, sadly, is that Miyamoto refuses to take responsibility for the game quality equaling sales. He still blames ‘marketing’ for all problems. Poor Miyamoto! He is such a perfect angel! It is only those evil, rotten marketers that mess everything up! According to Miyamoto, if Virtual Boy had the right marketing, even it would have become a hit!

In other news, Sakamoto thinks Metroid: Other M is ‘great quality’ except that those ‘damned marketers’ didn’t communicate the value well enough. And I’m sure Aonuma thinks games like Spirit Tracks is ‘high quality’ except those ‘damned marketers’ didn’t communicate the value. It is such an outrage that our blessed Nintendo developers keep getting undermined by those wily marketers!


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