Posted by: seanmalstrom | May 2, 2017

Investor Q/A with Kimishima

Dos Equis Gifs to the World thumbs up the most interesting man dos equis GIF

Above: Master Malstorm

There was an investor question and answer with Nintendo President Kimishima, reader. But… what Nintendo doesn’t realize is that I was able to sneak a microphone into the facility and spy on the meeting. If the reader will be quiet for a moment, we will hear what was said…

Image result for president kimishima

Above: President Kimishima

[Question about attach rate…]

These differences are due to the timing and cannot be compared directly. Mario Kart 8 Deluxe, which is releasing today, has been highly anticipated by consumers and in fact currently has more momentum than we expected. We believe it is most important to convert this anticipation to sell-through and bring enjoyment to our consumers. Consumers are also looking forward to future titles in the Nintendo Switch lineup, including ARMS and Splatoon 2, so we are aiming for an attach rate of 3.5 units to 4 units over this fiscal year, comparable to that of Wii and Wii U.

Bold is my emphasis.

So Mario Kart 8 Deluxe sales are surpassing even Nintendo’s expectations. Interesting.

Our initial plan for the Nintendo Switch hardware shipments for the last fiscal year was 2 million units, but we saw the high anticipation from consumers prior to launch and began additional production, allowing us to ultimately ship 2.74 million units. We are planning to ship 10 million units this fiscal year, and this figure takes into account the fantastic response we have received from consumers. Planning to ship 10 million units means that we actually plan to produce more than that including units in our warehouse and in-transit product. We are not currently producing this full amount all at once. We expect that the number of consumers who want to buy the hardware will increase as we release titles such as ARMS, Splatoon 2 and Super Mario Odyssey, so our current production model takes that into account.

Also interesting. Nintendo increased production on Switch units BEFORE the launch because they saw the pre-order situation. This is how Switch is selling more than the Wii at launch.

Investor asks:

I think it is incredible that you were able to predict ahead of time that shipments of The Legend of Zelda: Breath of the Wild for Nintendo Switch would surpass the number of hardware units shipped. The late President Iwata declared that you would be reconsidering many conventions, and I feel that your way of thinking has changed considerably in areas such as hardware launch timing and price, software lineup and demand forecasting. Can you explain what kinds of changes have occurred?

Kimishima responds:

We are deeply thankful for the wonderful response to The Legend of Zelda: Breath of the Wild and the fact that we were able to ship more units than we did of the Nintendo Switch hardware. Since The Legend of Zelda series is very popular in Europe and in particular in the U.S., and the hardware launch was in March, we thought that we might end up with different results from a holiday season launch (when a wider range of consumers are likely to make purchases), and so we expected that there may be a high ratio of consumers who purchased this game along with the hardware.

So Zelda, while popular in Europe, is super popular in America. I would agree to that.

The result was exactly as expected in the U.S., but the game is much larger in scale than previous games, and it reached greater popularity than we had expected in Europe and Japan as people tried it themselves or watched others play. Reviews of this game prior to release were also very helpful in communicating its appeal.

So the increase sales in Zelda BoW “Wow!” are coming from Europe and Japan, not America!!!

Now listen to Kimishima here:

Ultimately, we were able to achieve these results because of the response not only from fans of The Legend of Zelda series, but also from consumers who had played a Zelda game in the past and wanted to play one again, as well as consumers who had never played a Zelda game before but who heard the buzz and wanted to play.

Kimishima lists the Nintendo Market Triumvirate. This was mentioned during the Wii launch if anyone was listening (they weren’t, they just went ‘casual gamers’ to explain mystifying sales results. They cannot explain Switch sales so they are tripping out).

First, he mentions Zelda fans. This is The Core Market.

Then, he mentions Zelda fans who played the games in the past but stopped playing (why did they stop? Could it be due to Aonuma?). These are the lapsed gamers. This is The Former Market.

Last, he mentions those who had never played a Zelda game before but did so because of the hype and crowds. These are the new gamers. This is The New Market.

The Wii was able to hit all three of those markets which is why it had such a massive result. Game Forums know about the Core and New Markets, hardcore and casuals, but the former gamers they completely missed. Making Zelda more like the original one, as well as the Classic NES Mini release, certainly got the Former Market’s attention.

We would certainly like to be able to predict the worldwide popularity of The Legend of Zelda: Breath of the Wild, as you suggest, but we are still not able to forecast to that degree of accuracy. The end result was that the number of units of this game shipped was higher than the number of units of hardware shipped.

And this is why an Unfortunate Person At Nintendo (often punished for some misdeed) is assigned to read this site and report in. What will the future be? They want to know.

Investor:

I’d like to know as much as you can share about the basis for your short and medium-term sales forecasts of Nintendo Switch. In particular, are you expecting 10 million hardware shipments during this fiscal year because that’s the number your total anticipated demand in each region led you to, or are you looking at your software lineup for this period and predicting how much hardware you think you can sell? Also, you have been quoted in the media as saying that you want sales of Nintendo Switch to match the Wii sales. Should we take that to mean that your sales target for hardware is going to be 100 million units? If so, then do you envision Nintendo Switch selling not just one per household, but one per person?

Oh! This is a great question! Especially the bolded end. It is a question I would ask. Let us see how Kimishima responds…

“I am so nervous with excitement!” squeals the bubbly reader.

I know! And to think people say the Q/A is boring. They don’t understand.

We set this fiscal year’s 10 million shipment forecast for Nintendo Switch based on the fact that we were able to ship 2.74 million units during the last fiscal year, which was well above our initial forecast of 2 million units, combined with the response our sales offices around the world have reported from retailers and consumers about the software we will be releasing during this period. Mario Kart 8 Deluxe was released today and although we did not cover it when creating our sales plans, it has gotten especially positive reviews. Feedback from consumers at our ARMS and Splatoon 2 preview events has been positive, as well. We have also gotten good feedback about 1-2-Switch, which has already been released, and offers consumers a new gaming experience that takes advantage of the unique strengths of Nintendo Switch. All this together gives me the sense that Nintendo Switch is going to outperform our initial expectations.

Nintendo really does take reactions from these preview events seriously.

 

For us, being able to reach an installed base of more than 10 million units is fundamental to creating a strong business in a number of different ways. Shipping 10 million hardware units this fiscal year, as planned, will give publishers and the rest of our business partners a sense that the future of Nintendo Switch is more promising. This is another part of the reason why we are planning to ship 10 million units this fiscal year.

The 10 million line echoes Microsoft with the Xbox 360 when they said, “First one to 10 million wins!” because that is the number that Microsoft (and perhaps other console companies) saw that created a self-momentum console that attracted third parties. Nintendo seems interested to racing to 10 million as fast as possible.

The truth is we want to raise the installed base of Nintendo Switch up to the same level as Wii. As we mentioned during our presentation, Nintendo Switch in America had the fastest start of any Nintendo hardware, despite launching in March. In the video game business, it’s important for consumers to feel that a sales momentum is going to grow, and we are setting a standard with Nintendo Switch to release a continuous string of major software titles from now on. And if our sales go according to our plan this fiscal year, we will be able to see Nintendo Switch gaining the
momentum in which it can approach relative parity with Wii afterwards.

When the Wii began selling out, the goal posts kept shifting. “Wait until…” The last one was GTA 4. Pachter and all the rest were confident that GTA 4 would right the universe. Well, GTA 4 did come out. And this was the moment we knew for sure Wii would win that generation:

Plus, considering that Nintendo Switch is a home console video game system that you can take with you on the go so you can play anytime, anywhere, with anyone, we think there will be households that feel as though one is not really enough. This is another point that drives us to match the scale of Wii’s popularity with Nintendo Switch.

What Kimishima is saying is that Switch doesn’t have to penetrate the same number of households as Wii did in order to sell 100 million. For the DS, people have multiple systems (e.g. husband and wife each have one). I, myself, have THREE DS systems.

Switch seems more like a Next Gen DS-on-Steroids.  Switch is certainly used like a DS was. But the DS launched in 2004 which was FAR better macro-economic conditions than today. Wii launched in 2006 which also had far better macro-economic conditions.

If I can transfer save data, I wouldn’t mind even buying a new revision of the Switch.

Question:

Nintendo Switch sales numbers certainly resemble Wii immediately after launch, but I would guess that the favorable demand for Nintendo Switch up to this point has largely come from Nintendo fans who bought Nintendo Switch because they wanted to play The Legend of Zelda: Breath of the Wild. I see this situation as being a little different from the huge contributions that Wii Sports is thought to have had on Wii sales at that time. Looking at the future software lineup for Nintendo Switch, I continue to see a lot of titles that cater to these long-time Nintendo fans and video game fans in general, but what is your strategy for enticing non-fans to buy Nintendo Switch, and what sort of time frame do you have for it?

Answer:

Our vision for Nintendo Switch is to release one title after another with no gaps following the March launch, reach a large number of consumers during the holiday season, and continue to expand the business. Along the way, we found that a lot of consumers were looking forward to The Legend of Zelda: Breath of the Wild being released simultaneously with the hardware, which led to our stronger-than-anticipated hardware launch.

One title after another…

Oh, and it is QUALITY software that attracts newcomers. BAD software only attracts hardcore fans. Hence, the hardcore gaming is actually POORLY MADE gaming. Kimishima makes this point in text that follows the above.

This means that our product lifecycles are not going to last for a set number of years, but will be flexible enough to change when required by changing consumer needs.

In general, this is the sort of thinking we want to adopt for all our hardware development. We want to have flexible hardware cycles where the launch of new hardware sets off the development of the next hardware that will respond to consumer trends.

This is MAJOR. Of course, none of the game journalists picked up on this.

Kimishima just declared that Nintendo will not use their hard-coded 6 year cycle but respond to consumer trends. So major.

Iwata would force the transition. I think the Wii and DS had many more years left in them. But Nintendo abandoned the Wii too fast.

In the Golden Age of Nintendo, the hardware responded to consumer trends. NES had such a long lifecycle because that is what the market wanted. While consumers already had a SNES, Dragon Warrior 4 came out on the NES (in the West at least). SNES had a long life cycle too.

This is a very positive sign. It means the Switch will have an extremely long life cycle, and Nintendo will keep milking the 3DS platform.

2DS XL has now become much more attractive to me in that even I might buy it.

Takeda expressed interest in retiring and passing the torch when his term of office expires this period. Takeda’s guidance has fostered many technicians over the years, particularly in the technical development departments. Ko Shiota, who we have mentioned as a candidate for the new director, was one of those Takeda mentored while developing our business.

No! Not Takeda!!!

Miyamoto is next.


Malstrom reads commentary on this Q/A.

“It is interesting,” snorts a hardcore gamer, “that Nintendo is not following the Wii path here.”

What is the Wii path? They don’t know, folks. They have no idea. All they know about Wii path is ‘casualz gamerz!!!111!!’

What Nintendo is doing with the Switch is following the NES PATH, or Golden Age path (NES, Gameboy, SNES eras). This path is “NES is just a box you buy to get to Mario.” Great games move the hardware.

Nintendo did not understand why the Wii was successful. They thought it was because of the hardware and marketing in addition to the software. Nope. The Wii U and 3DS were made to be ‘fabulous hardware’ with the TViiii and “OMG 3d movies!” Wii was seen as the Second Coming of the NES by many. The controller was identical to the NES controller too!

So Nintendo’s strategy with Switch will be similar to that of the NES. It seems that instead of massive focus on ‘changing how we play’ or ‘restarting the experience line’, it will be one quality game after another. To put in perspective, 3DS would have 3d Pilotwings because ‘omg 3d’. It would have Mario in 3d Land because ‘omg 3d’. With Wii, it would have every game have motion controls because ‘omg motion controls’.

We don’t want that.

We just want one quality game after another.

I don’t see any warning signs with Nintendo at the moment (they are even doing the right move by converting 3DS to a 2d platform). Now is the time to be bullish on Nintendo’s fortunes. E3 will give us Nintendo’s roadmap further. Let us see if Nintendo will save Metroid as it saved Zelda.

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