I can’t imagine their recent earnings briefing and subsequent investor Q&A having been much fun for Nintendo staff. Profits were down, the media had been snapping at their heels, and for the first time in a long while, they were facing genuine competition in the portable games space from the iPhone. Naturally, investors had questions they wanted answered, and unsurprisingly, this year, they seemed more aggressive than in the past.
The Q&A began with investors asking relatively mild questions about the company’s future products, both in the hardware and software space. One investor was keen to know what genres Nintendo were focusing on internally, while another asked for an update on Zelda Wii and the Vitality Sensor. As you’d expect, both questions were neatly sidestepped; managing director, Miyamoto threw out a vague hint about a potential "Nintencats" game and pointed to Spirit Tracks as the Zelda game people needed to keep an eye on, while company president Iwata said to expect more information on the Vitality Sensor next year, stating that he hoped to further explore the idea behind Wii Fit using the device.
Next, a quick mention was made of Nintendo’s stock and lowering the unit exchange to make buying stock easier for fans and investors. To this, Iwata replied that the company was currently exploring the idea of revising the unit of exchange. The discussion then switched gears to focus on the crux of the problem — the increasing cost of game development and the problems faced by Japanese developers while trying to maintain their profit margins. While a high-definition Wii and facilitating ease of development were both touched upon as part of the consumer satisfaction / cost-balancing debate, the real elephant in the room was the inability of software developers to sell enough units of software to turn a profit.
"Aside from how we develop a new software, there is the point in asking how we market the software. In terms of our relationship with the third party partners, that aspect is becoming increasingly important. The number of opportunity when I discuss this with [General Manager, Marketing Division] Mr. Hatano internally within our headquarters is increasing lately." said president Satoru Iwata. Shinji Hatano then followed up with his own two cents on the publisher’s increased focus on third-party co-operation, citing Dragon Quest IX as an example of a game that Nintendo’s team would help promote overseas.
Going forward, things only got more heated up as investors remained unconvinced of the company’s ability to maintain a steady stream of hit software. One investor said, "Even after your presentation, I cannot completely understand how you are going to learn from the past mistakes and what you will change and how. I agree that it is impossible to make every single game you develop the great success, and I do not think that the mistake that was made was detrimental. However, when I think about the examples of Facebook application, surge of iPhone, motion sensor introduced by Sony and Microsoft at the E3 show and other changes in competitive landscape, I have the impression that you are one step behind in taking such countermeasures as the following markdown of Wii, if I can be rather blunt."
Iwata conceded to this point and followed up with his thoughts on allotting resources for development.
"Naturally, I understand that there are such criticisms that Nintendo was late in addressing various issues. However, I also have to analyze if the company really owns enough resources in order to take the first move in any and all the fields. Since Nintendo does not have very many employees, we have to focus upon the things which we are good at. If we had to take measures and countermeasures in any and all the possible business fields, our resources could be dispersed very quickly and easily. Rather, my job is to find out the potentials in something that others could not find a possibility, to secretly pour the resources into them and to realize the situation that the products have already become great hits before no one else know. If we can realize such a situation at or above a certain level, the company can be publicly appreciated. If not, people would look back and say, ‘It was certainly a turning point for the company.’"
He went on to state that he couldn’t understand why people would feel Nintendo had "lost its edge" after the reveal of Natal and the Sony wand, nor why the media constantly tried to position the DS as having lost to the iPhone, when penetration of the device has actually been growing. The Q&A concluded with a discussion of portable game services, which you can read more about in a separate report.
For those interested, you can read the entire Q&A transcript here. Please note that any grammatical or punctuation errors in the report were present in the original translation as well.