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Nintendo LTD Policy Briefing Q&A .......................(R&D spending, future HDTV support, lon

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Q1: When will Nintendo announce the exact price and launch date of
Wii? Is your policy that you sell Wii hardware at or over the cost?

Iwata: I believe we will need to announce the precise price and launch
date of Wii in or before September this year. Because we are saying
that we will launch Wii in the fourth quarter of 2006, or during the
October-December time period, we will need to make these announcements
before then. So, we are contemplating to make these announcements in or
before September. Let me now talk about your question on whether or not
we will sell Wii hardware below cost. Some take it for granted nowadays
that video game hardware is sold below cost, at least initially, but I
don't think it should be regarded as common sense. Of course, if
manufacturing costs are expected to be reduced so small red ink in the
beginning will be soon offset as a whole hardware-software business, it
is one idea. However, some people somehow think that hardware always
loses money. Nintendo is taking some distance away from that approach.
If you ask me, "Will Wii be sold at or over the cost?", I cannot tell
today if we won't lose even one yen by selling one Wii hardware.
However, we do not intend to lose a great deal of money from the
hardware sales. Any loss must be recovered elsewhere, of course. We are
making our overall Wii plan so that we can develop it as a healthy
business from the first year.

Q2: I recall GameCube received a warm welcome by the software
developers before the launch. Comparing with the pre-launch period of
GameCube, how differently are the third parties evaluating Wii now, and
does Nintendo deal with the third parties differently?

Hatano: As Iwata said in his presentation, the majority of the third
parties were putting game graphics as the top priority. However,
especially after observing the sales trend of DS since the end of last
year, their priority appears to be shifting to the unique game ideas. I
believe those who have attended E3 this year among today's audience
will understand that Nintendo was the only company that showed
different exhibits based upon different concepts from any other
exhibitors. I understand they (third parties) were wondering before the
E3 show what future course they should take, and the general impression
the third parties have had with E3 this year, as I understand it, was
that it was helpful in mapping a future course. Since E3, almost all
the domestic software makers have approached us and requested detailed
information on Wii and requested hands-on experiences with the Wii
software we showed at E3 for those developers who did not attend E3.
Such developers requests are increasing. Since the end of last month
until around the 20th of this month, we have been conducting hands-on
opportunities either at our Tokyo branch or at their facilities
depending on their conveniences. I'm sure they will come up with unique
ideas to create great software, and we are more than willing to
cooperate with them. We are also intending to provide them with a dev
kit at an inexpensive price, say, at little more than 200,000 yen. We
cannot disclose the software manufacturing price for third-party
publishers, but they will be at the same level of GameCube.

Q3: Mr. Iwata, you said four years ago (2002) at this Corporate
Management Briefing that you were concerned about the tendency of
lowering software prices, as it could lead the industry to destruction
and that the industry probably does not need to lower the software
price as long as it could develop the commodities, the value of which
were worth the price. Could you elaborate on your view toward the
lowering software price today? Listening to your presentation today, I
got the impression that you will prepare different price points for
Wii.

Iwata: Maybe the question is based upon the fact that Nintendo is
selling Brain Age at 2800 yen in spite of the fact that I had expressed
my opposition towards the tendency of lowering software prices. The
reason why I expressed my concern was because the game software with
huge contents that were made by spending a long development time would
be sold at very high price point at the beginning but they would be
significantly discounted soon after the launch. I was referring to this
kind of unhealthy product cycle The real value of the software must be
judged with its contents, not with the medium on which the software is
stored. Our business has been based upon the fact that we are asking
consumers to appreciate the value of the contents, not the material
cost of the optical discs, which are much cheaper. If we put the low
price tag for software, the value of which are much more, or if we were
lowering the price soon after the launch of the software regardless of
its inherent value, I said it was unhealthy. We believe that each
software should have its own price point depending on its volume,
theme, contents or energies and time spent for the development, namely,
the development costs. For example, the majority of portable software
is being sold at around 4800 yen now. Especially when we approach
non-users and offer them more compact games, the development time for
which was much shorter than the other software, having different price
points, or more inexpensive price points, has the wider impact to
arouse their interest and to cause the expanded sales than simply
offering 4800 yen as the almost standard retail price. To put it
another way, many in this industry once appeared to believe that
marking down hardware prices or attaching free software was the only
way to expand the installed base. What is notable today is, people are
actively purchasing a 15000 yen DS or a 16800 yen Lite just because
they want to play 2800 yen software. So, what I really meant was, we
should be in a position to choose the most appropriate price for each
software depending on its mission, volume or development costs. Once
the suggested retail price is announced, we should stick to it. Of
course, we should be flexible. If the software was first introduced 5
or 10 years ago, we don't need to stick to the original price. However,
if the suggested retail price of any and all software is marked down in
6 months or 9 months, the customers will learn the cycle and wait for
the discounting, which will simply aggravate the decreasing sales of
new software. We need to be cautious about this.

Q4: How many Wii hardware do you plan to sell in three years from the
launch?

Iwata: I do not intend to declare how many Wii we will be selling
today, but Wii will be a failure if it cannot sell far more than
GameCube did. In fact, we shouldn't continue this business if our only
target is to outsell GameCube. Naturally, we are making efforts so that
Wii will show a far greater result than GameCube.

Q5: One game company person referred to Wii and told me, "It was just
like starting to compete with completely different rules, as if we
started playing with soccer rules just when we were engaged in
baseball." Nintendo has the history of introducing many different
hardware such as DS, GameCube and Super NES. How do you think consumers
will react to Wii? Will they react more positively than the past
products?

Miyamoto: My impression may be too subjective or personal, but I
haven't felt any significant difference when I see Wii from purely the
standpoint of a man who has been making something. I have just been
trying to make something fun. When I was working on Donkey Kong, I was
impressed with the fact that I could make completely different things
on the same hardware just by working on the software as long as we are
using computer as the platform to make things. Of course, Nintendo has
been developing a variety of different hardware and peripherals such as
Virtual Boy and Kirby's Rumble and Stumble, but our basic approach has
been to make new things by working on the software. When many people
are trying to improve things within a limited area, a few limited
things are becoming more and more sophisticated. Now that you referred
to soccer, in case of a soccer video game, developers would make the
games more and more interesting just for those who know about real
soccer games. The same formula has been applied to action games, role
playing games and many other genres. We believe that we have already
reached to the stage where we need to show the new vision for the whole
entertainment. This is why we have decided to alter the game control
interface significantly, not just slightly. Now that we are going to
drastically change the control interface, we thought we should also aim
to change things from different perspectives as well, such as seeking
new ways to package software just as Iwata mentioned today. It will
also be fun for us, game designers, if we think in terms of altering
the overall way how players play with home console games with what kind
of images. On the other hand, this is nothing new for us. After all,
Nintendo has been making commodities this way for a very long time.

So, we have been making a variety of different software for Wii and we
exhibited some of them at E3 this year. Many of you have had the
hands-on experience of Wii today. I know many people in this industry
do not play video games even though some of them are running video game
companies, but I have seen them enjoying playing with Wii without any
hesitations. Looking at them, I can feel that we can change the way
people play. We are trying not to increase the number of buttons the
player has to manipulate. We are trying not to be constrained by
conventional rules. We are trying to make games so that anyone can
enjoy playing easily. I am sometimes sharing this view with third-party
developers. Sorry, I was spending a long time to answer to you.

Iwata: The person in your question appears to be puzzled with the
changing rules in developing software. At Nintendo, changes are nothing
new. Nintendo has always been trying to create things from the
perspective of making uniquely fresh, fun entertainment. Though the
hardware may change, we don't feel that we need to see things from a
completely different angle. Looking outside of Nintendo, however, there
are people in this industry who have been spending their energies
always to make improved versions of the existing games, say for 10
years. Some of them have become the authority in certain game genres
that nobody can compete. Many developers are so capable of doing their
jobs perfectly in the traditional way of making games. Some of them may
not have been able to determine how they can utilize their know-how
when Nintendo offers a completely new platform. This will change as the
time goes by. Even inside of Nintendo, not everyone could get
accustomed to it when a completely new platform was presented. In case
of DS and also in case of Wii, some of them could adapt easily and some
of them needed time. In the end, however, everybody learned how to
adjust themselves, so I'm sure that the same thing happens outside
Nintendo as well.

At E3, I felt the same way as Miyamoto did. When the brasses at major
publishers visited the Nintendo booth, they used to see games by
crossing their arms at the tail end of the crowds. This year, the
majority of these top executives were the first people to hold and
swing the Wii Remote to play. I was really impressed.

Q6: Will Nintendo be able to renew the profit record after launching
Wii? If so, when?

Iwata: As long as the current fiscal year is concerned, we have
Nintendo DS which has already been entering into the significant
expansion period, and profitable Game Boy Advance for which the
development costs have already been depreciated so that we can expect
them to significantly increase our profitability for the portable
business. As for the home console business, we announced that we expect
to ship 6 million Wii hardware and 17 million Wii software during this
fiscal year. Even when these numbers are met, their contribution to our
overall profitability is limited, as long as this year is concerned. I
do not think that DS will be peaking out this year so, if we can make
the successful launch of Wii this year, we can look forward to
increasing the profitability next year. Your question is when we will
make the record profit, but renewing the profit record is not the
immediate goal for us at this point in time. As long as the home
console business is concerned, Nintendo has been a challenger during
the past 10 years. Our priority is to determine the strategy from the
challenger's perspective on how we market Wii to make it the
best-selling machine. We should refrain from committing ourselves as to
when we are targeting to renew the profit record at this point,
although we are hopeful that such a day will come sooner and we are
making the efforts.


Q7: Nintendo has increased R&D budgets in the last couple years. What
will be the R&D spending like in the coming years?

Iwata: Technologies evolve and change very rapidly today. Our internal
development resources alone are not enough to make attractive enough
commodities for the customers. We need to invest our R&D budgets to a
variety of different fields. Some of the investments will be
materialized as software to be sold this year, some of them will be
launched three years later and some of them may be introduced many more
years later. This is how we had to increase the R&D costs in the last
few years. When we launched GameCube, the initial sales were good, and
all the hardware we manufactured at that time were sold through.
However, after this period, we could not provide the market with strong
software titles in a timely fashion. As a result we could not leverage
the initial launch time momentum, and sales of GameCube slowed down. To
avoid repeating this with Wii, we have been intensifying the software
development, both internally at Nintendo and at developers outside the
company, in order to prepare aggressive software lineup for Wii at and
after the launch. In case of DS, I don't know if Miyamoto agrees if I
say this but I'd like to use the term, "slowly" here (laugh). We want
them to take sufficient time but while Miyamoto and others are "slowly"
developing Mario Kart DS and Animal Crossing DS, we still need to
provide the market with sufficient amount of software and, to make this
happen, we spent R&D costs. Basically, we are doing the same thing for
Wii. We believe it is important to provide the market with strong
software without a long interval in order to keep the launch time
momentum. Accordingly, I expect the R&D costs to increase a little bit
rather than decrease significantly. On the other hand, I do not expect
our R&D spending to be doubled or tripled because we do not have any
immediate intention to build semiconductor manufacturing plant or
something like that.

Takeda: We have been discussing what range of R&D costs will be the
most appropriate one for the company from both hardware and software
perspectives. What we are targeting to realize is to make the Wii
hardware relevant to each one of the different family members in one
household. As we are trying to reach out to people beyond the
traditional game players, we need to spend on other fields than the
traditional game hardware and software developments in order to make
Wii the nontraditional home video game console with dynamic appeal to
anyone. Another thing I should add is that we are taking advantage of
the new technologies in untraditional ways. We believe that we are
spending appropriate amount of money to make the Nintendo Difference,
and we are always trying to be more efficient in doing so.

Miyamoto: Yes, I've been developing games "slowly" (laugh), thank you
very much. When we started working on Nintendo DS, it was going to be
the third important product for Nintendo in addition to the existing
two home console and portable platforms, so I felt that we would have
issues with our ability to produce a sufficient amount of software for
all three platforms. The addition of Wii makes it four that we need to
make software for. While I feel that we need more internal software
development resources at Nintendo, we have not increased the number
greatly. When we combine the total number of people working for
Nintendo's first-party and second-party titles, however, there are far
more than 1,500 people working on the titles today. Looking outside of
this group, to tell you the truth, a number of people are having a
difficult time selling the traditional types of game software. Whenever
we can find people who have good talents and experiences, we are eager
to support them so that they make games for Nintendo. That kind of R&D
spending is also happening. This may sound imprudent but, honestly, I
don't know how much we will need to spend in the end. As a software
maker, the primary goal is to make great hit games. If there is a
possibility of yielding a great profit, we should not hesitate to
invest in that title. My own philosophy is that we should invest in
people if they have the potential to make something interesting. I
myself thought that I would work for Nintendo because the company could
be a good patron for me to make something I would really want to make.
To make hit software, we will need to spend on R&D in the future as
well. Having said that, however, I am a very cost-conscious person, as
you know by now. I have never spent money for non-prospective
activities such as for building a movie studio. I'd like to decide the
field where we can expect the efficient return for our investment so
that our investors will be happy. Rest assured that I won't spend money
the way you feel worried.

Q8: This question may be rather vague one, but is Nintendo really
challenging when you look around the world?

Iwata: This may have something to do with what Miyamoto told you right
now, but our business is very special in various ways because our
customers can never tell what we should make. In the majority of the
other businesses, you are told, "You should ask the customers because
they know the truth." So, you will thoroughly ask your customers what
are the issues they feel about your products and try to make a hit
product by solving the identified problems. In case of video games our
job, in a sense, is to surprise the customers. Asking our customers,
"what will surprise you," is the silliest question. Our customers will
be surprised and happy when we can provide them with something they
have never expected. For us developers, there is no way to expect what
will sell and what won't. Having foresight, or the ability to forecast
what works out well and what won't is a very important talent for the
software planners in the entertainment business. Fortunately, Nintendo
has been recognizing the importance of foresight for many years to run
the company. This hasn't changed even after I succeeded Mr. Yamauchi's
position, and Nintendo has been able to succeed in introducing a
variety of unprecedented products. Of course, not every new
unprecedented products Nintendo launched was a success. Something
worked out, something didn't. In the end, however, the overall success
ratio was higher than the average in the world, I think, and it must be
because Nintendo has been sharpening up its ability to determine which
unprecedented things may be likely to succeed. Miyamoto was talking
about this when he said that he would like to invest efficiently. For
example, we would forecast that making huge investment to that company
won't yield the due sales result, so we shouldn't make the investment.
As a result, those who are looking Nintendo from the outside may
misunderstand that Nintendo is always investing on the safe-looking
fields. The fact of the matter is, on the contrary, Nintendo has been
investing in the unprecedented areas where no result is assured.

I don't know if this is a good example, but when we announced Nintendo
DS, the unanimous reaction were, "What are we supposed to do with two
screens?" and "I don't think the touch-panel can change the way how we
play games nor create new entertainment because that technology has
been available in the world for many years." Nintendo alone was
thinking differently and betting that our unprecedented approach would
succeed and be the right one. The handwriting recognition application
for DS had been developed at Nintendo even before we started discussing
the possibility of making Brain Age software at all simply because we
thought that such an application could surely be useful someday in the
future. When we decided to work on the Brain Age theme, the necessary
technologies were already available to be used for the software and,
accordingly, we were able to complete the Brain Age development in such
a short time like 3 to 4 months and the software was launched in a
timely fashion.

We have been working on a variety of different products, even when no
exact usage is anticipated, as long as our foresight tells us that we
should go for it and that it will be useful someday. So, I cannot agree
to the idea that Nintendo is not challenging.

When I am surfing on the net, I often see such terms as "Web2.0" lately
and feel that the world of the internet has entered into a new phase
since last year. Looking at how video game companies are using Internet
technologies, we have been wondering if it is the right approach to
consistently use them just to compete against each gamer for 5 or 10
years. This is how we came to propose WiiConnect24, which will use the
Internet for people to enjoy sharing information. I am yet to know what
kind of revolutionary entertainment can be created with WiiConnect24,
but we will not stop challenging these unprecedented things. You may
feel that Nintendo has been doing things that it did not used to. You
will be feeling the same way in the future as well. Whenever we sense
that users' new needs must be there or there's got to be unique
opportunity for us to surprise customers, we would always like to be an
aggressive challenger.

Q9: You said that you received a variety of different reactions about
the name, "Wii." Do you think you should have named it differently?

Iwata: I am one of the people who have decided this final product name.
Of course, I am not the only person to make this decision, but I have
never thought that it was a mistake to name it, "Wii." I understand
that a great many people have already accepted this product name. When
someone has some hesitation today, we'd like to make efforts so that
they will come to like this name in the end.

Q10: How many DS hardware units will you ship in Europe and America
during this summer?

Iwata: I can't make the regional breakdown today, but we will be in a
position to produce more than 2 million DS Lite hardware per month
during the summer. We will allocate them for the global markets and
that includes the ones to be kept for the year-end sales in each
territory.

As I said before, our top priority is to solve the severe shortage
problem in Japan so that our consumers won't have difficulties in
purchasing DS Lite at retail outlets. When I said, "more than 2
million," it is the monthly production number for the global markets.
For your information, at the peak time of Game Boy Advance, I recall
that the monthly production was around 2.3 million. In other words,
monthly production of DS Lite will quickly reach the level of one of
Nintendo's best selling game machines in the past .

Q11: What are the reasons why Nintendo cannot produce sufficient
amount of DS to meet its demand? Is it due to the limited manufacturing
capability? Or, couldn't you obtain sufficient components? Will things
be different with Wii productions?

Iwata: As for the launch time shortage of DS Lite, a major issue we
faced was that we could not achieve the expected level of the yield
ratio with the bicolor molding. We could have made a lot more DS Lite
if we had had compromised on the quality level, but we have never
wanted to do so. We do not want to compromise on the quality level of
our commodities. Because we wanted to market only the commodities that
we could be satisfied with, the initial shipments were limited.

When we are talking about 2.2 million monthly production, no single
element can determine the whole picture. Any further addition to this
will require the drastic change in how to secure each and every
component. We may be able to add a little more, but if you ask me
whether or not we will be able to double the production, I have to say
that we will have to face major supply issues for major components.

Talking about Wii, as I said today, whenever we launch new game
machine, there are always initial early adapter demand, and that exists
in Japan, Europe, America and elsewhere. We announced that we are
planning to ship 6 million Wii hardware during this fiscal year and,
among them, we are intending to ship 4 million or more by the end of
this calendar year, and we are preparing to make the productions. If we
can ship this number and if no product shortage will be experienced
anywhere in the world, it can be regarded as a failure for a new game
machine's launch. In other words, we will be making efforts to keep the
constant shipment to the markets so that severe shortage situation will
not go on for a long time.



Q12: How long a lifecycle are you expecting for DS Lite? What will be
the average life span of portable game machines in the future? What
kind of new functions or mechanisms are you contemplating to add to DS
Lite in the future? If Microsoft enters into the portable video game
market as some reported, how will the portable market change?

Iwata: Whenever we are ready to launch a new hardware, that hardware
development team starts working on something new. As long as Nintendo's
internal hardware developers are concerned, they are always trying to
think or actually developing something new. On the other hand, if we
should develop and market any and all such new hardware ideas, an
unrealistic number of new hardware would be launched, so we won't do
so. Many ideas are being exchanged, and so many experiments are being
conducted internally at Nintendo at any given moment. Among them, we
will select a few ideas that have the biggest potential to be welcomed
by the market or have the biggest appeal to the software creators and
they are going to be materialized to become the actual commodities. For
example, Nintendo launched Game Boy, Game Boy Color and Game Boy
Advance, but there had been a number of prototypes internally developed
but never revealed to the public. Now that the development of Nintendo
DS and DS Lite were over, the DS development team must be working on a
multiple new projects. Of course, we are thinking about what we will do
next. We are not lazy not thinking about the future. But I can't tell
today which one of them will be actually commercialized. You asked
about the expected lifecycle of DS but, to be honest with you, I doubt
if it is right for us to think of portable games from the viewpoint of
any expected lifecycle. The actual life span of any portable game
machine must be more dependent upon various factors such as whether or
not the market still demands it or demands new product or upon the cost
factors of different major components and relevant technologies. We
have to determine the launch timing of new products also by looking at
the availability of relevant new technologies and infrastructures to
support the new features of the product. In other words, we are not
thinking like, "We will need to complete the development of a new
product around that time because the life span of DS is expected to
finish then." Further, forecasting the life span of DS is difficult and
doesn't make much sense now that it has been expanding the new market.
More specifically, we don't need to make new hardware simply because
one of our competitions are trying to make a beefed-up version of their
existing machine. So, we will be working on a variety of different
projects on an ongoing basis. And then, when the time comes when we
think, "the software creators are having a hard time coming up with
unique ideas with the existing hardware but we can create brand-new
hardware with this new basic technology we have worked on which will
encourage software creators to make brand new applications," that is
the time we will use some of the technologies to develop the new
hardware. This is our basic thinking on the launch timing of new
hardware.

If you ask me today how Lite will evolve from now, I cannot answer.
Those who have actually developed DS Lite are working on a variety of
different ideas on Lite, not knowing if any of them will be
commercialized. We have no answer what will be used in the end.

I understand that the possibility of Microsoft's entrance to the
portable game machine market has been a topic in this industry. As I
showed you today, there is an apparent shift of the game market from
console business to portable business. It is the trend in the whole
video game market. As a background, contemporary men and women are
becoming increasingly busy and cannot afford to sit in front of TV set
for a long time, which makes it difficult for game developers to make
games that require the game players to do so. Also, while we can expect
one house to own one video game console at maximum, we will be able to
sell multiples of portable game machines if several family members have
come to love them. Actually, Game Boy Advance has shown that kind of
family penetration, and DS is showing up similarly at the moment. So,
even if Microsoft, which has been consistently saying that they would
never introduce a portable game machine, will announce that they will
do so, it won't surprise me. About your question on how the market will
change in the event Microsoft will have launched its portable machine,
basically Nintendo won't change because Microsoft has done something.
Nintendo should be proud of the fact that we were the very first in
thinking and exercising how we can expand the number of people who play
video games. There are a number of things we can do and we must do for
that mission. Until the time that a lot more Japanese people will love
to touch and play with Nintendo hardware, until the time far more
people around the world will do so, we think that Nintendo will just
continue doing what we believe is right, and it doesn't look like we
need to change this policy easily.

Q13: What is your opinion about home game console machine after Wii?

Takeda: We had a good response to Wii at E3 this year, better than we
had expected, and I am reminding our developers that the Wii
development project isn't over yet. So, right now, I am keeping them
motivated on Wii by saying that there must be a lot more we can do,
even though we are always searching for something new and fun. In our
division, we are not allowing them to talk about the next machine yet
but rather motivating them by saying, "It's not over but, rather, the
Wii project has just started."

Talking about the process on how we come up with new console ideas, Wii
development was the hardest in my own experience. Nintendo has
developed NES, Super-NES, N64 and GameCube, and when we looked back, I
felt that we were just rushing forward following Moore's Law, or just
making new products in the linear extension line following the
evolution of semiconductors. It took a long time, but we have finally
realized that, while we thought we were making products out of our own
will, we were actually moving around within the technological
boundaries. It is natural for engineers to always seek something
better, something faster and something more high-tech. However, when we
look around, the technologies themselves are not necessarily expanding
in just one direction. If we should simply go ahead to the linear
extension following Moore's Law, many people would end up getting tired
of the resulting entertainment because it cannot feel fresh. Now that
we have broken away from the boundary, we are committing ourselves to
see and exploit the technologies in order to extend the entertainment
into any direction. I think we have reached the level that will allow
us to do so. To answer to your question, what comes next will not hit
upon ourselves out of blue. Rather, we should go back to the basics and
ask ourselves, "What is the entertainment?", "Who are the users?",
"What will be the role of us hardware developers?" and "What will
software creators have to do?" I think Nintendo has rather clear future
road map. And then, we'd like to carefully monitor how consumers
respond to our proposals and adjust our approaches.

Q14: How do you feel about the general remark that only Nintendo
titles have sold well among the DS software and third parties' don't.

Iwata: In Japan we currently have 10 DS titles which top the
million-sales mark. Among them, 9 are from Nintendo and 1 is Tamagocchi
software from Bandai, so the general impression must be that Nintendo's
software alone are doing well. If we see the software market share at
this point in time, it may be true. However, please understand that
developing software and making great sales takes time. As of now, quite
a few software publishers are making DS software. However, they saw the
explosive sales of DS only from the end of last year. So, if they
realized at that time that DS will be the one they should put their
software development priority, these software naturally should not be
ready by now. Also, some of the third parties are very strong in making
games with a full volume of contents, which take more time than the
others. For example, Square-Enix announced at our DS Conference (in
October 2004) that they would launch Final Fantasy 3, but the actual
launch will take place this summer. So, we hope everyone will look at
the sales of the software which will be launched for the year-end sales
season this year in order to judge if it is just Nintendo software that
can sell or if third parties software will sell as well or even more.
In case of Nintendo, because we really had to make it a successful
product, even before no single DS hardware was available in the world,
we had put so much energy to create software with our internal
developers and with our second-party developers. As I showed you today,
the market had been driven by PS2 until middle of 2005, so third
parties were focusing their software resources for that platform. A few
outside developers started DS software development then, and their
software will be launched from around this time. So, the current market
situation should not be considered as the final form to judge the DS
software market share. One other thing I would like to note is that
there is a difference in the speed of starting and developing new DS
software between the development teams which are making better versions
of existing software and the teams which are trying to create something
unique and fun. Some developers are wondering how to materialize their
unique ideas. For such developers with unique ideas who cannot tell how
to make a good game from them, rather than waiting for them to develop
games, Nintendo should proactively approach them and make some concrete
proposals on DS or Wii. I often discuss this with Hatano. Actually,
such approaches have already begun, and we would like you to look
forward to seeing the results starting from next year, not this year.

Q15: What is Mr. Miyamoto interested in now? How are you spending your
leisure time nowadays?

Iwata: Miyamoto, who made Pikmin when he was gardening and Nintendogs
after owning a dog, will answer his hobby today (laugh).

Miyamoto: What am I interested in now? I am interested in many things.
Maybe you'd love to hear that I recently owned a cat or lizard (laugh).
But these are not the decisive factors for me to think about next
games. Talking about Pikmin, for example, we were doing a lot of
experiments on GameCube by having some concepts which were eventually
resulted as Pikmin. It was just that I was doing gardening at that
time, so I thought, "Maybe this might fit into the concepts that we are
experimenting now". It is not that we made the game system because I
wanted to incorporate my gardening hobby. This is similar to the remark
Takeda made today. I like dogs and since I owned my dog, I thought that
dogs could be a game. However, fact of the matter is, we could not
think about the concrete way to make it a fun game. We, then,
encountered the DS hardware and realized that we can finally make an
application on that dog concept. I was a typical Japanese husband who
has been neglecting family lives, but I am spending more time with my
family now. I am now interested in how a family enjoys in one house,
and that interest pretty much suits well with the concept of Wii
hardware. In that sense, Wii will become a hardware which will satisfy
my interests of the past 20 years or so, so that I am enjoying making
software right now. Finally, I am doing something lately, but I think I
need to refrain from talking about it today. Hopefully, I can tell you
what it is in 6 months or so.

Q16: What are your expectations toward Reggie, who became the new
president of NOA (Nintendo of America Inc.)? What kind of strategies is
Nintendo taking in the different markets of Europe and in the U.S.?

Iwata: :If we would take different strategies in each territory, we
could not go ahead with the unified path and development resources
would be dispersed. So, we are globally sharing one strategy.
"Expanding the gaming population" is our globally common strategy. Even
though our attitude can be taken as heretical in today's game industry,
doing something different from the others means that we have the chance
to offer commodities which will not have any immediate competitions, so
we would like to take this strategy globally. NOA is the organization
which has a splendid track record in marketing existing types of video
games. Because of this, however, NOA has already established a fairly
systematic organization When such a company is instructed to market
completely different commodities, there surely will be a confusion in
the first place. Even in Japan, there is confusion. However, I am
dealing with any issues on a day-to-day basis here and all the
representative directors sitting here today are joining forces. So,
even if things were not moving ahead perfectly at first as I had been
hoping, we have been making steady progresses in Japan as a whole. I
think this is one of the reasons why Japan was the fist territory where
DS sales exploded. In case of the U.S. and Europe, because gamers'
drifts had not been so obvious, it had been relatively difficult for
anyone to understand that they must change what they have been doing.
When the need to change was not so obvious, the Japan headquarters were
requesting completely different ways to be taken. Naturally, they are a
bit confused. Reggie has been working for Nintendo for three years. We
wanted him to be the face of NOA who speaks English as mother tongue.
We also wanted him to dispatch and explain Nintendo's global strategy
to people who are working at NOA. We believe that the appointment of
Reggie as NOA president will accelerate the understanding of Nintendo's
strategy inside the Nintendo group. For a strategy to work, it must be
first understood by people inside of the organization and the partners
fully. Then, we can work out each tactic after sharing the common
strategy. If we should need to instruct each different tactic from
Japan headquarters, it wouldn't be a desirable corporate situation
because each territory has its own culture, circumstance and different
level of acceptance of our offers. Now that more Nintendogs are selling
outside Japan and Brain Age appears to be riding on the steady sales
track, as I said, there must be a number of Japanese successes that can
be translated well in the U.S., Europe and elsewhere.

Q17: How do you evaluate 1.8 million cumulative sales of Game Boy
Micro?

Iwata: The sales of Micro did not meet our expectations. Micro showed
different sales in and outside Japan. In Japan, initial sales of Micro
were rather good and it did become a rather hot topic. So, there was
the possibility for this product to grow in Japan. However, toward the
end of 2005, Nintendo had to focus almost all of our energies on the
marketing of DS, which must have deprived the Micro of its momentum.
This is why Micro couldn't meet our expectations in Japan. Overseas, we
were unable to dispatch the real attractive nature of this product in
the first place. More specifically, we showed this product at E3 2005
for the first time to the public, and those who have watched Micro were
pretty much impressed. Because a number of people, distributors,
software developers and publishers were all saying that Micro could
sell, we somewhat believed that we would just need to take the ordinary
marketing approach, say, by saying that we will launch the new Game Boy
model. Fact of the matter is, however, those who were impressed with
Micro were the ones who have physically touched and felt Micro in their
hands. However, the actual consumers had to evaluate Micro without
touching them. In the end, we failed to explain to consumers its unique
value and they concluded that Micro is not worth the price they have to
invest. Whichever hardware we talk about, platform business is the
business of momentum. If we fail to build an initial momentum, we will
have hard times. Simultaneously, it was the time when Nintendo had to
expand DS sales, so we had to put more effort on DS, which were not
contributing to the sales of Micro. We have to learn the lesson that we
overestimated the success potential of Micro. Also, we had to be more
careful about how we should evaluate the impression of people who have
actually touched and felt our products and who have watched some of our
advertisements only.



Q18: You raised "Playing=Believing" as your E3 message. What kind of
approaches are you conceiving so that many people will have hands-on
opportunities?

Iwata: There is a Japanese counterpart for the English saying of
"seeing is believing" This Playing is Believing is not just a pun from
it but has turned out to be very persuasive slogan for those who have
had the hands-on Wii experiences. In fact, those who have had played
Wii were all showing happy smiles. I'm sorry that I couldn't see you
when you were playing Wii today, but according to our employees, you
appeared to enjoy yourselves. As you could tell, Wii was accepted very
well by those who have actually played. There is a difficulty of
promoting Wii hands-on that is different from the case of promoting DS.
We can bring DS hardware anywhere and show it to anyone, but we cannot
do so with Wii. On the other hand, there is a thing Wii can do better
than DS. When a player is enjoying playing DS, it is hard for other
people to know what the player is actually doing. When DS hardware is
held horizontally like a book, it may tell the player is doing Brain
Age, but that is about it. When a player is playing some other game,
others cannot even see which software is being played on the screens.
Wii is far more obvious. Our first mission is to encourage people to
see the motions of a player or players when they are playing with Wii.
And then, we will provide opportunities for those who want to play Wii.
If we can expand this hands-on opportunity to a critical mass, people
will voluntarily encourage others to enjoy what they have enjoyed
themselves. When we can reach that stage, then we can leave behind such
issues as, "Wii is the unprecedented entertainment so marketing Wii
requires extra effort." I said today that we are intending to produce
and ship 4 million Wii hardware by the end of this calendar year. If we
can do so, and if these Wii units can satisfy the purchasers, this
Playing=Believing message shall be thoroughly understood by a wide
range of customers.

Q19: You said you are hopeful that those who have Wii hands-on
experiences will volunteer to spread the good news by word of mouth.
When will you launch such software?

Iwata: If Wii Sports is the only such title we can sell on Wii's
launch date, it will be difficult for good news to spread by word of
mouth. In fact, we are intending to launch multiple such titles on or
shortly after the Wii launch date. It may be sold as packaged software,
or it may be downloaded as Virtual Console software. These will be the
titles which can be played by anybody even if they do not have past
game-play experiences, knowledge and techniques. As soon as people see
the software and are given the Wii Remote, they feel that they can do
it. Those are kind of titles I am talking about. WarioWare has been a
hit Nintendo game series in Japan. This kind of software should be
launched by the end of this year in Japan, I believe.

Q20: How will you allocate your resources between Wii and DS? Isn't it
hard for consumers to purchase both?

Iwata: As a matter of fact, several people told me at E3 after they
had praised Wii that Wii's biggest rival is DS, not the competition's
hardware, or that consumers may not care anything other than DS now
that DS has become a social phenomenon. In Japan, more than 8.5 million
people already own DS but more people are willing to buy one. We should
take the situation as an opportunity to sell Wii, rather than as the
rival of Wii. More specifically, now that a number of people are now
starting to become continual game players with DS, how can we persuade
them to understand having Wii at home will enable them to have more fun
experiences or to make their DS experiences even better? If we can do
things right, we will be able to take advantage of DS, rather than
cannibalize DS. If we need to sell DS and Wii from scratch and to
market both products to the households which own neither of them, we
may need to be more careful. However, DS already has a huge installed
base and, in addition, the number of Wii hardware we can ship this year
is limited, just as I said, so we will be able to craft smart marketing
to sell both products.

Q21: Mr. Miyamoto, aren't you facing any issues when you are making
software due to the fact that Wii is not HD-ready or haven't you felt
the Wii does not have high enough spec? How about you, Mr. Takeda?

Miyamoto: I have made demo software for E3 and I have been making Wii
titles now, but I have never felt that Wii needs more processing power.
Actually, whatever spec numbers you may be talking about, there are
always some technological limit. If anyone makes a game for HD, the
hardware machine power must become more than quadrupled just to make it
HD applicable. A similar thing can be said about the memory size. When
developers are told that they can use as much memory size as they want,
someone use them indiscriminately without thinking how it will affect
other development activities, and it is becoming difficult for game
directors to control the whole game development process. Such
uncoordinated activities by each developer make the hardware work less
efficiently and unnecessary development efforts must be taken for these
activities. What we are trying to do is to create brand new freestyle
entertainment that can be enjoyed by all the family members as well as
by a single player. In making such entertainment, I have never felt
stress about the power of Wii. Honestly, I have not been able to use
100% of GameCube's power yet, so I am very happy with Wii's far
superior functionality.

Takeda: I don't think we have any problem about the hardware. It's just
the matter of how you use the available technologies. We could use
technologies to effectively process HD. In fact, Wii is using 90nano,
SA and other state of the art technologies as well as DRAM integrated
technology that others are also doing. Only the difference is, we are
using these technologies differently from the others. Each company has
its own idea on how they should use the technologies, and we believe
our ways are the most desirable one for software creators.

Iwata: I am still a developer at heart, so allow me to add my comment.
I think it is just a matter of the balance. As I said earlier, the
notion to be able to make more beautiful graphics is tempting.
High-resolution sounds tempting too. I myself can tell the resulted
difference in these areas even if many others can't, and I don't say I
don't like technologies. I am one of the engineers so I am excited with
new functionality. However, if I only listen to the voices of my
engineer spirit, the resulted machine will be bigger in size, will take
a longer time to start playing after turning on the switch and must be
pretty difficult to employ such unique functions as WiiConnect24. So,
we made the decision by asking ourselves, "which would let us make more
attractive proposals to the consumers?" and "which will be the more
balanced way to use the technologies?" We did not include some
functions but it is not because we couldn't do so. It was just that we
eliminated them to make Wii a better proposal. Of course, we have had
very heated discussions. Now that we had decided to take this approach,
after attending E3 and having listened to the feedback from so many
people, we are convinced that the decision we made was the right one.
Of course, 5 years from today or 10 years from today, we will need to
review and determine the new balance in order to come up with our new
proposals in terms of the actual needs of the customers and many other
factors including affordable price. I am not saying that Nintendo will
never launch HD-ready hardware. Rather, it can happen. However, when we
seriously look into the current penetration ratio of HD TV, the need to
take a long time to start software applications after turning on the
power, the big console body, heat, power consumption, etc., etc., we
had to make a more well-balanced machine. So, we have no regret about
Wii in terms of its well-balanced nature.
 
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