Though Nintendo has been slow to adopt downloadable content and microtransactions on a wide scale for games on its systems -- while rival consoles have implemented these features in their services for years -- the company looks to change that in the coming months.
It's rolling out a new Nintendo Network online platform for 3DS and Wii U that is meant to provide a significant upgrade over its dated online infrastructure for DS and Wii. The service will soon let consumers purchase downloadable content for first- and third-party 3DS games.
As it has been for some time now, the company's online strategy was of particular interest to Nintendo's investors when it was forced to reduce its fiscal year forecast
last week. President Satoru Iwata and senior manager/game designer Shigeru Miyamoto were on hand to answer questions from the company's investors in a Q&A round immediately following the announcement of its financial results.
Focusing on extending the lifespan of games, not increasing ARPU
Nintendo sees plenty of profit potential in paid DLC for 3DS, which is especially important as it is taking a bath on the handheld's hardware sales, due to the system selling at a loss to grow its early userbase.
While the company expects to begin making a profit on 3DS hardware
again sometime between April and September, Iwata admitted those sales will not generate much profit in the next fiscal year (ending March 2013) -- thus, the company needs to boost software sales.
"There are two methods to gain profits from software," he explained. "One is to sell as many units of a product as possible with fixed development and marketing costs; the other is to get as much money from a product as possible, or to increase the ARPU (average revenue per user)."
Iwata said putting out downloadable content for titles can increase the ARPU for games and generate interest for older titles, increasing their lifespan, but that focusing too much on ARPU "could possibly narrow the range of ... consumers and fail to succeed in the long run."
"We cannot, and should not, ask our consumers to embrace the situation where they are required to make excessive payments," he warned. "Doing such things might be good for short-term profit, but it will not serve our mid-term and long-term business developments."
"Our basic policy is that we create products which appeal to a wide variety of consumers and sell for a long time. We should take advantage of add-on content for this purpose, which could give us a higher ARPU as a consequence."
Regulating third-party developers' microtransactions
Though Nintendo says it would like to give third-party developers "as much freedom as possible" with their games' downloadable content, it said those companies will need to make sure they don't abuse consumers' trust.
Iwata said, "We plan to ensure a relative level of flexibility for the Nintendo 3DS and the Wii U software compatible with the Nintendo Network as long as the developer has built a trusting relationship with consumers, except for the cases that consumers will be too disadvantaged."
He added that the company would like to have "regulations with a certain degree of strictness so that consumers will get a sense of reassurance from its games," as Nintendo believes it "should be more careful" with its customers to ensure they aren't exploited with microtransactions.
The CEO, however, did not appear to be ruling out social gaming-style microtransactions on 3DS and Wii U games, especially if that is what third-party developers and consumers want from their games.
"If third-party developers would like to adopt this form of micro-transaction, and if this kind of business relationship between the developers and consumers is commonly accepted in Japan, we have no intention to decline it," he commented.
"Please understand that this is totally up to each developer, and I am not in the position to say yes or no. Again, we will not turn down such requests by third-party developers as far as they can establish an appropriate relationship with their customers."
Finding a retailer-friendly solution for selling digital games
Iwata mentioned late last week
that the company has the capability of selling retail 3DS and Wii U games as downloadable titles via Nintendo Network, but it hasn't yet decided yet on the timing to introduce this feature/strategy, partly due to relations with retailers.
"We think that there must be various solutions other than just positioning digital distribution as an enemy to [wholesalers and retailers]," explained the executive. "Upon close consultation with them, we would like to determine the details of our digital distribution."
He conceded that there are difficulties with deciding on how to price downloadable versions games in a way that is competitive with their packaged versions, while not making them so cheap that consumers no longer buy physical copies.
"There must be a solution other than positioning digital distribution as an enemy to wholesalers and retailers," said Iwata. "When we find one, we think that the solution will provide an interesting future in which both of us can benefit."
Talking about revenues from the company's digital business via Nintendo Network in general, he added. "There is no doubt that this is the area which has an overwhelmingly bigger growth potential than other business fields today."
"But if you ask me whether the level of the revenue will immediately match the ones currently generated through the existing hardware and packaged software sales, I do not think it is going to be that way anytime soon."
Clearing up Miyamoto's retirement reports
In the same Q&A session with investors
that Iwata offered these thoughts on Nintendo's digital plans, the company's most famous designer Shigeru Miyamoto discussed reports late last year that erroneously claimed he was soon retiring.
Miyamoto said he has made an effort lately to provide less direction to developers at Nintendo, so as to give them freedom and not "hold back [his] subordinates' independent and voluntary growth." However, he still supervises when necessary.
"The basic idea is, I'm reminding myself to exercise patience (so that I will not state my opinion nor get myself involved in their work)," said the Mario
and Legend of Zelda
creator. "I end up using less of my energy and, as a result, I am starting to have time that I can spend for myself."
As Miyamoto now has more time time due to his decreased supervision over teams, he is spending more time on "finding new ides for new developments," and that Nintendo is "trying to create a new structure" to adapt to his changing role.
In a recent interview, the 59-year-old game designer mentioned that he often tells his subordinates that he's going to retire, but these statements were meant to nurture the young developers, not to announce his intentions to give up game development.
Iwata explained, "Mr. Miyamoto's intention in making these remarks is to change the developers' mindset because they will continue to believe that 'this is Mr. Miyamoto's responsibility, not ours' unless he encourages them to envision the workplace without him."
"Unfortunately, [it was reported] Mr. Miyamoto had made his retirement announcement. Follow-up articles were created one after another on the Internet. Before we knew it, articles containing completely different messages from Mr. Miyamoto's original message were circulated, which once again reminded us how scary the Internet can be."
Trying to replace Miyamoto
Iwata also pointed out that no single person at the company will be able to replace Miyamoto instantaneously, as younger developers there "are living in a different age from Mr. Miyamoto and their experiences are different from Mr. Miyamoto's."
"On the other hand, there have been many people who have observed how Mr. Miyamoto works, have worked with him or have been left in situations where they have to take on more significant responsibility without being allowed to be dependent upon Mr. Miyamoto."
He says those designers that have worked with Miyamoto have made their own titles with worldwide appeal. "Because there are a number of people who have gained a significant amount of experience [at Nintendo], I am confident that people are growing."