The future of Nintendo, straight from the horse's mouth

Following disappointing third quarter results, the company was keen to stress that it isn't going to change its course -- but, well, maybe it might do if the correct scenario presents itself.
Yesterday's Nintendo shareholder briefing was a particularly sprawling (and sometimes confusing) spectacle. Following disappointing third quarter results, the company was keen to stress that it isn't going to change its course -- but, well, maybe it might do if the correct scenario presents itself. Updated notes from president Satoru Iwata's results briefing have shed additional light on what Nintendo is hoping to achieve in the coming years, and how the company plans to rise from the slump its currently experiencing. Here, we've collated the main takeaways from Iwata's discussion, which spread wide and far across a variety of different topics.

"We are not planning to give up our own hardware systems and shift our axis toward other platforms."

"I am here to tell you about our future, and to begin with, I would like to mention what Nintendo will not change," Iwata began with -- although as we'll see later, he was maybe stretching the defintion of "will not change." Nintendo says that it will continue to focus on console hardware and software as its core business, and that it plans to plug more cash into research and development for future hardware. However, Iwata acknowledged that smart devices are altered lifestyles dramatically, and thus what gamers are potentially looking for. "We must once again change our definition of video games to keep up with the times," he said. "Nintendo’s history definitely suggests that Nintendo has always flexibly innovated itself in line with the times." He said that Nintendo is currently exploring which video game elements from the past should be kept, "and what should be dramatically changed in order to leverage our core competency."

"Our top priority task this year is to offer software titles that are made possible because of the GamePad."

Nintendo isn't giving up on the Wii U, despite poor sales figures, Instead, the company hopes to finally explain to consumers exactly why the Wii U GamePad is so innovative, and why it isn't simply a slight step-up from the original Wii. "We have managed to offer several of such software titles for occasions when many people gather in one place to play, but we have not been able to offer a decisive software title that enriches the user's gameplay experience when playing alone with the GamePad," he admitted. "This will be one of the top priorities of Mr. [Shigeru] Miyamoto's software development department this year." He also noted that the company is yet to properly utilize the near-field communication on the GamePad, and says that in 2014, Nintendo will finally "make full use of this function by preparing multiple proposals." We should expect to see what the company has cooking at E3 in June. Iwata also discussed the GamePad's quick start functionality as a means for grabbing attention -- we reported on that here.

"The number of companies who have approached Nintendo with an offer to provide Nintendo 3DS with the titles which they originally designed for and grew on smart devices has been increasing."

Turning to the Nintendo 3DS, Iwata was keen to note that while the hardware isn't selling as well as expected, it's still achieving high sales compared to other available hardware. And he noted that, while plenty of people are calling for Nintendo to make a move on mobile, the opposite has begun to happen, as some large mobile companies are finding success on the 3DS. GungHo's Puzzle & Dragons, for example, has now sold over 1 million units in less than a month on 3DS, while Rovio's Angry Birds Trilogy has topped half a million units sold -- barely comparable to mobile sales figures for both franchises, but of course, it's worth noting that retail prices of the 3DS installments are much higher. "As this example illustrates, the Nintendo 3DS platform has already reached a scale with enough business potential for not only the titles invented for game devices, but also the ones originally made for other platforms," Iwata says. "With the overall software lineup, we aim to make this year and the next one a profit-generating phase for Nintendo 3DS."

"I have not given any restrictions to the [smartphone] development team, even not ruling out the possibility of making games or using our game characters."

Here's where it gets most interesting. While Nintendo has claimed recently that it won't be making smartphone games anytime soon, Iwata today admitted that it may well happen -- if the conditions are right. "Many people say that releasing Nintendo's software assets for smart devices would expand our business," he said. "However, we believe that we cannot show our strength as an integrated hardware-software business in this field, and therefore it would difficult to continue the same scale of business in the medium- to long term." Sounds like Nintendo isn't moving to mobile any time soon -- but wait! While mobile won't ever be Nintendo's core business, Iwata adds that the company is interested in developing for mobile in some form. "We would like to, instead of directly expanding our business on smart devices, focus on achieving greater ties with our consumers on smart devices and expanding our platform business," he says. He's putting together "a small, select team of developers" to act as Nintendo's smartphone experimentation studio, and he won't be giving them any restrictions on what they can produce. "We feel that simply releasing our games just as they are on smart devices would not provide the best entertainment for smart devices, so we are not going to take any approach of this nature," he noted. "Having said that, however, in the current environment surrounding smart devices, we feel that we will not be able to gain the support of many consumers unless we are able to provide something truly valuable that is unique to Nintendo." "Accordingly, I have not given any restrictions to the development team," he continued, adding, "even not ruling out the possibility of making games or using our game characters." But we shouldn't expect the next Mario on smartphone, he warned. "It is our intention to release some application on smart devices this year that is capable of attracting consumer attention and communicating the value of our entertainment offerings, so I would encourage you to see how our approach yields results."

"We will not rule out the idea of offering our own hardware for new markets."

At this point, Iwata discusses how Nintendo approaches "new markets", and notes that "for a large majority of consumers in the new markets... the current prices of hardware and software in the existing markets are generally difficult to accept." He is no doubt referring to those audiences in specific regions who aren't as willing to pay premium prices for games, and who are more used to picking up games for 99 cents (or for free). Following this, he says that "To leverage Nintendo’s strength as an integrated hardware-software business, we will not rule out the idea of offering our own hardware for new markets, but for dramatic expansion of the consumer base there, we require a product family of hardware and software with an entirely different price structure from that of the developed markets." Iwata adds, "As you might know from today's topics of redefining the concept of a video game platform and taking advantage of smart devices, we aim to connect with consumers who do not own Nintendo’s video game systems yet, which will play an important role in cultivating new markets." "Once we can establish such a connection with consumers in these nations, we will be able to use smart devices to share our information as well as important content distribution infrastructure. We plan to take significant steps toward such a new market approach in the year 2015."

"What Nintendo will try to achieve in the next 10 years is a platform business that improves people’s quality of life in enjoyable ways."

Iwata finishes up by discussing Nintendo's newly-announced focus on "quality of life" products. "We decided to redefine our notion of entertainment as something that improves people's quality of life in enjoyable ways, and take a step forward in expanding our business areas," he noted. Says Iwata, this definition includes Nintendo's regular video game platforms, but it also encapsulates a move into "a new business area" with the theme of health, rather than learning or lifestyle. "Please note, however, that rather than simply setting health as our theme, Nintendo will also try to expand it in a new blue ocean," Iwata suggested -- and this will involve ducking around "the exceedingly crowded market of mobile applications or the market of wearable technology" and aiming for what Nintendo is calling "non-wearable technology." Although he didn't really give a concrete examples of what "non-wearable tech" he was referring to, Iwata that said that Nintendo "are considering themes that we have not incorporated to games for our existing platforms. Including the hardware that will enable such an idea, we will aim to establish a blue ocean." "Our new business domain would be providing preventive measures which would require us to enable people to monitor their health and offer them appropriate propositions," he added. Nintendo plans to create health software that people will want to use, rather than giving up on days into a regime. Note that Iwata believes this tech will still be a long time coming, hence the 10 year plan.

An analyst's take

Piers Harding-Rolls of IHS Research wasn't really taken by the way that Nintendo is attempting to turn the tide for the Wii U, referring to the proposed improvements as "bitty" and "less than comprehensive." "There was no mention of significant further investment in marketing to actually tell consumers what the Wii U is, and to make it clear it is different to the Wii," he noted. Harding-Rolls saw Nintendo's quality of life push as the largest factor at play here, noting that "This higher risk approach does not always work out - see the Wii U for details - but IHS believes that this dependence on innovation and individuality is core to the company staying relevant beyond the short term and protecting the Nintendo brand value." He adds that it's clear that Nintendo still has a huge amount of work to do to get itself back in shape, and that it's unlikely we'll see any immediate or significant change for the company any time soon. However, he notes that Nintendo should be considering how it prioritizes its internal budgets, as the way it organizes its various investments in the future will no doubt prove a notable challenge to overcome.

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