Last week Satoru Iwata delivered his Investor Briefing, a tough task in which he outlined some key strategies for Nintendo that will begin to emerge this year. Elements of the presentation focused on the longer term, however, and the overall direction of the company was a recurring theme in the investor Q & A that followed, which has now been officially translated by Nintendo; Iwata-san was quizzed on a number of topics.
One question enquired whether Nintendo has considered lowering its profit aspirations — typically those most enjoyed in the DS / Wii era — in favour of a software-only approach; in other words, would becoming a third-party developer enable Nintendo to happily progress and exist on lower but steadier profits? When asked about that and whether the often-cited hardware-software combined strategy was considered the only way to make consumers "smile", Iwata-san stated that integrating games with its own hardware gave Nintendo greater options in the experiences it could offer, and that moves to bring hardware and software teams closer together would further improve that focus. He then went on to say the following:
...I believe that combining software and hardware will “amplify” our strengths, and this becomes an advantage in the entertainment industry. The type of competition that exists in most industries requires one to respond to known needs of the consumers that consumers themselves are aware of, which, however is not the case in the entertainment industry. Entertainment flourishes when consumers are faced with something that they did not know that they wanted, so it is my view that the entertainment industry is slightly different from others in the sense that the more resources we have in order to surprise people, the more competitive we are.
Given that the company is not currently running at a profit, I find it unpersuasive to define our targeted business size by, for example, giving a concrete figure for the operating profit, so I will not give a number to what I perceive to be the right business size for Nintendo. Our software business alone could achieve that business size in, say, one or two years if we are fortunate enough to have some hit titles. However, it has been 30 years since Nintendo started its business of dedicated video game systems, and if I want to maintain that size for the next 10, 20 or 30 years, leading a software-only business would only put us at a big disadvantage, which is another reason why we insist on our integrated hardware-software model. On the other hand, the integrated hardware-software model has a significant handicap today, as the traditional way of explicitly telling consumers the investment they need to put in to buy hardware and software now comes across as being relatively more expensive due to changes in our environment. Although people may actually be spending more money (to play games on other devices not dedicated to video games), it is less visible, so the hurdle we have to clear in order to encourage them to purchase dedicated game systems has comparatively become higher. As with games that are free-to-play, or “free-to-start” as we like to call it, there is a tendency within the entertainment industry to make gaming as easy as possible to start playing. Because our hardware and software are integrated, we first need consumers to purchase our hardware to get our business off the ground, a challenge I outlined when I talked about changing the way we sell our products. Our mid-term goal would be to give an answer to this question in a way that had never been seen before.
I do not think that hardware-software integration is equivalent to making people smile, and I do not intend to say that making games on smart devices will not lead to putting smiles on people’s faces. There are games on smart devices that are indeed making consumers smile, I think.
However, only two years ago, many people urged Nintendo to follow other companies into what was then a very lucrative area, but no one says so any longer. In a similar vein, those who now claim that we should make games for smart devices might or might not be saying so in three years. It is our determination for our mid-term future to make efforts to devise our own solutions different from others.
It's clear that, with its stated plans to evolve in significant ways to maintain success, Nintendo is determined to maintain a hardware business and, by extension, remain as a major figure in the video game industry alongside others such as Sony, Microsoft and — with smart devices — also Apple and Android. As is acknowledged, retaining that hardware business may bring changes in approach in various aspects, including development, marketing and game pricing — all areas considered in the original briefing.
Let us know what you think of Iwata-san's comments below.