Nintendo CEO talks NX, mobile games

Today, Nintendo published the question and answer session from its its latest shareholders' meeting -- and having taken place after E3, where little new information was announced by the company , it's particularly interesting as a glimpse towards its future.

Below, we've taken some of the most interesting bits and excerpted them; you can read the unabridged Q&Aat Nintendo's Investor Relations site.

On Nintendo's new platform, the Nintendo NX

Unsurprisingly, shareholders asked about Nintendo's new platform, the NX. Announced the same day as the DeNA partnership to create mobile gamesbased on Nintendo's IP, the NX will not be formally unveiled until 2016.

Though he did imply things will be better next time around, Iwata was tight-lipped about the specifics of the console:

I will not share details on NX today but with regard to the launch of Nintendo 3DS and Wii U not necessarily having progressed well and not acquiring sufficient support from software publishers, we intend to offer NX through a Nintendo-like solution.

If I mention every detail of what we are newly thinking, it could be persuasive but it could also give other companies the opportunity to come up with counterplans or implement the ideas that they find interesting. There may also be the possibility that it will spoil the sense of surprise for consumers.

The important takeaway here: "we intend to offer NX through a Nintendo-like solution." Taking that out of shareholder-ese, that means: Like the DS or the Wii, we intend to create something different and surprising -- and consumers will flock to it.

Also, Iwata recognizes that the NX has to be great out of the gate; the Wii U and the 3DS both got off to slow starts -- and though the 3DS has ultimately done well for Nintendo, the Wii U never recovered. While he didn't make any promises for the NX, he acknowledged the situation.

The platform business can sometimes be referred to as a "momentum business." Thus, it is ideal to have a jump start and drive momentum. Looking back at some of Nintendo's past platforms, this ideal launch has been achieved 100 percent by perhaps only Wii. Even the Nintendo DS launch had areas in which we could have done better.

On Nintendo's upcoming smartphone games

Iwata was much more forthcoming about the company's plans for smartphone games. The first title developed in collaboration with DeNA is slated to come out later this year, and while the specifics of that game have yet to be announced, it's clear that the company his big ambitions for its mobile games, while recognizing the challenge of entering the space:

... the competition among smart device applications has been so fierce that Nintendo cannot succeed just by releasing any software title with its popular characters or the themes in its popular game franchises. Any company that releases a new smart device application must face the challenge of making it stand out among the crowd.

Iwata prefers to refer to the mobile games business model as "free-to-start" rather than "free-to-play." This seems to be because he expects players to actually pay to play the games:

If I can add a few more explanations about the free-to-start system, even though you can start playing with the application for free, it later requires you to pay if you want to play beyond the initial area or to pay for items if you want to play the game in a more advantageous position.

Since Nintendo wants to cherish the value of software, there will be a limit to how low of a price we might want to attach to our game applications for smart devices.

And while he spoke again about the devaluation of software in the mobile space -- an issue which has concerned him for years -- premium-priced games are (mostly) out of the picture, it seems:

The price of our game applications on smart devices will be compared with the prices of other smart device game applications. We believe we should not limit our payment system only to one-time payments, even though this is not something that we can announce as a general principle because different payment systems suit different kinds of software.

Nintendo plans to target large numbers of players (both as installs and as payers.)

When we look at successful smart device game applications abroad, a number of companies have been asking each of a greater number of consumers to pay less money.

Accordingly, even though we recognize that it is not an easy path to take, as long as Nintendo makes smart device applications, we must make them so that they appeal not just to some limited age group but to a wide age demographic just as our games thus far have been doing, and they should appeal to anyone regardless of their gaming experiences and gender, and most importantly, regardless of different cultures, nationalities and languages. We would like to make several software titles that are considered worldwide hits as soon as possible.

... we are trying to make applications that appeal to a wide variety of people so that the games can receive payments widely but shallowly from each consumer. In other words, even if a consumer makes a relatively small payment, because of the large consumer base, the game can generate big revenue. This is the business model we would like to realize.

He also explicitly said that the company plans not to target whales, though he did not use that term:

I think the shareholder has just asked these questions partially because he is concerned that Nintendo might shift to the notorious business model that asks a small number of people to pay excessive amounts of money and that Nintendo's brand image might be hurt.

Another reality Nintendo recognizes: Its smartphone games must be services:

Even though the initial number of players tends to be small, those who have played invite others to play too, and as the total number of the players gradually increases, so does the revenue. This, however, means that the release of the game does not mark the end of its development. If the game cannot offer services that evolve even on a daily basis, it cannot entertain consumers over the long term.

Another fall launch that's relevant is the replacement for Club Nintendo, its discontinuedreward program. The new service is planned to be multiplatform, and is also developed in partnership with DeNA. Not much of interest here, except that it may allow the company to more granularly target users:

In the new membership service that we are now developing to replace "Club Nintendo," we are thinking about providing a system where Nintendo can give (individual) offers to each consumer.

Who's the next DeNA?

Questions about Nintendo's stock are expected at a shareholders' meeting and can trend toward the dull. But there was some hidden gold in the answer to a question about why Nintendo holds so much of its own stock:

Please allow us to continue to hold the current number of treasury shares until the end of this transition stage, as we might be able to make effective use of the shares for an M&A or business alliance during this time.

To unpack the response, "transition stage" refers to the current state of the game industry, in which Nintendo's traditional business model is being shaken up (primarily by mobile games.)

A "business alliance" is a relationship like Nintendo has with DeNA, with which it's partnering to develop  mobile games. Nintendo traded shares with the company -- each got 22 billion yen worth of the other's stock as part of the deal, to firm up the ties between the two companies. Another such deal is clearly possible (and may already be in the cards.)

Nintendo IP plans: TV shows?

Another aspect of Nintendo's business that's changing is its willingness to capitalize on its IP. This has so far resulted in an announced deal with Universal theme parksto incorporate its characters in the future. There have been rumors of a Mario movie and a Zelda TV show, but so far they haven't panned out. Nintendo wants to exploit its IP for profit -- but wants to maintain its value, too, Iwata says.

Nintendo's IP strategy is based on a long-term perspective where we continue to enhance our characters, worlds and settings for years. We have already announced that we would more actively utilize our IP, but not in the way that we increase the number of licensing partners as much as possible; instead we will proactively try anything that will enhance the value of our IP. We believe that it is not worth attempting initiatives that produce short-term profits at the expense of long-term detrimental effects on our IP. You might be unsatisfied with our pace of IP utilization, but we ask for your understanding.

And this expansion won't be limited to merchandise; it may take various forms including, for example, images or even movies or TV programs. Even though I am not sure of the actual forms, it is safe to say that in addition to profitable licensing businesses, Nintendo will take risks we believe are worthwhile.

Nintendo's E3 woes

Nintendo's E3 presentation primarily focused on games to be released in 2015, which contrasted against the other platform holders, which showed exciting technologies tangentially relevant to games (Microsoft HoloLens) or titles that won't be out for a couple of years (the Final Fantasy VII remake.) This was because Nintendo is "very mindful about how we can maximize our immediate business in the U.S. this year," Iwata said.

Iwata showed shareholders this video recap of Nintendo at E3.

But he acknowledged that the discontent fans had after its presentation is real:

We recognize that we have let down a number of the online viewers of this year's E3, especially the avid Nintendo fans, because we did not show what they had expected.

However, Iwata (confident as ever in the company's software) points out an interesting E3 distinction that's not as apparent from the news reportage:

One thing I should say about Nintendo's E3 booth is that, unlike the other booths in general, most of the visitors to our booth were smiling and actually picking up the controllers and playing with our games.

In his only reply in the meeting, Shigeru Miyamoto also said that the E3 lineup worked well from a business perspective.

As for future titles, since we only introduced the software to be sold early next year, we acknowledge the criticism from our fans that we failed to excite them with new proposals. On the other hand, when we looked at our booth at E3 this year, I had a solid feeling that our trade customers appreciated the very fact that they were able to play the software which soon would be released into the market and that many of them were Nintendo-like software titles.

In his discussion of E3, Iwata acknowledged that the show is at cross-purposes, in a way: It's ostensibly a trade show, but has now more than ever morphed into a consumer showcase. Nintendo, conservative as ever, treats it a bit more like the former than perhaps it ought to.

And nothing on QOL

For the first time since it was announced over a year ago, there was not a peep from shareholders on Nintendo's "quality of life" initiative. The NX and the mobile games initiative with DeNA are frankly more exciting topics, of course. It's hard to be sure in this context whether Nintendo's shareholders are skeptical, bored, or patient.