Reggie Talks Revolution
A very long read and would like to apologize for the serious lack of updates been very busy.
Post Taken From: Ign
At Nintendo's press summit this afternoon, Nintendo's executive vice president of sales and marketing addressed the eager crowd regarding the company's current and future strategies.
The following is the full transcription of his hour-long presentation.
I wanted to do three things with you this morning. The first is to step back for a moment and talk a little bit about the Nintendo strategy. To put it in context so it's understandable. And this is going to touch on from both a DS perspective as well as a Revolution perspective. Second is to talk about our key initiatives for the balance of this year going into the holidays as well as first quarter of next year. And then thirdly, as Beth said, take some questions.
So let's start. As we talk about the Nintendo strategy, I think a lot of you know about my background -- classical marketing training, I still know my way around the business section of a Barnes and Noble. To help frame for you what we're doing from a strategic standpoint, let me spend a little talking about two current business thoughts out there in the market place. And how it corresponds to what we're doing from a Nintendo perspective.
The first is a first the concept of "Blue Ocean Strategies." I don't know how many of you might have taken a look at this book. I've read it and I'm a big fan of the thinking. Really what it talks about is how, from a company perspective, you ought to focus on expanding your market boundaries versus singularly being focused on your competition. The thought being, if all you do is focus on your competition, imagine it's like sharks in the water, dealing with blood in the water, constantly going at each other. Take a wider view, look at broader opportunities out there in your marketplace.
What's important about that is if you do it successfully, you're able to create new demand -- demand that never existed in that way before. Part of this is thinking about what can be versus what is. Thinking about broader horizons, broader opportunities.
The second book is "The Innovator's Dilemma." I actually had the opportunity to meet the author of this. The thinking is similar, slightly different bend. What this focuses on is the concept of disruptive technologies. There's a lot of examples in history that touch on this. The thought being that if you are a market leader, you focus on doing what you are doing a little bit better.
And then out of nowhere, some one comes with a disruptive technology and impacts your marketplace. A great example is one of our competitors. You look at how Sony was so focused on creating a better Discman, a better disc-playing portable device, MP3 players came out of nowhere and impacted their marketplace. And then, out of nowhere, came Apple with IPod and ITunes and further disrupted their marketplace.
What this talks about is creating new definitions of performance, new definition and what the consumers wants and delivering on that in new and provocative ways. These disruptive technologies typically appeal to new customers, people entering the category for the first time, but done successfully really blow open a marketplace and bring all types of consumers -- new, existing -- into the marketplace.
Typically, simple, simpler, more straightforward applications versus again, a market leader focusing on "I'm simply going to do more of the same that has lead me to a successful marketplace."
Let's stop here for a moment, step back for a moment.
What I'm not trying to frame is that we as a company go manage our business based on what the current, popular business thinking is. But I wanted to bring these two up because there are a lot of examples in the marketplace of successful companies that have applied these approaches to winning in the marketplace.
Southwest is a really interesting example. They didn't see themselves in competition with other airlines. They said, "I wanna be a better system and beat out buses and cars." So they drove all their costs down, low price, what did they do? They truly disrupted the airline industry.
Mr. Iwata has been focusing on these key thoughts truly for about the last three years. These are excerpts from a variety of these speeches whether its at Tokyo game show, GDC, even our own E3 events. They are all focused on creating disruptive technologies, approaching the market in a different way offering new news and innovation to the consumer. We can't simply expand the market. If that's all we try to do, slowly this industry will die. It is our responsibility to make games for all skill levels. Technology can't advance the business. The idea that Revolution doesn't follow the conventional path of game systems. That's what we're about; disruptive technologies, new ways to think about the market place, and driving the industry forward. There are a lot of examples that I can speak to that show how we are bringing this into practice today. But certainly we ought to step back and look at why we are doing this. I think many of you have seen this data. This is the Japanese marketplace in the gaming industry. Certainly not a pretty picture. This is a downward trend, and they have had this for years. Interesting tidbit. This year software sales are actually going to be up in Japan. Why? Nintendogs, Brain Training, key games and key innovations that we have brought to the marketplace behind DS. You're all saying "That's Japan, that's over there… that's not here."
Here are a couple things to think about: This is fresh data; current marketplace. Last 2003-2004 decline years. This year it will probably be up on a year over year basis. It has taken two systems in the handheld place: DS and PSP. Plus we have Xbox 360 to drive growth in a year over year basis. Three systems to drive that. "But c'mon Reggie, still that is it really a good example?" You tell me. Was September a fluke? Down 24% software sales year over year. The entire third quarter down year over year. Was it still a fluke? You tell me.
Let's look at the install base for the last four generations. First thing to note: As recently as about a year ago, projections were made that the current generation would reach 60 Million household penetration: Ain't gonna happen. Ain't gonna happen. Another couple tidbits: So this chart is pure number of units sold. It doesn't take into account duplicate ownership, and doesn't take into account population growth. You overlay those two facts to get a percent population with a console in the household, and that's what it looks like. 8 Bit years, 31% of households had a gaming system. This year, where is going to end up? Somewhere between 31-32%. The growth we have seen has been driven by population growth, and by duplicate ownership.
I'm about to lay down some more bad news. Let's talk about people who are playing games. This is a study from Piper Jalfray. They have been doing this for the last three half-yearly installments. This looks at young teens, and who is increasing their game play, and who is decreasing their game play; just a rough measure. The red is the % of teens that are saying they are decreasing the amount of time they are playing games. It's gone up; gone up fairly consistently every time they have run this study. And the amount of teens that say they have increased their game play have been stagnant, and down fairly substantially from fall of 04. Couple other tidbits. This is our core audience in terms of that pipeline of young boys that are coming into the US population. As you can see 2004 there are less male 10-14 year olds in that area. A little more bad news: The group that feeds into this are down another 8-10%. So fewer teens; our key gaming audience here in the US. That's why we are stepping back and saying "more of the same is not going to motivate this industry." That's why we are stepping back and saying "we have to disrupt this marketplace that we helped create 20 years ago in order to be successful in order to move forward." How are we doing that?
Certainly Nintendogs is a great example in our view of a disruptive view in the marketplace. First, it is a game that isn't really a traditional game. It isn't win or lose. It is a type of thing that you pick up and play constantly, and the more you play it the more enjoyment you get; the more you play it and find other people playing it, the more enjoyment you get. It's only possible on the DS obviously, because of the touch screen and voice recognition. And on a worldwide basis it sold 2 Million units, against an installed base of about 8 Million. 24% penetration; that is huge. Absolutely huge.
Here's a couple other tidbits from a Nintendogs perspective; certainly from a U.S. perspective and all of the western hemisphere, we went after the female gamer: And it's working. There area a number of other initiatives in our line of thinking that is coming here to the U.S. marketplace. Electroplankton. It is interesting the stories that we are taking electroplankton online so that we don't have to sell it into retail and not give into retail margins. It is a bunch of hooie. The reason that we are selling this online is that we believe online is the best way to go after the target consumer that is going to play this game. It is the most efficient way to go. Brain Training/Brain Flex; we are in the process of localizing these for the U.S. marketplace and we think there is a huge opportunity. If you haven't played Brain Flex you will have a chance to play that later today. Big big ways of disrupting the marketplace, and we are confident we will be successful here in the U.S. and all through the Americas.
We have gone to great pains here today to paint for you a gloomy scenario for the potential of the U.S. marketplace. I also want to let you know though is that from a Nintendo perspective we are not an Either/Or company; we have said this many times. We're not placing all our bets in this fundamentally different/unique types of games. We're doing things for the core gamer as well. We are not an either/or, we believe you have to have both. But bringing both to the marketplace means you have to do them both differently, both a bit specialized. So as you look at what we are bringing into the marketplace Q1, again we have a bit of a balance.
So that is a summarization of what we will be releasing from Q4 to Q1. Again that is not an either/or. You have to do both in truly provocative ways. In terms of what we are doing with the balance of this calendar year; we believe in driving the marketplace in both traditional means, as well as new and unique means. In terms of traditional means: Very strong value emphasis on GameCube. We are at the tail end of this product's life cycle, and it is all about driving value, and leveraging key franchises to drive sales. We are certainly going to be doing that with Mario Party 7, and obviously Pokemon XD is already out in the marketplace. Two very strong value offerings for this product line.
We have great value coming from the DS library as well. The teal and pearl pink Nintendogs bundles are going to hit the marketplace and let me tell you, if you have friends or family that want this bundle you better buy it now. I have just gotten off the phone with some of our key retail outlets and we are selling out. We are selling out and there are no more of that particular SKU coming into the marketplace.
Mario Kart DS, and yes I have my handy dandy tricked out Mario Kart red DS that we are building with Mario Kart, and we think that is going to be huge. But again it is a subset of what we are doing for the overall marketplace to drive the sales of the Nintendo DS.
New news! We will be bringing a 20th anniversary version of the micro to the U.S. That is the packaging, and this is the unit. We will be bringing the unit here to the marketplace in early December, and we think it is a great opportunity that continues to drive the marketing of Game Boy Micro. The idea that it is fun, unique, and fashionable, and we are very excited about bringing this. The target for this is to have it ship into retail on the 28th of November.
As you know we have launched a brighter screen for GBA, which is selling extremely well in the marketplace right now. So again, it is not about either/or; it is about both. Driving the existing consumer and the existing fan base as well as bringing in new ideas and approaches to bring new consumers into gaming.
Let's talk about some other key initiatives that we will be bringing in this quarter. Obviously Nintendo WiFi Connection. This we believe is another example of being disruptive in the marketplace. This is not the first online system, but it is certainly an online approach that is fundamentally different than what has been done. Free to the consumer, hot spot driven, wireless that is driving portability. Also games that are focused on delivering a great experience in a wireless online mode. You guys have played Kart; I think it is going to be huge. Our target is to get every consumer that buys Kart to try online at least once. We believe that if they try it just once, they will have a great experience and keep playing. We want the consumer to play against both friends and people we don't know: Kart has that capability.
Let me stop here. We are going to give you another little tidbit of news. As we drive the business, we are focused on not only communicating software messaging as in Kart and Animal Crossing, but it is very important that the consumer understand what we are doing with WiFi Connection. We need to communicate the core benefits: The match making, the free connection, and the ease. So we have created a specific piece of advertising to drive that messaging; this is advertising that will go on air later this week that you will get to see first.
That's still a rough, and we are making some final tweaks. This is scheduled to go on the air later this week. In terms of the micro it will be announced as the "20th anniversary addition" to celebrate the anniversary of the NES launch that was 20 years ago October.
So that's how we will be supporting Nintendo WiFi Connection out in the marketplace; really supporting the connection from an overall perspective of the offering of what we are doing. Certainly in terms of key titles: You have had a chance to play Kart, and on the same day we'll be launching Tony Hawk. We are thrilled that the folks at Vicarious Visions and Activision have made this game online enabled; we think it's fantastic.
Animal Crossing is December 5th, and Metroid Prime: Hunters launching March 20 next year; all supporting WiFi. So as we talk about being disruptive in the marketplace I hope you can see this from a DS perspective; creating news behind the WiFi elements and making sure that we have games that support both the core consumer as well as bringing in new consumers into the marketplace. Fundamentally it is quite similar in the Revolution aspect. We have already talked about "Virtual Console" and making that available. We have shared some information in terms of the controller. I had an opportunity to demo the controller and it really is fantastic. As far as what you can do, the range of motion, and the feedback that you get… What I am trilled about and truly enjoy in the follow-up conversations with NCL are all the possibilities that are out there. All of the things we can bring to market. We touched on some of these possibilities in the video that we created for the Tokyo Game Show, and though many of you have had the chance to see it on small screens we have it here for you today on the big screen to share: Take a look.
When you talk about possibilities: To imagine playing a type of survival horror game where you can rotate flashlight to weapon and then back and forth, it is pretty provocative. So imagine what a Zelda game might look like with sword and shield that you can use all at the same time. To imagine a racing game that is truly responsive; it's pretty provocative.
The thing that I am really excited about is as we have shared the technology and the capability with the developers… how they responded. And it is not simply a Japanese developer who is living in their market contraction, but EA, Activision, and Ubisoft who are all stepping back and saying "wow, this is provocative and I can see ways of creating games and new ways of bringing existing franchises to life." It truly is exciting: That is what we mean when we talk about being "disruptive in the marketplace" and doing things that will drive consumers into gaming as well as keep the core fans excited about new types of gaming experiences.
So we have touched on Revolution in the past, and the whole litany of benefits. Certainly backward compatibility with the GameCube, the idea of the "Virtual Console," the WiFi integration out of the box. We are seeing very strong third party support, and already talks about exclusive titles that will truly make use of the revolution controller and everything we are bringing in the machine. Affordability: Certainly from the standpoint of being a single-minded gaming device, it will absolutely be much more affordable than any of the other competing systems, and certainly on track to launch in 2006.
So that's where we are, a little summary of our strategy both for this holiday season as well as Q1 of next year. The messaging from my standpoint is amazingly consistant. We are all about driving the user interface and driving new players into this category as well as satisfying existing core gamers. Truly being the innovator, the disruptor, and the leader in bringing new ways of thinking in this business. And certainly doing it in a way that rewards our shareholders from a profitability standpoint. And of course when we put profitability up on the slide, I'm sure it isn't lost on many of you that in the last 48 hours a number of companies have announced earnings, and there is a lot of bad news out there. Again this reinforces why doing simply more of the same old thing is not going to be successful in the long run.
With that I will open it to some questions.
Q: With the Micro: With the GBA you designed it to look like the NES when you brought it over. When you do the NES Micro will it come with an NES faceplate or will it come just the Famicom Micro.
A: What I passed around will be exactly we will be launching on the 28th of November. Do I envision other micro designs in the next few months? Yes. Might we do a true NES version? Maybe; we'll look at it. We feel though that there are other ways to bring life to this particular device and we have said all along that the micro is a unique shortish term opportunity that we will leverage by making it cool and hip and fun by use of the different faceplates.
Q: When you say "Shortish…" Does Nintendo plan to make Micro a short run, or will you keep producing them if the market continues to buy them up?
A: We've always said from the time that I pulled it out of my pocket at E3 that it would be a limited opportunity for us. The question is "is it for the next three months, six months, or next year?" We're not sure. But it certainly is a limited opportunity that's why the current execution of faceplates, we then move on to Famicom. Once that is complete we will move onto the next phase.
Q: Can you talk a little more about the ad campaign for the WiFi connection? Are you looking for partners outside of McDonalds?
A: We are putting substantial weight on the WiFI messaging. It will be on all of the usual suspects as far as MTV, Spike, Comedy that go after the core demographic of the gaming community. We will be doing things from a print standpoint as well to get a broader audience involved. As far as partners away from McDonalds: Our partner in this is Wayport. Wayport happens to be in McDonalds. As the site goes live you will see other partners (J-Wire for Example) where the system will work. We would love to have as many partners on board as possible.
Q: You mention Wayport and McDonalds. Will this only work at McDonalds and those hotspots or will it work at any Wayport hotspot?
A: It will work at any of the 6,000 + McDonalds hotspots and a limited number of T-Mobile hotspots. That is why we are driving consumers to Nintendo WiFi Connection. That is where you can put in your address and up pops all of the hotspots where it will work seamlessly.
Q: What about home configurations and WPA (Secured Networks)?
A: Nintendo WiFi Connection has all of the information in terms of which existing routers are compatible and which ones have the best compatibility. It's all there. In terms of the different authentications, all the info is there and it will be very easy for the consumer. That was our goal from the start; we wanted a consumer whether they have a LAN line and the USB connector, or whether you have an existing router… it is all there on Nintendo WiFi Connection.
Q: At E3 you had a demo of voice chat and online chat support. Is that something that is going to be pursued?
A: There is a lot of testing going on, and we thought it was something intriguing enough to show at E3 as a tech demo, and is maybe something that is incorporated into a game in the future. We'll look into it. It is certainly something that intrigues us.
Q: There are now multiple platforms and multiple price points. Now that there is the SP at 79.99, the Micro at 99.99, and the DS. It becomes a little less clear when trying to differentiate those. Has there been any consumer confusion?
A: We have seen no consumer confusion. I believe the average consumer can wrap their head around GBA, especially with the new brighter screen, Micro; something different. And we have been clear that Micro is something that is not for everyone. It is for a consumer that wants something they can slip in the pocket, different faceplates to capture a personality and an image, and those consumers are willing to pay an extra $20 for that opportunity and benefit. DS is our workhorse. From 129.99 we are looking to drive significant volume. And the consumer has certainly responded to that.
Q: One of my issues with DS is this: When it was announced the possibilities seemed endless and now we have seen developers wanting to go out and create new kinds of games. However, success outside of Japan has to deal with developers outside of Japan and I'm not seeing a lot of western developers and publishers wanting to take that step and do something different. Everything seems to be touch screen features and ports. Do you see that as a problem, especially with Revolution following this. How do you want to change the developer's minds from that standpoint?
A: From my standpoint maybe I look at this too simplistically. The best answer for a third party developer is to show performance in the system, strength in the market place, and innovation working. Quite frankly, we have now answered those questions with Nintendogs (2 Million Units sold), and DS outselling PSP on a weekly basis here in the marketplace. Outselling on a 3 to 1 in Japan. They needed to see that, and they are seeing that now. I am trilled with folks like Vicarious and Activision that have jumped on board early to support the platform. I think it is great, and we will see more of it. Supporting the DS is a good business decision, and that is what licensors look for. From a Revolution standpoint, we have been spending time to share the tool and information to get that support early.
Q: I'm curious what your thoughts are on having DS as a web browser. Is that soothing you are going to steer clear of since it is a kids platform or is that something you could look into?
A: Actually having a web browser on the DS? I think it is a provocative idea. I think it is very provocative. And again, looking at it with our "Disruptor Lens" by saying "how can we bring new people on board to buy DS and play DS" I think having a web browser would be highly disruptive; I would love to do it.
Q: Do you see Microsoft and Sony as competitors the way you are building the Revolution's strategy?
A: I see Sony and Microsoft pursuing the same strategies. Center of the home, multipurpose, very expensive… Ya know I got a kick out of the latest comments on the PS3 and its frame rate. It is like 3X the rate that your eye can see a difference! I mean talk about overshooting consumer needs and creating an opportunity for a disruptor to come in and say "look at this different solution." So going back to my examples, do I think Southwest thought of the other airlines as competitors? Well sure I did. Do I see Sony and Microsoft as a competitor? Sure I do. But they are on a different path. I'm not saying one path is right and one is wrong. I am just saying that one has the potential to lead to a very very different marketplace. I see that it is working based on Nintendogs and Mario Kart. It isn't either/or. It is doing both.
Q: Apple is taking the music industry a new direction with IPod and ITunes. When is the videogame industry going to take that direct download approach onto a handheld?
A: I don't know about a handheld device, but talk to me in May when we talk about details on the Revolution and the Virtual Console.
Q: Can we talk now?
A: We can talk, I don't think you will get all the answers you want! (laughter). From what we talked about in Revolution to download and have the game playable right there, we're doing it.
Q: Is it just 1st party or will it be third party as well?
A: Yes we will.
Q: The new Zelda. Still to Cube even though the Revolution is so close?
A: Mr. Miyamoto and Iwata have said repeatedly that they want it out on GameCube, and since I take my orders directly from them I would have to say it is going to be on GameCube.
Q: How does your marketing strategy affect where advertisements will be made? Will things like Brain Flex be seen in women's magazines or what? (laughter) How do you reach them?
A: You are absolutely right. To show these games to that specific market with games like Brain Flex, you better believe I won't be buying MTV. You have to follow the strategy.
Q: Do we have a price point for the wireless adapter?
Q: How do you handle the possible shortage of USB adapters, and having people rely on the hotspots?
A: It's interesting I would actually turn that around. Our primary strategy here in the U.S. is to first show the promise of Nintendo WiFi Connection though Wireless routers and hotspots. The other two areas such as Canada and Latin America, we will be focusing on the USB adapter due to the lack of wireless hotspots. In order to win overall you need to have the ability to use LAN, Hotspots, and Routers.