Interview via recode.net
Re/code: Nintendo surprised a lot of people with its latest quarter’s operating profit. Who are Nintendo’s customers right now? Who’s behind that profit?
Reggie Fils-Aime: We are fortunate that on both our handheld business and our home-console business, we speak to a very wide group of consumers: From children having their first gaming experience to that more active gaming demographic to their parents, it’s a very wide swath. Our demographic footprint is very wide, very diverse, and that’s a key advantage for us. You can’t say that for some of our more direct competitors.
Has that changed since the first Wii? Wii Sports was the iconic Wii game, and that attracted a lot of casual players who were never gamers before. Has the composition changed since then?
With the Wii, it was the same benefit of a very wide demographic. But for every Wii Sports that was more casual, we had a Zelda game, which was for the more active consumer. For every game like Mario Party on Wii, there was a game like Xenoblade, which is much more of the core audience.
Let’s talk about the holiday season. What does a good holiday look like?
A great holiday for Nintendo of America is [the multiplayer fighting game] Super Smash Bros. — not only a strong launch of Smash Bros. for Wii U, but continued strength for Smash Bros. 3DS. A strong holiday for us is Pokémon Omega Ruby and Alpha Sapphire, having a strong launch of those games and continued strong sell-through of [last year’s] Pokemon X and Pokemon Y. Lastly, an effective launch of the Amiibo [interactive toys] platform. We do those three things well, we’ll have a very strong holiday season.
How important is Amiibo to the holiday plan?
It’s a core part of our plan. We’re essentially launching a new platform. Unlike other participants in this toys-to-life category, ours will play differently. These figures are going to play across a variety of different games. On day one, it’ll have functionality for Mario Kart 8, essentially right out of the box. Later on, there’ll be functionality for Captain Toad, there’ll be functionality for the new Mario Party game, launching next year.
And there will be more games added down the line?
It’s a long-term bet. A long-term play. The other thing that’s interesting is, if you look at this category, you sell a number of figures during the holiday selling season, but the bulk of the volume comes in the next six months. That’s where the consumer mentality is, “Okay, I have one figure that I’ve started to play with, but now I need the next, and the next, and the next after that.”
What about digital add-ons? Recently, there’ve been new characters and tracks for Mario Kart 8 available as paid downloads, and Nintendo recently said there will be downloadable content in Super Smash Bros. as well. Is that the new norm for your games?
I wouldn’t quite frame it as “the new normal.” But what I would say is this: Where our developers see a strong value for the consumer in having additional downloadable content, we’ll make that available. Let’s take Fire Emblem, which launched last year for the 3DS. There was extensive downloadable content that extended the story, it added a lot of value to the Fire Emblem game because of the nature of that software. Mario Kart, we’re making available a tremendous amount of content for a very low price. That’s the way we think about downloadable content. If it makes sense for the game, and it makes sense for the consumer, we’ll make it available. It’s not that every single game in the future now will have DLC.
Shifting gears a bit, let’s talk about third-party support, which has drifted heavily toward Sony and Microsoft and away from Nintendo in the current console generation. What’s the latest on that? Are the tides shifting at all since E3?
In the end, what third-party companies want is a large install base to sell their games into [and] a wide demographic footprint that they can target their games to. They also want a robust connected environment so that they themselves can explore downloadable content or digital sales. [For] the Wii U business, year-to-date versus last year, our install base is almost doubled. We’re building that footprint for developers, with a range of games from Bayonetta 2 to Mario Kart. In the North American territory, just about every Wii U is connected to the Internet.
Is it a problem that the Wii U doesn’t have the new Call of Duty (a first for the series on consoles), and more generally doesn’t have many of the big titles one finds on Xbox and PlayStation?
I would answer the question in a couple ways. Third parties are bringing multi-platform content to our platform — Watch Dogs from Ubisoft, as an example. I would love to have Call of Duty on our platform. I would love to have any of the big blockbuster, multi-platform titles. But I have to say, more specifically, I want games that provide a differentiated consumer experience. If you look at the other two competitive platforms, fundamentally, what’s the difference?
Each of them has exclusives that the other doesn’t.
But interestingly, when you look at either one, either by themselves doesn’t have a lot of exclusive content. They have a lot of shared content. Look at it from the standpoint of, what don’t they have? They don’t have our games. They don’t have Mario and Zelda. I’d much rather be where Nintendo is, with a differentiated platform, differentiated set-up experiences that we can provide uniquely to the consumer. Let those other guys battle it out over, you know, which visual representation of Call of Duty is most compelling. I like our chances of having a differentiated console and a differentiated series of experiences.
This business is built on a year-and-a-half or two-year planning cycles, especially for the home console space. Products that they’re thinking about today are not going to come into the market until two years down the road. By doing a great job today in the here and now, that’s what’s going to feed the pipeline of great new third-party content coming onto our platform. For us, that’s the long game that we’re trying to play.
To date, the handheld Nintendo 3DS has sold much better than the Wii U, with 45 million 3DSes sold worldwide in the past three years versus 7.3 million Wii Us sold in the past two. How much overlap is there between audiences for the 3DS and the Wii U?
Demographically, there is an overlap. What we see is: The Wii U is more for an at-home family type of experience. 3DS is, obviously, gaming on the go. The games themselves have to be developed differently in order to really maximize that occasion. Smash Bros. on 3DS is built to be a pick-up-and-play, quick experience versus the 10-minute matches that Smash Bros. on the home console can be. We think part of the reason 3DS has been able to so thoroughly dominate the dedicated handheld gaming business is that we’ve been able to create those pick-up-and-play experiences for the device. I think we’ve mastered the ability to create these types of games.
On the topic of gaming on the go: We’re about to get remastered versions of two of the older Pokémon games for the 3DS, but The Pokémon Company is also developing mobile games now. Nintendo owns a third of the Company, and owns Game Freak, which also owns a third. How much autonomy does TPC have in making these games, given that Nintendo has long kept mobile at arm’s length?
Our belief is that the developer really has complete autonomy in creating the game. The Pokémon Company really is free to explore the wide range of different opportunities. And they are making investment decisions around how much staff and resources to invest in a game like the new Ruby and Sapphire, or how much to invest in the iOS games and things of that nature.
Have their experiments on mobile changed anything for bigger Nintendo, for its other IP?
It hasn’t changed our philosophy, which continues to be that we believe that it’s best for the gamer and the consumer to have gaming experiences that are unique and differentiated, and part of the way we deliver that is with our unique and differentiated hardware. That is our fundamental, core belief. But having said that, we’ve also said we’re looking to experiment in the broader digital space — selling our games direct to consumers digitally, downloadable content, the full range of alternatives. And we’re going to continue to explore those.
So, hypothetically, some non-Nintendo developer makes a game that is very much like a Nintendo game, and it does incredibly well on the App Store. Are you watching the app charts for something like that?
I have to tell you, I don’t spend a ton of time looking at the app charts and seeing what’s selling there. I’m focused on my business and having a great holiday. The fact of the matter is this: We know that our consumers are walking around with a smart device, with access to the Internet on other devices. And we’ve recognized that in a variety of different ways. Our website has a responsive design; we just launched an initiative where through your smartphone or tablet you can buy games and push them right to your device. We’re looking to take advantage of all of those connected consumers. And we’re going to continue to do a variety of experiments, but at the core we believe that, for example, playing Mario Kart — that the Mario Kart experience they get on Wii U or the Mario Kart experience they get on their 3DS is something that, at least today, we don’t see that we can deliver on a Web-enabled smart device. It’s a different type of game.
What about the other teams that are working on different IP for Nintendo? Do they branch off of the main company in a similar fashion to The Pokémon Company?
The way NCL [Nintendo Co., Ltd.] is organized is that there are two large groups of teams. There’s a group of teams essentially under the direction of Mr. [Shigeru] Miyamoto. These teams represent folks working on established Nintendo franchises like Mario, Zelda and Animal Crossing. The other group also has a number of core franchises, but these are franchises that we leverage with what we call second-party developers, independent development studios that we work with on our IP to create new games. So, for example, the person who works on Metroid is part of this other group, even though Metroid is a core Nintendo franchise — it’s set up in a group separate from Mr. Miyamoto.
The way that I would articulate it is, each of the development groups has a unique responsibility. And that responsibility is: For the franchise that they’re responsible for, how do they push the envelope in terms of what makes it fun? This is a core difference in how we approach game development versus what tends to happen in the industry. There’s a new Madden every year. There’s a new Call of Duty every year. There’s only one Mario Kart for a particular platform. There’s going to be only one for the Nintendo 3DS. There’s going to be only one for the Wii U. Our challenge is, how do we take that franchise and make it broad, make it appealing to the point where we can sell five, 10, 15 million copies?
What if the developers of Metroid wanted to make an iOS game? Would they be free to do that?
What they would need to do is provide a compelling case to [CEO] Mr. [Satoru] Iwata as to why that approach is in the best interest of that franchise, and in the best interests of global Nintendo.
Activision just released a tablet version of its new Skylanders game that’s effectively the same as the console version, and comes bundled with a special Bluetooth controller. With Nintendo wanting to control both hardware and software, is that an option?
It’s difficult dealing with hypotheticals. What I would tell you is that our view is we want to create great, compelling differentiated experiences. For us, that is tied to a strategy that links our own hardware with our own software.
On the topic of hardware, you described Amiibo as launching a new platform. At what point do you start thinking about the next generation of either living room or handheld hardware? Is that already in the works?
Our mentality is, fairly soon after we launch new hardware, we already begin thinking about what’s next. That’s an ongoing process for us. In the end, what galvanizes us to move is when our developers have a great gaming experience that can’t be done on the current platform. We’re not there yet on the Wii U. The experiments that Mr. Miyamoto showed at E3 show that there’s a lot of innovation to be mined with Wii U. We showed off the beginnings of a Zelda game coming to Wii U. We have a lot more content to create for the Wii U, but we’re always thinking about what’s coming next.
Those E3 experiments all used the GamePad in different ways. For as long as the Wii U is around, is it safe to assume the GamePad will always be a part of it?
We view the GamePad as an integral part of the Wii U, just like the second screen is an integral part of the 3DS experience. That’s how our developers are creating future content for the Wii U.
A lot of people in the gaming industry are interested in the trends of physical versus digital sales and when the lines cross. What’s Nintendo seeing?
Retail still is the majority of the business for us. But what’s interesting is, game by game and at different points in time, you see a different consumer reaction. Smash Bros. for 3DS, consumers wanted that game immediately. They didn’t even want to spend the time to get in their car and drive to retail to get it, so our digital percent for that game is quite high — about 20 percent of the games sold here in the U.S. were digital, which is a pretty significant piece. Compare that to Bayonetta 2. That’s a huge game, and could take up a large part of the memory in the 32-gig Wii U. That’s a game with a digital percent on the lower side, today about 10 percent or so. Our mentality is, we want the consumer to have the choice based on what makes sense for you, what makes sense for the type of game it is.