“I think that the demand itself for entertainment is increasing rather than decreasing.”
☆ NintendObs Event – Nintendo Q3 FY3/2015 Q&A.
Question:
Mr. Iwata, how do you think the demand for entertainment will change from now on? Earlier you mentioned consumer behavior, and the way consumers collect and receive information has changed. For the last few years, I think that for the overall entertainment industry, various key trends have transitioned. I would like to know how you think the ultimate demand is changing.
Answer:
Iwata:
I think that the demand itself for entertainment is increasing rather than decreasing. Now that smart devices are a means of entertainment consumption for a number of consumers, I think the total time and consumption of entertainment is increasing. However, the tough issue for this platform is that the platform holders are not so interested in maintaining the high value of the content and instead feel that the cheaper the content, the better or even that the content should be free. On this point, I can empathize with Mr. Kawakami, the chairman of DWANGO Co., Ltd., as he often uses the expression to describe the situation of the content for smart devices with “the eggs are on sale at the supermarket.”
In the music and video industries, they made more profits by selling content before, but, because of the digitalization trend, it has become much more difficult to make profits by just selling the content. For example, artists whose CDs sold over one million copies in the past can sell less than one-tenth of them now. It is said that whether they can maintain the revenue or not now is up to the number of people who attend their concerts and other events. Consumers spend money on one-time events like concerts, but once they have regarded as a norm that they can digitally obtain content free of charge, we cannot easily change their minds regarding content value. As for video content, once services offering a library of tens of thousands of videos for only a few hundred yen per month become mainstream, DVDs will not sell as they did in the past. I have heard a Hollywood movie producer say that profit structures for movies have changed, and it is difficult to expect profits from selling DVDs.
Observing these transitions, we can say that the digitalization trend presents not only a promising chance but also a huge crisis for us, so it can be said that we are faced with both an opportunity and a dilemma at the same time. Without thoroughly considering our business approach, the value of our content will instantly be damaged. I have strongly realized the importance of this point from around 2010. At GDC (Game Developers Conference) in 2011, I said that we should think about maintaining the value of game content. At that time, I could not make myself understood well enough as I am afraid my choice of words may not have been appropriate, but now I believe the number of people who understand the point I was trying to make at GDC is increasing. Therefore, this is a big challenge for us to maintain the value of our content, while the demand for entertainment is increasing. If consumers commonly expected content to be free or very cheap and as a result, if a price and service competition occurred on the similar-looking products, we would not have a bright outlook. Therefore, the most important points will be how we produce original content, how we create a way for value of our offerings to be well accepted and how we invent payment methods for new consumers.
Therefore, the demand for entertainment is not small. Rather, in our view, people are richer than in the past as they search for the ways to spend their leisure time more fruitfully. In a broader sense, they are having fun in their spare time in various ways in order to improve their QOL, I think. The ways to have fun have expanded. At the same time, since distribution costs are becoming very close to zero due to digitalization, the number of consumers who do not focus on the value of the content is increasing, based on their idea that content can also be free. How we deal with this situation where there is the pressure to decrease the value of any digital content will be the key point for us. If we find the right answer, Nintendo will prosper as a company that creates content. If we make a big mistake, on the other hand, our business structure will collapse. We know there is criticism that our decision-making or transformation is slow in this field or our activities are not sophisticated, but we would like to take forward steps by considering everything thoroughly and with confidence that our future approach will work. Thus, we have spent time on this, and I believe my current mission is to provide the answers to this question this year, next year and the year after.
— Third Quarter Financial Results Briefing
Source: Nintendo JP.
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