“Once the value of a software title decreases, it can never be increased again.”
☆ NintendObs Event – Nintendo’s 2015 Annual General Meeting of Shareholders.
Question:
How will you sell your smart device game applications? Will you opt for so-called “one-shot” payments (just as consumers today purchase packaged software) as the charging system, or will consumers be able to download software free-of-charge but pay for items and other things so that the company can earn revenue? Also, what will be the target age group?
Answer:
Iwata:
Smart device game applications are drawing attention in the game industry because so many people around the world own smart devices (smartphones and tablets) and because, even though the total number is small, there have been several successful applications that have been hugely profitable after becoming very popular.
On the other hand, 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.
About the shareholder’s question on how to charge for smart device applications, in general, there is one system to ask consumers to make a one-time payment for the application and another system to ask consumers to pay for additional downloadable content. As for the latter, people often call it the “free-to-play” system. However, since Nintendo is a company that wants the value of the games to be appreciated by consumers and wants to keep the games’ value at as high a level as possible, we do not want to use the free-to-play terminology that implies that you can play games free-of-charge. Instead, we use the term “free-to-start,” as this term more aptly describes that at the beginning you can start to play for free. And, the fact of the matter is, game software with a one-time payment system has not been doing a great job on smart devices. Because there are so many competitors making smart device applications, there is fierce competition and the pressure to lower prices. As a result of this competition to discount products, smart device game applications are being sold at far lower prices than the ones for dedicated video game systems. I think some of you would have seen such campaigns as “90 percent discount for smart device applications” in the shops on your smart devices. Because it is a digital product, it does not require transportation fees nor other constant expenses necessary for packaged software, and some may think it is good if it sells (even at a low price point), but once the value of a software title decreases, it can never be increased again. 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. 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.
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. In extreme examples, some games are designed so that the players will be so excited psychologically as a result of, for example, being able to obtain a very rare item that they do not think twice about pushing the button, which immediately completes the monetary transaction and the player is charged with the bill. We know that some of such games have become a social issue. For your further information, in Japan, among those who are playing free-to-start games on their smart devices, the number of people who are actually spending money is very small. Yet, because this small group of people is paying a large sum of money, with which they could have even purchased several dedicated video game systems, this is one reason this free-to-start model can be very profitable. On the other hand, when we look around the world, the situation is different, and such a charging system has not necessarily been working well. 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. Companies may be able to make a very profitable business in Japan by asking a small group of consumers to pay a large amount of money (for their smart device applications), but we do not think that the same approach would be embraced by people around the world. 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.
Regarding your question about the target audience, 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. 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. Please understand that Nintendo will make its proposals by taking into consideration what Nintendo really should do with this new challenge.
On a different note, we are not planning to release many game applications from this year (when our first smart device application will be released) to the next. The reason for this is that software for dedicated game systems is considered a “product” that tends to produce the strongest and most fresh impact on the world at the time of its release into the market but its impact can be lost gradually as time goes by. With that analogy, smart device applications have a strong aspect of “service.” 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. Accordingly, we would like to spend sufficient time on the service aspect of each title, and we would like to grow each one of our small number of game applications with the objectives that I just mentioned.
— The 75th Annual General Meeting of Shareholders
Source: Nintendo JP.
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