A few days ago Nintendo announced the results of their annual meeting with shareholders and now they have uploaded all the Questions & Answers to their website.
You can find all of them quoted below. Iwata basically talks about 3DS, Wii U, NX, Software and Hardware, Third-Parties, Mobile Games, Nintendo IP and Splatoon, among others.
Here’s the quoted Q&A:
Q1: There are two types of software for Nintendo 3DS and Wii U, packaged versions and download versions. Currently, it seems that the actual sales prices of the download versions appear to be higher than those of the packaged versions (due to retailer discounts). What do you think about the price gap between those two products?
A1: Satoru Iwata (President):
I would like to supplement this question for the shareholders who do not usually play games. Nintendo 3DS and Wii U software is sold through two sales methods; one is the “packaged version,” which we sell in the form of ROM cards or optical discs, and the other is the “download version,” which we sell by transmitting software content through the Internet. With respect to these products, this question is pointing out that the sell-through price of download versions may be higher than that of packaged versions because Nintendo eShop (where Nintendo directly sells the download versions) does not usually give discounts and retailers tend to give greater discounts on packaged versions than on download versions.
As for the prices of the packaged versions and download versions, we, at Nintendo, cherish the value of our software and believe that we should sell both versions at the same price because they have equal value (as software products). However, there are various viewpoints on this matter. For example, some software publishers lower the prices of download versions, giving weight to the fact that download versions cannot be sold to secondhand stores or that download versions are rarely sold at reduced prices in retail stores and even sometimes never discounted in the case of direct sales by the publishers. While the prices of packaged and download versions reflect the attitudes of software publishers, Nintendo would like to offer these products to our consumers at the same prices given that their software value is the same.
Now, the reason why the prices of the packaged and download versions are actually different is that the retailers take different levels of business risk with each of them. Retailers take inventory risks for the packaged versions from the moment they order these products. When it comes to the download versions, purchase and payment is completed at the same time when the consumer pays for the product and the download card (only available in Japan) is registered in the cash register. This system does not require the retailers to take inventory risks for download versions. Taking into consideration this difference in the retailers’ inventory risks between the packaged and download versions, our company sets a different wholesale price for these two versions. However, please understand that Nintendo does not decide the ultimate retail price, but rather the retail prices of those versions differ as a result of the decisions made by each retailer.
We understand that consumers who buy many download versions may not be fully convinced if all of these products cost more than the packaged versions. 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. I would like to explain the details when we have everything in place for the new membership service, which is targeted to launch this autumn.
Q2: I would like you to decrease the current number of shares constituting one unit of stock from 100 shares to 10 or 20. I feel that 100 shares per unit are a little too costly. There has been such a request for a long time and you mentioned that you would start considering it after the digitalization of stock certificates. Are you considering reducing the investment unit to a level which is reasonable to ordinary investors?
In past annual general meetings of shareholders, we received comments that the minimum investment unit of Nintendo is too high and that a stock split or reduction of one stock unit would increase the number of shareholders and have a positive effect on the stock price as a consequence. We see it an issue to be considered. In accordance with a listing rule of the Tokyo Stock Exchange, we cannot change the current number of shares constituting one unit of Nintendo stock from 100 shares to one share or 10 shares, which was once allowed. In my view, the rule to standardize 100 shares as one unit of stock was established to avoid any confusion with the variety of one stock unit after various problems, including mistaken orders.
Therefore, a stock split is the only way for us to reduce the stock trading unit. Some people say that a stock split would work to broaden a company’s investor base and improve the liquidity of its stock, and it is a fact that some companies have achieved such goals. On the other hand, we have received some objections in past general meetings of shareholders and through investor relations inquiries that a stock split would damage the premium value Nintendo stock currently holds. We understand our shareholders have mixed reactions to it. On that premise, we hope to discuss carefully whether to split our stocks or not.
Q3: I have the impression that the launches of the two systems, Nintendo 3DS and Wii U, were consecutive failures. Nintendo 3DS seemed to recover after the hardware markdown and the availability of a wide selection of third-party software. As for Wii U, the situation does not look so good. I have the same concern for the launch of the new NX. What measures are you taking to avoid the same mistakes? Also, please comment on your collaborative relationships with third parties from whom you currently lack support.
The situation for Nintendo 3DS and Wii U is in line with what you mentioned. For Wii U in particular, it cannot be said that it had a successful launch. As for Nintendo 3DS, in Japan there was a temporary slowdown but we managed to make a recovery by offering a number of initiatives collectively. On the other hand, Wii U has not been able to recover at this point in time. Because of this, the size of the installed base compared to the Nintendo DS or Wii eras appears not to be as solid and this is reflected in the company’s profitability. But taking a look back, it was not the case that Nintendo DS sold with huge momentum from the beginning. When it first started to lose momentum, we offered a number of titles from a new genre, such as “nintendogs” or “Brain Age: Train Your Brain in Minutes a Day,” and these titles were widely accepted even by those who had never played video games in the past. This sequence of events led to a very large business. 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. I cannot disagree with your indication that Wii U is experiencing the most unfavorable situation.
Since the word “NX” has been mentioned, please let me elaborate. When Nintendo announced the collaboration with DeNA on March 17 of this year, I mentioned that Nintendo is currently developing a new dedicated video game system codenamed “NX.” The reason I mentioned this was, at that time, there were more than a certain number of people that thought that Nintendo would give up on the dedicated game system business and concentrate on smart device application development, or that Nintendo should take that path. In addition, such tone could be seen frequently through the media. I felt it was necessary to communicate that Nintendo is not pessimistic about the future of the dedicated game system business but rather more and more eager to continue it. On the other hand, details on the new platform essentially should come later. This is because the entertainment business has an aspect where there is value in surprising consumers. It is not convincing enough to the consumer if we describe how the magic works before actually showing it to them and then expecting them to be surprised or delighted. Having the element of surprise or doing the unexpected is the premise for introducing new ideas and having them welcomed with surprise. That is why I have been repeatedly saying that the next news on NX will not be announced during 2015 but will be announced in 2016. Nevertheless, since NX has news value, when I am interviewed on various occasions, I am asked about it almost every time. 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. Thank you for understanding that we are making various considerations and preparations in order to avoid what happened with the previous generations.
On a different note, I believe the standard for software publishers in selecting what hardware to provide their games for is the installed base after all. The larger the installed base or the more it is believed that the installed base will largely expand, there is an aspect that more software publishers are likely to join in. On the other hand, Nintendo is collaborating with various software publishers. At E3, which was held in the U.S. and is the largest trade show in the video game industry, we received many proposals for joint initiatives. In addition, Japanese software publishers have close relationships with our licensing department on a regular basis. As for collaborations with software publishers or their games, please consider that there are various ongoing projects below the surface.
Q4: I think it is a well-known fact that Nintendo of America is the principal owner of the Seattle Mariners. It has been 10 years since the company succeeded this position from the previous president of Nintendo, Mr. Yamauchi, and I would like to know what advantages the company has had and what merits there will be for the company in the future by maintaining this position. Also, I heard in January this year that Randy Johnson would be inducted into the National Baseball Hall of Fame. I speculate that it might be possible for the Seattle Mariners to consider retiring his uniform number of 51, but to Japanese people, the uniform number 51 of the Seattle Mariners belongs to Ichiro Suzuki. About this possibility, I would like to know the opinion of Mr. Iwata who is also the CEO of the principal owner of the Seattle Mariners, Nintendo of America.
You are correct that Nintendo of America, which is responsible for marketing our products in the Americas, is currently the principal owner of the Seattle Mariners. That ownership used to belong to the late Mr. Hiroshi Yamauchi, who was the president of the company before me. The operational condition of the team had become better (than when Mr. Yamauchi became the principal owner of the team), and Mr. Yamauchi also wanted to be prepared for a number of things after his future death, so Nintendo of America succeeded his position.
Nintendo was able to establish a relationship with the Seattle Mariners with such background. As the media reported, it was rather an exceptional thing for a Japanese company to become the principal owner of a Major League Baseball team. Nintendo was able to have such a unique position, which cannot be secured only by paying money, and we cherish this relationship.
Regarding the uniform number 51, Nintendo of America is not the 100 percent owner of the Seattle Mariners, and it makes important decisions with other owners of the team. I have personally met with Ichiro several times and I personally would like to maintain a good relationship with him. However, it is not appropriate for the CEO of Nintendo of America to share my comments on your speculation at this sort of public occasion. Thank you for your understanding.
Q5: The previous corporate headquarters was near Tobakaido Station along the Keihan Main Line. I would like to know how the previous headquarters will be used in future.
Nintendo moved its corporate headquarters to where it is now, at Hokotate-cho, Kamitoba, in November of 2000. Until then, the headquarters was at the buildings near Tobakaido Station, and I believe some of you may have come to a general meeting of shareholders there in the past. Right after we moved to the current headquarters, the number of employees working at the previous headquarters near Tobakaido Station greatly declined. After that, because the new headquarters became cramped, we moved some of the development departments back to the previous headquarters and had them work separately. Each year, product research and development becomes more sophisticated, and we knew that unless we concentrated many people’s energy in one place, we would not be able to develop products that would satisfy our consumers worldwide, so we proactively recruited development staff to strengthen our research and development. As a result, employees were forced to work at separate offices for the lack of space at the current headquarters. This situation led to our decision to build the Development Center (in 2014). By building the Development Center, we were able to concentrate our development teams here (at the Development Center). One of the characteristics of Nintendo is that both the hardware and software development teams are in one building, making it easier to exchange thoughts and opinions with each other even though they are on different floors. By giving each other advice and inspiring each other, the development teams develop products that astonish and entertain the world; therefore, I believe building the Development Center was truly meaningful to consolidate our development teams.
Now, at the previous headquarters, Mario Club Co., Ltd. (which is a Nintendo subsidiary) performs debug operations (an operation to check if the software runs as the developer intended) and difficulty adjustments for Nintendo products. The number of people involved in these operations has been increasing, and recently, we have made a shielded room in which the walls shut out all electronic waves from outside the room. In the room, they bring together numerous Nintendo 3DS systems and debug game software that is played using a wireless connection. Like such, we are making full use of the remaining buildings (at the previous headquarters). At this point, because we have not specifically decided how we will use the previous headquarters in the future, I cannot tell you of any plans at this moment. As of now, Mario Club is effectively utilizing the previous headquarters, and I believe any plans on the use will be decided based on Mario Club’s human resource planning.
Q6: At E3 this year, I felt that Nintendo announced very few software titles. There has been some talk about third-party support today, but I think that these third parties look at the software lineup each company announces at E3 to gauge how much they can expect from each home console hardware and on which hardware they should release their software. I also think that a number of game fans also pay attention to the software titles Nintendo announces at E3 in order to determine if the lineup is worthy of their purchasing the hardware. What is the reason behind your decision to focus on the titles to be released only in 2015 at this year’s E3? Will you take a similar approach in the future as well and limit the E3 announcements to the software to be released in the near future?
E3 this year was held a week later than it has been held in the last few years, and it was held right before our general meeting of shareholders. Including the preparations for this meeting, I prioritized my works in Japan and did not travel to the U.S. to attend E3. As a representative of our board of directors who attended E3 this year, I would like to ask Mr. Miyamoto to talk about it. There will be a video that I would like to show afterward.
Shigeru Miyamoto (Senior Managing Director and General Manager of Entertainment Analysis & Development Division):
E3 is the annual industry trade show that is usually held around May or June in the U.S. It is true that E3 has the aspect that the shareholder just mentioned. It actually started as a trade show for the U.S. market, and due to the spread of the Internet, the information dispatched at E3 spread around the world. Nintendo views E3 as not only an industry trade show in the U.S. but also as an occasion with which the entire Nintendo group should be involved.
For this year’s E3 in particular, Nintendo focused on the products that are significant for our doing business in the U.S. this year. However, depending on the year, we focus on not only the software that will be released immediately after E3 or right after the turn of the year but also the products that will be released much later or experimental demos to showcase future possibilities. For example, during last year’s E3, we highlighted some of our experimental software to demonstrate the unique attractions of the Wii U hardware because its appeal had not yet been sufficiently conveyed. Because compared to last year, we now see people in the U.S. are gradually realizing the compelling nature of Wii U hardware, we decided to showcase a number of products scheduled to be released that will have a direct effect on our business in the near term. On the first day of E3, Nintendo aired its online video presentation “Nintendo Digital Event” and introduced to the viewers software that the company would showcase at our E3 booth. Since we mainly included the software that would be released before the end of this year, the entire software lineup appeared to be small. And because we did not include a number of third-party titles, we must’ve ended up giving people the impression that not so many titles will be released on our platforms in future. 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. Other than Nintendo, the major hardware manufacturers, Sony and Microsoft, also had booths, and I got the general impression that they were showcasing not only the products for this year but also many products for next year or the year after and, because of that, introductions for many of their software titles were done visually, not with playable demos. Also, many demonstrations for virtual reality devices have been conducted at recent trade shows, and at this year’s E3, I noticed a number of dream-like demonstrations for which the schedule and format for commercialization are unknown. The current software for these virtual reality devices cannot be played simultaneously by a number of people, and since it is generally expected that the development for the applicable software for a high-performance device will take two to three years, there were a number of visual demonstrations for virtual reality devices. Amid this atmosphere, because the visitors to our booth were able to pick up the controllers and try out the playable software, I believe they were able to appreciate, among other things, our focus that Wii U is a home video game system that we would like people to enjoy in their living rooms. I have participated in a number of media interviews, and the comments from reporters also attest this impression.
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. On the other hand, since E3 was originally a U.S. trade show, when we consider what kind of messages we should dispatch and in what fashion, while we have to take into consideration the impression that we may give to people outside the U.S., we have been very mindful about how we can maximize our immediate business in the U.S. this year. While it is not so often reported in Japan and may not be possible to correctly convey everything we did at E3 this year, here is a video that I would like you to watch.
(While showing the video) This is the footage from the E3 show floor. E3 takes place at a venue called the Los Angeles Convention Center, which you may want to compare with Makuhari Messe in Japan, and this is Nintendo’s booth. 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. So, this was one big difference because a number of the visitors to other booths appeared to have spent a lot of time just watching game videos. Other than these show floor activities, Nintendo did not hold a press conference this year, but we did air our “Nintendo Digital Event” Internet program, and even before the Digital Event, we aired another video presentation to announce the new content of “Super Smash Bros. for Nintendo 3DS/Wii U.” We also broadcast our event titled “Nintendo World Championships 2015” live via the Internet. This event used several Nintendo game software titles to decide the world’s most skillful player. There was a lot of excitement from the visitors and the contenders. So, we listen sincerely to the voices of fans who were not happy about the announcements we made in the online Digital Event, and we will have to make further efforts to improve. But when it comes to the reactions to our E3 activities overall, the reactions from trade customers and the media were not that unfavorable. I hope you will understand it.
Once again, about the reason why at E3 this year we focused on the titles that will be released in the near future, as Mr. Miyamoto just said, which points we should focus on at E3 change every year depending on the development status of each product and future deployment schedule. When we think it necessary to discuss future products even if the release timing is yet to be determined, we may do so without being able to discuss the details, and when we have more concrete proposals on the products to be released in the near future, we will try to explain the appeal of that product as best as we can. Since we determine our E3 theme each year, you might have had quite a different impression this year in comparison to last year. We are listening to people’s opinions and we will try to improve next year and beyond.
Q7: As a game fan, I am particularly concerned about how the new hardware NX will differ from Wii U and if Wii U games will continue to be released after its launch. Please comment on what will happen.
As I mentioned earlier, I cannot speak about the details of NX today. 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. Of course these factors are all against the interest of the entire company and they would ultimately harm the interest of our shareholders, so we appreciate your understanding in this respect.
Regarding your concern about what will happen to Wii U or what will happen to Nintendo 3DS, NX is a new platform, so the installed base will have to be built up from zero. When NX is launched, there already will be a certain volume of Nintendo 3DS and Wii U hardware widely existing in the market, so from a software business perspective, it would be highly inefficient to stop releasing titles for Nintendo 3DS or Wii U right after the launch of NX. Therefore, while we are preparing NX for the future, we are discussing within our internal development teams as well as with the second-party developers we co-develop software with and also with third-party software publishers about how to continue creating software for Wii U and Nintendo 3DS. So, I believe that your point of concern should not happen immediately. As for Wii U, we will continue to make efforts, as it is a priority within the company to think about how we can satisfy the consumers who purchased this system to the maximum extent possible.
Q8: 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?
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.
Q9: From watching kids playing and listening to their conversations, I know that many of them want to be a certain hero or heroine. Is it possible to place their faces onto in-game heroes or heroines so that they can play as these characters? Also, I would like to make a request. Personally, I seldom play video games but I have a certain desire to purchase, wear and own Nintendo-related products at every occasion possible. Why don’t you ask external companies to use Nintendo characters on the T-shirts or sneakers they make?
At the very last stages of developing the Wii hardware, we integrated Mii functionality, a software function to make consumers’ facial caricatures by choosing pre-designed facial parts such as the nose, mouth or eyes and adjusting their size, distance and angle. I think it is safe to compare it with Fuku-Warai (a traditional play in Japan to make facial caricatures with paper parts) but with more flexibility. Consumers can create Mii characters based on themselves or their families to place them in the game. Following Wii, which was launched in 2006, Nintendo 3DS and Wii U inherited the same functionality. In that sense, I think your request to put consumers’ faces in the game has been fulfilled to a certain extent. On the other hand, characters created in that way do not always look similar to heroes like Mario because they have different shapes, so it doesn’t always work to simply place Mii faces on hero characters. In order to realize the dreams of the kids you mentioned, we will have to discuss the details of how we can advance Mii in the future.
On your request, we are very grateful that you love Nintendo characters and games, and have the desire to own related products. On the other hand, we have to be wary of whether more Nintendo-licensed products will make a better situation. In the short term it may receive much attention, income such as licensing fees may increase and we might be able to grant some people’s wishes, but along with that we also have to consider correct quality control (maintaining and managing character value). Most products in the character industry are consumption-based in that they continuously repeat the process of birth and death. Only a handful of characters can last for one, two or three decades. 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.
Q10: The treasury shares of the company account for 16.44 percent of the total number of shares outstanding, which strikes me as a pretty high proportion. Treasury shares can be used for various purposes, including an MBO (management buyout), which you once ruled out in a newspaper interview for Nikkei, but I think they could be used for that purpose and they could also be used for a business alliance, M&A (merger and acquisition) and employee compensation. As a shareholder, I would welcome a cancellation of the treasury shares because it would enhance shareholder value. Please let me know your thoughts on utilizing the treasury shares.
Regarding your question about whether the proportion of treasury shares to the total number of shares outstanding is higher than the general level, I would agree that it is higher than average. And as it was further increased after the stock buyback last year, we have discussed how to deal with the treasury shares in the company. This year marks the 32nd anniversary of the launch of Famicom (Nintendo Entertainment System) in Japan and, over the past two to three years, our business has gone through changes in business environment, a transition period, which we had never experienced before. It has been rapidly caused by several factors, including the popularization of the Internet and smart devices, innovative marketing methods and changes in purchasing behaviors of consumers. Now is the time we need to adapt well to these changes. Since we used the treasury shares for the capital alliance with DeNA at the beginning of this fiscal year ending March 2016, the current number of treasury shares is less than that described on the convocation notice for the general meeting of shareholders, but is not a dramatic decrease.
As I have mentioned in other Financial Results Briefings and Corporate Management Policy Briefings, we would like to continue to hold as many treasury shares as we do now over these few years while our business is in this transition stage. After we get through these changes in business environment and produce results from various new trials, we should start considering how to handle the treasury shares, including the retirement of the shares. Some say that a cancellation of treasury shares would boost the stock price, and there are also some examples in which it did not affect the stock price at all. 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.
Q11: Do you plan to be more proactive in releasing character-related merchandise or figures? For instance, Pokémon characters like Ash, May, Misty, Iris, Serena and Dawn are very popular all around the world, and they would surely be profitable for Nintendo as merchandise or figures. Or even if you don’t make the merchandise or figures yourself, you could collaborate with external companies to make new discoveries or growth.
This answer overlaps with what I discussed in my answer about IP utilization earlier, but it would be a stretch to say that Nintendo was proactive in making merchandise in the past. We have been discussing internally that we should be more proactive, and it is imperative that we establish a global structure to deploy such business all around the world. As a large proportion of our sales come from outside Japan, we have various ideas in mind for collaboration on the character licensing business across Japan, North America and Europe. 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. On the other hand, not a small number of businesses have ended up with a pile of leftover stock after a particular product’s short-lived period of popularity. It would surely ruin the value of Nintendo IP and would not enhance corporate value over the long term if we chose this path. Therefore, I would like to recap that our current plan is not to simply increase the number of proposals but to be more proactive than in the past by making appropriate decisions that will enhance our overall corporate value over the long term.
Q12: I am happy to hear that “Splatoon” for Wii U, a new software title that is not part of a series, was so well-received that it reached 1 million units in sales. I would like to ask how big the Virtual Console business sales are. Also, I would like to request that you make all titles available for purchase at any time. Sometimes there are titles which go out of service, and I would like to know if a system in which all titles are available for purchase at any time can continue or not.
As some of you may have seen the TV commercials we have been airing recently, “Splatoon” is a brand-new title and not a title from an established series. It has a very unique and fantasy-like setting. This game, inspired by squid squirting out ink, is played by human-shaped characters with squid-like features shooting, instead of squirting, ink at each other, and the team that paints the widest area in its team color wins. Having received high recognition from our consumers for its novelty, this title’s sell-through sales reached 1 million units in less than a month from its release. We feel very grateful for this, since our view was not so optimistic prior to release, for it being a non-series title.
Regarding your question on the scale of Virtual Console title sales, the download sales as a whole for this (75th) fiscal year are 31.3 billion yen, and I have shared publicly that this is a 30 percent increase from the last fiscal year, but we have not disclosed the individual sales of Virtual Console titles only.
Virtual Console itself is a service that began when we developed Wii so that consumers can play past titles on new platforms, and we continue to distribute various titles now. However, back when we started this service, there were some points that we could not sufficiently foresee about how big this business would grow to be and how the business would expand. For example, Virtual Console titles are generally developed based on the original game software, but this does not mean that we can develop numerous Virtual Console titles simply if we have the original game software. Development of Virtual Console titles require detailed manual work, such as testing if the software runs smoothly on each platform, or making sure the content is appropriate under the various standards currently in place. Thus, we occasionally receive opinions that our pace of releasing new Virtual Console titles is slow, but if we use much of our human resources on such detailed manual work, we would not be able to develop new titles, so we are currently researching how we can efficiently develop Virtual Console titles with limited human resources. One of the big issues for our system development is how to resolve the situation in which we can only release a few Virtual Console titles at a time when we release new platforms.
In addition, regarding the possibility of making all titles available on Virtual Console, I can say that it is possible for Nintendo titles with a few exceptions, since we generally have the intellectual property rights for such titles. However, as to third-party software publishers’ titles, if they are producing the software based on a license from another copyright holder, for example, we may not be able to easily use the same title for the system that exists now because we do not have a license from the copyright holder at the time. This often becomes a problem with reruns of TV shows or Internet broadcasting. Therefore, since we can only release Virtual Console titles of third-party software publishers if they come to an agreement with the copyrights holders upon negotiating terms and conditions that were not included in their original contract, please understand that there are some titles that we cannot easily release despite many requests. We will make our best efforts to satisfy our consumers with our Virtual Console title lineup.