Iwata on digital vs. retail, situation in China

This shows the digital download sales transitions. For the current fiscal year, we have just finished the third quarter, but the digital sales have already reached 11.1 billion yen so far, and it is certain that in this fiscal year we will see our largest digital download sales. Another peak in digital sales you can see around the center of this graph is when Wii was widespread and Nintendo DSi had just been launched. In spite of the fact that the current installed base of Nintendo 3DS is still much smaller than how popular Wii was back then, we are already seeing the growth in digital download sales mainly for Nintendo 3DS, which, I believe, is an encouraging trend. I have no intention of simply replacing the packaged business with the digital download one, but it is also true that there are several issues with the current packaged software distribution business. For example, before launching a software title, no one can precisely forecast how many units of software will sell in the market. Everyone develops and launches a software title with the hope to make it a smash hit, but when it comes to the actual sales in the market, even the most seasoned marketers cannot forecast the figures accurately. As a result, retailers are often left with surplus stock, which ends up being sold at a huge discount or, in contrast, software shortages could cause lost sales opportunities for retailers. With these kinds of issues becoming increasingly challenging, retailers are less willing to accept the inventory risk. In this situation, even when a developer has created software with high potential to become a smash hit, it is likely to fall short of its real sales potential. Or, even though a quality software title can successfully attract the interest of potential fans, making and shipping just a little more than the actual demand can lead to a big discount in the marketplace and, thus, destroy the game’s brand. We have seen repeated cases of these. When I discussed with Shinji Hatano (Senior Managing Director, General Manager of Marketing Division) the company’s endeavors with the POSA card to expand our digital download sales outlets to retail shops, he stressed that it would provide distributors with a huge opportunity to solve the existing issues. A fairly large volume of "Animal Crossing: New Leaf" for Nintendo 3DS was sold in the form of a POSA card, which is activated only when it goes through POS registers at retailers and therefore the retailers do not have to shoulder the physical inventory risk. The growing sales of the POSA version of this game must have helped retailers see the business opportunity for video games with such a business structure. We therefore expect that our publishers may be interested in selling POSA cards for some titles they are publishing as download-only titles and that they will want to make more games available in POSA card format. Although convenience stores have limited shelf space to spare for a number of video game POSA cards, retailers with more shelf space might expand the areas designated to the video game POSA cards. They might even educate their customers who are not familiar with digital download software. We can expect to see a number of new possibilities. We expect our digital distribution to increase in importance and become an important revenue source.

Regarding China, we certainly saw some articles the other day. On the other hand, we do not think that the situation has actually changed drastically. Of course, if a drastic change is made, there will be some opportunities for us. We have been preparing for that, but we have not obtained any confirmation of the recent media reports. In the future, if we receive any official confirmation in this regard, the company will make an announcement from inside China. At this point in time, please just understand that there will be some options we may be able to take if the situation has actually changed.

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