Q1
I would like to know your thoughts on development resources for game software. It is said that they will announce the software lineup for the second half of 2024 through Nintendo Direct in June, but looking at the lineup for the first half of this year, it seems that the lineup is weaker than usual. Are most of the development resources already being devoted to the successor to the Nintendo Switch? I would also like to know your strategy for expanding development resources over the long term.
A1
Representative Director and President Shuntaro Furukawa:
Since it takes years to prepare a successor to Nintendo Switch, it is true that software development resources need to be considered from various aspects. We are continuing to develop software for Nintendo Switch, so please look forward to the Nintendo Direct scheduled for June for information on the future software lineup.
Additionally, over the past few years, we have continued to expand our development resources through new graduate recruitment and mid-career recruitment. In order to increase the value of our IP from a long-term perspective and continue to offer unique entertainment, we will continue to proactively secure the necessary development resources. There are ways to expand our development resources, such as M&A, but first we need to thoroughly understand the Nintendo brand within our company, and work with the developers who have built our brand over the years to develop human resources who will be responsible for Nintendo's future development. I am thinking of continuing to do so. Additionally, many of our external development partners have a deep understanding of our way of thinking and game development methods through years of collaboration, so we would like to further deepen our collaboration with them. We believe that it is inevitable that game development will become longer, more complex, and more sophisticated in the future, but our lifeline is to offer new and unique proposals to our customers through game development, so we will continue to invest, including investment. We will actively work to expand our development resources.
02
If the expected hardware sales volume for the current fiscal year (ending March 2025) does not include the successor model of Nintendo Switch, the decline compared to the previous fiscal year (ending March 2024) will seem small. Do you think that even if you announce a successor model, the momentum of the Nintendo Switch business will not be affected?
A2
Furukawa:
The expected sales volume for the current fiscal year does not include the successor model of Nintendo Switch.
Although sales of the Nintendo Switch hardware have remained relatively strong, it is now eight years since its release.
As a result, we recognize that it is becoming increasingly difficult to maintain momentum as time passes. Despite this, during last year's year-end sales season, we were able to get many new customers, including children and families, to pick up Nintendo Switch, especially overseas. In addition to releasing new titles during the current fiscal year, we believe that we will continue to be able to generate new demand, as ``The Super Mario Bros. Movie'' has been viewed by many people through various means since its theatrical release. Furthermore, although a lot of software has already been released for the Nintendo Switch, if we can properly promote the appeal of classic titles like this, we can increase the number of titles in the home created by the unique value of the Nintendo Switch. We believe we can still pursue demand for machines.
We do not believe that the announcement of a successor model or the release of related future information will have any impact on Nintendo Switch sales, but we would like to maintain a good balance between new demand and demand for multiple units this fiscal year and maximize unit sales. That's what I think. Although it will not be easy to achieve our forecast hardware sales volume of 13.5 million units for the full year, we have set this forecast at the beginning of the fiscal year with the desire to take on the challenge of achieving it.
03
Please tell us about the relationship between the use of cash on hand and the successor to the Nintendo Switch, which was mentioned in previous management policy briefings. At the management policy briefing session held in November last year, the existence of a successor model had not been announced, so I think it was difficult to explain how the use of cash on hand was related to the successor model, but in reality, the successor model had already been announced at that time. Was the amount of money taken into consideration? Furthermore, within the use of cash on hand, the ``foundation for maintaining and expanding relationships with customers'' area includes initiatives for Nintendo Account. Will Nintendo Accounts continue to be used for successor models?
A3 Furukawa:
Regarding the use of cash on hand, we are considering or already implementing various initiatives in the areas of `
accumulation of software assets'' and
`foundation for maintaining and expanding relationships with customers.'' However, the development of a successor to Nintendo Switch is an investment we have made as part of our normal business activities. Therefore, investment in successor models is not the main use of cash on hand.
Regarding "accumulation of software assets," investment in video content, which is entertainment other than games, is currently taking precedence, but in the future, new investment related to games will occur, and as a result, investments related to successor models will increase. There is a possibility that it will come.
Furthermore, the ``foundation for maintaining and expanding relationships with customers'' includes improving the customer experience centered on Nintendo Accounts and creating new added value. Nintendo Systems Co., Ltd., which was established as a joint venture with A, is introduced as an example of the use of cash on hand. Nintendo Account has been in place since before the release of Nintendo Switch in order to maintain long-term relationships with customers across hardware generations, and we will continue to use it for successor models as well.
04
I think one major change in the Nintendo Switch lifecycle is that digital sales have grown significantly. After looking back at the progress and contribution of the digital business to the company's results to date, please tell us what expectations you have for the digital business in the life cycle of the successor to Nintendo Switch.
A4 Furukawa:
As you pointed out, the expansion of the scale of the digital business can be cited as one of the major changes since the release of Nintendo Switch. In the previous fiscal year, sales from Nintendo Switch Online and additional content such as `
Pokémon Scarlet and Violet,''
Mario Kart 8 Deluxe,'' and
`Splatoon 3'' were strong, as well as the weaker yen. Yes, digital sales and digital sales ratio increased.
Our basic policy is not to simply increase the ratio of digital sales, but to maximize sales of game software, including sales of packaged software, and this policy will remain unchanged in the future.
Under these circumstances, we need to increase convenience for both customers who play the packaged version of the software and customers who play the downloaded version, and we hope to continue to make further improvements and innovations in the future. . Compared to when Nintendo Switch was released in 2017, digitalization has progressed in many aspects of our lives. As the convenience of digital content continues to improve in the future, we currently believe that an increasing number of customers will choose digital products for successor models, just as they did for Nintendo Switch.
05
Regarding hardware sales volume, the forecast for the current fiscal year of 13.5 million units seems to be a fairly high target considering the sales situation in the fourth quarter of the previous fiscal year. Are you considering measures to achieve this? In addition, regarding the supply of hardware, the Company has previously mentioned that when releasing new hardware, it would like to produce and ship a quantity that can meet customer demand from the perspective of preventing resale. Considering the recent improvement in the semiconductor market situation, it seems likely that the successor model to Nintendo Switch will be able to ship a certain amount to meet demand from the time of its release.
A5 Furukawa:
As with the previous fiscal year, we have set a slightly high expected sales volume for hardware at the beginning of the fiscal year, so we recognize that it will not be easy to achieve based on recent sales conditions. In the previous fiscal year, hardware sales picked up due to the success of `
The Legend of Zelda: Tears of the Kingdom'' and the movie
`The Super Mario Bros. Movie,'' so we ended up achieving sales of 15 million yen, which we had expected at the beginning of the fiscal year. Sales exceeded the sales mark of 15.7 million units. In order to sell the number of Nintendo Switch hardware that we expected this fiscal year, we will need to implement a variety of measures. During last year's year-end sales season, in addition to selling hardware bundled with software, we made proposals that would make customers want to buy a second unit. In the current fiscal year, we hope to bring sales volume closer to 13.5 million units through various initiatives.
Regarding the supply of the successor model to Nintendo Switch, we have not yet talked about the release timing, so we cannot give a specific answer, but at this point there is no shortage of supply of semiconductor parts, etc., as there was until the year before last. We do not anticipate that the supply of such products will become a major problem when a successor model is released.
Q6
Is there any special intention in referring to the successor model of Nintendo Switch as a "successor model"? Looking back at past hardware announcements, the WiiU was described as a `
successor to the Wii,'' and the Nintendo Switch was described as a
`game console with a completely new concept.'' This time, the expression "successor to the Nintendo Switch" indicates an intention to inherit the gameplay and concept of the Nintendo Switch. Also, it is said that there will be a follow-up report during this period, but at that time, there will also be an explanation regarding the release timing and specifications.
A6 Furukawa:
There is nothing more we can say about the successor to the Nintendo Switch at this stage. For today's announcement, we decided that it would be best to use the expression "successor to the Nintendo Switch," so we decided to use this expression.
As with past announcements of new hardware, we will be disseminating future information in stages in preparation for release.
Q7
The forecast for operating income for the current fiscal year has been announced to be 400 billion yen, and the fact that this amount of money can be expected at a time when Nintendo is almost in the transition period for hardware suggests that Nintendo has been able to raise its base profit level. It also looks like I remember that before the release of the Nintendo Switch, there was a time when the market expected operating income of over 100 billion yen, a `
Nintendo-like profit.'' I believe that many things have changed in the seven years since the release of the Nintendo Switch, but I would like to hear from President Furukawa about the level of
`Nintendo-like profits'' that you currently consider.
A7 Furukawa:
I am aware that many people previously expected that Nintendo's ability to generate an annual operating income of 100 billion yen would be a typical Nintendo earnings structure. However, at this time, we have not provided any specific amounts regarding ``Nintendo-like profits''.
The operating income forecast of 400 billion yen announced today is based on the assumption that the expected hardware sales volume is a number set with some enthusiasm. Also. The same idea applies to software. Therefore, if the number of software units sold is significantly lower than expected, operating income of 400 billion yen is not a figure that can be easily achieved. We announced these numbers at the beginning of the fiscal year with the enthusiasm of taking on the challenge of achieving our sales plans.
During this fiscal year, it will be extremely important for us to maintain the momentum of the Nintendo Switch business by implementing various sales measures for hardware and announcing new titles for software. Masu. In addition, we plan to disseminate information to customers through a variety of initiatives other than dedicated game consoles. For example, through initiatives such as the Nintendo Museum, which is scheduled to open in the fall of 2024, we will not only expand the Nintendo Switch business, but also
I believe this is a year in which it will be important to maintain the momentum of our business as a whole.
At the same time, this fiscal year will be the year in which preparations for a successor to Nintendo Switch begin in earnest, and we believe that it is most important to maintain the momentum of Nintendo Switch while also preparing for a later-reduced model. Rather than focusing too much on a single year's profit level, we have positioned this year as a year in which we will prepare for the future of our company, achieve sustainable growth, and work to improve our corporate value over the long term.
Q8
I believe that ``The Super Mario Bros. Movie'' was able to expand awareness of Nintendo IP even in regions where Nintendo Switch is not sold, which was a very effective step in IP development efforts. We understand that movies take a long time to produce and the investment is huge. Is there a possibility that the company will aim to expand the number of people exposed to Nintendo IP through smaller-scale video content such as anime and short videos?
A8 Furukawa:
In the previous fiscal year, despite a decline in sales volumes for both hardware and software, we were able to maintain overall business momentum through initiatives aimed at expanding the number of people exposed to Nintendo IP. Although the depreciation of the yen was a contributing factor, we believe that the impact of movies was a huge factor in the increase in sales and profits.
Beyond their impact on business results, movies play a major role in expanding the number of people exposed to Nintendo IP. ``The Super Mario Bros. Movie'' continues to be viewed by even more people through video distribution services, even after its theatrical release. Movies are yours for our games.
We believe that this is a very effective measure to get people interested, and as we have already announced, we will continue to work on film production in the future.
In addition, Nintendo Pictures Co., Ltd., which became a subsidiary in 2022, is engaged in a variety of initiatives not only in so-called feature-length films but also in the video business in general. Similar to game development, our basic policy for video content is to release it when we have created something interesting that we are satisfied with, so the production team will continue to go through trial and error to create something new and challenging. I hope to be able to tell you more about it when it is completed.
Q9
We believe that the number of annual players is an important indicator for Nintendo. Even though sales of Nintendo Switch hardware have peaked, this indicator has continued to grow since you began disclosing it. Do you expect this number to decline in the current fiscal year? Also, will the number of annual players continue to be an important indicator that Nintendo should pay attention to even after the release of a successor model to the Nintendo Switch?
A9 Furukawa:
The number of "Annual Play Users", which is one of the important indicators for our company, is the most recent (April 2023 to 2024).
In March), there were more than 123 million people, an increase compared to the previous year and the highest ever. In 2023, new titles such as `
The Legend of Zelda: Tears of the Kingdom'' and
`Super Mario Bros. Wonder'' recorded large sales, giving many people the opportunity to pick up and play Nintendo Switch. The number of "players" has also increased. Software that creates such opportunities
I think one of the keys to our future will be how much we can offer our customers the following.
This fiscal year will be more about maintaining the momentum of the Nintendo Switch business than expanding it, so we would like to maintain the number of annual players as high as possible for the future. I am. As we continue to develop the dedicated game machine business that integrates hardware and software, we are focusing on whether customers who purchase our hardware continue to play games from a long-term perspective. It is extremely important for the healthy growth of our business that our software be activated and played on various occasions, such as Christmas and birthdays, when people often gather together.
I think it's important. Therefore, we believe that the number of users who have played the game in the last 12 months (the number of open users) will continue to be an important indicator.
