Nintendo held its annual shareholder meeting last Friday, and the tone of the questions being asked were somewhat contentious, to put it mildly. With the Wii U console hardware and software selling slowly and a loss of 23.2 billion yen ($228.6 million) for the fiscal year that ended March 2014, shareholders have become anxious with the video game juggernaut.
While Nintendo used to be the premier name in video games, the company has fallen behind Sony and Microsoft recently, and the influx of mobile gaming isn't helping, either. It's bad enough when the video game press notices a company's fall, but when shareholders start pointing fingers, things can turn very ugly.
Nintendo president Satoru Iwata was unable to attend due to illness, though a variety of managers were on-hand. Below, in bold, are some choice comments and answers from shareholders at the meeting, each followed by selections of the responses from Nintendo's managers:
Recently, Nintendo has experienced a decline in performance, and I assume that consumers overseas are not embracing the company's proposals. Because we are in Japan, it is hard for us to grasp the reactions of consumers overseas. So, I ask you to show shareholders responses from foreign consumers playing with trial software at E3.
Shigeru Miyamoto (Senior Managing Director and General Manager of Entertainment Analysis & Development Division, creator of franchises Super Mario Bros., Donkey Kong and The Legend of Zelda): The "Nintendo Digital Event," which we broadcast on the morning of the first day of E3, was viewed 4 to 5 million times, and the total views of our E3-related videos numbered in the tens of millions. This means that our messages reached a large number of people all over the world through the Internet, not only the people who attended E3 events. Though we designed Wii U to be a very convenient tool when connected to the TV in your living room, the appeal in that regard is not sufficiently understood. We also faced difficulties like a shortage of Wii U software titles or slow system startup.
The current stock price of Nintendo is far from satisfactory, so I hope you will work hard to make an improvement. I would like Nintendo to maintain its solid business policy and not to turn to businesses such as today's social games, but I am concerned about the fact that young children today often use smartphones handed down from their family members to enjoy free games. I do not think even Nintendo will be able to ignore iOS, Android or games playable on web browsers in the future.
Shinya Takahashi (Director and General Manager of Software Planning & Development Division): We have provided unique entertainment experiences using dedicated handheld devices and TV monitors at home in the field of video games. We will also actively utilize the smart devices that are now a part of people's daily lives. More specifically, we are currently developing an application for smart devices. Through such an application, we would like to connect with many consumers around the world.
Regarding the type of games that you play by yourself, I know there are plans for the release of the sequels to Xenoblade and Bayonetta 2, but it has been two years since the Wii U was launched, and I would like to hear an explanation for this blank period.
Miyamoto: It takes a year for the development teams to get used to high-performance graphics using recent shader technology, and afterwards it requires two or three times the time and labor costs to develop a game. According to one theory, since some projects even require the budgets of over 10 billion yen, not all projects will be profitable. It is a harsh world, in which a game can hardly survive if it doesn't make it into the top ten of the sales rankings.
I do not understand video games and I even feel angry because, at Nintendo's shareholders' meetings, the shareholders always discuss things relating to video games, while I, for one, was flabbergasted that Mr. Iwata continues to hold his position although he had said that he would resign if the company's performance were bad. I hope that Nintendo's shareholders' meeting will become an opportunity where the shareholders discuss the company's business operations.
Tatsumi Kimishima (Managing Director and General Manager of Corporate Analysis & Administration Division and General Affairs Division): The Annual General Meeting of Shareholders is an important opportunity for communication between Nintendo shareholders and the company's management team. It is a place where we respond to the views expressed by shareholders, in order to discuss how we should develop the company from now on. From that perspective, talking about the company's business operations is very important and, at the same time, as an entertainment company, it is also very important for us to inform our shareholders about the kinds of entertainment Nintendo offers, including video game content.
Because the company has posted operating losses for three consecutive fiscal years, I actually feel like questioning the business responsibility of the management, but instead of my doing so, I would like the management to explain this fiscal year's earnings forecast.
Genyo Takeda (Senior Managing Director and General Manager of Integrated Research & Development Division, Chairperson of this Annual General Meeting of Shareholders): We are deeply sorry for concerning all of our shareholders regarding our poor business performance in recent years. Mr. Kimishima will answer your question about this fiscal year's earnings forecast.
Kimishima: This fiscal year, in order to change the situation in which we have incurred operating losses for three consecutive years and to build a profit structure, we would like to aim for increases in both sales and profit by restoring the balance of revenue and expenses as our top priority.
I am a bit surprised by the fact that Mr. Takeda has no more than 200 shares of stock in this company and that except for Mr. Iwata, who owns 6,700 shares, the other directors also have only 100 or 200 shares each. I do not think such small stakes in the company will give you incentive to do your best. Why do you not increase the number of shares the management team holds?
Takeda: We believe that there is no connection between the number of shares a director owns and the enthusiasm he has for company management. I hope you will understand our resolve to improve our performance to return to profitability, regardless of the number of shares our management team holds. Thank you for your helpful comment.
I understand your point that ups and downs are inherent in the entertainment industry, and I also recognize that the company is in a difficult phase now. Is what is happening now a part of the fluctuations which used to take place in the past too? Or, is the fluctuation this time bigger than before? Regarding the current situation surrounding Nintendo and its console game business, some are expressing their opinions by saying that it has been caused by smartphones. What is Nintendo's view on these points?
Miyamoto: To survive in the entertainment industry, it is often the case that everyone tries to follow suit with the strong one. My comment may be at risk of being misinterpreted, but in the digital content field, I think that our creativity is still immature. In the world of comic books and movies, there are people who are challenging themselves to be even more creative than before in creating their content. I believe that we (those who are creating digital content called video games) are still in a transitional period and will eventually step up into the phases where we expand and enrich the substance of our creativity. If we can manage Nintendo without losing sight of this challenge, I believe we might be able to create new entertainment that dominates the industry. Also, some may think it is fair to compete with others on the same hardware platform, but it is always challenging to become the one strong existence among so many companies, and to Nintendo, it is more advantageous to create and propose to consumers a brand new framework that includes hardware as part of the structure. We would like to continuously develop something unique by not abandoning this strength of our company. I ask for your continued support.
