[Gamasutra is pleased to present an excerpt from Nintendo Magic: Winning the Video Game Wars, a new book by Nihon Keizai Shimbun reporter Osamu Inoue which provides a fresh window into the company that's risen to new heights of success with the Wii and DS. The book is out now in the U.S. via book publisher Vertical.]
"On my business card, I'm a company president... But my mind's that of a game developer... And at heart, I am a gamer." - Iwata
"Sending text messages is way more fun for them than any game we make. If we made a game where you have to type a certain message as fast as possible and competed nationwide, that'd probably be the most fun game in Japan." - Miyamoto
On June 27, 2008, at 10 AM, over 500 shareholders were assembled at Nintendo corporate headquarters in Kyoto, Japan. They had come to the white, fortress-like building to participate in the shareholders' meeting for the 2007 fiscal year.
The assembled shareholders first heard a short audit report from the auditor, then Iwata began his business presentation. Sales, operating profit, net profit -- all were at record highs. The Wii had contributed significantly. Their DS business was running on all cylinders, and the number of game titles that had sold a million copies or more had doubled from the previous year and were now up to 57.
There was nothing to complain about. Yet Iwata stood there solemnly, and during the question-and-answer session, he said, "There's an inherent risk of complacency setting in. As a result of our customers' support we've been blessed with a tailwind, but people in the company are going to start taking it for granted. I'm trying to figure out how to nip that in the bud."
No matter how long their success might continue, Iwata wanted to keep the company both hungry and humble.
When he assumed the presidency of Nintendo, his strategy was to try to increase the gaming population. The plan brought Nintendo explosive profits over a very short period of time. This success was derived from basic economic principles, and it's easy to see Iwata as a brilliant strategist, in this light.
Nintendo's traditional marketplace was a proverbial sea of blood -- Iwata realized there was no future in fighting a war for the territory Microsoft and Sony were determined to claim, and instead set a course for less troubled waters -- that is to say, people who don't play video games. Therein lay their success, or so the analysis goes.
But Iwata says this: "It would be cool if I could say 'Yeah, I knew it all along!' about what's happening now, but that's just not true. Even though I had confidence that our direction was the right one, the truth is I had no idea things were going to happen the way they did, as quickly as they did. On the contrary, it made me think, wow, when things change, they sure change fast. I still can't be sure what it is that will make people react strongly to what we do."
Iwata can say this with a straight face because rather than working for results, he'd done what he thought was right; the results had followed.
The right thing to do was to stop players from deserting games, and to bring videogames to a wider audience. To do that, they had to honestly engage the question: How do we make a console that won't be considered a nuisance, and how do we make a console that has something to offer everyone in the family?
Even though the path they'd chosen had won the approval of the marketplace and exceeded all expectations, they could not afford to become self-satisfied or change their strategy. To put it another way, they couldn't get cocky.
For example, the Wii represented the first piece of fully internet-capable business infrastructure Nintendo had sold, and it opened up two possible revenue streams. One was Wii Channels.
The Wii Channels -- with the ability to display up to 48 different services, from news and weather reports to television schedules -- was more internet portal than game console.
By the end of 2008, Wii sales in Japan totaled some 7.8 million units. About 40 percent of those were connected to the internet. With 3.1 million units online, we could call the Wii the biggest TV portal in Japan. Looking abroad, that number rose to 18 million units. It was surely the single most successful TV-based portal service in the world.
As people flocked to it, the value of the platform rose. It was natural that other companies would become interested in providing content for the Wii Channels, even if it meant sharing revenue with Nintendo. Fujifilm was one such company -- the first to maintain an independent channel on the Wii.
The Digicam Print Channel, added in July 2008, allows users to upload photos stored on an SD card and order prints directly from Fujifilm. It wasn't just prints -- the service included a variety of Nintendo-like touches, allowing users to purchase whole albums of their photos decorated with images from games like the Super Mario series, or order business cards with their Mii avatars.
There were other companies that want to use this new infrastructure for online transactions.
"Moms would like it if they could get information on the sales at the local supermarket." "It'd be great for the family if they could order in-season produce from other regions."
Retail giant Seven & I Holdings, online shopping mall Rakuten, and others -- they have all taken interest in the Wii Channel, and the possibilities seem endless. In addition to the usage fees Nintendo can collect, hidden within the Wii is the potential for staggering advertising revenue.
However, when confronted with such possibilities, Iwata's reaction was not what you'd expect.
"I think that calling the Wii Channel a new revenue stream smacks of counting the chickens before they've hatched, and anyway -- that's not why we created it. It might turn out to be something besides a game that brings in money for the company, but that's all."
In the end, the Wii Channel was created to answer the questions "How can the Wii offer something to everyone in the family?" and "How can we get someone to turn it on every day?" Iwata says that using it as a source of revenue is purely secondary.
"We think there's a tendency in internet businesses to give daydreams and visions too much priority. People should wait until their site actually starts getting 30 million viewers worldwide every day before thinking about how to monetize."
What opportunities for revenue on the Wii channel might Nintendo itself develop for its main business? Iwata's position remained steady on the issue even regarding the Virtual Console, a game download service for the Wii.
The Virtual Console allows users to download games originally published for older consoles like the NES and 64. The games are cheap -- between 500 and 1,000 yen. In late 2007, roughly a year after the launch of the Wii, the Virtual Console had sold roughly 7.8 million games, bringing in revenue of 3.5 billion yen. It doubled that figure in just three more months, as game assets that had been long unused again saw the light of day.
Yet even the Virtual Console was developed not for "revenues," but as part of Nintendo's efforts to answer the question: "Why do video game systems get treated as unwanted guests?"
Up until the Wii, none of Nintendo's home consoles had been backwards compatible; if you wanted to play an old game, you had to keep the old console, and Mom couldn't stand seeing all those videogame systems lined up by the TV. But what if getting a Wii meant all those old machines could be put away? Thus was the Virtual Console born.