Nintendo is one of the venerable names in video games. But when it comes to making and selling game consoles, it hasn't been very vital of late. As the industry embarks on a new technology cycle, President Satoru Iwata is trying to change that. While rivals Sony ( SNE) and Microsoft ( MSFT) argue over whose new console has the best graphics or the fastest processor, Nintendo hopes to lure gamers by focusing on making its upcoming Wii game machine fun to play. Iwata's idea is that there are millions of consumers out there who represent a potential market but who aren't currently playing games. And they won't be lured in by great graphics if the games behind them are too complex or just plain boring. Nintendo's focus on fun has paid off in the handheld battle. Despite heated competition from Sony's PlayStation Portable, Nintendo's DS has sold well, and -- with its aging Game Boy Advance system -- helped Nintendo maintain its overall lead in the handheld market. At the E3 game conference last week, I talked with Iwata about Nintendo's plan with the Wii and his outlook for the game industry. (Iwata's comments were translated by company public relations representative Yasuhiro Minagawa.) TheStreet.com: Nintendo was the distant also-ran behind Sony in the last two console cycles. Where do you expect to end up in this console cycle, and how do you get there? Satoru Iwata: Actually, we were not acting in terms of what happened in the past. Of course, it's always important to differentiate from the others in this business -- especially in the console business. When Nintendo introduced the GameCube system, we thought we made enough differentiation for the public. Unfortunately, it appears we could not make enough differentiation with other products. When it comes to the Wii console, actually, that kind of differentiation is not that important. That is, in the history of the video-game industry, all of what the industry has been trying to do is ... beef up the horsepower of the machines. And then, with that beefed-up horsepower, the industry is simply trying to create more gorgeous-looking and more complex video games. Unfortunately, however, that kind of past success formula does not work anymore, and we thought that we really had to change the situation.
So, what we are focusing upon is not only the current gamers, but also those who are not playing with video games at all. That is our goal, so that's why we are not caring so much about our competition with Sony or with Microsoft. We do not care if we can
beat Sony or if we can beat Microsoft or if we can win in the current market-share battle in the same arena at all. That's not our focus. Our focus is whether or not we can increase the game population. The history of the game industry suggests that no more than one console maker can be successful in any one cycle. Is there room now for three players, given the point you've repeatedly made about the lack of growth in the number of gamers out there? If the industry is unable to grow any farther than this, and if all the players in this video-game industry are simply looking in the same direction in trying to compete with each other on the same battlefield, there may be too much to exist, especially in the long run. However, as I've said, Nintendo is trying to take a significantly different course from the others. So that at least as long as Nintendo is concerned, I'm confident enough Nintendo can survive. Given Nintendo's focus on trying to attract new or lapsed gamers to the industry, I thought it was surprising that you showcased Red Steel at your media event. Not only does that title seem geared to the core gamer audience, but to me, the choppy graphics of the game highlighted the Wii's weakness vs. Sony and Microsoft new high-definition consoles. What was the thinking there? Well, if we had not shown the Legend of Zelda game or if we had not shown the Red Steel game during the briefing yesterday, then I'm afraid that people might have misunderstood Nintendo's thinking. If all they had seen was Wii Sports or something like that, people would say, "Oh, Nintendo has already lost interest toward the games for the serious gamer." The fact of the matter is it's not the case. By taking advantage of the unique controller and very unique play style of Wii, we will not only invite the newcomers but also excite the existing gamers. Now that's the kind of message we really wanted to deliver. There's a lot of buzz in the industry right now about developing ancillary revenue from in-game advertising or episodic content. You've been around the industry for a long time. What is your sense on if and when those become important to the industry? And are they an important part of Nintendo's Wii strategy?
Currently, time is running very, very fast ... so that anything can become all the fashion very fast, faster than in the past. So, in the video-game industry, we believe it's important for ... software to be fresh every day. That is one of the reasons why Nintendo is now introducing the WiiConnect24
online mechanism for the Wii. In other words, 24 hours a day, we can always be connected with the Internet, thereby people, before they know it, can actually receive something new all the time. You can take it that we are actually trying to satisfy the needs of the customer. They want software that can be fresh and new almost every day.
Having said that, however, if you ask me whether that kind of approach can become the huge, main resources for the huge, main revenues in the future, I'm not optimistic, actually. ... Asking customers to pay something monthly, or something periodically, we can never expect that kind of revenue to become the significant, main resources for Nintendo. More and more costs are required to make complicated software titles nowadays. So they have to find out any other revenue resources right now, and in-game advertisement must be one of them. However, the in-game advertisement or episodic approaches,
those are kind of the optional, after all. The main source of the revenue resources in this industry must be the video games themselves. On one hand it is OK for us to seek ... alternative resources like in-game advertisement, but we should make much more efforts to make games more attractive for the current gamers and to the non-gamers. Any more word what the price will be for the Wii or when you will announce it? Sorry, but give us more time before making the announcement. Of course, it's going to be an affordable price point. So, you're not going to try and compete with Sony's PlayStation3 on how high you can price your console ? No. Of course, if we put the PS3 as the standard price point, any price point is going to be affordable.