Q+A with Satoru Iwata

[Joshawott 7]

After dominating 2007, the famed CEO and president talks about expanding into new markets, the WiiWare launch, third-party publishers' doubts, and the secret of the DS and Wii's success.

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TOKYO--When the NPD Group released its year-end game-sales figures earlier this month, a gaggle of analysts sifted through them, drawing differing conclusions and issuing varying prognostications. However, one thing everyone could agree on was that 2007 was Nintendo's year. "Nintendo has certainly been the belle of the hardware ball this year, capturing the top two spots for hardware units sales for the year with the DS followed by the Wii," said NPD analyst Anita Frazier.

Indeed, in the US, there was no contest in 2007 in terms of hardware sales, with the Nintendo DS selling 8.50 million units and the Nintendo Wii selling 6.29 million units. By comparison, 4.62 million Xbox 360s, 3.82 million PlayStation Portables, and 2.56 million PlayStation 3s were sold in the same time period.

While Nintendo's 2007 success now seems like a foregone conclusion, it wasn't always so. In 2005, Electronic Entertainment Expo attendees who'd been wowed by the PlayStation 3 and Xbox 360 unveilings left Nintendo's press conference shaking their heads after being shown a nonfunctional mock-up of a tiny console code-named "Revolution." When that device was renamed the "Wii" in 2006, doubt became incredulity--until Nintendo showed off the console's motion-sensing remote at an E3 event that was more spiritual revival than press conference.

The rest, as they say, is history. The Wii immediately sold out in the hours after its November 2006 launch and has been a scarce commodity ever since. As a result, Nintendo's stock has soared in Japan, where the DS's series of brain-training games have become a national phenomenon for all ages. And both inside and outside Nintendo's homeland, the strategy of targeting the "blue ocean" of nongamers with pick-up-and-play games like Wii Sports--while retaining hardcore fans with titles like Super Mario Galaxy--put the Kyoto-based company's finances into overdrive. Until a shocking 10 percent slip of its share price on Monday, Nintendo had Japan's second-highest market capitalization, just behind auto maker Toyota.

The man most commonly seen as the architect of Nintendo's success is its president and CEO, Satoru Iwata. Born in 1959, he worked nearly two decades as a programmer at Nintendo developer HAL Laboratory, in part on the Kirby series, eventually becoming its president in the 1990s. In 2000, he became director of Nintendo's software department before succeeding Hiroshi Yamauchi in 2002 as president of the company. He inherited the Nintendo GameCube, which spent years jostling with Microsoft's Xbox for a second-place position, after the PlayStation 2, in the worldwide console wars.

Despite the protestations of the Mario faithful, conventional wisdom had Nintendo's Wii occupying either second or even third place in the current three-way console battle against Sony's more high-powered PS3 and Microsoft's online-focused Xbox 360. With those doubts now firmly in the dustbin, GameSpot spoke with Iwata about his company's past success and future strategy.

GameSpot: Now that the numbers are in, there's no question that 2007 was a massive year for Nintendo. What were the year's highlights for you?

Satoru Iwata: There were two major things for me in 2007. The earlier half of the year saw some mixed opinions about Nintendo, about how the Wii would do, about whether it would continue to sell or not. But thanks to those who supported us, things got off on a good start. So the first of two major things that happened in 2007 was to achieve this first step with the Wii establishing it as a major presence among game consoles.

The second was the great momentum of 2007's holiday sales season. Although we saw market expansion with our Nintendo DS in Europe from 2006 and the US recorded historical sales in 2006, this was the first surge that we saw since the Japanese DS craze. In this sense, last year was the year that there was global acknowledgement of our long-touted mission of expanding the gaming population.

There was a large shift in Japan between the end of 2005 and the start of 2006 as the DS began to sell well. There was talk then that this was a phenomenon only possible in Japan and that things wouldn't go so well in the West, where gamers look for a more realistic gaming experience.

But we felt that fun is universal, regardless of geography. People everywhere had accepted and enjoyed the titles we'd developed in the past with that philosophy in mind, such as Mario and Zelda, so we figured we had a chance. And sure enough, witnessing the overwhelming market expansion by DS and Wii in the latter half of last year confirmed that the expansion of the gaming population is happening in the US and Europe as well.

GS: There were a lot of skeptics when the Wii first launched, even amongst Nintendo fans.

SI: Well, we were doing all sorts of things that were way outside of the accepted mold for the industry. It was a series of battles against people saying, "But that doesn't make any sense!"

GS: Were you confident you could pull it off?

SI: I would sound so cool if I could say, "Oh, I knew it all along," but it is not necessarily so. [Laughs] It was more of a conviction that somebody needed to go there and push things in this new direction.

We knew that if games appealed to fewer people, the future was going to be bleak. And with video games being demonized by the public, it was hard to see how games could flourish in all that. So we knew we had to change it. We knew that to change that, we'd be playing to and reinforcing Nintendo's strengths.

It's not that the opinion of those with different perspectives weren't convincing for us. With each suggestion, we thought through many things, but with each step along the way, we could feel the market changing bit by bit, and that is why we were able to keep going. Hearing stories about customers who seemed like they'd never touch a game scouring store shelves for a copy of Brain Age is what encouraged us.

Little reactions like that show up before the actual sales numbers start rolling in. Still, we didn't know whether a major shift in those numbers would take months or years to achieve. I worked under the assumption that if five years went by and the world didn't change, I could kiss my job good-bye. [Chuckles.]

GS: What are your plans for expanding into new regions?

SI: I'm sad to say that last year, production couldn't even keep up with Japan, US, and Europe's demands. The scarcity of Wii units in the US and Europe is particularly serious. This is a result of not being able to build up stock at all over the summer due to the consistently active demand for the Wii throughout the year. If we had branched out into new markets under these circumstances, we wouldn't have been able to meet demand. That's why the expansion into new regions will take place this year.

GS: Do you have any specific plans for timing and which regions you'll be marketing to?

SI: We feel that it's better for the sales regions, release dates, and other details to be announced directly in those local markets, so they'll be unveiled locally one by one. One thing I will say, though, is that the year's end is the busiest period for video game products, and the time when the most units are moved. Should the timing coincide, it will be difficult for production to meet the initial demands succeeding the launch, so it will hopefully happen earlier in the year.

GS: You mentioned you were approaching the Chinese market at a corporate management policy briefing last October.

SI: I'm afraid that the statement I made there about China has not been correctly reported. I want to elaborate what I meant to say: At Nintendo we hope that the Wii, which has been accepted by people of all ages as a source of healthy fun, would also become available to Chinese families in the near future. In order that this can happen, Nintendo will work hard to ensure we increase production of the Wii, and definitely comply with the laws and regulations of the Chinese government.

GS: The US shortage of the Wii is ongoing--and pretty severe. The DS continues to sell well and remains in ample supply. Why do you think these two products remain so popular?

SI: Well, I personally felt that our products were relatively solid in terms of their value. But I was bracing for more of an uphill battle in convincing our customers of it, and I was anticipating that we would need time to fight the battle.

Due to the portable nature of the DS, it's easy to share the fun of a good game with a friend on the spot. With the Wii, however, the hurdle was much higher, you had to say "Hey, I've got this fun game, Wii Sports, want to come over and play?" [Chuckles]

That's why, at our press conference to introduce Wii, I said that the DS's popularity is no guarantee for the Wii. The reason is the difficulty of conveying the fun of the Wii to people. I felt that we'd never be able to leap that hurdle if we didn't put 110 percent of our effort into spreading the word to the customers.

After a lot of discussion on that, we decided to bundle Wii Sports with the hardware in regions outside of Japan. I figured that some people might buy a Wii because they want to play Zelda, but we didn't think that the majority of initial Wii purchasers would buy the console to play Wii Sports. But the people who bought the Wii--and I hesitate to put it this way--were stuck with Wii Sports whether they liked it or not. Our theory was that if people played it and found more enjoyment than they'd expected, that enjoyment would quickly spread to the people around them.

In retrospect, the US culture of the house party played a major role in spreading the value of Wii to a bigger circle faster than we ever predicted. All of my American friends keep telling me, "Man, the Wii is the ultimate party machine!" [Laughs] But none of that was intentional on our part. All we did was ask ourselves how to pack the most smiles and surprises into the product as we developed it. Fortunately, we hit a sweet spot. As a result, interest in the Wii has spread across the US surprisingly quickly. I think that explains why the DS took off faster in Japan, but the Wii has spread faster in America.

GS: The gaming demographic has broadened considerably in a short period of time, but there are still a lot of traditional game fans looking for less casual gaming and more deep, immersive titles.

SI: Games that are easy to pick up and play have the possibility to appeal to new people and show them the fun and value of video games. They also have the benefit of allowing experienced gamers to play together with newcomers. That was really missing from the market before, and I think it needs to be there.

At the same time, Nintendo has teams working on meeting the needs of more hardcore gamers. The big complaint from them now may be that we're not pouring all of our resources into that sector exclusively, but I feel that it's Nintendo's mission to make both kinds of games. Every experienced gamer today was a beginner at some point, who encountered an experience that made them fall in love with games.

I think it's absolutely critical to keep that entryway open for new people. I think it's really important to strike that balance between the two extremes. While it's possible to create a game like Brain Age in an extremely short period of time with a great idea and the right people, a game like Zelda contains content that physically and inevitably demands more time to create.

I feel that the current imbalance between the time a person spends enjoying a game and the time it takes to create it is a real problem, and something that we as developers need to work on resolving.

GS: What do you mean, specifically?

SI: No matter how fun a game is when you first pick it up and play it, people eventually get bored. Our task is to come out with the next big thing before that boredom sets in and to go beyond just releasing an extension of the current titles every three months.

Not only that--coming out with the next Mario or Zelda game means coming up with a ton of innovative ideas. Otherwise people will say, "Yeah, this used to be fun." Keeping up an existing franchise alone requires much creativity, but in addition you have to come up with something fresh and new that people have never seen before. That's where ideas like Wii Fit came from.

We're constantly working on a variety of ideas for new, different games, but it's only after the specifics have been nailed down and they're ready to be announced that we can talk about them. So while I can tell you all about a project that we can have out within two months' time, games that still need six months or a year's work really have to be kept under wraps.

I will say, though, that one of the lifestyle proposals we'd like to put into effect in the first half of this year is an experiment aimed at getting people to use their DS's in public spaces as part of a larger effort to make the DS a more helpful tool for people in their everyday lives. It's a portable, single-architecture platform that can receive anything given a Wi-Fi hot spot with over 20 million units in use in Japan and about the same amount in the US and Europe.

I really think the idea of making it a gaming machine that's also useful in your daily life is a good one, and possible. We'll be keeping an eye on the experiment's results while hopefully increasing the number of places you can use your DS in progressive steps.

GS: Wii Fit has done exceptionally well in Japan since it was first released, selling over 1 million units.

SI: Games that require expensive accessories, by conventional game industry wisdom, seem to be an obvious example for products that are least likely to succeed. But the fact that Wii Fit sold over a million copies in a little over a month is proof that we decided to make a million units before we sold a single one. [Laughter.] That's the only way we could make it happen.

GS: Betting you could sell over a million units of a high-end peripheral-based game outright was pretty ambitious.

SI: I think that if we hadn't seen the same favorable results from our previous experiments in breaking conventional industry wisdom, everyone else at Nintendo would have stopped me from trying this even if they had to put me in a headlock. [Laughs.] But it's our job to keep moving on to the next new thing. If we stopped surprising people with what we did, Nintendo's worth would be worth a lot less than it is now.

Touting the slogan of expanding the gaming population is our way of declaring to our internal development staff, other software makers, distributors, the media, and ultimately to the customer our intent, which is that we as a company are standing on ground that will crumble away underneath us the minute we stop moving forward, and that this knowledge is driving us to keep working.

If we just stand there, our customers will get bored and leave. Our survival depends upon our ability to create a situation where new people are entering, and established gamers aren't leaving.

GS: With WiiWare set to launch this year, what are your thoughts on packaged games versus downloaded software?

Well, the current state of affairs is that the Virtual Console saw over 10 million downloads by the end of last December. That's the total number of titles people paid to download. I think that selling over 10 million classic games in that price range stands as proof that there are great possibilities with the download model. Since that's the case, I feel that WiiWare is one answer to a lot of the problems that I perceived even back when I was still a developer myself.

However, I don't think that packaged, retail games will be replaced by downloads over the next three- to five-year cycle. Packaged games have a number of advantages, from the guarantee of a certain amount of sales volume to the firmly established buying habits and infrastructure that I think should be preserved in the future.

But packaged games aren't a complete solution anymore. The cost of materials and distribution margins mean that there isn't much price flexibility, and there's always a risk with inventory. Plus the majority of a product's life span ends within a very short period after its release in the current market, such that titles can no longer compete for shelf space a month after their release.

When making games, though, you come up with a lot of fun ideas that could sell for