Revising forecasts
This revision should have definitely occurred last quarter. Most analysis observed at the time that failing to revise the forecast was asinine as it was obvious they wouldn't hit their targets. Even noting that the holiday quarter is by far the biggest sales driver, when you're half-way through the year and less than 10% of the way towards your expected forecast and nothing that would materially change the forecast during the holiday quarter, it's time to revise. In the last quarter, Nintendo had Pikmin 3 and TW101's second quarters and Super Mario 3d World. There was no reason to assume based on past sales that 3d World would have sold materially better than NSMBU. Donkey Kong Country was delayed to cover gaps in the release calendar, which is sort of shocking in and of itself. So either way, every single person here would have told you the 9 million wasn't going to happen. I had expected a revision to 4-4.5 million prior to now--was it just a case of Nintendo preferring to do one enormous guidance revision rather than two smaller ones?
Iwata
It's not clear to me that Iwata stepping down would be productive. Who would you replace him with within Japan? It's true Nintendo could easily poach a GREE executive, but I think the single biggest structural problem Nintendo faces is a misunderstanding of the global market, and while pivoting towards (not entirely!) Japanese mobile concerns might help make investors feel better, I don't think it's a long-term solution to Nintendo's woes.
Home market
- Short term Wii U: Wii U is not going to reach any kind of lofty goals. As a result, it makes sense to concede this instead of stringing people along by saying "We expect <our next title> to help significantly drive hardware". I don't think there's a need to kill the system and I don't think any new system being launched would work any better. I also don't think dropping the GamePad would really benefit them. I don't think a price drop would materially change demand at this point. So I think set modest forecasts, work on software that's going to sell big, work on global instead of Japanese-focused software, use outsourcing to plug holes in the release calendar. In terms of third parties, it's a write-off at this point. I'd focus on securing Wii U's niche for stuff like Skylanders, LEGO games, dancing and fitness games. It's not a good sign to me that Just Dance is still mostly on Wii, and that Xbox 360 and Xbox One appear to have inherited the rest of the audience rather than Wii U. If the war chest is big enough to start working to secure
- Medium term Wii U: Try to pump internal money into aggressive cost-reduction plans on Wii U. I recognize Nintendo's in a worse position to cost-reduce than Sony or Microsoft because they have no internal production at all, relatively little engineering capacity, and lower scale with fabrication plants. But I still think they could probably reduce cost quickly if they made it priority 1. It's better to be in a situation where you're selling 5 million units of hardware a year but making a profit on each. This also takes some pressure off software performance.
- Long term Home Market: Consider not replacing the console. Sunset it within 5 years of release or so (end of 2017). Look to low cost, globally focused solutions for future hardware. Look into how network services are driving profit for a lot of companies. Look at the needs of individual markets beyond Japan. Don't make anything a hardware design priority that won't lead to global success--"it fits well in Japanese living rooms" is absolutely not something that matters at all. If hardware doesn't make sense, don't do hardware. It's healthier to have a company that shrinks but is more sustainable than preserving the size of the company at all costs.
Portable Market
- Short term 3DS: Given that most of the 3DS' major software has been depleted, much of it at a significant decline from DS highs (although not all! Yay Fire Emblem!), I think the short term plan means recognizing that 2012 and 2013 were high years and there's no immediate strategy to replicate them through software. Getting software costs down so that there's a broad reason for buy-in is probably a good move. $20 and $10 software would really help the hardware pick up, I think. Make software as easy to buy as possible.
- Medium term 3DS: Start moving internal teams into smaller, more agile configurations making quickly iterated games. This pays dividends in two ways. First, if you ever do need the escape hatch for Mobile, your teams are more ready. Second, you can lower effective software pricepoints to be able to compete with and head off Mobile. You should also get used to the mobile style of releasing a product and constantly updating it in order to keep attention on it.
- Long term Portables: Future hardware will probably need to be always-connected (both for software benefits and for hardware usage benefits). If this means you need to make a phone, then you need to learn how to make a phone and how to partner with various countries telecom firms. If this means it's not a phone but something more like a tablet, then your OS and software situation will be way behind and you should have a plan for catching up that relies on actually understanding competitors. If this means getting out of hardware, your company will get massively smaller and you should be prepared for that.
Overall company
- Short term overall company: Transfer as much power as possible out of Japan to make the company more global. More autonomy for regional divisions. Look to Sony and Sega as model companies that are still very Japanese but that have recognize that this market sector might benefit from control and power being vested outside Japan. Start looking at what competitors are doing, because when you're an iconoclast and successful everyone loves it, but when you're an iconoclast and failing and confused as to why, everyone else has an answer for you. What are other companies doing that you're not? What assumptions have you internalized?
- Medium term overall company: Minimize burn rate so that the loss of the hardware business would not cause as much of an immediate system shock or massive layoffs. Lower software prices to reflect structural erosion in value of software.
I think investors want to see mobile, rightly or wrongly. I think it would be an error if Nintendo became a MORE Japanese company by eventually giving in to investor demands by focusing on GREE type situations. I think it'd be more sustainable to operate on a more global basis. I think if they do choose to participate in Mobile, it shouldn't be in the extremely limited Japanese context. But I think being able to see with a more global horizon requires a more global company. So to me, Nintendo's #1 challenge going forward is becoming a more global company.