DS Teleconference Transcript

Yesterday morning Nintendo of America held a DS teleconference with three top Nintendo executives: Reggie Fils-Aime, Executive Vice President of Sales and Marketing; George Harrison, Senior Vice President of Marketing and Corporate Communications; and Perrin Kaplan, Vice President of Marketing and Corporate Affairs.

You can now also listen to the teleconference for yourselves to hear the magic words of Reggie and friends.

September 21st DS Teleconference Audio (34:54, 8MB)

Teleconference Transcript:

Nintendo of America Executives Discuss

Launch Information about Nintendo DS

Sept. 21, 2004
7:30 a.m. PDT

Operator: Thank you everyone for holding. I’d like to welcome you to your conference call today. At this time you are on “listen only,” but you will have a chance for questions later in the conference. And also at this time the conference is being recorded. At this time, Ms. Kaplan, I will turn that over to you and thank you for using Sprint.

Perrin [Kaplan]: Thank you and good morning everyone. I’m Perrin Kaplan, Vice-President of Marketing and Corporate Affairs for Nintendo. Thanks for taking time to join us this morning to hear more about our exciting news on Nintendo DS and, of course, since E3 we’ve been relatively quiet here. That ends today. In the next couple of weeks you’ll hear more news from us, and overnight I’m sure many of you saw the announcement that we made. With me here are George Harrison, our Senior Vice-President from Marketing and Corporate Communications, and Reggie Fils-Aime, our Executive Vice President for Sales and Marketing. After we’ve made our announcements, then, of course, we’ll be happy to take your questions. And right now I’ll turn it over to Reggie.

Reggie [Fils-Aime]: Good morning. Let me be the first to say that I’ve been waiting for this chance, this opportunity, to share big news on Nintendo DS for a while, but before I hit the headlines I want to take a few seconds to recount why this is such an important product launch, not only for Nintendo, but we believe for the entire industry. The simplest way to put it is this: Nintendo DS is not about what you play, it’s about how you play. The clearest testament comes from the developers who are now working with the system, both at Nintendo and at dozens and dozens of third-party development teams across the world. There’s just no other way to talk about it: They are completely stoked. I’ve personally had the opportunity to speak to some of these developers. I’ve personally had the opportunity to see some of the games and some of the systems that they are working on, and they are tremendously excited. And I firsthand have seen all of the innovation that they are working on. This product, Nintendo DS, is about expanding the experience, expanding the way people connect to their games and to each other. Two screens, touch screen, voice, wireless – it’s not just a new way to play, it’s new ways to play.

So let’s get to the most obvious question first: When will you be able to play? The answer is: in exactly 60 days. On November 21st Nintendo DS will make its world debut, and for the first time Nintendo is launching a product outside Japan. Nintendo DS will have its international premiere right here in America. Now as proud as we are of that fact, there’s no mystery behind it. It’s simply recognition that our holiday season starts here with Thanksgiving weekend, that we intend to be fully loaded for that start. But a few days later when the informal shopping season begins in Japan, they’ll be ready to go and buy Nintendo DS as well. The launch date for Japan is December 2nd.

Then one more headline, and that’s the price. As most of you are aware there were several retailer Web sites that were executing pre-order programs with a suggested retail price of $199. Well fortunately for players that price was wrong. Nintendo DS launches across America at a suggested retail price of $149.99. This is a price point that we believe makes it instantly accessible for the vast majority of gamers. Virtually all those people who want a Nintendo DS should find it affordable and find it available for the holiday season. Some more details on launch software and software pricing will be revealed in the very near future, but I just wanted to pass along some very important preliminary information. First, as you know, there are more than 120 games in development for Nintendo DS. The library is designed to quickly meet the taste of every age and type of gamer, and we’re making sure that we start all of our outreach against an older demographic, a more complex gamer, which is different than the current Game Boy Advance owner. To that end, every DS system sold in North America will include a pack-in of a playable demo version of the Metroid game that wowed everybody at E3. The playable demo will be called Metroid Prime Hunters: First Hunt, and it is an abbreviated version of the eventual DS title Metroid Prime: Hunters. Most importantly is a fact that this demo version will be wireless, multiplayer enabled, so up to four DS owners will be able to enjoy head-to-head Metroid action right out of the box. And there’s a second functionality that’s built in, or packed into Nintendo DS as well, and that’s PictoChat. As with Metroid, once a new owner opens up and fires up their DS they will be able to immediately exchange text messages and drawings with other DS owners at no added cost. This tool comes embedded in the hardware. So as I said at the outset, the mission of Nintendo DS is to change the game experience. And these two pieces of software alone demonstrate this capability as soon as the system is switched on.

Now for a closer look at a marketing approach I’ll turn it over to George.

George [Harrison]: Thanks Reggie. Well since E3 it’s been clear that the buzz for Nintendo DS has been extremely positive. We don’t feel that the demand for the product is going to be a problem, but as with all hardware launches, there’s always a question about supply. Previously we’ve announced that we would have about 3.5 million systems to ship worldwide to retail by the end of the fiscal year on March 31st, but today we’re revising that figure upward. We’ll ship a minimum worldwide of 4 million systems during our fiscal year, and there’s a chance that we can surpass that because the manufacturing is underway and everything is proceeding without any problems.

So let me turn now and talk a little bit about the marketing. We’re not going to take demand for this product for granted. Our launch budget will be the biggest of any platform, console, or hand-held that Nintendo has ever launched. Our budget during the first six months here in the NOA territory in North and South America is $40 million dollars to launch this product. Now this investment will deliver a blockbuster media plan and promotional outreach. Of course, it will also fund the PR and online blitz. The media plan itself will include not only TV and print ads, but cinema and some unique outdoor initiatives will catch consumers everywhere they could use or enjoy a Nintendo DS. We’ll also be investing heavily of retail, including placement of about 12,000 game interactives for consumers to play. And we learned, of course, at E3 that hands-on trial is critical to really appreciate the unique features of the Nintendo DS. That’s why we’re being so aggressive in planning for consumer trials in-store as well as at our consumer events. So all in all we’ve built a marketing plan to support the importance of this product and our company, and a plan to continue our dominance of the portable gaming category for a long time to come. So with that let me hand it back to Reggie for a few closing comments before we hit the Q&A.

Reggie: Thanks George. So to just briefly recap, we are aggressively launching DS with the largest support that here at Nintendo of America we have ever put behind a new system launch. We are aggressively going after a different demographic than the business we currently enjoy in the hand-held space with Game Boy Advance SP. We are looking to drive aggressively this new platform, and we are privileged with the strong support we are getting from our licensee partners from a software standpoint. As I said at the start we will be sharing information on software launch titles and pricing details at a later date, but suffice it to say that every significant worldwide developer is currently working on the DS game right now. So with that I will turn it over to Perrin to manage our Q&A aspect of this teleconference.

Perrin: At this time we’re going to open the floor to questions and the operator will tell you how to submit your questions.

Operator: OK at this time if anyone would like to ask a question, please press star followed by one on your touch-tone phone at this time. That will place your line in queue until your name is called. If someone already asked your question while you were waiting in queue, you may press the pound key to remove yourself.

The first question comes from Dean Takahashi, go ahead please.

Dean: Do you have a launch date for Europe at all?

Reggie: Hello Dean, this is Reggie. We have not announced a launch date for Europe or Australia. All we have said is that it will happen in our fourth quarter from a fiscal standpoint and more information will be shared about that at a later date.

Dean: Thank you.

Perrin: Next question.

Operator: One moment. The next question comes from Chris Kohler, go ahead please.

Chris: Hi guys. Do you have any more details on Metroid Prime Hunters: First Hunt in terms of, is it going to be pretty much the demo version that was shown at E3, or is there going to be more levels, or any more functionality added to it?

Reggie: Hi this is Reggie. The game that we will pack-in so Metroid Prime Hunters: First Hunt is a bit different than what you have seen at E3. We’ve improved the playability, we have done some different things from a player-control standpoint. We will be enabling key media and analysts to have a first-time playable experience with this game the first week in October at a gamers summit that we will be hosting in Seattle, but the game itself has changed modestly for the better from a playability standpoint, and we are very pleased to be showcasing this in just a few weeks.

Operator: The next question comes from Schelley Olhava, go ahead please.

Schelley: Hi could you give us any guidance on how many of the 4 million units expected to ship this fiscal year will go to North America versus Japan and a few to Europe?

George: I can answer that we’re not putting out specific business targets for the NOA, but if you look at our historic business performance we’re about 50 percent of the worldwide potential. The good news is that we won’t be constrained by how much is available so we’re going to do everything we can to ship and sell to as much as possible, but 50 percent is our historical share of the worldwide business.

Reggie: Shelly this is Reggie. The other piece that I would add is that as I indicated earlier the European and Australian businesses will be launching fairly late in our fiscal, so certainly that 4 million number is going to be predominantly spread between the U.S. and Japan, and as George said if you start looking at our historical business splits I think that gives you a good sense as to how those units will fall by business segment.

Schelley: OK thank you.

Operator: Our next question comes from Bryan Intihar, go ahead please.

Bryan: Hi how are you guys doing this morning?

Reggie: Good.

Perrin: Great.

Bryan: I’ve got a quick question, are you guys going to be offering any different colors of the shell, like is it going to come in anything besides the silver that we’ve seen so far?

George: Yes at the launch we’re going to launch just the one unit, the black-and-silver unit. Hand-held we’ve always used color as a marketing tool. We thought for the launch, though, it was best to stay with one and make sure we could maximize our supply and support for the retailers, but we can’t at this point talk about the future, but certainly color and fashion is one aspect of portable electronics that we’re going to keep in mind as a marketing tool.

Bryan: OK thanks.

Operator: Our next question comes from Stewart Halpern, go ahead please.

Stewart: Recognizing that there is not too much that you are going to say about the software right now, EB Games is showing eight first-party titles, nine third-party titles … is I guess all they are showing for the moment. Is there any comment you can make as to whether you expect for launch there to be a similar number of titles greater or less, anything you can say about that?

Reggie: The only thing that I will say is that EB and, to a certain extent, GameStop, from the day after E3 essentially put all of the product demos that we shared at E3 for sale on their e-commerce site and the fact is that those experiences were all meant to be product demos and not full games, so just as our retailers were purely speculating on what our retail price would be, all of the titles that you are seeing for sale at the various specialty retailers and e-tailers are all speculation at this point. What we will be doing as I said earlier is sharing with media and analysts at our gamers summit our plans from a software launch standpoint as well as a good sense for all of the key title support that we’ll have into January of next year for DS.

Stewart: And then just a follow-up if I could, the 120 games in development that you make reference to – are these games that clearly will be taking advantage of the distinctive features of the DS, or are these just what could be considered typical Game Boy games that happen to be able to be played on the DS?

Reggie: I have to say that I have not see all 120 games, but all of the games that I’ve seen take advantage of the unique functionality, two screens, touch screen, wireless, voice recognition that Nintendo DS brings to the party and certainly all of the developers that I personally have spoken to are excited about the added features versus doing some that is more of a port, or something of that nature from previous systems, so I would expect that all 120 plus games absolutely take advantage of the enhanced features and functionality of Nintendo DS.

Stewart: Thank you.

Operator: Our next question comes from P.J. McNealy, go ahead please.

P.J.: Good morning and congratulations on the news. A couple of quick questions for you: If the hardware assumptions are 4 million, are you getting guidance for software expectations over the same time period?

Reggie: Hi P.J. this is Reggie. We are not giving any guidance on that as this point and again we will deal with that in early October as we deal with the software lineup and the expected pricing for the software.

P.J.: Got it. Now any update on battery life and what the expectations are for the device and other multimedia that might be able to be played on the device such as movies or other TV content?

Reggie: On the first question battery life, we estimate battery life is going to be six to 10 hours which is very, very strong. In terms of other multimedia functionality as we’ve said from the start we are launching DS as a dedicated gaming device. A dedicated gaming device that offers functionality that previously has just not been available in a hand-held device and that will continue to be our strategy. Can we envision other elements down the road? Certainly, but at the launch it’s going to be focused on games.

P.J.: Got it and there’s one last question, are you surprised by the lack of the PSP news overnight and what are your expectations now for their launch time frame?

Reggie: You know in terms of surprise about Sony, in many ways what has transpired overnight does not surprise us. There has been a lack of detailed information on the PSP for quite some time and we frankly expect that to continue as they deal with their tough issues around battery life and other challenges. We are focused on successfully launching Nintendo DS from a North American perspective in terms of my focus, certainly from a Japanese perspective with the team running that territory. We certainly are aware of what Sony and PSP are doing, but at this point our focus in on making sure that our launch is as successful as possible.

P.J.: Great, thank you very much.

Reggie: Thank you.

Operator: Our next question comes from Chris Morris, go ahead please.

Chris: Hey guys. The cartridges that will be used for the DS – are those going to hold more material than the GBA cartridges right now?

Reggie: Chris are you talking about the DS-specific medium?

Chris: Yes the DS-specific medium.

George: Yes we’ve already said that that medium can hold up to a gigabit of data, which is significantly more than can be currently held in a Game Boy cartridge.

Chris: OK. One follow-up: You mentioned that there are about 120 games in development right now. How many of those are being developed in-house?

Reggie: We have said that there are approximately 20 games being developed in-house.

Chris: All right thanks.

Reggie: Thank you.

Operator: Our next question comes from Edward Williams, go ahead please.

Edward: Good morning. A couple of questions, first of all could you let us know Reggie what you think of the development costs of creating a game for the DS relative to the GBA? And then secondly, if you can tell us a little about the differences in the business models for the publishers and specifically are there differences in royalty rates, costs to get it sold for the DS-specific medium, or manufacturing lead times in getting the games?

George: Yes this is George. Let me try and answer those questions. In terms of development costs we don’t expect that development costs will be greater or significantly greater than for a current Game Boy game and really that feeling was pretty general at the developer’s conference just a short time ago. You asked about the business model and we’ve done a couple of things. As you know, at the beginning of September we actually improved the margins for the licensees on the Game Boy Advance SP software and without telling you the specifics we can say that the margins for them for the business model end is slightly more attractive than that even on the Nintendo DS, so one of the reasons we’re so stoked is not only because of the creativity they can bring, but also because of the business model and we see licensees who have not been previously big supporters of hand-helds, like EA, really jumping in enthusiastically because of the creativity and the business opportunity.

Edward: OK, any clarity on the manufacturing lead time, are these games going to be manufactured in the U.S., or are they going to be manufactured in Asia?

George: Yes initially they will be manufactured in Asia, so we’ll have turnaround time similar to Game Boy cartridges. As we get up to speed we have talked previously about building production facilities here in the U.S. similar to what we did for GameCube discs, but that certainly will not be at the launch.

Edward: OK thank you very much.

Operator: Our next question is from Michael Pachter, go ahead please.

>Michael: Good morning. Could you guys please explain to us how you’re going to roll this out at retail, because you talked about having the devices available for consumers to try and be instructed in the innovative game play and I’m curious if that’s going to limit the availability as the mass merchants who may not be adequately staffed to conduct demos and increase the allocations of the specialty retailers who are probably better staffed?

Reggie: Hi this is Reggie. In terms of our retailer strategy what George was referring to is that we will have very strong, very extensive interactives placed across all classes of trade, meaning at the specialty retailer, at the more mass big box merchandiser, at the consumer electronic specific retailers, so we expect a very broad-scale access by the consumer to have a hands-on experience with Nintendo DS. In addition, we will be supporting all of our customers with adequate supply of product to drive sell-through. We are not planning any type of focused strategy from a retailer’s standpoint. We will continue to do business with all of our top retailers and they will all be adequately stocked on Nintendo DS.

Michael: Thanks very much.

Operator: Our next question is from Sean McGowan, go ahead please.

Sean: I just had a question about the nature of some of the first-party games, I would imagine that we will be seeing some of the familiar Nintendo characters coming up, but are there any franchises that you are developing specifically for this platform that would be like new characters, or new worlds?

Reggie: We will be sharing all of our details from a launch software standpoint the first week in October in terms of what specific titles, what specific characters and our overall software strategies, so more to come on that the first week in October.

Sean: All right thank you.

Operator: Our next question comes from Jonathan Metts, go ahead please.

Jonathan: Hi guys. I was wondering if you could explain how you’re going to have American consumers become acquainted with the DS outside of retailers. You mentioned some consumer events and I was wondering if you were planning anything similar to the Cube Clubs?

George: Yes this is George. I’ll answer that for you. We’re launching in November/December, so obviously a very crowded time of the year, but we’re going to start right now in the Nintendo Fusion Tour by placing some informational videos and samples of the hardware. As soon as the software is completed we will get those demos out on that as well. I would say that the largest number of people will have their first chance to try the Nintendo DS in the stores and some of the interactives in the stores will have actually two Nintendo DSs so they can experience the wireless feature, either PictoChat, Metroid or others. And, in addition, we have an ongoing program that we call the Nintendo Street Team and you may have seen them. They’ve had Game Boys tethered to their waists and they can cover a lot of territory very quickly. We’ll be using them through November and December as well to reach out to consumers.

Operator: Our next question comes from David Leibowitz, go ahead please.

David: Good morning. A few brief questions, totally unrelated. No. 1, have you announced the price that software is going to be available on the system?

Reggie: No we have not. We will announce that the first week in October.

David: And second of all, do you have any estimate that you can share with us as to what percentage of sales of cartridges will be first-party, or Nintendo product versus your licensees?

George: We will share all software details in the first week of October.

David: OK having said that I presume then you don’t want to touch as to what sort of licensing arrangements you have with any of your hundred outside creators?

George: The details of the licensing program have been shared with the licensees and their business model is actually a little more attractive financially for them than is even the Game Boy Advance development model.

David: And would you share with us what the average licensee needs in the unit count of sales to break even on the particular title?

George: That is probably a better question for one of the licensees, I think, but the fact that we’re getting a lot broader interest from people who have not been big supporters of hand-helds because of concerns about margins and this is to us very encouraging and I think that they will be forthcoming with you about their own break-even model.

Reggie: This is right and I’ll give two additional comments on that. You know truly the developer break-even is driven by their overall investment in terms of man hours, etc., that they put into the system so it really is a developer-specific question. What I will say secondarily is that for the first time Nintendo is making dev kits available for a system at very low, sometimes no cost. There are a number of development tools that are free to developers as long as they sign some agreements from a confidentiality standpoint and what that is doing is driving very significant interest amongst a range of developers that historically have not worked on our hand-held products, specifically some wireless game developers. George already mentioned EA that historically has not been big developer on Game Boy Advance. There are a number of big developers and a wide range of developers that are very, very excited by the business model and the potential that Nintendo DS represents.

David: And lastly, in terms of wireless, has Nintendo stated what it is going to be doing to promote wireless as an activity where heretofore you have not even been in the field to speak of?

Reggie: From a wireless perspective we’ve made two strong statements as to how we plan to support wireless. The first is with PictoChat embedded in the system, right out of the box the consumer will have a wireless experience in terms of chatting and drawing, sending messages back and forth to other DSs, which we believe is very strong. The other commitment right out of the box is with the Metroid Prime Hunters: First Hunt pack-in that we’re doing that will enable wireless head to head play between four different DSs, so we are already pushing the envelope on the wireless element of this device and I personally believe that the wireless element is a huge selling point for Nintendo DS.

David: Thank you very much.

Operator: Our next question is from Chris Kohler, go ahead please.

Chris: Hi guys. So what I wanted to ask is that we know that it’s possible for the DS to recognize Game Boy Advance titles or for Game Boy Advance titles to recognize that they are in a DS. Are there any plans right now for the near future, or maybe centered around the DS launch to have Game Boy Advance titles that have some unique DS functionality built-in, like if you put it in a DS something cool will happen?

Reggie: This is Reggie. All of the historical Game Boy Advance games will simply be able to play in a single-player mode on Nintendo DS. There is no unlocked features, or unlock capability that happens when put into a Nintendo DS. In terms of the future certainly there are a lot of opportunities in the future from a software standpoint to potentially unlock codes, or unlock secret areas with a Game Boy Advance cartridge in a Nintendo DS.

Chris: But there are no plans right now for anything like that?

Reggie: There is nothing right now that takes advantage of that capability.

Chris: OK.

Operator: The next question is from Mike Wallace, go ahead please.

Mike: Hi. I don’t know if you answered this already I got on late, so I apologize, but as far as supply what are the targets worldwide and what are the targets for the U.S. specifically, and are there any manufacturing issues, in other words if demand is higher, or you’re short LCDs is there anything that’s going to hold back increasing supply if demand is there? Question No. 2: As far as the software goes, is all the manufacturing going to be done in Asia, or is it going to be the U.S., and what sort of turnaround time will the publishers have from ordering games to getting them manufactured?

George: Yes this is George, Mike. Let me just recap: We’ve talked about the overall worldwide availability actually to increase the original projection from NCL at the beginning of the fiscal year was 3½ million units worldwide, we have now increased that to 4 million and we think there certainly may be upside in terms of availability. That’s unusual, as you know, for a hardware launch. We have given out a specific number for the NOA, North and South America share that, but we think this sort of guidance has said the rough share of our business in the past has been about 50 percent and with Europe and Australia launching late in the fiscal year which ends of course next March, that’s probably a pretty good guidance at this point. You asked about software, right now the software will be produced overseas for the time being, so the turnaround time will be similar to Game Boy cartridges that will run between six and eight weeks. Some time after the launch we’ll be making plans, or a final decision on moving production to the U.S. which we will know, of course, will be a big benefit to us in terms of inventory management, but that will not occur until after launch sometime.

Mike: OK and as far as manufacturing the hardware then there are no component issues? I mean, if demand is higher is it possible to do more than 4 million?

George: No there are no component issues and if demand is higher the production has already started and is going very, very smoothly, so that’s why we were able to raise it from 3½ to 4 million and we’re encouraged that there may be more opportunity if the demand is there.

Mike: OK thank you.

Operator: And the last question comes from David Smith, go ahead please.

David: Yes I just wanted clear up one point about backwards capability. In your press release, you mentioned Game Boy Advance software will be backwards compatible. Does that extend to Game Boy Color and original Game Boy titles, or does it just apply to GBA games?

George: It only applies to GBA games.

David: Thank you.

Perrin: Was that the last question?

Operator: There is no one else in queue at the moment.