Satoru Iwata on Wii U: 'I think it will become increasingly difficult from now on to compete over graphics'

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This promises to be a rollercoaster year for Nintendo, the Japanese videogaming giant whose key products Wii, 3DS, Super Mario, Zelda, Wii Sports, Wii Fit (to name but few) have helped revolutionise an industry, and so keep Nintendo’s head above water amid fierce competition from PlayStation, Xbox and now Apple’s iOS games.

Satoru Iwata is the man spearheading Nintendo’s future and whose hopes rest on the success of the company’s two new products, the Wii U – which features an innovative tablet-like controller and the 3DS XL, a handheld with a much bigger screen than the current 3DS model.

Before he became Nintendo’s global president in 2002, Iwata was one of the key figures behind Nintendo’s shift from competing with the high-resolution graphics of the Xbox and PlayStation brands and focusing on ‘fun to play’ gaming – an approach that hit paydirt with the Wii, which has sold just under 100m units and the DS, which sold over 150m. In 2007, on the back of these successes, US business magazine Barron’s named Iwata as one of the world’s top CEOs, but with a long gap between the Wii and the Wii U, Nintendo has struggled in the past 12 months. I sat down with Iwata to discuss just how his company intends to turn the page.

Earlier this year Nintendo recorded an operating loss for the first time in its history, what would you say the key reasons were for that and what have you been doing to react?

First of all it’s very unfortunate that we had to record a loss and I feel personally responsible for that. My goal is that this will be the only time we record a loss. I have to say, there are three factors that led to us recording this loss.  First we were, in terms of the console lifecycle, in a console transition phase, so the fact that sales shrank during this period is actually quite normal.

The next factor is that when we launched the Nintendo 3DS last year it lost momentum after launch, so we had to take measures and cut the price in order to avoid a failure toward the end of the year, which meant we were selling Nintendo 3DS units at a loss; these two problems we will solve this year.

The third factor, which is actually outside of our range of influence, is that the global economy situation is unstable and the exchange rate is very disadvantageous for us with the Yen being so strong. Obviously we have no influence over this, so we need to find a set-up at our end that will still allow us to make profit under these circumstances.

Do you feel that extra competition from the likes of Apple, with the iPad and iPhone, have also taken away from the handheld market that Nintendo, and perhaps Sony, have controlled for so long?

I don’t think this is a central factor, I think it’s much more about our lack of ability to release software in a timely matter that will motivate people to go out and buy our gaming hardware.   But obviously smartphones and tablets have changed the environment that we operate in and we can no longer offer some kinds of games experiences that couldn’t also easily be offered on a smartphone, so we need to differentiate and offer something exclusive.

We’ve seen this in the past, as personal computers became cheaper people were saying ‘we don’t need more home consoles then do we?’ Then, with the advance of mobile phones, people were questioning the need for dedicated gaming machines and now with smartphones again. Under the conditions I mentioned earlier, I think if we can offer exclusive entertainment that cannot be replicated on other devices then we’ll have the chance to survive.

You mentioned you are selling the 3DS at a manufacturing loss following the price cut, will the same be true of the upcoming 3DS XL and Wii U consoles?

First of all to the 3DS XL, we will not be selling this at a loss, we don’t have a huge profit margin on it we intend to sell it a profit. As for Wii U we having even announced price so it’s too early for me to comment.

It seems to me that one key area that Nintendo are lagging behind its rivals is online multiplayer. Would you agree that there remains work to do for Nintendo on the online side of things, and would you want key franchise to push online multiplayer?

The strength of Nintendo is definitely creating game experiences for people who can play in the same room together and enjoy them together. I think this is the strength we are coming from and if you look at our games and how they’re structured; this is the starting point (for our games).

But we also have titles like Mario Kart that are heavily reliant on online and support online multiplayer. But you shouldn’t be expecting Call of Duty-like games to be offered from Nintendo.  For that type of game my belief is that, if there are companies out there who can do this very well, then instead of us try to do it this, or to compete with them, it would be better to have them do it on our platforms, so to invite them and to support them to offer this kind of entertainment on our platform.

Before we talk about third-party support I wanted to briefly go back to the Wii, did the rapid success of the Wii surprise you at all?

Well, I think that the Wii offered something really new, something that hadn't existed before. The more people knew about gaming the more sceptical they were about the console, some people were thinking this would be the last console that Nintendo would launch.

At the same time I was convinced that it wouldn't be the last console we would launch because I felt that it had unique value to it that was different from what the other companies had to offer. I was confident we would survive; but I have to admit that, quite honestly, I didn't quite predict the sales that we eventually had.

I think that we could describe it as a "boom" which is not something that we could plan; if you have a way of planning a boom phenomenon than I would be very eager to learn from you (laughs).

This I think applies generally to all of our products, we always try to create something unique and of value, but we only know after we make these offerings to our consumers that we know how well it is received and how successful it will be.

You mention your competitors; obviously their motion control solutions incorporate video, in both PS3 Move and Kinect for example. Do you think video overcomplicates gesture control?

I personally believe that if there is no physical feedback from the controller then that's, for me, not good. With the Wiimote it has a certain weight, you feel like you have something in your hand, you can press and button and have this haptic feedback or can hear a sound, or it will rumble. With a camera there's no feedback that you can feel physically. But this is just my subjective point of view and whether I'm correct or not maybe we'll see in 10 years, I think history will tell us (laughs).

Now you're introducing Wii U with its “asymmetric gameplay” element, is that what you're hoping will cause a boom effect this time around?

Whether asymmetric gameplay will lead to a similar boom as we had for Wii is something we cannot tell at this point, we will have to release it and see how it goes. But if we look at videogame history there have been plenty of games where multiple people play together, but I think in almost all of them each player would be performing the same role.

Asymmetric gameplay is really about ‘what if one person gets a special controller and gets a different role than everyone else?’ You could see some examples in the game modes that we presented in Nintendo Land but I think there are many more possibilities. Our development teams have plenty of ideas for asymmetric gameplay and are proposing a lot of ideas and I think that's a good sign.

Nintendo haven't announced Wii U specifications yet but do you consider Wii U to be "next generation" as say the PS4 or next Xbox will be?

A similar topic came up when we launched the Wii, some people were comparing it to other consoles and saying ‘well, is this an improvement on the specs offered by competitor consoles?’

But that's not our approach or what we define as next generation. For next generation we look at the user experience, the gaming experience, how we can improve that, change it, offer new kinds of gameplay. How we can get people to play more often, how we can allow people to connect from one living room to another living room, and this is what we focus on and what, for us, makes a new generation.

Nintendo, with Super Mario, Zelda, Pikmin, etc. already have many of gaming's greatest franchises but, as you mentioned earlier, third-parties are important to a new console's launch too. Have you been proactive in you approach of such developers?

Yes, we have to; obviously before making the Wii U public we had to proactively go out to those third-party publishers because otherwise we would never have something for the launch of our system.

I think some of these projects have already been announced at E3, but there are other games in the works that haven’t been announced yet and in the autumn, when we announce price point and timing of the launch, we will also be able to announce some more third-party titles.

At the moment of the Wii U’s launch it’s likely that it will be most the powerful console on the market – Wii U being a much newer system than either PS3 or Xbxo 360. Are Nintendo looking to take this opportunity to release a game which takes advantage of this visual horse power?

I’m not against beautiful graphics, but my thinking is that unless the play experience is really rich the wonderful graphics won’t really help. I’m really looking forward to beautiful games coming out on Wii U though, with graphics that we couldn’t have done on the Wii.

There’s definitely the chance for not only graphics, but also other features that our competitor’s consoles don’t have. But I think it will become increasingly difficult from now on to compete over graphics. This is because that no matter how much we increase the number of polygons we can display and improve the shading it will become increasingly difficult to tell the difference.

Obviously people who are experts in the field will see these things and will look at some details and be enthusiastic about improvements in that field, but I don’t think that will be enough from the general consumer’s point of view, so I think when we look at the design of a new games console we need a structure and concept that offers more than just good graphics.

Staying with graphics but going back to the idea of getting third parties involved, have you approached Epic with the specs of the Wii U to try to make sure that third-parties using Unreal Engine 4 can easily port their games to Wii U?

I think that the Wii U will be powerful enough to run very high spec games but the architecture is obviously different than other consoles so there is a need to do some tuning if you really want to max out the performance.

We’re not going to deliver a system that has so much horsepower that no matter what you put on there it will run beautifully, and also, because we’re selling the system with the GamePad – which adds extra cost to the package – we don’t want to inflate the cost of each unit by putting in excessive CPU power.

Later this month the 3DS XL handheld launches in Europe. When you were designing the XL were you tempted to put in a second analogue stick as standard?

When we looked at the design of the 3DS XL we had to look at various factors, one was battery life, one was the overall size of the unit, and we had to make some trade-offs. The choice, if we were going to include the second analogue stick, was to reduce the size of the batters or make the unit much bigger.

What we wanted to do was have a bigger screen in comparison with the overall size of the system, so had various discussions and had to make trade-offs and this is the outcome.

Attaching a second analogue stick is possible but it would have made the system even bigger and, though it perhaps puts a burden on people that really want that second stick, it’s a call we had to make and these people will have to live with it.

This [the lack of a second stick] isn’t my main focus when I look at the 3DS XL, it’s one point we had to cover, but for me personally I’m quite happy with the product we’re able to offer.

There’s no doubting that the larger screen is a step-up, and one which lends itself beautifully to movies, can we expect to be watching the likes of Avatar, etc. on our 3DS anytime soon?

I think definitely in terms of a device to view 3D video the value is higher compared to the original 3DS. I think when we launched the 3DS there was a kind of 3D boom, which is perhaps slightly on the wane again, but there are plenty of people out there that create 3D video and I think that some of those who create and distribute 3D video would be very interested in the 3DS XL.

I think there’s a lot of potential there as we look to improve the distribution of digital content, and we also have streaming services, for example North America has Netflix; I think there’s a lot of potential in that direction.

Is 3D on a handheld console something you’re happy to explore once, but then might not return to, or would you continue to pursue it going forward?

Well, first of all, let me state that seeing things in 3D is the normal state for human beings, it’s how we see our environment. But then when we watch 3D TV we’re told we have to put on 3D glasses to see it, which for people like me, who wear glasses, is sometimes too much.

I personally think that for TV, unless someone brings out technology where you have glasses-free very high quality TV, then there’s not a big market there. But, in terms of videogames, 3D has been a topic for a long time, I don’t know if you remember the Virtual Boy (laughs)?

So why did we introduce stereoscopic 3D into a handheld? Because there are a various circumstances on a handheld machine which make it possible. You have the screen and the console being one, normally you have almost constant distance between [the user] and the screen, so with the currently available technology it is possible to provide a high quality 3D experience without glasses.

So, now we’ve created the 3DS and 3DS XL and also have some games out there that are really using that 3D effect that we can see, from my point of view, that it’s an important element. But as human beings are this kind of surprise effect wears off quickly, and just have this 3D stereoscopic effect isn’t going to keep people excited.

But I think it’s an important element, it makes graphics more impactful, it proves a sense of immersion that 2D doesn’t have, so I would say generally that 3D is better than 2D. It’s nice to have good graphics but not necessarily on their own, so I don’t think we’ll present [3D graphics] as one of the key features of our consoles but will probably stick with 3D as one of the minor elements of our consoles in the future.

Another aspect of the XL is the extra potential for storage capacity. Do you see another way of improving profits to have people download all of their games via the eShop going forward?

From my point of view, we’re not looking to digital distribution as a means to skip someone [high street retailers] and therefore increase our margin. I think it’s more that with traditional packaged products we need to produce them, ship them, there’s the stock keeping loss risk, and loss associated with products being sold out or you can have certain items overstocked.

I think in general digital distribution will allow us to be more efficient in distributing content. I think the games that we make with this improved efficiency we can use to maintain our profitability or, even if software development costs improve for some reason, we balance it out that way; that’s what I’m hoping for from digital distribution.

We have the example of Apple out there that’s very successful which is based on skipping the intermediates and therefore increasing profitability or lowering prices. That’s one way of approaching it [digital distribution], out way is quite different, we still think retailers are important.

Of course there will be people who proactively go to the eShop and but products there but we cannot rely on our consumers to go there every week and check if there are new products out on the Nintendo eShop.

I think for a lot of consumers it’s still important that they can go to a store and in-store they have a presence of our products and this is where they can be informed and then purchase our products. For us it’s still quite important to have the traditional retailers as our partners and to see how we can work together with them and involve them in the distribution model – and also for digital products.

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