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Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

June 11, 2014 at 6:05 PM

E3: Nintendo boss on Wii U beating Xbox and PlayStation

LOS ANGELES — Reggie Fils-Aime hasn’t lost his swagger.

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The president of Redmond-based Nintendo of America admits the last few years have been a grind for the company, which had its first annual loss in decades as it struggled to get its Wii U console business up to speed.

But after last month’s successful launch of “Mario Kart 8″ and the warm reception given to a lineup of new games revealed at this week’s E3 conference, Fils-Aime is confident that the Wii U has turned the corner. He even hinted that it may outsell the Xbox One and PlayStation 4 this month.

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Through it all the company has held employment steady at about 1,200 people in the greater Seattle area, where he’s been using temporary workers to avoid layoffs during ebbs and flows.

Fils-Aime also talked about the turnaround, cloud gaming and more during our conversation. Here are edited excerpts:

Q: It’s been a difficult few years. Could you talk about how you’re emerging from the Valley of Death?

A: I wouldn’t put it that way. The fact is the last three years we’ve been operating profit negative. For us, in order to drive our business forward, we need to drive the installed base of our hardware platforms. We need to launch strong software that captures the imagination of the consumer, and we need to create business opportunities for independent developers and publishers to bring their content onto our platform.

So as I look at where we are today, last year Nintendo 3DS was the No. 1 platform here in the U.S. We’ve just launched “Mario Kart 8,” increasing our hardware sales by a factor of four. In terms of software sales, the content we are sharing here really seems to be resonating with consumers. We’re getting a robust pipeline of content. So I would say, yes, we’re well on the way to a recovery for the company and that’s what we’re focused on.

Q: Did you come out with the Wii U too early — not in terms of market, but because the content pipeline wasn’t ready yet?

A: The interesting point there is that when we announced the Wii U and when we announced all of the launch details, we fully expected games like “Wii Fit U,” “Pikmin,” the “The Wonderful 101” to be in the launch window. The Nintendo quality bar is really what kept us from launching those games potentially in February or March and so that’s what created the lack of software during that initial launch phase.

The reality is that what we needed was all of that great content to launch when it was initially planned, but to also have that great content also be the highest quality. That’s really tough to manage.

Q: When I talked to a Sony executive yesterday, he said they feel your pain; they’ve been there with the PS3 launch. It’s hard to get rolling with an entirely new platform.

A:  The thing that is so wonderful about this industry is every time new systems launch it’s a reset — it’s pushing that reset button.

So for Nintendo, by far we had the largest installed base during the Wii generation, but you hit that reset button and you have to start all over again. In the end we think what’s going to drive a successful life for a platform is having a great, regular pace of content. We feel good about that now.

Q: The games you’re showing here suggest you’re finally getting stride and taking advantage of features unique to the Wii U.

A: Absolutely.

Q: It took awhile to exploit the platform.

A: I’d be careful in your characterization of “awhile.” What I would say is that a company like Nintendo needs to do is manage the internal studios, manage the second-party development, to make sure there’s that regular pace.

We are now at that point of having a great regular pace of software: “Mario Kart 8,” then it’s going to be “Hyrule Warriors,” then it’s going to be “Bayonetta 2” with “Bayonetta” packed in, then it’s going to be “Smash Bros” for Wii U, then the “Captain Toad” game, then we’ve got all of that great 2015 content.

It really is getting all of that development content slotted in in a way that the timing is going to make the most sense and that it’s high quality.

Nintendo's secretive Treehouse game test, localization and development group in Redmond surfaced at E3, where it broadcast from Nintendo's booth.

Nintendo’s secretive Treehouse game test, localization and development group in Redmond surfaced at E3, where it broadcast from Nintendo’s booth.

Q: Similar to Microsoft’s recent move with Xbox, you’ve toned down the emphasis on entertainment features in the Wii U and steered it back to games.

A: If you rewind the tape, we always said the Wii U was a games-first console. The message was it’s games first. It has on top of that the social elements of Miiverse and then on top of that the media aspects with a range of video.

That’s exactly what we’ve executed. On the video side — Netflix, YouTube, Hulu Plus — all of that content is there; there are more content options coming. We believe it’s a nice secondary message, we always have, but absolutely the primary message is games first.

Q: How much will the upcoming Amiibo game figurines cost in stores?

A: You can expect them to be comparable to the Disney and Skylander products that are on the market. [They cost $10 to $15.]

Q: Can these be as big as “Skylanders” — a franchise with more than $2 billion in two years?

A: We certainly hope so. There’s three things that we see that make this different, hopefully stronger than the current propositions.

First, that it’s Nintendo IP. Secondly, the ability for these to work across multiple games. We think that’s going to be a huge driver – having these figures work with “Mario Kart 8,” work with “Mario Party,” work with “Yoshi’s Wooly World.” We think that’s a huge step forward for this space.

The third aspect is that we do believe our Amiibo figures are going to have a wider demographic footprint. We think we’re going to have much stronger girl appeal. We think we’re going to have strong young adult play because of the collectability. For those three reasons we’ve got the potential to be bigger than what’s been out in the space so far.

Q: Why did it take so long to get these and some of the other games out?

A: The fact of the matter is we’re always looking at new ideas. We’re always thinking through new business propositions but Nintendo as a company has a very high quality bar. We had to make sure the first execution would really be strong, that it would be linked to a game that would be substantial the way Super Smash Bros for Wii U is — doing all that takes a little bit of time.

Q: Do you need to bring down the price of the Wii U?

A: We don’t see a need to cut price. Our value equation is quite strong for the Wii U. I say that because we just launched the “Mario Kart 8” Wii U bundle, premium price, $329. The product is selling with no issues.

The biggest challenge is retailers getting it out on shelf. The challenges we’ve had with Wii U aren’t value based; the challenges are having the range of software that motivates the consumer to jump into the platform.

Q: How many copies of “Mario Kart 8” have you sold?

A: The first three days we sold 450,000 units in the United States. That has had a 4x lift on our hardware sales.

Q: With “Mario Kart 8” you seem to have finally sorted out online multiplayer and matchmaking on the Wii U, and now you’re showing more games with those capabilities at E3.

A: Absolutely. What we’ve done with our online capabilities for Nintendo 3DS, for Wii U, the introduction of the Nintendo Network ID — all of that is really helping to drive our digital business. In the financials, you could see our digital revenue increased by a factor of 3x.

Q: Are you going to suffer not having the big shooter games like “Call of Duty” this time around?

A: We’ll see. We think that we’ve got a plethora of great content; we think we’ve got differentiated content. In the end we’ve got competitors trying to one-up each other with who’s going to get downloadable content and how much you’re going to pay the publisher to get access to that content.

For us, we’re launching fantastic IP, great games; our belief is that’s going to drive the business forward.

Q: Are you going to have to release a next next-generation console in a few years?

A: We don’t think so. We think that the Wii U has a long and vibrant life in front of it. What it needs are games like “Mario Kart 8” and “Super Smash Bros for Wii U” and “Splatoon” — those types of games that can really drive the installed base. We believe if we can do that effectively the Wii U has a long and robust life.

Q: How are you doing relative to Microsoft and Sony?

A: We think we’re doing well. When you talk about Nintendo you need to separate us in our component parts.

Our 3DS business is on fire. We were the No. 1 selling system last year. Software sales continue to be up year on year, the 2DS business has been additive … so our handheld business is doing quite well.

Here at this conference we’ve spent a lot of time focusing on our Wii U business. Initiatives like different takes on our key franchises, initiatives like Amiibo, new IP like “Splatoon.” We think these are the hallmarks for growth over the next number of months.

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Q: Everyone expected the handheld business to die because of mobile phones and tablets.

A: That clearly has not happened.

Q: Are they still a big threat?

A: What we’re seeing from consumers is that they want a fun experience, and there’s a certain amount of fun that you can have on a smart device. But more and more consumers are seeing that the depth of game play is so much better with a dedicated handheld, and right now we’re the dedicated handheld of choice.

Q: How concerned are you about the Wii U facing competition in the family room from low-end set-top devices such as Amazon’s Fire TV and Apple TV, which may add more gaming features?

A: They key for us is going to be our franchises. On everything you’ve mentioned they won’t have Mario, they won’t have Zelda, they won’t have Metroid, they won’t have all of these iconic franchises.

They won’t have the creative horsepower we have behind new franchises. For us having all of that great content is our competitive advantage driving our overall business forward.

Q: Have you reset impressions of Wii U with the new games at this show?

A: I actually think impressions around Wii U began to change late last year as we launched games like “Super Mario 3D World” and consumers had that great integrated experience using the Gamepad. Certainly the feedback we’re seeing here at the show, on the Internet, has been very positive.

Q: You’ve dabbled with new models such as a subscription approach to your Wii U sports game, then backed off and are now selling it on discs. Did that not really work?

A: We’re about to launch “Wii Sports Club” in disc form in part because what we find is the consumer wants the ability to have all five games in one place vs. either the daily subscription or the single-game download model. We’re going to continue to experiment with a range of business models.

Q: Do you have any plans to offer free-to-play games on the Wii U?

A: We’ve experimented with free-to-play on 3DS. It’s probably fair to say that we’re going to continue to experiment in a variety of ways.

Q: Will you launch a subscription service, with a monthly charge to access a library of games for instance? Do you need to reach critical mass with the Wii U first?

A: It’s not about achieving a critical mass. For us we’re always sensitive that a business model match the content and make sense for the consumer.

We’ve thought about a range of subscription models but to date we haven’t found one that really fits our content and fits the needs of the consumer.

Q: Any plans to enter the China market?

A: It certainly is a market we’re looking hard at. For me there are a lot of analogies to the business opportunities we have in Brazil. In order to be effective in these markets you need the government to have a posture that is encouraging of our form of entertainment, you need a value proposition that makes sense for the consumer base, and thirdly you need content that’s going to appeal to the consumer base.

When you see that we’ve got all three, we’ll be in a market like China, just like we’ve been in a market like Brazil.

Q: Will you be offering mega-scale, cloud-hosted games for Wii U?

A: We use cloud technology today in a variety of different ways. We don’t use it to stream games.

For us the biggest issue in streaming games is latency. For a game like “Smash Bros,” half a second of latency makes a big difference.

We continue to observe that space but until some of those fundamental challenges are addressed we don’t’ believe that our content is best served to consumers through the cloud.

Q: Will the Wii U ever outsell the Xbox One or PlayStation 4?

A: The dirty little secret is if you look at life-to-date numbers, between Sony and Nintendo they’d be pretty close in terms of PS4 vs. Wii U, with Xbox coming in third place. I think it’s going to be a three-horse race for the balance of this cycle.

Q: Will you ever outsell them on a monthly basis?

A: You know, it’s going to be very interesting to see the NPD data [on U.S. sales] for June.

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Comments | Topics: e3, Microsoft, Nintendo

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