Earlier today I spoke with Reggie Fils-Aime, the president of Nintendo’s American subsidiary. Nintendo is launching the Wii U console at midnight Sunday morning; I spoke with Reggie about his expectations for the device and how Nintendo plans to compete with and distinguish it from Microsoft’s Xbox 360 and Sony’s PlayStation 3.
An edited version of the interview will run in tomorrow’s paper and is already online. You’ll find the full transcript below:
Q: Reggie, thanks for taking the time to talk. I’m glad this worked out.
A:Same here. We’re in New York getting ready for the launch. It’s a very exciting day — or couple days since we launch midnight tomorrow — very exciting day to be bringing Nintendo’s next innovation in video games and entertainment.
Q: What are your expectations about the launch, about how the Wii U will do in the short term?
A: Well, we have made — We’ve made more hardware available to retailers than we did for the original launch of Wii. We are also prepared to do faster replinishment into retail than we did for the original Wii. We see that the amounts that retailers have made available for pre-sale have largely been sold through, which is very gratifying.
So we are fortunate that there is strong demand out in the marketplace, and our goal is to meet as much of that demand as possible both in the near term, as well as longer term into next year.
Q: You guys with the Wii, it took you a year or so to get into supply-and-demand balance. How quickly do you think you’ll be able to get into that balance with the Wii U?
A: Actually for the Wii, it wasn’t until Spring of 2009 that consumers could consistently go into a retailer and find hardware. And we launched holiday of 2006. So, the Wii sell through was a phenomenon. Sold faster than any home console — And so, how will the Wii U do? We’ll find out, and we’ll see what they demand is and we’ll see how quickly we’re able to match supply with that demand. But Troy, at this point, it’s all speculation.
Q: Speculation aside, what are Nintendo’s expectations for how the Wii U will perform? Do you guys expect it to duplicate the Wii’s success?
A: In terms of our expectations, all we’ve published is that we expect that in this current fiscal year to sell through 5.5 million units of hardware. And so, there’s been no other expectations made public.
You know for us — Nintendo of America is a sales and marketing and distribution company. So for us, it’s about creating knowledge and expectation for the new home console and then looking to meet that demand as quickly as we can.
Q: Part of what made the Wii a success — there was this huge cross-cultural phenomenon where people that hadn’t bought a game console in years bought a game console or people that were casual gamers bought a game console for the first time. Do you expect to lure those same people back with the Wii U? And if you do, how do you lure those people back, because many of them seem to have moved on to other things, whether its Facebook games or mobile games or maybe games on other consoles.
A: In terms of our target, our target is consumers 5 to 95.
So, we pride ourselves on being a mass market games company. So, we absolutely want more active players. We want more casual players. And we believe that with the 29 games we’ll have available at launch, additional games available digital only, the range of services like Nintendo TVii, like Wii U Chat, a robust eShop — we think we’ve got the offering to attract a very wide audience.
You mentioned that maybe consumers are doing different things right now, what we find is that in the end, consumers are looking for new and compelling experiences. And we believe we’re delivering a vast array of new and compelling experiences with Wii U.
We’re looking to appeal to this very broad audience. We’re looking to do that three ways. We’re looking to do that with games. We’re looking to do that with our connected social community. And we’re looking to do that through the innovations we’re bringing to the broader video entertainment space.
And so, Troy, from our perspective, we think we’ve got a complete package for the consumer that will create an engagement with the GamePad every day by every member of the household.
Q: You’re talking about this broader video and entertainment space. I know you guys have been talking about the TV initiative and having Netflix and Hulu and being able to control your TV. So, with the Wii U, you guys are really embracing this whole idea of having a connected entertainment device, rather than just a console. That’s something that you guys really seemed to resist with the Wii while your competitors, Sony and Microsoft really embraced that idea in the last go-round. Why the change of course? Why embrace that now when your competitors embraced that years ago?
A: So, two things. First, I would correct you and say that we embraced video entertainment quite a long time ago when we brought Netflix on to the Wii platform. And if you were to talk to Reed Hastings or anyone over at Netflix, what they would talk about is the huge success that they had off of our platform. And there’s quite a bit of public data out there; we’d be happy to send you some that shows just how much utilization happened with the Wii for Netflix, versus our competitors. And part of that was driven just by the massive installed base advantage that we enjoyed versus our competitors.
Now, why are we continuing to push this with the Wii U? And we’re looking to push this in three fundamental ways. First the fact that the GamePad out of the box can be used as a universal remote. So, for those consumers who have no additional VOD (video on demand) content, who don’t choose to connect to the Internet, they’ll still be able to use the GamePad to control their TV and for them to eliminate the vast array of controllers that they have sitting in their living room.
The second way we’re doing it is by expanding the amount of video that we offer through the console. So now we’ll have not only Netflix, but Amazon video, Hulu Plus, as well as YouTube.
And then lastly, really pushing on this idea is the concept of Nintendo TV. Essentially think of Nintendo TV as a super aggregator and a super remote that brings together your live TV as well as all of your video-on-demand options that you subscribe to, as well as your TiVo DVR content. And it provides a new way for you to find, to watch to socialize over this content. And so, Troy, for us, we believe this is an extension of the work that we did with Wii, and we believe it’s a way to get the consumer — every consumer in the household — to pick up the GamePad every day.
Q: This social idea. People are already doing this with their iPads and their smartphones and the like. Why would a consumer want to do this experience with the Wii U rather than with the devices they may already have in their home — 50% of consumers have smartphonse at this point.
A: So can I ask, which social experience are you referring to?
Q: There have been apps already out there to talk about engaging with TV content and sharing TV content. But every phone out there these days have Facebook or Twitter on it. There’s not a lack of socialization or the ability to socialize with your mobile device.
A: So what the Wii U does through the GamePad is it makes it seamless. Meaning, yes, can you post comments on your social phone or tablet? Certainly. Can you try and search for commentary while you’re watching something on TV? Certainly you can.
But what the Wii U does and what Nintendo TV does is that it allows you to have that type of interaction seamlessly. And it allows you to personalize that experience for every member of the household. Those are the innovations that we bring to this type of experience. And because it’s seamless, there’s absolutely no latency. There’s no delay in what you’re watching, what you’re commenting on versus what you might experience with some of these other applications.
Q: As I understand it from the reporting that’s been out there, this will be the first Nintendo game machine that the company’s going to be selling at a loss at launch. How does that change the business model for Nintendo?
A: So, the business model doesn’t change dramatically
, in that as soon as we get the consumer to buy one piece of software, then that entire transaction becomes profit positive.
So in the end, the business model is still to drive the install base of hardware, and then to drive a strong tie ratio with all of the other software and experiences for the consumer. And if we’re able to do that, then we will create significant profit for the company.
And to that end — I’m not sure if you saw the GameStop announcement. Overnight, they announced their results, and they talked about the tie ratio they’re seeing in their stores for Wii U versus Wii. And they framed it as a tie ratio that’s more than double what they saw initially with the Wii.
Q: This is pre-orders at GameStop?
A: This is based on pre-orders of hardware and pre-orders of software.
Q: So it sounds like, although it’s being sold at a loss, it’s not a huge per– the loss is not a huge percentage of the actual sale price.
A: Again, what we’ve said is that as soon as we get that first sale of software, then it becomes a profit-positive experience.
Q: You guys, again, had this huge hit with the Wii where you guys were selling like gangbusters for the first several years that it was out on the market. But it really tailed off in the last couple of years. Given that the shortcomings of the Wii were apparent at launch — it wasn’t an HD console, it was unpowered compared with the others, it didn’t have the suite of — while you did eventually add Netflix to it, it didn’t have the suite of entertainment options that the other consoles had — why didn’t you guys move to upgrade it or come out with a Wii U device much sooner than you did, and was it a mistake not to?
A: Again, couple pieces of perspective. As we sit here today, whether you look at this from a U.S. perspective or you look at it from a global perspective, the sell-through rate of Wii was faster than our competition, and the total install base for Wii is much more than our two competitors.
Second point: We began working on Wii U a number of years ago, and certainly the innovation that we’re bringing is significant. And it’s a complex endeavor to bring this type of innovation into the marketplace.
And so for us, we needed to do it the right way. We needed to make sure that it would be a strong consumer experience. And that’s why we’re launching the Wii U now this holiday season.
Certainly, you can look back on any business and say, “Boy, you could have done this or should have done that.” But the fact of the matter is that the Wii has been a huge global success and that in our view, now is the right time to bring its successor and take what we started with the Wii in terms of mass-market, innovative experiences and take that to a whole new level.
Q: You guys are obviously expecting — and I think the pre-orders bear this out — very strong initial demand. How do you bridge between the strong initial demand, which arguably is going to come from the game enthusiasts and the Nintendo enthusiasts, to the broader market. How do you make this appeal to and become a broader market hit?
A: We’re going to bridge that appeal three ways. We’re going to bridge it with games. So, as we look to the future, we’ve got games like “Pikmin,” games like “The Wonderful 101,” games like “Game & Wario,” games like “Wii Fit U–” quite a number of games to be launching early next year.
The second way we’re going to reach this more mainstream consumer is going to be through Miiverse, through the way for consumers to talk about their positive experiences on Wii U and have that show up on social networks outside of Miiverse. Right? So commentary can show up on Facebook, it could show up on Twitter. And so we think that’s going to drive intrigue, interest, awareness beyond the initial consumers.
And thirdly the way we’re going to drive it is continued innovation on the entertainment side. What we’re doing with Nintendo TV is just the beginning. We look to bring on more cable operators and access their DVRs and their content. There’ll be potentially other relationships with content providers. So we believe we’ll continue pushing the envelope on the entertainment video side as well.
Q: And so, I must have missed the demos on the TV aspect of this, but the way this works is that the GamePad essentially acts as a universal remote?
A: So there’s two things. First, out of the box, the GamePad acts as your universal remote. So it allows you to control your TV, allows you to control your cable or satellite dish. That’s capabilities right out of the box.
What Nintendo TV does is now work as a super-aggregator. And so, probably the best example is, say you’re looking to find an episode of “Breaking Bad” to watch. Today, to do that, you’d have to search your linear TV. Then you’d have to individually search any of the VOD options that you subscribe to: Hulu Plus, Netflix, etc. What Nintendo TV does is aggregate all of that content for you.
So, imagine on the GamePad a visual icon for “Breaking Bad.” Selecting that allows you to see all of the episodes that are available to you, whether it’s through Netflix, whether it’s through Hulu Plus, whether it’s through Amazon Video. It all aggregates it for you and allows you to select what episode you want to watch and how you want to watch it.
It’s technology that doesn’t exist anywhere else today. It’s the Holy Grail that a number of companies have been trying to address, and we’ll be the first to bring this type of technology into the marketplace.
Q: It sounds a lot like what TiVo’s got on their systems or what Google’s been working on at Google TV.
A: The difference is, I’m not sure if the new TiVo search also searches live TV. I’m not sure. Certainly you need to pay a subscription for TiVo; there’s no incremental cost for our approach. And in terms of what Google’s tried to do, I haven’t seen that integrate both live TV as well as all of your VOD options. So again, from our perspective, we’ll be the first to bring this out into the marketplace, and we’ll certainly be bringing it out to the marketplace at no incremental cost to consumers.
Q: You guys have, 29 launch games. These are 29 games that will be available when the game actually launches?
A: On Sunday. Yeah, 29 physical games available on launch day.
Q: And there’s an online gaming component too, like WiiWare?
A: Correct. So there’s an eShop. And some of those 29 games will be available as a full-game download through the e-shop.
We’ve also identified five digital games that will be available on launch day as well. And these are digital-exclusive games.
Q: And the 29 physical games, how many of those are first-party versus third party?
A: Four are first-party.
Q: And so, maybe this is obvious, but I’ll ask it anyway. You have two consoles that have been out there in the marketplace that are high-definition consoles, that offer connected entertainment options, that have established brands and huge game catalogs. What makes the Wii U unique? Why would a consumer want to buy that when there are these other two consoles that are out there.
A: A number of reasons. First, it will be the first time that you’ll be able to experience Nintendo first-party content in HD. Second, we’re bringing new experiences to the marketplace, new two-screen experiences to the marketplace that you can’t do on other systems. And thirdly you have third party publishers bringing unique content that you also can’t get anywhere else. And whether that’s “ZombieU,” or whether that’s “Scribblenauts,” so there’s a wide range of other content — So there’s a wide range of third-party content that’s also exclusive to the platform. And so what, in the end, what we’re promising consumers are new, unique experiences that you can’t get anywhere else.
Q: The two-screen experience is something that consumers have been able to get — maybe not built into the box, but something they have been able to get with the PlayStation Portable and the PlayStation Vita and the PlayStation 3. It’s something that they can get with the Apple TV and an iOS device. I’m not sure that there’s been huge uptake on either one of those, but why would a consumer be more attracted to that with Nintendo than with these other experiences?
A: Troy, the fact is that we’ve built our experiences from the ground up to leverage two screens. I mean, have you experienced the purported PlayStation two-screen experience.
Q: I’ve played it a little bit, not a whole lot.
A: I mean, what do you think of it?
Q: Well, I never thought it was compelling enough to keep doing it, but
A: That’s the point. And the Apple two-screen experience — Apple TV has a very limited install base. There’s limited to no gaming two-screen experiences. And so, while suddenly other companies are purporting to have two-screen experiences, the fact is that it’s Nintendo that’s bringing a seamless two-screen experience, whether it’s for games or for video content, that hasn’t been done anywhere else.
Q: The seamlessness is what you say is the differentiating factor.
A: It’s not only the seamlessness, but it’s the fact that it’s a real two-screen experience. I mean, “Call of Duty,” that you and I would be playing together, where I’m playing off of the GamePad and you’re playing off of the TV, is a complete two-screen experience. “ZombieU,” where I utilize the GamePad to pick up items, to scan the room, is a unique, complete two-screen experience. The experiences in “Nintendo Land,” in “New Super Mario Bros. U” are unique, complete, seamless two-screen experiences.
You know in many ways, this reminds me of the launch of Wii where, as we talked about active gaming and utilizing motion control, then suddenly other companies purported to have motion control in their devices, but it was kludgy and there was no content to bring it to the marketplace.
A Nintendo’s PR representative notified me yesterday that Reggie’s statement about the company only needing to sell “one piece of software” for the Wii U to be profitable was inaccurate. Nintendo actually has to sell more than one piece of software to make a profit on the Wii U, although the representative declined to say just how many it needs to sell to reach that point or exactly how much money the company is losing on each Wii U it sells.