Nintendo is having a blockbuster year. In March, the Japanese video game company released a hybrid home/portable console, the Nintendo Switch, which rapidly became the fastest-selling system in the company’s history. One of the console’s launch titles, The Legend of Zelda: Breath of the Wild, was received with critical acclaim and is widely regarded as one of the greatest video games of all time. Just last week, the company released Super Mario Odyssey to similarly rave reviews. And on Monday morning the company reported better-than-expected revenues and profit for its latest quarter, raised its financial outlook for the quarter ahead, and said it will have shipped almost 17 million Switch units by the time its financial year ends in March.
So where does Nintendo go from here? Last week I interviewed Reggie Fils-Aimé, president and chief operating officer of Nintendo of America, about the company’s banner year and what’s still coming this holiday season. The following excerpts from that conversation are edited for length and clarity.
David Ewalt: You’ve already launched a new console and a new Zelda game, and tonight you launch a new Mario game. It’s been a big year.
Reggie Fils-Aimé: We’re here in New York to celebrate the launch of Super Mario Odyssey, it’s a very special occasion for us, and it is a nice opportunity to step back and look at what we’ve been able to accomplish so far in 2017, which as you stated, is a lot. When we first started talking about Nintendo Switch we promised a steady cadence of games. We’ve been able to deliver against that. We promised a new and different proposition, and that we would clearly communicate that proposition. And we have. A home console that you can take with you on the go, play anywhere, any time, with anyone. We promised that we would have strong third party support, we’ve been able to do that.
It’s also gratifying to see how we’re doing across the entire business. Nintendo 3DS continues to perform exceptionally well. The new 2DS XL has been largely incremental to our business… and then lastly with the classic line, the introduction of the Super NES Classic. I was thrilled to see all of the tweets by consumers being so happy that they could walk in on launch day and be able to find the system. That was a key point of emphasis for us coming from the NES Classic launch. We’re also pleased to be bringing that product back next summer, as we know there continues to be unmet demand, and we’re focused on filling it.
And so it’s been a strong year for us. But the next 10 weeks are critical as we gear up for the holiday season.
What happened with the Switch’s supply problems? It launched to great reviews, and lots of consumers who wanted to get their hands on one, but couldn’t. For a short while, maybe that’s a good thing, it raises interest. But the shortages went well past that point, months past.
Let’s rewind the clock. So we announced that for the month of March, we would sell two million units. [That] was the guidance we provided. And if you go back and look at the analyst reports and comments from the experts in the industry, they framed that as wildly optimistic. Wildly optimistic. Some of the projections that I saw for the first calendar year pegged the volume somewhere in the range of five million units globally. The reality is, just in the month of March, on a global basis, we sold through 2.7 million units. So the reality is that Nintendo had a well defined supply chain. We were prepared to deliver against that supply chain. We had estimates of demand. But the reality is that the demand came in well in excess of even our high end estimates, so we were then in a position of playing catch up. And we’ve been playing catch up ever since. We’ve stated publicly we’ve continued to improve the supply chain, the production continues to ramp up… but that’s what happened. When you look at the realities of supply we dramatically over-delivered for launch in terms of March launch month, but the demand has been well in excess of even our high end estimates.
How important was Breath of the Wild to driving that demand, and how important will Super Mario Odyssey be for driving sales through the holidays?
It was absolutely critically important to have strong Nintendo IP at the launch, and we were extremely fortunate for that to be Legend of Zelda. In particular, in the Americas that I have responsibility for, Zelda is a franchise that is very well developed. Obviously a game that many talk about as potentially one of the best ever created in this gaming industry. It was a fantastic way to kick off the launch of Nintendo Switch. And Super Mario Odyssey is gonna be a great bookend to that. But I would say this. We have a plethora of great IP, and we were fortunate to deliver on the steady cadence of content. I can tell you that Mario Kart 8 Deluxe was just as critically important. The multiplayer aspect of that game really is something that gave us an added element, versus Zelda which is a single player experience. That was critically important. Continuing to drive Splatoon 2as a very important franchise for us, was critically important. The launch of new IP in ARMS was critically important. So I would reinforce that for us, yes a new Zelda, a new Mario game within the first 10 months of launching a new system is great –but it’s the steady cadence of high quality content which is really the Nintendo secret sauce.
Is it fair to say that one of the problems with the Wii U launch is that it didn’t have a big exclusive Zelda or Mario game?
Those titles came. We had Zelda experiences, we had Mario experiences. I would say the key learning was that first, we were not able to simply and directly communicate the proposition of Wii U. We rectified that with Nintendo Switch. The proposition is clear: Home console that you could take on the go, play anywhere with anyone at any time. And then the second key difference was the steady cadence of content. Again, you look at what we’ve been able to accomplish just so far and you compare to the Wii U launch time frame, there’s a significant difference. I would say also the third key difference is something that we did to support our third party business, and that was that we had the Unity and Unreal engines ready to support external development. That made a big difference and allowed Stardew Valley and Golf Story and all of this great independent content to come onto the platform, essentially to just keep reinforcing for the consumer who’s bought in with the hardware that they always have something to play.
So what is the third party publishing landscape right now? What are you doing to get more original games out of your partners?
Every partner’s important. And our mantra is, we want the very best games from the very best developers on our platforms. That is true for as long as I’ve been with the company. What’s different is that we’ve got the two most widely used development engines out for Nintendo Switch. We are working quite closely with third party developers, giving them technical support to bring their content to the platform. Certainly the pace with which the Nintendo Switch is selling is seen as a huge opportunity by third party developers. And what they need to see is success this holiday season. That’s why FIFA is critically important. That’s why Doom and Skyrim are critically important. Each of these developers need to see a positive experience by being on Nintendo Switch. And so we’re working actively to support them.
The Wii U had a lot of cross platform games that came out first for Microsoft Xbox or Sony PlayStation, and then further down the road for the Wii U. Can you get to a point where there is simultaneous release for all platforms? Is it a goal of yours to get Switch first? Does that matter?
My goal is simultaneous release, which is why I pointed out FIFA. That was a simultaneous release. NBA 2K, the digital version of the game, was out simultaneously, the package version followed. We want the consumer who has bought into the Nintendo Switch platform, when there’s a great third party experience, we want them to jump in immediately. And we want that to be available day one. To make that happen there is strong technical support that we need to provide to the development community, and we’re doing that.
You mentioned Stardew Valley and Golf Story. What’s the argument for independent developers, why should they develop games for the Switch?
Talk to them, and what I think they’d tell you is that again, they’ve found the development environment easy. Second, they have found our support, whether it’s through the News feature that we’re able to highlight their games, whether it’s activity that we do with them at events like PAX, whether it’s the support that we give them in other ways from a PR perspective. We have made it quite effective for these independent developers to bring their content and for it to sell exceptionally well on our platform.
Golf Story, in particular, made me think about the Switch as a platform for discovering new games. Right now, when consumers want to find indie games, they probably end up on a PC, looking through Steam. Can you get to a place where the Switch becomes a go-to platform for indies?
I think in that regard, the News feature has worked exceptionally well for us in terms of highlighting this great new content. I think that our corporate affairs group does a fantastic job supporting these independent developers. Our licensing group with events like PAX also does a great job highlighting this content. So I think what we provide are a variety of different ways for consumers to discover this content and for it to be accessible to them on the Nintendo Switch.
Tell me about Switch Online, and the plans for next year and when it becomes a paid service. What, exactly, is that going to look like?
I’m not going to tell you exactly what it’s going to look like. We’ll share more about that next year. But what I can tell you is that our vision is to have a robust online environment that not only provides the mechanism for you to have your multiplayer experiences and matchmaking, those elements are minimum. Our goal is to provide that extra Nintendo twist, and that’s what makes our company historically so effective. We don’t do things the same way everyone else does. We relish being different. We see that difference as an element that makes us more compelling to the consumer. And so having that differentiated experience is what we are focused on and we’ll unveil more next year as we’re closer to the launch of the service.
You’ve already talked about how Switch Online subscribers will get access to a library of classic games. Nobody else has a back catalog of first party games like Nintendo does. But why does the company’s strategy seem to be –both when it comes to software, and hardware– to sell access to that old IP as a bundle, versus allowing customers to buy individual games?
Again, [as far as] details around Nintendo Online and what that service is, we’re gonna deal with that separately. Regarding our back catalog, we are in an incredibly fortunate situation that we have a robust back catalog. Not only robust in number, but robust in truly best of all time types of games. Our strategy today is to leverage that with the NES Classic and SNES Classic. And we believe what we’re offering at a set price is a fantastic value for the consumer. And a way not only for adults like myself to relive playing the Super NES and all of the great games on that platform, 21 of them, but that it provides an opportunity for new players to experience all of this great content. And we think that is a fantastic way to do it. It’s both rekindling nostalgia but also creating a passion for Metroid, creating a passion for intellectual property that newer players may just not have ever tried. And we think that is a really effective strategy. So that’s what we’ve done with the NES, that’s what we’ve done with the SNES. Again, what the future looks like we’ll talk about in a different setting. But we believe monetizing our content, exposing it to consumers in that way is a great execution of our strategy.
What is Nintendo’s handheld strategy? In a world where the Switch is a hybrid home and portable console, what’s the role of the DS line? Why should someone buy a 3DS or 2DS when they can take a Switch wherever they want?
The role for Nintendo 3DS, as a family of systems that range from a hardware standpoint, from $79.99 to $199.99 and has a back catalog of well over a thousand games, we see this system doing two things for us. One, it’s an entry vehicle. If you’re a mom or dad, you’re trying to take care of multiple kids and to give them a great experience that you feel good about, couple of 2DS as a holiday purchase, is a fantastic value. And again, [you get] access to all of this great content.
Similarly, if you’re an active gamer, and there’s a particular game that you have to get your hands on, and it’s only available on 3DS, well then buying a 2DS XL or a 3DS XL is a great way to scratch that itch. That’s the role that it’s gonna play for us. It’s gonna be an entry vehicle, a vehicle where you have to play a particular game that’s only available as part of the library of games for 2DS and 3DS. That’s the play. And from that perspective, it’s been very effective for us, and we believe it’s gonna continue to be very effective.
This past weekend I was in Florida. I’m going through a Walmart, I’m going through a Target. I’m looking across the landscape of consumers, and not every consumer is going to be able to afford a piece of $299 hardware plus a couple games, maybe some Amiibo. It’s a $400 or $500 proposition. With Nintendo 2DS and 3DS, you can satisfy a lot of holiday gifts for $100 to a $200 purchase. That is a key strategic advantage.
When are we ever going to talk about virtual reality, or the return of the Virtual Boy?
Nintendo looks at every technology. Often times we look at technology before it really is considered mass market ready. The original DS had touch screen on a device. First time that a mass market product had touch screen built in. Nintendo 3DS had augmented reality, really before augmented reality was a thing. So we look at all of these technologies, but for us it needs to be fun, needs to be social, it needs to be mass market ready. And those really are the key elements, as you look at something like VR, that we continue to question.