Thanks to :

http://www.gametap.com/home/read/article/2445 

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Reggie Fils-Aime: Thank you all for joining us this morning on such short notice and for some of you, at such an early hour. The purpose of this call is to add some perspective to what continues to be overwhelming demand for Wii and to lightly touch on the fantastic sales of Nintendo DS.

After a few remarks, I'll be happy to answer questions. Although I should say up front, I do have a hard stop for another meeting.

So let me try to put this situation in perspective. We expected Wii to perform extremely well within the historic launch parameters of the video game industry. What we didn't expect was to write an entirely new chapter in that history and have that happen so fast.

We have now reached sales of more than six million Wii systems in the United States alone in the span of just a year plus a couple of weeks. A rate that no other home system has ever matched. More importantly, more consumers looking to find a Wii this holiday, the system has remained a sell out virtually everywhere in America, non stop, from the day it launched.

There was no ability for us to stockpile systems over the summer to meet the holiday rush. The appeal of Wii to non gamers, has taken away some of the seasonality of sales we've come to expect in the past. I've already described the situation in previous interviews as unfortunate, and it is. We appreciate the incredible efforts that consumers have made to try and locate a Wii.

I do want to repeat however, that we're doing everything we can. At launch, we were producing approximately a million systems a month. Since April, we've upped worldwide production twice. From an initial projected fiscal year, global Wii hardware shipment of fourteen million, then to sixteen point five million and most recently, to seventeen point five million. And we've also announced that our current production run is one point eight million systems a month. Approaching twice what we were producing at launch and we'll keep producing that level for quite a while..

We understand and sympathize with the frustration of consumers. We get calls, I get personal calls from people wanting to know why we don't just manufacture more. Believe me, if it were that easy, we would. The fact of the matter is that production depends on components from a wide array of suppliers and if only one can't increase their capacity, then we can't increase ours.

To make sure every available system makes its way to retailers as quickly as possible for the holidays, we've tripled the workloads at our distribution facility in North Bend, Washington. The fact of the matter is, that this shortfall benefits no one. Enough systems would make everyone, including me, much happier.

We're taking steps that we hope will alleviate frustration, at least for some consumers. Along with the retailer GameStop, we're announcing a rain check program that will guarantee consumers can get a Wii after Christmas. Consumers who purchase an out of stock Wii on December 20 or 21, with a full payment of $249.99, will receive a Wii rain check certificate while supplies last.

This certificate guarantees them a Wii system some time in January. These Wii systems must be picked up by January 29. Furthermore, systems will be available this weekend, with retailer circulars running at, at least six national retailers. Best Buy, K-Mart, Sears, Target, Toys 'R' Us and Circuit City.

For Wal-Mart, a retailer that doesn't put out weekly circulars, they will be pushing out massive amounts of Wii systems into their stores all week long. As you can imagine, we're working with all of our retailers, to make sure that every last available system hits stores for the holidays. But I can tell you, that we expect no slowdown after the first of the year.

I know there are temptations for consumers to pay more than they really want to, to re-sellers, in order to get their hands on a system. We want to say that if you could possibly hold out just a little bit longer, there will be more and more product available in January. We are not slowing down.

When will we finally meet demand? There's really no way to answer that question until we actually meet it. And there's no question that we've made substantial inroads in increasing the video game playing audience. Our internal research shows that the average age of all Wii players is twenty nine years old. But on the other hand, the vast majority of these people who've purchased a system, are so far, active or core players. They're the ones willing to wait in line outside of retailers before dawn.

So we're only seeing a small tip of the iceberg in terms of actually selling systems to those expanded players. We don't know how exactly potential purchasers are going to line up in that group. We won't know the extent of demand until we reach it.

Now let me just touch a little bit on the incredible sales of DS. Yesterday NPD reported that November was the biggest month ever for Nintendo DS, with sales of more than one point five million systems. Year to date, U.S. sell through for DS is now more than six million units. That's about one DS sold every five seconds.

[Reggie then takes questions from call participants:]

QUESTION: This is a little off the topic of supply. But I was at a retirement home yesterday, watching a group of seniors playing the Wii and really getting into it. I was just wondering if you could tell me how the decision was made to pursue the--that market and when that decision was made and whether there was any scepticism within Nintendo or from you, when it was decided to go after that market.

Reggie: As you know, we made the decision to go after a much larger, much more expanded market, really at the start of the development for Wii. And as I've said in an interview with the Globe and Mail [newspaper] in Canada, really the first step down this path was the design and launch of DS.

In particular, with retirement homes, what we found last holiday, really from many of our own Nintendo employees, is as we shared the Wii during Thanksgiving and Christmas holidays, we found that everyone wanted to get up and play with the system. Mom, dad, grandma, granddad, and that led us to have initial conversations with a range of different retirement communities really to discuss opportunities to share the system with retirement homes.

What we were unprepared for was the sheer level of demand of these retirement homes wanting to purchase the Wii system. And then doing their own internal marketing to their community about how this could be a fun way to get to meet their fellow neighbours and participants in these communities. Everything from Erickson Retirement Homes to a number of other leading providers in this grey community, across the country, are setting up systems in their community rooms and encouraging players.

So it's been a fantastic opportunity for us. It really has been, at the encouragement of the retirement communities themselves, that we've made it available for them to purchase. And it's an area that has truly just taken off.

QUESTION: I was wondering, first off, when you talk about this rain check program, you said something about, while supplies last. Do you have any numbers for how many rain checks will be available or how many you'll allow nationwide to be given out? And then the other question I had was, you mentioned that the production increase won't be ending anytime soon, after the holidays. Do you have a hard date for when you might drop down the production, increased production of the Wii?

Reggie: On your first question, the details of the GameStop program, later on this morning, GameStop will be putting out a press release that captures much of the detail of exactly how the program works. Let me tell you this, they have many tens of thousands of rain checks available across their roughly three thousand points of distribution.

So we expect this to be a very strong program and we expect this to be a great way for consumers, who desperately want a Wii, to be able to have something to put under the tree, the certificate that guarantees their family that they'll be able to get a system in January.

In terms of the production, we have no date targeted for when our production numbers might change, either up or down. What I can tell you is that our goal is to quickly understand our upside demand by the consumer for the system. That will allow us to effectively plan for the balance of the year, how to grow and manage our production capacity.

So my goal, here in the Americas, is to find out, as soon as possible, how much product we could put into the marketplace and have that inventory stay in store for a reasonable period of time. So that we can accurately plan for the future.

QUESTION: I've got a couple of questions for you this morning. One of them, I was wondering if the NPDs and it looks like for November, you guys were able to sell about nine hundred eighty thousand Wiis in November. You mentioned that you guys were at a manufacturing rate right now of one point eight million. Does that mean that Nintendo of America is getting basically fifty percent of the production line every month? And given that I haven't seen sales of nine hundred thousand across Japan and Europe, I'm wondering if there's any chance that America will begin to get more than fifty percent of the production line.

Second question, currently I believe all Wiis are manufactured in Japan. I'd imagine that probably slows down turnaround time in terms of when Americans can get their hands on Wiis. Any plans to start manufacturing the console in the United States?

Reggie: So the two questions, first, in terms of percent of manufacturing capacity. As you know, Japan has no Thanksgiving, same for Europe. So we knew that in order to maximize the selling opportunity that we have here in the U.S., we needed to have a greater share of production. And you're correct, if you do simply the math, it would suggest that we receive fifty percent of the production for the month.

As we look to the future, the decisions that are being made by the executive committee of Nintendo, are to put the hardware where it will essentially sell out the fastest and where it will reach the consumer the fastest. So my role in my job is to continually share information with them on the strong sales here in the Americas and to argue for a larger and larger share of production. Which is what I do every week.

In terms of what that looks like in the future, you know, we have gotten to a fantastic start here in the Americas. Our sell through rate is at historic proportions in terms of how fast a system has gotten off to a launch. And I share that information with Japan on a daily basis.

So we are certainly looking to have a larger and larger share of production. But in the end, that isn't my decision.

As far as manufacturing, we have no plans to manufacture the Wii system here in the Americas. It is a complicated system to assemble. There are quite a number of proprietary techniques that we use to protect ourselves in terms of piracy and security. And so production will continue to remain in the Far East. What we are doing is making sure we get product here as quickly as possible and into the distribution channel as quickly as possible. So that consumers have the opportunity to buy the system.

QUESTION: I wanted to ask about sort of the attach rate. Some of the NPD numbers look like a Super Mario Galaxy. It wasn't quite as big a hit as you might expect and some might have expected. Which leads others to wonder about complacency among shoppers and just being satisfied with Wii Sports or Wii Play. What can you say about that concern about these shoppers not buying new--other new games?

Reggie: You know, I find it hard to believe that almost a one point two million unit sell through, could be in any way disappointing. The fact is this, we sold over six million pieces of software for the Wii system during the month of November. If you look at it strictly on that month basis, that's over a six to one attach. Which is very, very strong.

The level of sell through of software, pushed up our overall attach rate to above the level of PS2 at the same time in its life cycle. So the facts are these, that consumers are buying software. They're buying software consistent with historical measures and that is phenomenal, given our push toward an expanded audience.

So as we sit here today, we are quite satisfied with the level of software sell through. We expect December to be another strong month and specifically, as far as Super Mario Galaxy, again, that last time I checked, was scored about a ninety seven on Metacritic and is nip and tuck for one of the best rated games of the year. We are tremendously satisfied with the performance of that title.

QUESTION: Along the same line, what would your response be to maybe some of the third party publishers who are a little frustrated with, you know, they say great games--they think are great for the Wii. But the problem with getting these to consumers, may be crimping some of their ability to sell going forward.

Reggie: You know on that front, we've talked with all of our key publishers. I've personally been meeting with a number of our key publishers, just in the last week. They understand exactly what we're doing to get systems into the hands of the consumer and they also have the benefit of historical perspective and understand that we are on a sales pace that has never been achieved in this industry.

So they understand and are quite satisfied with the steps that we're taking. Specifically, if you look at publishers like Activision, which is having tremendous success with Guitar Hero Three on our system. If you look at Sega, with their Mario and Sonic title. Just about every publisher I've talked to is quite satisfied with the level of software sales on our system.

QUESTION: Is the rain check program exclusive to GameStop?

Reggie: It is and the reason for that is, GameStop, through the tools they've created for their pre-sell programs and they pre-sell just about every piece of software available to consumers. They have the ability to track specific purchases and where shoppers go in terms of specific stores.

And so as you can expect, the way the system needs to work, is that a certificate needs to be matched to a specific Wii, which is matched to a specific store. And only this retailer has the capability to pull off such a complicated program.

QUESTION: Following up on the software question, in terms of third party software specifically. Are you happy with the quality of the third party software that's available and related to that, are you--or is Nintendo implementing any certification process as to perhaps filter some of the games before they reach the retail shelf?

Reggie: In terms of the quality of software, the fact is this. On any system, you will have a range of quality. What I can tell you is that publishers are working extremely hard to take advantage of the Wii and its unique capabilities. To take the Wii remote and the nunchuck and really incorporate it into the game play.

The fact is, those publishers that do a great job, enjoy fantastic sales and the quality shows. Again, Guitar Hero Three, as a great example. As publishers understand how to take advantage of the unique capabilities of the remote, you will see better and better games. It's the natural development life cycle in gaming.

In terms of a certification program, we already have a certification program and publishers need to conform with a number of key aspects in order for the game to be published on our system. What we don't do, is we don't have some sort of filter for quality. Because quality is so subjective.

The last point I would add is that more than ever, Nintendo here in the Americas, in Japan and in Europe are working hand in glove with publishers to share with them our knowledge, our technical expertise, to help them create the best games possible. And so my expectation is that the level of quality overall for both Nintendo DS and for Wii games, will continue to improve. And if I could remind you, when we launched the DS, there was a concern way back then that the quality of games from third party was not as strong as the Nintendo first party titles. Now as you look at today, there's quite a number and very, very strong high quality titles on the DS. It just takes time for publishers to understand all of the unique capabilities of innovative systems like the Wii and the DS.

QUESTION: The average age you mentioned is not that different from numbers approaching 30 that have been tossed around about video game players for some years. And I'm wondering, especially when juxtaposed with what you said about the vast majority of buyers being core players, if you can expand at all on why you're confident and what evidence you have that you're expanding the market.

Reggie: Well, a couple of things. First, data that's been published for example, by the ESA, which has shown a high 20 year old average player age, included PC gameplay which as you know, there's quite a bit of "casual" type of gameplay available on the PC. The fact is, on a console basis, average age per console players has never approached that high 20 type age range. All the data that I've seen, both for our systems and competitive systems, has been more like the younger 20 year old range, 21, 22.

So, in our case, comparing a 29 average player age to that historical 21, 22 year old age for console players, is in part what gives us the confidence that we are expanding the playing universe on Wii. The other piece that gives us such confidence is that, you know, all of the pictures from the Erickson communities, all of the pictures that consumers themselves are posting on how we play, websites, it really does support the fact that because of the ease of access and the pick up and play nature of the Wii system, that we are truly broadening the gaming universe.

QUESTION: Do you have any report of shortages of DS?

Reggie: We do not have reported shortages of DS. What I can tell you is that as we get to the 24th of December, inventory will be quite tight. There may be spot shortages at retail, but broadly, any consumer who wants a DS will be able to find it this holiday season, unlike last year where we were virtually sold out a few days before Christmas.

QUESTION: I want to voice a couple of frustrations from myself and players in regards to the Wii. And one is, I was wondering if there's any chance of getting online voice chat going? And also, some online play in virtual console games.

Reggie: Let me deal with the last question first. In terms of virtual console, our approach has been predominantly to leave those legacy games alone and to not do any significant upgrading or changing of that core game as we make it available on virtual consoles. One of the small exceptions to that, we did make some small changes with Pokemon [Stat] for example. So we do not anticipate making online gameplay available for virtual console games.

In terms of online voice chat, as you know, we are constantly making updates and changes available. Certainly our system has the capability for online voice chat, what it comes down to is finalizing the peripheral that would allow you to speak during gameplay and the fact that we make this available on the DS certainly suggests that it's something that we value and something that we are constantly looking at. And I would not be surprised to see that capability come on our system.

QUESTION: I just have a question about boutique retailers. I wanted to know if Nintendo had a policy where you guys only give distribution of Wii to stores that don't mark up the price due to demand? And if you don't, how do you guys feel about that, and if you don't have a policy, at least in the short term, might you consider giving Wii distribution only to places like Wal-Mart, Target, Best Buy and Amazon.com, as opposed to the boutiques who might mark it up to take advantage.

Reggie: We have a standard program that has minimum pricing that would qualify for investment on the part of Nintendo for paying of circulars and things of that nature. It's a minimum advertised price program. We do not have a program, and it would be illegal to have programs that fix prices on the upside. Having said that, we are always very disappointed if we see retailers that are pricing the Wii or any of our products above the MSRP price. And the only way we can combat that activity is by not rewarding those retailers with excess supply of product. What I can tell you is that roughly 90 percent of our sales are done with the top 10 retailers in any particular market, whether we're talking United States, or we're talking Canada or Latin America. And certainly those retailers have consumer oriented programs to make sure that they're paying reasonable prices and are not in any way being gouged.

QUESTION: I was wondering if you could talk to us about what kind of reaction you're seeing from the software sales along with this, obviously everyone's focused on getting the hardware. Has the tie ratio that you're seeing in this kind of frenzied period leading up to the holiday season holding up relative to what we've seen in the earlier parts of the year? And then also if you could give us an idea of what kind of attach rate that you're seeing as Nintendo begins to roll out some of the accessories like the Wii Zapper and particularly as you get in front of the roll out of Wii Fit and the steering wheel here.

Reggie: In terms of software tie ratio, as I touched on earlier, if you focus in simply on the month of November, while we sold almost a million units of hardware, we sold over 6 million units of software. So, just for the month that's over a 6 to 1 attach rate. Up to the month of November, life to date, we are at about a 6.4 attach rate. So certainly what this suggests is with a greater range of software titles, and with strong franchises coming out for the Wii, the consumer is buying more and more software and we expect that our attach rate will continue to increase over the life of the system.

In terms of the attachment rate on accessories, we continue to enjoy very strong sell through of additional Wii remotes, additional Nunchuks. The Zapper has performed extremely well in the marketplace to the point where we are at a point where we are deploying additional resources to pack out that product here in North Bend Washington and to expedite it out to retail. It's a product that is in [a tough] out of stock situation right now, but will be replenished prior to the holidays and will be available for sale immediately after the holidays when many consumers will be redeeming gift cards. So, our attach on accessories is quite strong and we're quite pleased with the initial results of Wii Fit in Japan. It's been published, they've sold through over 400,000 units in that market. And we look forward to launching that product in the spring as we previously announced.

QUESTION: I was hoping you could tell me, the fact that the demand for the Wii has really been a surprise to you guys is something that we've been hearing from Nintendo for some time and you know, the constraints were also an issue during last holiday season. So I was wondering if you could maybe clarify or identify the specific manufacturing issues that are constraining production. Is it a particular aspect of the Wii's hardware that you guys end up having to wait on that kind of prevents you from amping up production to the degree that you'd like?

Reggie: You know, there's no single element that is constraining our production. And again, I really want to point you to the fact that a year ago we were at a production rate of about a million units a month, and we've nearly doubled that to a rate of 1.8 million units a month. And if you look at that 1.8 million run rate, it would lead to a level of production and supply that is unheard of for our industry. The fact that we've sold through over 6 million units in just over a year, again, is unheard of in our industry. And so as I said in my opening remarks, we went into the launch for Wii with very high expectations. We expected to be at the upper range of what had been experienced in previous console launches, not only by Nintendo but by other companies as well. What we didn't expect was to throw out the old playbook and essentially create a whole new level of sell through for this industry. And the fact is, you cannot plan for that. We are at a point now with 1.8 million units produced every month that certainly for the time right after the holidays, should allow us to understand the total upside demand here in the Americas and to effectively plan for the balance of the year. Especially as we launch key titles like Smash Brothers and Wii Fit. So, from our perspective, we certainly are doing everything we need to do to manage this business, to plan for the future and to continue rewriting the playbook on how to successfully launch a home console.

QUESTION: So the major issue continues to be underestimating demand and not that the manufacturing components are maybe a little--not as quick.

Reggie: The issue continues to be a level of demand that's been unheard of in our industry.

QUESTION: I was wondering if you are doing anything to improve the throughput from factory to the U.S., first, and also, there's also demand in Latin America and Canada, and how are you meeting that? Are you doing air freight from the Far East to the U.S.?

Reggie: In terms of our distribution systems, I really don't want to comment on that Billie, because we are doing some unique things that are proprietary. What I can tell you is that we are certainly expediting product to the Americas. In terms of the second part of your question, just like Iwata-san makes the tough decisions for how to allocate product to the three territories he's responsible for, I'm the one who makes the tough decision on how to allocate product to Latin America and to Canada and the United States. What I can tell you is that we are seeing the same unprecedented levels of demand in those territories. What I can tell you is that each of those territories has slightly different seasonality. For example, obviously Thanksgiving doesn't happen in either Canada or Latin America. Canada does have very strong seasonality for Christmas and immediately thereafter. In Latin America, strong seasonality for Christmas, and then a couple of weeks later for All Kings Day is another key gift giving occasion for the Latin American consumer. So, my job is to allocate product amongst these three different regions, taking advantage of these consumer buying occasions and making sure that as many consumers as possible are satisfied during those gift giving occasions.

SYNOPSIS PLEASE !!!Way to long,and i am to tired:)

Cool that they asked about voice chat(though I'm in no rush for that), I wish someone would of asked about a harddrive or expanded SD card support though.

Six million Wii software in November sounds pretty good.

Is it weird that the number 6 appeared in the transcript so many times?

666 the number of the beast

*finally finishes reading it all*

So 1 million/month at launch increased to 1.8 million/month CONFIRMED.

I also like how he spins 3rd party shovelware -"not quite up to First Party offerings" heh.

Interesting points about the rain check program and the big Christmas push.

Nice attach rate though - 6.4? WOW.

@ FishyJoe:

666 OMG NINTEN-DOH R TEH DEVILZ CONFIRMED!!!!!!!!111!!1one!

For those of you who don't know, I'm a Gamestop employee, and I posted this in the other thread already, but with no response.

Hey guys, I was just told by my Gamestop manager that he just received a company wide email that said they would not be doing the voucher program.

Thoughts on why?

Synopsis for the tl;dr types. Obviously this is my biased translation:

1) We are manufacturing more home consoles than anyone has ever done before. And we're still sold out. Really sorry about that. We can't rely on our old projections, sorry! We have no stockpiles.

2) Gamestop will be selling Wii rainchecks. Buy the raincheck now, pick up your Wii before January 29th. *kicks eBay in teh groin*

3) We've asked all the retailers to give a big end-of-season push with our most recent shipment. Stores that had 15-20 should have around 100 Wiis. Gimme money.

4) Oh yeah, the DS...prints money, lol

Q&A TIME!

Q: I've heard retired/elderly folk play the Wii.
A: Yup.

Q: More details on the raincheck program plz?
A: Talk to Gamestop. We'll use this to gauge demand though.

Q: Did you shift 50% of your manufactured Wiis to North America during November?
A: Yes. Japan & Europe don't have Thanksgiving shopping insanity.

Q: Will people stop buying new games like SMG because they're satisfied with WiiSports + WiiPlay?
A: We sold 1.2 million copies of SMG! We're beating the PS2's attach rate at 1 year after its launch! SMG has a 97 on Metacritic! We're doing OK.

Q: What about 3rd party publishers? Are they worried about people not buying new games?
A: Nope. Look at Guitar Hero, Mario & Sonic at the Olympics, they're selling great!

Q: Is the raincheck program only for Gamestop?
A: Yes.

Q: Wait, what about 3rd party shovelware?
A: Quality is a subjective term, we don't test based on that. But remember, 3rd party games at launch on the DS were shovelware too, and now they're great!

Q: Do you really think you're expanding the player market?
A: Yes, look at the ESA studies, and the stories at launch. The elderly too.

Q: DS?
A: Still prints money. And NOT sold out.

Q: Online VC games? Voice chat?
A: No online VC games, we don't want to modify the old code (much.) Voice chat maybe.

Q: What about stores that charge more than $250 for the Wii?
A: We break their legs -er, give them fewer Wiis for the next shipment.

Q: Software sales?
A: 6.4 attach ratio, lookin' good!

Q: So, why only 1.8 million?
A: Manufacturing constraints. Oh, and no console has ever done this well, sorry!

Q: O RLY?
A: YA RLY!

Q: What about Latin America and Canada?
A: We're shipping Wiis to those ASAP.

END TRANSMISSION

 Ruh-roh! Business deal just turned sour? In only one day? Crazy.