Nintendo's Dunaway: What, Wii worry?

Correction at 4:50 a.m. PDT November 18: Cammie Dunaway incorrectly described Wii's October sales figures compared with other next-generation game consoles. Wii sales were nearly the total of its rivals combined.

Stung by lower Wii sales and a couple of down quarters, Nintendo may be a bit off its game this year. But Cammie Dunaway, Nintendo of America's executive vice president of sales and marketing, keeps focused on the company's strengths and positive numbers.

The recession and a paucity of blockbuster titles have taken a bite out of the overall video game industry this year, with revenue down from record levels in 2008. Nintendo certainly hasn't been immune. For the first half of the year, earnings fell about 50 percent from 2008, while Will sales dipped.

In the midst of this atmosphere, I spoke on Thursday with Dunaway, known to many video game buffs for her high-spirited appearances at E3.

Though I asked Dunaway about the company's revenue decline, lower console sales, and potential competition, she continually championed Nintendo's assets, including its Wii and DS consoles and recent popular games like Wii Sports Resort and Wii Fit Plus, as well as new titles like Super Mario Bros.

Dunaway's optimism about Nintendo may have been borne out by the latest results. Though overall video game revenue fell in October, the Wii bounced back to recover its spot as the top selling console, according to NPD.

Last month, Nintendo sold 507,000 Wiis, compared with 320,600 Sony PlayStation 3s and 249,700 Microsoft Xbox 360s. Coming in second in video game hardware sales was Nintendo's portable DSi and DS Lite, with gamers scooping up 457,000 units.

Four of Nintendo's titles also did well in October, finishing in the top 10. The company sold 232,000 copies of Wii Fit Plus alone, and 209,000 of Wii Fit Plus bundled with the Balance Board. Wii Sports Resort scored with 179,000 copies sold, while Kingdom Hearts 358/2 Days for the DS found 169,000 new customers.

I spoke with Dunaway by phone before before NPD released the October sales figures. But she certainly knew ahead of time that the numbers would look good for Nintendo.

Q: The question on everyone's mind is Nintendo's performance this year. For the first half, earnings were down about 50 percent. Sales for the Wii have dropped. Your president, [Satoru] Iwata, recently admitted that sales of the Wii have stalled. What do you pin as the reasons for this downturn, both for the company and for the Wii itself?
Dunaway: Let's talk about the U.S., and let's break it down into the separate platforms. So, speaking first about the Wii--what's important to understand is that in 2008, we sold 10 million units of the Wii, which was a record for any console ever in history. And so it's a high mark.

What's also important to understand is that the pacing of our software this year was quite different than it was in 2008. In 2008, our big titles were released early in the year. And this year's huge title, released a few weeks ago in October, Wii Fit Plus, is doing quite well. And then arguably, the largest title of the year, New Super Mario Bros. for the Wii, only releases Sunday [November 15]. So we believe that going into the holiday season, consumers will continue to look for the products they see as representing the best value and the most fun.

Now on DS, we also had a record setting year last year, selling over 10 million units, and we are actually 16 percent above that pace year-to-date in 2009. So the combination of DS Lite and our new product DSi is really resonating with consumers.

Then on software, here in the U.S., our software for both Wii and Nintendo DS is actually up over a year ago. So despite the fact that our big titles are yet to come, we still have had a good year overlapping a tremendous year with our software.

Can you talk about some of the new titles Nintendo has in store for the holidays and next year? You mentioned Super Mario Bros. is a key title for the holidays. Are there others?
Dunaway: Looking to some of the additional titles for the holidays, New Super Mario Bros., for the first time enables four people to play a Mario game together. And it is going to be something that provides tremendous challenge to experienced gamers, and something a brand new gamer can jump in with their friends and family and enjoy. So that one will be a monster hit.

We also on the DS side have a new Zelda title--Zelda Spirit Tracks--coming on December 7. And Zelda titles are always strong performers, and it's a franchise that loyalists look forward to, line up to get copies of. And it's a title that we also think expanded market consumers will enjoy because of its heart. It's really about solving puzzles and going on an adventure, which is something that really anyone can have a good time doing.

Then as we go into next year, while we haven't announced timing, we have announced that we'll be launching a new Pokemon Gold and Silver, which has broken all records on its launch in Japan. [We're also launching] a title that will be great for loyalists called Sin & Punishment and a title called Endless Ocean that really provides a wonderful family experience on the Wii.

Third-party sales were in the news recently with Electronic Arts CEO John Riccitiello. He made comments expressing frustration about the Wii platform being weaker than anticipated and concerns about it affecting sales of third-party software. He said EA is trying to reach out to Nintendo to see if there were ways to get the company to work further with third-party companies. What is your reaction to his comments? Is Nintendo planning anything in terms of working differently with third-party developers to improve their game sales?
Dunaway: First, I think it's important to get some facts on the table about third-party sales. To date, third parties around the world have published 60 titles that have sold more than a million copies on the Nintendo DS. And that's compared to only 40 titles that are million-sellers for Nintendo first parties. So on DS, there have been many, many hugely successful titles. And they keep coming. I point to the recent launch of Scribblenauts as something that really highlights that when a developer brings innovation to our platform, consumers will respond.

Now moving to the Wii, there have been 43 million-plus sellers by third parties, which again is more than double the first party total. So when publishers put the kind of innovation that you see behind, whether it's in the music genre, the breakthrough of Guitar Hero, or Ubisoft's title Raving Rabbids, when they really utilize the innate capabilities of the Wii platform, consumers do respond to that.

Do you think his comment was off base, or do you think he had a point, specifically as far as EA?
Dunaway: I think people are still learning first how to make sure that they really use the capabilities of our platform in innovative ways. And secondly, people are still learning how to market to these new expanded audience consumers. And this industry has been one that's thrived on kind of "launch and move on." And we see that many titles for the Wii and DS have extremely long tails, and you need to continue to just create awareness and purchase intent and purchase consideration. And you need to deploy new types of marketing than what the industry has typically been doing.

For the Wii, there was a price cut of around $50 back in September. Is there any feedback whether that has helped or hurt sales up to now?
Dunaway: We believe NPD will report Wii sales of around 515,000 units for October, which will be [nearly the total] of the other next-generation consoles combined. And sales for October will be about 11 percent higher than sales in September. It's important to note that October is a four-week month overlapping September as a five-week month. And what we're seeing if we look at our average weekly sales post-pricing action versus pre-pricing action, that we're about 80 to 85 percent higher in any given week.

Do you find that Wii consumers are generally aware of everything they can do online with the console beyond playing purchased games? Or is it still a matter of consumers inadvertently discovering some of those things?
Dunaway: Out of sales and marketing, I can never rest thinking that consumers understand all the full capabilities of our platform. But certainly, one of the things that we're very driven by is trying to educate them on that. So recently we launched a new program that's available through the Wii called Nintendo Week. It's a hosted weekly show where we highlight new titles coming out. We highlight various things that can be done on the Wii and on the DS. And so that's been a great way to continue to educate consumers about the full capabilities.

Both Microsoft and Sony have announced their own motion capable devices. Sony is coming out with a motion controller, and Microsoft has been talking about its Natal project, both of which are supposed to come out next year. How concerned is Nintendo about Microsoft and Sony entering the motion control niche? Do you see those as potential competition?
Dunaway: Well, first, we feel flattered that motion control--which some people dismissed when it was first introduced by Wii back in 2003--is now becoming the industry standard. And it's easy to see why when you see the record-breaking sales that we have enjoyed over the past several years. And what we are most pleased with is that going into this holiday season, our motion control and true one-to-one connection between what people are doing with the remote and what's happening on the screen isn't something that people have to wait for or is being just being talked about in a PowerPoint presentation. But it's something that's in stores today and that people are already enjoying.

A bit about the DS portable market. Mr. Iwata in a recent interview spoke about the iPhone/iPod Touch. He did say he didn't see the iPhone as a competitor to the DS console. But from Apple's point of view, their marketing head, Phil Schiller, has talked about the DS and Sony PlayStation Portables not quite stacking up to the iPhone. Do you think the DS has lost any sales in the portable gaming market to the iPhone/iPod Touch?
Dunaway: Well, a couple of things. First, if history is any guide, you have seen numerous handheld manufacturers through the years say that they were going to take market share away from Nintendo, and it's really never played out. And the reason for that is we have a unique combination of great interface and great games.

And it's not about just the quantity of games; it's about offering people immersive experiences that you really only get through a New Super Mario Bros. or a Mario Kart on DS, or the new Zelda. No one can match the quality of games and the breath of genres that Nintendo DS can. And I think what's also important to note is what I mentioned earlier that even in this year when there's been so much talk about handheld competition, Nintendo DS is selling 16 percent more units than it sold in 2008, which was a record setting year. So we're on pace to have our best year ever, and I think that speaks to how consumers are continuing to see their needs met by our platform.

Continuing with the DS series, Nintendo has announced a new DS coming out soon, the DSi LL. Can you talk about that?
Dunaway: Sure. In Japan, they announced they'll be launching DSi LL. We will launch a version here in the U.S. that will be called the DSi XL. But it will not be coming out until sometime after the holidays. Given the sales trajectory that we have with our current DS Lite and DSi, we really don't feel a need to launch it here at the moment. But what the DSi XL features is a much larger screen--almost double the size of the current DSi screen--and it has the same clear, crisp resolution of the current DSi product. It enables multiple people to look at the screen at the same time. And so much in the way that the Wii was able to grow because it became a cult phenomenon, we think that the same opportunity exists with DS. Multiple people can watch. That means more people become interested, and we think more players will be created.

For long-term projections or forecasts, Sony has talked about its PlayStation having a 10-year lifecycle. How does Nintendo see the Wii playing out over the next 10 years? Do you see the Wii as leading your console division for that long?
Dunaway: Well, first Nintendo doesn't follow traditional lifecycle thinking. We always ask ourselves first is there continued potential for this platform. Are there more consumers who are interested who haven't yet purchased? And so the answer to that is, absolutely yes. For Wii, even breaking all records in the industry, with life-to-date sales of 22 million, if you compare that to the life-to-date of the PS2, they sold 44 million. So that would suggest that there are many opportunities to continue to sell Wii.

Also, we do research where we track the number of potential gamers who currently aren't playing any of the consoles. And we see about 50 million potential gamers out there. So again, that continues to represent opportunity. And the other thing that we always look for is can we continue to create new compelling experiences for the Wii? And certainly New Super Mario Bros., which is the first time four people have been able to play a Mario game, represents that. As you heard from Mr. Iwata at E3 last year, the Vitality Sensor, which is something we'll launch next year, represents that. So as long as there are potential people, as long as there are compelling experiences, we will continue to be selling and marketing the Wii.

I have a question my wife wanted me to ask. Why don't the Miis have any arms or legs?
Dunaway: (Laughs) Oh, because they're actually modeled after Japanese dolls. And there's a name for the dolls that I'm not recalling right now. But that was the model, and they just look fun. That's really the heart of a lot of the development decisions at Nintendo. It's just fun. Does it make people smile? And certainly, the Miis have done that. People just love those little guys.

I think my wife loves them. She's a physical therapist, so she was concerned about them missing certain body parts and how they could still function.
Dunaway: Actually, doesn't that send a positive message to the community that it's not about how many body parts you have, it's what you do with them?

That leads to another question as far as the graphics on the Wii. Typically, the older, traditional Wii games have tended toward very simple, basic graphics. Do you feel the more basic graphics have affected sales of the Wii, perhaps among hard-core gamers?
Dunaway: For us, it's not about the graphics. It's about the experience of the game play. And even those hard core gamers will tell you that beautiful graphics can't make up for poor quality game play. And so we focus on the experience. And as a matter of fact, with New Super Mario Bros., we got back to 2D. And as we're demoing the product and showing it both to loyalists and new fans, they love the 2D graphics on the Super Mario Bros. But more than that, they love the experience of the game play. So that's where our games will always focus.

There have been rumors of an HD capability coming to the Wii. Can you talk about any changes or enhancements we might see on the Wii next year?
Dunaway: I can tell you unequivocably that there will be no HD Wii. It just really isn't what the Wii experience is about.

One more rumor to address. Of course, both Sony and Microsoft have Netflix streaming on their gaming consoles. There's been a lot of buzz as to if and when Netflix might come to the Wii. Can you comment?
Dunaway: We don't have an announcement to make on that. But with 86 percent of Wiis sitting in the living room, and seeing that people are using Wiis outside of games, that continues to be an opportunity for us.

The people I know who have Wiis are using it as their new virtual gym. Does Nintendo have any health or fitness related statistics on how your customers are using the Wii and whether it's making a difference for people getting in shape?
Dunaway: We certainly hear stories that people write into us, and things that we read in the media all the time--whether it's new moms who are losing weight after having a baby, or it's seniors who are getting together and enjoying physical activities for the first time in years. My doctor was telling me about all of the people she sees in her office who have started exercising again because of the Wii and Wii Fit.

There was a recent story about one of the Padres players who lost a ton of weight using the Wii Fit. So we do hear those stories all the time, and they really make us happy. We feel like video games can be something that cannot only be fun but can also make a difference in people's lives. And we're certainly seeing that with Wii Fit.