DICE Feature: 'Surfing The Blue Ocean: Fils-Aime On Nintendo's Expanding Market'

Introduction

"I really do stand here in front of you as a consumerist, an executive who looks at a range of industries and consumer trends to predict what's going to happen in this industry,” said Nintendo of America’s Vice President of Sales and Marketing Reggie Fils-Aime to the assembled game industry executives at his DICE keynote.“I also look at what's going on in this gamer's point of view to find out what's hot and relevant, and how we can apply this to the industry.”

These were among the opening remarks of a speech entitled “Expanding the Market for Interactive Entertainment,” held at the 2006 DICE Summit in Las Vegas. The presentation touched on the gaming industry’s currently spiraling sales trends, and the necessity for attracting a market outside of the current “hardcore” user base.

Handhelds - The True Champions?

Despite declining home console sales, gaming revenue was at an all-time high in 2005, at 10.5 billion, partially due to sales of handheld units. In fact, according to Fils-Aime, the handheld market grew from 20% of the overall game sales market in 2004 to 35% in 2005. In terms of revenue, home console earnings were down 14% from 2004, while portable revenue was up an astonishing 88%.

“So while consoles continue to draw the most media attention, handhelds were truly the back-story to growth in 2005,” said Fils-Aime. “What's really surprising is that there's a 6% drop in the number of software sold. You would think that with approximately 57 million units of hardware in the home console area, these are all consumers looking to buy more games. And yet, there’s a 6% decline in the number of games sold. It really shows that the money moved over to handhelds.

The story in Japan is similar, said Fils-Aime. In fact, the handheld market last year almost single-handedly reversed the steady state of decline the Japanese gaming industry has been experiencing since 1997. “Console software and hardware continued to decline, but there was over 100% growth rate in the handheld segment. Now, certainly the DS wasn’t the only reason for that level of growth, but certainly we were a large part.”

“In addition to satisfying the needs of the core consumer, we were successful in bringing new gamers into gaming industry. And this is critical. The best known example is Nintendogs. It's not a traditional game by any standard measure, but the emotional attachment created with a pixilated puppy is phenomenal.”

Differentiating Game Content, Marketing

Speaking directly to game developers, Fils-Aime said the following: “What you do, from a software development standpoint, is critical in creating the game content. But what my peers need to do is market those games in different ways to truly appeal to the audience you're going after, and that's what we were able to do.”

Fils-Aime followed this up with a brief overview of the Nintendogs marketing campaign that targeted non-traditional game advertising outlets, including young female magazines such as Teen People and Seventeen. “We’re speaking to consumers in their own voice,” he said.

“We also gave samples away to thousands of consumers and generated consumer content well in advance of the launch, and opened this up on day one of the shipping. What this did was speak to consumers and let those who had already played the game talk about what they loved, which generated a huge level of interest.”

Fils-Aime also touched on Nintendo’s Brain Training software for the DS, which isn’t so much a game as it is a series of mental exercises designed to keep the brain ticking. The title, he pointed out, has been a consistent top seller in Japan since its release.

“Two weeks ago, Time Magazine was talking about the importance of training your brain, speaking mainly to later baby boomers. Now, imagine a gaming company talking about appealing to that demographic, people approaching 50 to 60. That’s what we’re doing. What we've been able to do, in Japan, is to draw appeal of video gaming into a whole new segment that typically wouldn't pick up a video game.”

“The marketing for these titles in critical. You won't see ads on MTV. We'll be marketing by going on daytime TV, partnering with Oprah, Ellen…totally unheard of for video games, but fundamentally what needs to be done to reach new audience.”

“We believe that there are a number of factors going on that make a compelling point to why things need to go differently,” he continued. “For the first time in our industry's existence, the number of blue chip recruits – males 10-14 – is actually declining, versus about twenty years of constant growth. If all we do is target men and boys, this industry will decline. The only way to reverse that would be to make gaming more popular, but data suggests that's not happening.”

DS Download Stations

One of Nintendo’s short-term solutions is what it’s calling DS Download Stations, which are units that broadcast content for the DS at retail locations. “These are branded areas were consumers can bring in their DS and get downloaded content on the spot, like game demos, trailers, items for games, maybe minigames,” he said. “The content stays on the DS only as long as the unit stays on. So they don't get to keep it. And this allows the consumer to be at the download station and try a whole variety of downloads.”

“We see this as a huge opportunity for retail partners, but also a huge sampling opportunity for each of you,” he said, referring to developers who may wish to express small ideas through the DS Download Stations. “Your little idea you haven't been able to convince those with pocketbooks [into funding] can be sampled for the first time, and you let the consumers vote. It’s a great new window for developers to find out what can be done.”

“In short, those considering developing for DS, come to us with any ideas.”

An announcement was also made in regards to Metroid Prime Hunters for the Nintendo DS, planned for April 20th: the ability to chat via VoIP. “This won't be in-game trash talking, but the ability for owners of the software to talk and chat with friends prior to and after games.”

Revolutionary Ideas?

Fils-Aime then discussed Nintendo’s next console, code-named the Revolution. “Its sole purpose is to deliver groundbreaking entertainment to the consumer, and we are focused on attracting a much wider audience than those currently playing games,” he said. “And certainly for you in the audience, it moves us much closer to democracy. We want every idea you have to make its way to the Revolution, and to be rewarded with the opportunity to be seen, rather than with a big paycheck.”

“[Revolution] promises to do both more and less. You can take this idea to a whole different realm of possibilities, or create simpler, more accessible titles. It’s really a wide open playground. You can make a more affordable game if you want, or if you want to use traditional mechanics, we have a cradle that can be used.”

“My main message here today is that we as an industry can not take growth for granted,” Fils-Aime concluded. “All of us have a continuing challenge to bring gaming to a whole new level, to appeal to consumers who game today as well as to those who do not. To make gaming more relevant, but also to reach out with new innovations to those who aren't in our industry. Truly I give you an invitation from myself and from Mr. Iwata: come join us in the blue ocean of opportunity. Thanks for your time.”

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