Reggie Fils-Aime talks about E3, industry change, and what Nintendo is doing for a comeback (interview)

LOS ANGELES — Reggie Fils-Aime has been at Nintendo of America for a decade, but the last three years have been tough as Nintendo, the parent company, hasn’t made an operating profit. The Wii U game console isn’t selling anywhere near as well as expected, especially compared to the prior Wii that sold more than 100 million systems. The 3DS handheld is selling, but mobile devices have eroded its market share.

To fix this, Nintendo is focusing on what it does best: making great games. Mario Kart 8 has helped Wii U sales. But will it be enough? Fils-Aime, the president of the publisher’s American branch, also says that Nintendo is embracing change as evidenced by its effort to create entertainment that improves “quality of life.” Will that arrive in time?

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We caught up with Fils-Aime at this week’s Electronic Entertainment Expo (E3) trade show in Los Angeles.

Here’s an edited transcript of our interview.

GamesBeat: We’ve looked at your booth. What are you excited about?

Reggie Fils-Aime: You need to play Smash Bros. 3DS. 60 frames per second. It looks gorgeous. We’re showing off a new mode called Smash Run. It’s a fabulous execution in the Smash Bros. library. We think the fans are going to really enjoy powering up their skills, powering up their characters, and then being able to take their characters into the Wii U version.

GamesBeat: Your approach to E3 hasn’t changed since last year, I take it? You’re focusing on the games.

Reggie: Always. This is my 10-year anniversary since my first E3. Since the first one I participated in back in 2004, we’ve always focused on the games. Even when we’ve launched new hardware, we’ve focused on the games as a way to bring that hardware to life. That continues to be our focus. We’re doing it in new and unique ways, creating content that’s consumable directly by the consumer and shareable as well, like what we did with the digital event. Things are going well.

The last three years for Nintendo have been operating profit negative. It’s a situation that we’ve never had before. For us, what that has done is brought into sharp focus the need for us to have compelling software to drive our hardware installed base, which will create an opportunity for independent developers to bring content to our system.

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To break that down, the 3DS business is on a roll. We’ve been able to globally sell more than 40 million units. We’ve done that by having fantastic software, and not just our big franchises like Super Mario side-scrolling games or Mario Kart or a great new Zelda game. We’ve done it by having smaller games, whether they’re the next Fire Emblem, which did extremely well across the world, or new installments in the Kid Icarus series, as well as a very robust eShop.

On our Wii U business, we believe we began turning the corner during the holiday season with the launches of the new Donkey Kong game and Super Mario 3D World. That momentum continues with the launch of Mario Kart 8. We announced not just that we’ve sold 1.2 million units on a global basis, but we announced to the financial community here in the United States that Mario Kart 8 has increased the sell-through of the Wii U hardware business by a factor of four. In the two weeks prior to the launch, versus what we’ve seen now following the launch, we’re selling at a daily rate four times higher than where we were before.

Now it’s about continuing that steady pace of sales. Hyrule Warriors. Bayonetta 2, with Bayonetta packed in as an added bonus for the consumer. The launch of Smash Bros., the launch of Captain Toad, following that next year with Splatoon and the Miyamoto projects. All of that is how we need to move forward from the current situation we see ourselves in today.

GamesBeat: There’s still a relative success, where people may expect you to achieve more. Mario Kart has shown good numbers, but it’s lower than it would have been if you had a higher installed base. There’s some good and there’s still some challenges.

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Reggie: This is what makes us different from all the other publishers. We have launched Mario Kart 8 roughly a year and a half into the life of Wii U. That game is going to sell in big numbers now through the end of life. That’s a very different proposition than what many other publishers do. They annualize their content. They launch and the content is gone four months later. Because of the high quality of our software, because they really are system-selling must-have games, they sell for years and years.

We’re still selling Mario Kart DS when that product was launched in 2005. We’re still selling New Super Mario Bros. for the Wii. That was launched, I think, in 2008? We sell product for years. The argument of, boy, maybe Nintendo should have waited until the installed base was higher? No. These games drive our installed base.

GamesBeat: Do you feel more of a sense of urgency because of the operating profit situation? Are you accelerating some things, even though you want that high quality?

Reggie: We always have a sense of urgency. During the years where we were selling 10 million DSes and 10 million Wiis in the U.S., we still had a sense of urgency. Video games is the only business we’re in. We’re focused on driving the installed base of our two platforms. We’re focused on launching great software. We’re focused on building an installed base that entices the big third-party publishers to support the platform. We’re focused on creating an environment in our eShop where the small independent developer is bringing their best content. As long as we operate with that sense of urgency across all those different initiatives, then we will drive a positive return for our shareholders.

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GamesBeat: Splatoon is very interesting. It’s a brand new IP there. It reminded me of a small game THQ published, De Blob, but the difference is that De Blob didn’t have multiplayer. It’s a nice reminder that creativity is often just one small idea.

Reggie: I say this with no disrespect to any other developer, but I really do believe that our EAD teams are second to none. I think Splatoon has a number of gameplay elements that make the game incredibly fun and incredibly addictive. It has the ink-squirting mechanic, but on top of that, the ability to turn into the squid and travel through the ink, using it as camouflage, being in the ink while the other team is coming about and getting them—The strategy component of going for space, going for the other team, choosing which weapon to use, it’s an incredibly deep game. We’ll be showcasing more depth. All we’re showing at E3 is the four-on-four multiplayer, but the developers have a lot more modes that they’re working on and that they’ll be revealing in the future.

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GamesBeat: Is there a single-player campaign?

Reggie: We’re not showing single-player, but as I said, the developers have a lot more modes coming.

GamesBeat: I’ve seen quite a few games that have multiplayer only, is why I ask. In some ways that seems like a good way for smaller companies to cut budgets and save time. But it also seems like it’s a direction gamers are going in.

Reggie: I’d disagree on that last point. I think gamers want a full-featured experience. I think it’s actually a mistake to cut out modes. Now, certain games, in the way they’re conceptualized, they are what they are. I played Rainbow Six: Siege, Ubi’s five-on-five game. The innovation there is that it’s a one-shot kill. Now there’s strategy to it, which makes that interesting. I don’t know if they’re going to have a mode where all of the other entities are non-playable characters. That doesn’t seem like a lot of fun to me. I think it needs to be that online multiplayer to bring it to life.

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So it depends on the game. But in the first-person shooter genre, I would argue that not having a fully featured campaign mode, in this day and age, would be a bit of a mistake. Even though all of the hours played are likely going to be in multiplayer.

GamesBeat: Splatoon also seems like an interesting thing to do because you have so many brands, so many characters. You probably have teams enough to cover some fraction of them. Then you dust off different ones every four or five years and people go crazy. It doesn’t seem like you necessarily need more new intellectual property.

Reggie: The interesting thing there is that in fact we’re constantly generating new IP. The introduction of Miis with the original Wii is a form of new IP. At times I’m disappointed that people don’t think about it that way, but these customizable characters that you can now play across a range of different games and do a range of different things with is incredibly compelling. Tomodachi Life incorporates Miis, but we think it’s a whole new type of game. It was quite effective in the Japanese market, and we’re optimistic that it’s the first step in creating the same type of effectiveness here in the western market. That game’s off to a nice start, having just launched this past Friday.

We believe it’s important to invent new franchises, just as it’s important to reinvent our franchises — the next Zelda game, the next Mario Kart game, the next Super Mario side-scroller. We believe we have to be able to do both.

GamesBeat: Is it correct that you have Valhalla’s game?

Reggie: Correct. Devil’s Third, exclusive to Wii U.

GamesBeat: Is that on the horizon?

Reggie: It is. We haven’t announced a launch date. We demo’d it in a number of live shows for the various game enthusiast media. We’re very excited about that.

GamesBeat: What’s some of the thinking around securing something like that?

Reggie: It’s the same thinking that has us securing Bayonetta 2. For us, it’s important to have a range of content. Our developers know the developers of these various series. For us it’s a great business opportunity.

GamesBeat: Given that you want to climb out of the last three years, how much do you have greenlight?

Reggie: Our greenlight decisions are based on compelling gameplay experiences that are huge fun for the consumer and that we believe will generate a positive financial return for us. It’s not a numbers game. It’s looking at each project independently and making sure that the gameplay is fun, that there’s a unique aspect to it, and having it be the best quality it can be. Part of my job, with my team here at NOA, is then thinking about the right time to launch it. The thought process around sequencing the various launches is important.

With Bayonetta and Hyrule Warriors, those games are going to launch fairly closely together. We think they appeal to similar audiences. Essentially, by growing the installed base of that more active gamer, we’ll help those games be even more effective.

GamesBeat: Certain sectors and markets are always under attack by competitors. The kids’ market seems like one of those. Free-to-play and mobile have really gone after that market. How do you hang on to this segment that’s so important?

Reggie: It’s critical for us to have kids grow into and aspire to play Nintendo content. I think about how I introduced my kids to Mario and to The Legend of Zelda. We have to find ways to do that today. We’re doing it in a variety of different ways. We had about 10 kids here yesterday, unique kids — kids who write for Time for Kids, kids who have their own YouTube channels. We had them interacting with Mr. Miyamoto and playing our games. They had a fabulous time. We think that type of activity, and having the kids themselves broadcast out what they found appealing, is critically important.

We’re doing things around our web presence. We’re going to be launching, later this year, a dedicated kids and parents portal that speaks directly to kids and introduces them to our franchises. It gives moms and dads some fun activities – how to plan a Mario-themed birthday party. Things that we know parents are interested in, but there’s not a ready resource. That kind of information doesn’t exist on Nintendo.com today. It’s a day to day job for us to create messaging and content for kids and parents to keep filling the funnel of new consumers to play our games.

GamesBeat: A lot of the answer, I think, is “doing what we do best and doing better.” What part of the answer involves change?

Reggie: You’re talking about a 120-plus-year-old company that started by selling paper playing cards. We know all about change. We know all about evolving our entertainment capabilities for the current marketplace. I would argue that we have changed and we’ll continue to change.

What we try to do, though, is change in ways that make sense for the long-term health of the company. That’s why we’ve said, over and over again, that right now we believe it is in our best interest, as well as the best interest of the playing consumer, to have our content reside only on our platforms. We don’t think it would be a great Mario Kart experience, for example, to play Mario Kart on a smartphone or tablet.

Now, having said that, we did just launch Mario Kart TV, an online presence highlighting gameplay that fans are posting to the web. We get internet memes like the Luigi Death Stare. We believe we’re touching many more consumers, and we do believe that’s helping drive some awareness and interest in a game like Mario Kart. So we’re going to continue to evolve, but we’ll evolve on our terms, in ways we believe make the most sense for the business model.

GamesBeat: You also have this toy-game hybrid here, Amiibo. It seems like a good idea, competing against Skylanders and Disney–

Reggie: We’re not going to compete with Skylanders and Disney. First point, north of 50 percent of the combined Skylanders and Disney Infinity business is done on Nintendo platforms in the United States. 58 percent, to be exact. We want that ongoing level of effectiveness on our platforms.

What we believe Amiibo does is offer a completely different type of experience. First, it’s Nintendo IP. That drives a level of appeal. The gameplay will be across multiple games. We think kids are going to love that. We think mom and dad are going to love that. The third way it creates a point of difference is that the demographic footprint for Amiibo, we think, is going to be much wider. We see the inclusion of the more youth-oriented characters like Kirby and Pikachu and Yoshi, and characters like Princess Peach that might have more appeal to girls. We see the collectability with young adults who are interested in our characters. We think our footprint is going to be larger than what the current toys-to-life category players have been able to create. Again, it’s a great example of entering a space, but doing it in a uniquely Nintendo way.

GamesBeat: Do you have anything else happening in relation to your health emphasis?

Reggie: We’ve got nothing to announce on quality of life. Mr. Iwata has said that he’ll be sharing more information later this year. The product itself is for our next fiscal year. But it’s continuing to be actively worked on.

GamesBeat: When you go around and look, are you pleased with what you see? Are you worried that core gaming might not be as strong as it used to be?

Reggie: I see some very interesting examples of gameplay. I mentioned what Ubi’s doing with Rainbow Six. I have to say, I see a lot of me-too content. I see a lot of shooters that don’t seem very differentiated. I see a lot of zombie games that don’t feel very differentiated. I see games utilizing gore and violence for the sake of gore and violence. I see things that trouble me. I don’t like the concept of a game where you’re shooting at policemen. I think that’s bad for our industry. But I also see some very interesting things as well.

GamesBeat: You guys are successful and have been. The thing is how much success is also all around you. There’s Supercell. There’s Minecraft. There are areas of gaming that didn’t exist before. That’s making the game business more competitive.

Reggie: Absolutely. That runs the game business. It makes it more competitive. What I find interesting are the names that people bring up today versus the names they brought up two or three years ago. In your list of examples—People don’t say Zynga anymore.

GamesBeat: They said Angry Birds last year.

Reggie: Yeah, they say that less as well.

GamesBeat: One point I was going to bring up, the people who want you to go broad and big across all platforms have some examples before them, and they’re companies that haven’t succeeded with that. Angry Birds has gone past its peak. It hit every single possible platform, including T-shirts and stuffed animals. Zynga is another case.

Reggie: So what’s the lesson there?

GamesBeat: Proceed with caution, definitely.

Reggie: The other piece, I would say, is that as franchises have tried to expand beyond the executions that brought them success, has the quality of the experience been degraded? Are the games no longer fun? That’s a big issue for some of these companies that have had the one-hit wonder, or maybe the two-hit wonder. Where do you go from here?

GamesBeat: There’s still something to be learned from some of these recent successes. What can Nintendo learn from mobile or from Minecraft?

Reggie: We’re not so arrogant to believe that we have all of the answers. That’s why, at an event like this, Mr. Miyamoto and the key developers walk the floor. They see interesting examples of what people are doing. That’s why I walk the floor, to see what others are doing that’s interesting. It’s a very fast-moving category. We have to be smart in looking at what others do.

That’s why we’re experimenting with free-to-play. That’s why we’ve experimented with using smart devices from a marketing standpoint. We’re going to continue to experiment. But we’re also going to be smart in making sure that we drive our fundamental business as well.