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Nintendo's Iwata
to Push Yamauchi's Management Legacy
By Hiroshi Suzuki
Tokyo, June 10 (Bloomberg) -- Satoro Iwata, a Nintendo
Co. director in charge of game development, remembers the day he was
summoned to the office of Hiroshi Yamauchi, who headed the video-
game maker for more than 50 years.
For two hours, the 74-year-old Yamauchi lectured Iwata on the
challenges he overcame to transform Nintendo into the world's
second-largest video-game maker from a producer of Japanese playing
cards. The reason for the speech, Iwata later discovered: Iwata was
about to be named president.
Now, Iwata must fulfill a vision that means forsaking a slugfest
with Sony Corp. and Microsoft Corp. on video-game consoles. Nintendo
lost its leadership of the $20 billion video- game industry to Sony
in the 1990's and its GameCube risks being eclipsed by Microsoft in
the No. 2 slot.
No matter how many consoles Sony sells, and whatever Microsoft does,
it is important for us to make our game software attractive enough
to drive consumers to buy our hardware," Iwata said in a press
conference.
Iwata's appointment comes at a critical time for the video- game
industry. U.S. spending on video games eclipsed movie box office
receipts by $1 billion last year, the second year such spending
outstripped movie takings. Nintendo's shares, meanwhile, have
tumbled, falling by more than a quarter since Jan. 1 while rival
Sony rose 15 percent.
Nintendo shares ended morning trade at 16,820 yen, down 0.7 percent.
Growing Industry
Driving growth is a new generation of consoles developed by Sony and
Microsoft that boast Internet connections, speedy graphics chips,
DVD players and hard-disk drives. They resemble personal computers
more than toys.
Yamauchi, whose 10 percent stake makes him the company's single
biggest shareholder, concedes that the new consoles are a hit with
game players and have helped the industry. Yet he insists that the
challenge is for Nintendo to stay focused on developing games.
"Iwata is the right guy for the job because he is acquainted
with both game software and hardware," Yamauchi said in a press
conference. "The game business is unique. Software should come
first and hardware second, but some people seem to see it the other
way around."
Iwata has had plenty of time to learn Yamaichi's style in the two
decades since he first began working at HAL Laboratories Inc., a
Nintendo unit created in 1980 to make games for the gamemaker's
consoles.
Computer Programmer
He came steeped in the tradition of computer programming. As a high
school student, he developed simple number games using an electronic
calculator, which he would then let his friends play, the
bespectacled Iwata said in an interview last week.
Iwata worked as a part-time games programmer before joining HAL
Laboratories full-time in 1982.
"My father didn't talk to me for about six months after I
joined HAL," Iwata said. "They must have thought I was
joining a religious cult."
Recently, there have been signs that Yamauchi's grip may be
softening. In March, Nintendo tied up with other software developers
for the first time -- Sega Corp. and Namco Ltd. -- to make new games
for GameCube.
That same months, Nintendo allowed Square Co., the maker of its
best-selling ``Final Fantasy'' series of games to make software for
the company. Square fell out of favor with Nintendo in 1996 after
its decision to supply its ``Final Fantasy'' games exclusively for
Sony's PlayStation machines.
Internet
In another sign Nintendo may be breaking from Yamauchi's hold, the
company last month outlined plans to link its GameCube to the
Internet.
Though Iwata described the moves as joint decisions made by Yamauchi
and Nintendo's new management, some investors said they indicate a
degree of independence.
"They may be an indication that Nintendo under a new president
will be a little more open to the outside and less conservative,"
said Michael King, a fund manager at Chicago, Illinois-based Liberty
Wanger Asset Management.
Yamauchi's success in video games -- Nintendo dominated the industry
in the 1990s -- didn't come overnight. After Yamauchi succeeded his
father as president in 1949, the company was almost forced to file
for bankruptcy in the late 1960s after several failed attempts to
expand its product lineup into toy guns, baby carriages and even to
fast food, according to several books written on Nintendo's history.
Chastened by the experience, Yamauchi vowed then not to borrow money
to fund Nintendo's operations.
"Even if we need 500 billion ($4 billion) or 1 trillion yen, I
never, ever want to bow my head to someone to ask for money, and
that is the very message I want to bestow on the new management,"
Yamauchi said last week.
Cash
Yamauchi has made good on that pledge. Nintendo held almost 900
billion yen in cash and deposits at the end of March, 30 percent
larger than Sony's holdings.
Yamauchi spent almost 30 years developing his philosophy that the
quality of video games is more important than the hardware on which
they're played. That point was driven home in 1977 when he met and
hired Shigeru Miyamoto, Nintendo's chief game designer, who went on
to create game characters Mario the plumber, Donkey Kong and Zelda.
In 1980, Nintendo released Game & Watch, the world's first
hand-held game player. Next came the release of Famicom, or the
Family Computer console, in 1983, a home video-game console system.
That was followed by the introduction of the ``Super Mario Bros.''
game in 1985 and the unveiling of Famicom in the U.S. as the
Nintendo Entertainment System.
Iwata must now guide Nintendo through what Miyamoto has called a
"make-or-break year."
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