The Gerard Klauer Mattison Conference in New York was an important event for Nintendo. It is an investor conference where Nintendo sold themselves to current and potential investors. Peter MacDougall gave a speach detailing Nintendo success and it's future.

It certainly is a pleasure to be here representing the most time-honored name in the video game industry, an industry which a few years ago was called "obsolete" and the same industry which today they say is virtually recession- proof. It's true, despite the dismal economic conditions which surround us, dedicated video games in America are indeed on track to set yet another revenue record this year.

Twelve months ago, most observers saw the video game industry surpassing $10 billion at retail for the first time in 2002. Well, what were they thinking of? The experts now say we may even reach $11 billion. And remember, two years ago we didn't even reach $7 billion. That's an impressive leap and there are several key factors working to make this possible.

The first, and maybe most apparent, is the number of people over the age of 18 who have flocked to game play. Back in the early '90s, the percentage of console players under the age of 18 was 61 percent. The most recent IDSA survey puts that at 45 percent for the industry as a whole. And Sony's own internal study states the corresponding number of PlayStation 2 users is just 30 percent. Part of this shift is the simple result of former younger players never losing their passion.

The IDSA surveys what it calls "most frequent" players. Of that group, about two in five have been playing less than five years. More than a quarter began playing regularly between six and 10 years ago. Thirteen percent have been at it between 11 and 15 years, and one in six has been playing more than 16 years. That means a lot of people in the '80s who enjoyed Duck Hunt and their first Mario games never put down their controllers.

Secondly, the fact that those older players have more disposable income is also having a direct and very beneficial impact. The adoption rate for new hardware is faster than ever before, for both consoles and our handheld Game Boy Advance.

At a similar point in the last generation of consoles, approaching the holiday season of 1997, we in America had collectively sold through about 9 million systems. Today, the corresponding number is over 15 million. And our Game Boy Advance is the fastest-selling new video game system of any type in U.S. history.

There is similar great news on the software front. Obviously, hardware penetration is essential but when it comes to profits, most of the action comes from game sales. Again, I'll use the 1995-1997 period as a benchmark. At a similar point in that generation, the Nintendo 64, PlayStation 1 and Sega Saturn had combined to sell-through four games for every console sale. Today, that ratio is 5.2 to one.

This increase is built on the backs of extensive game libraries for all three systems. By end of summer, there were already 400 games available for the three systems combined. And in the last four months of this year, another 400 will arrive. There literally is something for everyone in a mix that large. Meanwhile, for Game Boy Advance, the library for this single product will grow to 300 titles this year, and portable tie ratios are running at an all-time high of 3.5 to one. So, when you combine a rate of hardware penetration that's nearly double the last cycle and a proportional rate of game sales that's more than 20 percent higher, that huge leap in retail revenues makes a lot of sense. Will it continue? Well, for the foreseeable future, the answer is ?"absolutely." This holiday season is going to be, in a word, gangbusters.

This is the first time in industry history that three viable manufacturers have battled it out over any sustained period of time. As all of our marketing plans and release lists indicate, no one is backing down, and with a market almost double what it was just a couple of years ago, there's no reason all three can't prosper.

On a global basis, an outside research firm puts cumulative worldwide shipments of game consoles by year-end at almost 70 million units. Here in North America, we see total console shipments of 27 million at the end of our fiscal year in March, and that's still less than half of the 60 - 70 million we project for this generation.

The technology is better than ever ? the selection of software is wider than ever. And inarguably, the very nature of our entertainment experience is far better than it's ever been before. Could we say that same thing right now about movies or music or TV? For our industry, right now we're in the middle of a pivotal holiday season and it's full speed ahead. But beyond the dollars, I'd like to explore a couple of significant ways in which our business is changing and also look at where it remains the same as ever.

The axiom that we remain, like movies or music, a hit-driven business has never been truer. It's no secret that just a handful of top sellers drive our business, while at the same time a significant number of game releases never make back their development investments. One focus of industry analysis relates to both the top 10 sellers and the top 30. Specifically of all units represented by the top 30, what percentage does just the top 10 represent?

In 1999, those 10 accounted for 47 percent of that number, and in 2000, fueled by the Pok?mon phenomenon, that percentage temporarily jumped to 52 percent. Last year, it receded to a more typical 48 percent but still, to translate, that meant the top 10 games were selling about as many units as the next 20 combined. So far this year, the proportion is running at historic highs; through September, the top 10 games represented 56 percent of the top 30 total.

The fact is that among these hundreds of new releases here at the end of 2002, there will emerge just a handful to define the gaming experience for some time to come. For every developer and publisher, mega hits remain the siren song of the industry. Similarly, another trend continues unabated -- great games have great legs.

In August, despite the strong introductions of our Super Mario Sunshine and a raft of popular new football titles, the charts featured a number of long- term successes. Of the top 20 sellers, just six were new; five had arrived at retail between 30 and 90 days earlier, nine of the top 20 (almost half) were anywhere from four to 13 months old. And we should acknowledge one other constant: video games remain a male-dominated pursuit. According to independent research, nine out of every 10 console players are male, although the number of female players for Game Boy Advance does hit 20 percent.

While the key essentials remain constant, let me move to a couple of things that indeed, are changing. The first and most obvious one is the quality and nature of the games. I know I'm not the only one here who remembers when video games were defined by the stirring graphics of Pong and the deep game play of Space Invaders. Today, when an athlete running in a video game can be mistaken for one on a live broadcast, when cartoon characters in games look and move just like they do on Saturday morning, it's no wonder that our market is expanding to include players with much more demanding tastes. And as they enter the market, they're seeking a full range of entertainment content.

Among all game sales, the percentage of units carrying mature ratings has gone from about six percent two years ago to over 12 percent last year. Thus far in 2002, among only the top 30 sellers, the number is almost 25 percent.

Players with more money and more mature tastes demand content that is deeper, more visually stimulating and more emotionally involving. And guess what? That kind of content costs more money. I think many of you are aware that the average cost of development for a console game, which once was well below $1 million now has reached several million, and more than one publisher has spent in excess of $10 million to complete a single project. And remember, this is before the first penny of marketing, packaging or distribution is counted.

Thus, the consolidation of game development resources is understandable. We have seen, and will continue to see many smaller developers either swallowed up by larger companies or disappear altogether. So what happens then? As has happened before, many are looking for a life preserver ? something to rescue them from the burden of money-losing hardware or the hundreds of games that are released and then quickly forgotten. Today's popular life preserver is called online gaming.

From a player standpoint, online can, indeed, be "thrilling" but viewed from the bottom line of a business plan, its prospects are somewhat more "chilling."

At Nintendo, we remain intrigued by the potential, just as we were back in the mid-'80s when we first connected our NES machines to a network in Japan. And it could be that players will decide, en masse, that the thrill of matching up against unseen opponents is worth the cost of monthly subscription fees, and maybe a bill for broadband access, on top of their hardware and software purchases. But for manufacturers and publishers, substantial online bets had better pay off. Unfortunately, there are several notable examples already where those bets did not.

Serious money is required to maintain the technology of a networked game, not to mention the regular infusion of new content to refresh player interest. Our master game designer, Shigeru Miyamoto, says that if he truly applied himself to an online project, it would significantly reduce the number of games he develops -- because its design would never end. Beyond creative and maintenance resources, we also have to find out just where online gamers will come from.

If online play grows our market in real numbers, that's wonderful. If, however, it merely cannibalizes existing hardcore players, the payoff may disappoint. Now, we at Nintendo don't want to be seen as naysayers. After all, Nintendo GameCube is fully adaptable to handle both broadband and modem-enabled network games. In fact, our first such product, Sega's excellent Phantasy Star Online just went on sale. But bottom line, if you look at online games today ? promise? Yes. Life preserver? Not yet.

Let me describe to you how Nintendo is adapting to this market: showing flexibility where dynamics demand it and remaining as productive as ever executing against what is unchanged. At one time, it was possible for Nintendo internally to develop most of the best-selling games that played on our systems; those days are long gone.

No company can hope to meet all the tastes of such an immense audience, and that puts a premium on building relationships with outside development resources. We've made huge inroads with independent publishers and the result is seen in the expansion of our game libraries. Perhaps most noteworthy is our reconnection with Square of Japan, creators of the Final Fantasy series. You will soon see exclusive Final Fantasy games again playing on Nintendo systems.

By September, there were already 80 games available for Nintendo GameCube, and counting from Labor Day until New Year's Eve, that number will grow by another 100. For comparison purposes, that total portfolio of 180 games is exactly four times the amount we generated in a similar period for Nintendo 64. And the same thing is happening in portable software. By year-end, the library of Game Boy Advance-specific titles will jump to 300.

While breadth is important, so is exclusivity. Every manufacturer, like every game publisher, is chasing a mega-hit to sell his system. Even better, if you capture one that is available only on your system, you've given yourself a huge competitive advantage.

For quite some time, our new president Satoru Iwata has been working to do exactly that. Many of the partnerships we've recently announced -- many months in the making -- are about to deliver exclusive payoffs. We've created a joint venture with both Sega and Namco called "Triforce" to migrate the Nintendo GameCube technology to arcades. Not only is Nintendo GameCube's combination of high power and low cost ideal for cutting-edge, site-based applications but there's a game payoff for Nintendo as well.

In the same time period that many of those new thrillers hit the arcades, Nintendo GameCube versions will be released for play at home. The first of such projects -- the high-speed racer F-Zero -- arrives in the front half of next year. Separately, we've come to an agreement with Capcom, so a series of its immensely popular Resident Evil games will be exclusive to Nintendo. And here in North America, our second-party equity positions with companies like Retro Studios and Silicon Knights assure that their work will also appear only on Nintendo.

The majority of these deals also indicate a second significant change for us: the aggressive targeting of the teen and 20-something market. We are rolling out substantially more high-profile games for that audience and implementing sharply focused marketing tactics to talk to them. The push begins in earnest over the next few weeks when we bring an explosive one-two punch to retail with two exclusives: Retro Studios' Metroid Prime and Capcom's Resident Evil 0

Metroid Prime is the first console appearance for that wildly successful franchise in eight years. Along with Rockstar's Vice City, Metroid Prime has all but dominated online fever concerning upcoming, older content games, and we're backing it with our largest, game-specific budget in over three years. As just one example, beginning November 1st, moviegoers in 6,000 theatres nationwide will start "getting primed"' with a one-minute spot on the big screen; at the same time, TV viewers will be seeing the same one-minute spot on their not-quite-so-big screens at home.

Closely preceding Metroid Prime is the launch of Resident Evil 0. This is the franchise that has already proven there's an eager audience thirsting for mature content on Nintendo GameCube. In April, Capcom launched its first Resident Evil exclusive. Within weeks, it sold through to one out of every six Nintendo GameCube owners, and remember, this for a strictly limited mature audience. Undoubtedly, older Nintendo GameCube fans are out there just waiting to be served.

As good as these two hits are, they are only part of a much larger story. All told, we are featuring dozens of new releases here in the latter part of the year with particular appeal to older gamers. Every major publisher, every hit franchise is represented and we're communicating with older players this fall in new and more focused ways. Here are a few examples:

We're about to move to market limited supplies of our platinum version of Nintendo GameCube hardware, which promises very strong appeal to older players
Exclusive Nintendo Cube Clubs will run in urban storefronts in 15 cities, featuring live music and extensive hands-on game play
We'll be distribute 3.5 million DVDs featuring over 80 minutes of game play from two dozen new titles
We're sponsoring the U.S.S.A. Snowboarding Grand Prix
We're running promotional partnerships with companies like Heineken
We're conducting numerous out-of-home programs in schools, malls, college campuses, airports, and nightclubs

Make no mistake, Nintendo is right in the middle of this game! We'll let older players know Nintendo GameCube is a great place to be. Overall, our marketing spend in the second half of this year is up 25 percent over the similar period last year and that was for the launch season for Nintendo GameCube. Certainly, within that increase, older players are a specific target but understand, this outreach is an expansion of our marketing efforts, not a strategic redirection of our mission.

Like Disney's movie groups, we're convinced we can fully maintain the all-family appeal of characters like Mario and Yoshi and Pok?mon, while at the same time making ourselves more relevant to older gamers. We will not only maintain but also actually increase our market appeal to younger and all- family players. To explain how, let me take a brief step back to the demographic breakdown I described earlier.

When you say the plus-18 crowd is now making up a larger percentage of console players, it's only logical to ask, "Well, what happened to the kids?" Or, in other words, is what we're offering now, on the whole, too intense, too complicated or too violent for a 10-year-old? Perhaps on some consoles but as an industry, the answer is no. They're still responding with as much excitement as ever. Here in America, our Super Mario Sunshine, whose appeal certainly includes younger players, launched during the last six days of August. Despite less than a week's availability, it immediately jumped to number two on the sales charts for the full month, and it will easily become a million-seller, joining the top 10 list for the year.

Across Europe, Mario's impact was equally strong. Unit sales exceeded 300,000 in just nine days and boosted the sales rate for Nintendo GameCube hardware by 60 percent. Now, the multi-million-selling Mario Party series also made its debut on Nintendo GameCube. But I think there's an even more significant issue at work in explaining that smaller percentage of younger players on consoles. It's called Game Boy Advance.

We now have over a dozen years of sales history around the world for our Game Boy line, and you can see that despite constant restaging: smaller housings, the addition of color, new 32-bit technology ? it has always been a great seller and lately, it's moving faster than ever. Last year we sold through 19 million Game Boy Advances around the world, an all-time high. And although it's probably unrealistic to maintain that extraordinary level indefinitely over time, the trend-line consistently reaches upwards. If you scratch a little deeper, further evidence emerges. Back in 1992, when the original Game Boy was all the rage, the proportion of players under the age of 12 was 29 percent. Today, that number has jumped to 40 percent, and that's on a geometrically higher numerical base.

Younger gamers deterred by cost and a generation of game consoles that, to date, has largely been driven by teen and mature rated titles, have opted instead to buy Game Boy Advance as their point of entry into new gaming technology. In understanding its appeal, it's also instructive to look at what games are selling on Game Boy Advance.

Over the last 15 years, home console owners have most enjoyed the exploits of characters like Mario, Sonic and Zelda. Maybe it's more than coincidence that when you look at the top-selling Game Boy software thus far in 2002, whose names should pop up but Mario, Sonic and Zelda? Younger players are discovering these games for the first time because after all, they're brand new to them. The easy-to-play, character-based challenge of these adventures is every bit as attractive to a pre-teen today as it was a decade ago. It's just available now on a different device. So, we have no intention of changing this recipe.

A huge splash will come in December with the introduction of The Legend of Zelda that includes Zelda: Four Swords. This single SKU marks the first four- person Zelda game in history. Also, our pink puffball Kirby, now a certified star in the worlds of Saturday morning cartoons and licensed merchandise, returns in a new Game Boy Advance title next month. Game Boy is also where Pok?mon sprang to life and where Pok?mon returns early next year with Pok?mon Ruby and Sapphire.

Additionally, to further appeal to the young gamer's appetite for low cost, easy- to-play games, we recently launched an exciting new Game Boy Advance accessory. Our exclusive e-Reader swipes optical data right off the edges of traditional collectable trading cards and transforms it into a brand new entertainment experience. For example, complete classic NES games are available to e-Reader owners for under $5.

We believe this is the holiday season in which many Game Boy Advance owners will acquire their very first console. We also strongly believe Nintendo is uniquely positioned to be their system of choice. With Nintendo GameCube offering a line-up of character-based games so familiar to them, the chance to see these characters play out on the bigger screen will be a compelling proposition. We also provide another unique reason to buy our console, the ability to connect Nintendo GameCube and Game Boy Advance.

For example, in the hugely popular Animal Crossing Nintendo GameCube game, connecting the two platforms opens up new game environments. For e- Reader owners swiping the Animal Crossing card further enhances the game play experience. The step from Game Boy Advance ownership to Nintendo GameCube play should be an easy one. But I don't want to fool you into thinking Game Boy Advance is just for kids; quite the contrary. You might be surprised to find out how many members of the audience here today spend down time in airplanes or even on subways enjoying Game Boy.

The big news this fall includes hit titles like Minority Report, Turok Evolution and Castlevania, and to add to that, Metroid Fusion is fully connectable to our Metroid Prime console software.

I've focused on user demographics -- teens and young adults versus kids and tweens and the need for different software, separate marketing programs and the opportunity that comes from capturing their changing gaming needs as they progress through the market. However, it is not always that clear cut. The fact of the matter is that innovation is ageless. That Animal Crossing game I referenced originally targeted an ages 8 to 12 market. We assumed kids would be most attracted to the premise that rather than accomplishing a specific goal, the fun comes in just living an alternative life: design your own village, your own relationships, even your own clothes. Well, we aimed too narrow.

The reaction from all ages, especially adults, is approaching cult proportions. At launch, Animal Crossing immediately rose to number 7 on the console charts. Almost three quarters of a million visitors have already clicked on to the dedicated Web site. Hundreds of custom game applications are offered for bid on e-bay. A college coed from Florida says, "I wake up in the morning and it's the first thing I think about." A housewife in Georgia says, "I have to set my kitchen timer so I know when it's time to quit." And the rock group Weezer has specific instructions on its own Web site on how to download their music into the game.

New innovative gaming experiences, indeed, are for everyone. At E3 this past May, we predicted a strong holiday season for Nintendo and nothing has transpired since to change our perspective. And let me assure you, the drumbeat continues right into the first quarter of next year.

Look for new software launches that include our exclusive snowboarder 1080: Avalanche for Nintendo GameCube, and dozens of titles from our third party partners, most notably, the Nintendo GameCube debut of The Legend of Zelda. Theater goers will begin seeing game trailers in the month of December, providing yet another reason to request the Nintendo GameCube system this holiday season.

For Nintendo, another trip to the Gerard Klauer Mattison Conference seems like yet another chance to answer doubters. For two decades we've responded to doomsayers who saw us about to be trampled by other technology, other publishers, other manufacturers. To be sure, today we remain the last pure play in the sector, challenged by two much larger, more diversified competitors for whom video games are but a single strategy within a larger mission. Well, let me be clear.

Nintendo is in the software business -- to stay. Nintendo is in the handheld business -- to stay. And Nintendo is most certainly in the home console business -- to stay. Work is well underway on the successor technology to both Game Boy Advance and Nintendo GameCube.

The industry future is bright and Nintendo's future is equally bright. In the end, this business is all about a game player saying, "Man, that's cool!" In generating that kind of response, we feel we hold a unique combination of assets: deep financial reserves, a history of both business flexibility and product innovation, unrivaled, world-renowned game franchises, powerful partnerships with second and third party developers, and an absolute dedication to one simple goal - the very best in video games.

And consequently, the very best of Nintendo is still to come.