Overall software market size and our market position are described.
Home Video Game Software Markets (package)
Although the package market contracted 3.8% from the previous year, downloadable content (DLC) increased 53.6% and the rapidly expanding PC online market increased 33.6%
In 2011, the home video game (package) market was worth 22,500 million dollars (down 3.8% from the previous year), the third straight year of negative growth. As in the previous year, the reasons for this include (1) a decline in game console annual unit sales, as manufacturers have not introduced new hardware for six years, (2) lower average retail prices of package software as a result of intensified competition, (3) the diversification of sales into digital distribution and other forms, etc.
The market mainly consists of three regions: North America, Europe and Japan. While the ratio of each region's share was 5:3:2, respectively, around 2000, our overseas sales ratio is increasing every year due to the maturation of the Japanese market, caused by a falling birthrate and various other social factors, as well as the increase in the global gaming population combined with the growth of emerging gaming nations. In 2011, sales were 10.1 billion dollars (down 6.5% from the previous year) in North America, 8.9 billion dollars (down 1.1% from the previous year) in Europe and 3.5 billion dollars (down 2.8% from the previous year) in Japan, with foreign markets representing 85% of the overall market.
As for the outlook for the next fiscal year, although Nintendo will release the new game console Wii U and the market will be continue to be invigorated by the increase of DLC, time is required before the next generation console cycle begins in earnest. We expect the total market for package games and DLC to decline slightly to 26,000 million dollars (down 3.0% from the previous year).
PC Online and Downloadable Content (DLC) Market
The downloadable content (DLC) market expanded significantly to 4.3 billion dollars (up 53.6% from the previous year), a result of companies beginning to focus on DLC associated with major titles and the advance of global network infrastructure improvements. Consequently, the home video game market is trending higher than the previous year on the combination of package games and DLC. The PC online game market, with an increase in users due to the rise of new genres such as Facebook and other SNS browser games, grew rapidly to 18.7 billion dollars (up 33.6% from the previous year).
The 2012 PC online game market is forecast to continue expanding to 20,800 million dollars (up 11.2% from the previous year). Improvements to the global network environment and an increase in households with broadband will be the drivers of growth. In addition to the growth in households with broadband from 334 million in 2011 to 442 million by 2016, and the introduction of new channels such as game services using cloud computing, we expect the package game market to expand to over 26,200 million dollars by 2016.
Market Share by Region (CY2011 Amount of Sales for Package Software)
In 2011, as a result of repercussions from the global sale of several major titles in the previous year, our market shares in the respective markets where we operate were as follows: Japan 7.6% (down 3.4 points from the previous year), North America 1.5% (down 0.1 points from the previous year) and Europe 0.8% (down 0.8 points from the previous year).
Mobile Content Market
76.2% Increase in Rapidly Growing Global Mobile Contents Market
Chance to Expand Earnings for Companies Possessing Numerous Popular Software Properties
The 2011 mobile contents market achieved significant global growth, increasing to 7,400 million dollars from 4,200 million dollars in 2010 (up 76.2% from the previous year). The main reasons for this were (1) the advance of smartphones and other mobile devices in all countries of the world, (2) the rise of high-performance tablet devices and (3) the spread of social games due to the increase in mobile users.
By region, the advanced North American market was worth 1,970 million dollars (up 75.9% from the previous year) and the European market was worth 1,280 million dollars (up 70.7% from the previous year) and the Asian market including Japan was worth 3,230 million dollars (up 77.5% from the previous year). Furthermore, in emerging and Eastern European markets, as well as other areas, the global market grew rapidly to 910 million dollars (up 84.6% from previous fiscal year).
Furthermore, in the domestic social game market, although the Japan Consumer Affairs Agency introduced regulation on "complete gacha" mechanics causing concern the market would shrink, part of the regulation lessened the impact. Formulating guidelines regarding in-game representations, each operating company strengthened voluntary initiatives to improve the game environment and provide users with peace of mind, safety and enjoyment. Capcom expects this market to grow as game developers, no longer dependent on speculation, will continue to provide wholesome and original games.
Feature Phone and Smartphone Markets
For the past three years, the mobile content market has been in a period of great upheaval. This is because of (1) changes in the ways that users purchase games and (2) changes in development company business models. With regard to the first point, up to now games were purchased using a "sell-out" model, where the user purchased a single download of their chosen game. Recently, the trend has shifted toward the "Freemium" model, where the game can be downloaded for free, but a premium is charged for access to additional items and other game content the user may require.
In regards to the second point, for development companies, the standard mobile phone market has been largely unprofitable for two reasons. (a) The OS used for the handsets of each mobile phone company differed, and distributing games across a jumble of disparate networks required transplantation costs, and (b) to distribute games to users required interfacing with several companies (the handset maker, the telecommunications provider, etc.), which led to high fees (50% of sales in the United States and Europe).
However, with the introduction of open source operating systems such as Apple's iOS and Google's Android in the smartphone market, (i) development companies are now able to distribute content to a wide range of users with these limited OS platforms without the need for transplantation costs and (ii) with fewer companies to interface with along the way, fees are lower (30% of sales with iOS). As a result, companies possessing numerous notably popular software properties are able to release several leading titles as one part of multiplatform development, expanding opportunities to improve profits.
Mobile Phone Market Shipments
In terms of future outlook, given the global distribution system including Apple's App Store and Google's Google Market Place, Capcom expects smartphone shipments to exceed the 480 million units (up 63.5% from previous year) shipped in 2012. Also, the rapid spread of tablet devices is expected to drive expansion in the mobile market as its share grows from 1.9% in 2011 to 34.4% by 2016.
Arcade Facilities Market Trends
Market Declines Slightly by 1.7%, Near Last Year's Level on Inexpensive,
Nearby and Short-Duration Leisure Activities
Market Has Stabilized from Stronger Management of Each Company's Existing Facilities
During the previous fiscal year (ended March 31, 2011), the number of facilities decreased after the domestic arcade facility market contracted for three straight years, its value decreasing to 495.8 billion yen (down 1.7% from the previous year); the rapid decline, which started in fiscal 2007 and lasted for three years has temporarily ceased.
This fiscal year (ended March 31, 2012) despite the voluntary restraint resulting from the Great East Japan Earthquake of March 2011 and its impact on consumer consciousness, inexpensive, nearby and short-duration leisure activities fueled the renewal of arcade facilities. However, electricity conservation from summer resulted in shorter hours of operation and flagging popularity of prizes, resulting in a market nearly the same as last year.
In terms of outlook for the future, concerns over planned power outages in certain areas and repercussions from last year's expansion of short-distance leisure cannot dispel the uncertainties. However, closing unprofitable facilities and augmenting investment in existing facilities, we expect to secure about the same level of investment in the development of new products as last year as the market stabilizes.
Change in Number of Storefronts
Facilities decreased slightly to 18,638 locations (down 3.0% from the previous year).
Major Gaming Machines Market (New Machine Sales)
Pachinko Machine Market Contracts by 10.0%, Pachislo Machine Market Expands 26.9%
and Arcade Game Market Bottoms Out, Heads for Recovery
The Amusement Equipments business consists of two businesses that develop the content of our home video games, the Pachinko & Pachislo business and the Arcade Games Sales business. The size of the Pachinko & Pachislo sales market during the previous fiscal year (ended March 31, 2011) contracted slightly to 1173.6 billion yen (down 3.1% from the previous year). This was primarily due to significant contraction in the Pachinko machine market, which accounts for 60-70% of the market.
During this fiscal year (ended March 31, 2012), in accordance with the modification to the gaming aspect of Pachinko machines under the "Regulations on the Entertainment and Amusement Trades Rationalizing Act" revised in 2004, although the market has until now continued to focus on decreasing Pachislo and increasing Pachinko, with Pachinko machine oversupply and the greatly improved operational experience of Pachislo machines, the Pachislo machine backlash continues.
In terms of the outlook for the future, with respect to Pachislo machines, the arrival of major hit machines selling over 50,000 units, as well as the development of cases that meet market needs stimulating purchase intention of Pachislo halls, we expect the market to be revitalized.
Arcade Game Market Trends
In the previous fiscal year, in line with the bottoming out of the amusement facilities market, the arcade games domestic product sales market surpassed the previous year for the first time in four years, growing to 161.6 billion yen (up 3.2% from the previous year) .
By genre, prize game machines (accounting for 20.4% of the market), which are easily affected by the economy, increased to 32.9 billion yen (up 9.3% from the previous year). Other factors affecting market recovery were coin-operated games (accounting for 18.9% of the market), which grew to 30.6 billion yen (up 5.9% from the previous year). In this fiscal year, the market is nearly on track with last year due to the return of facility operators'need for capital expenditure and additional customers from the release of popular character-themed products.
In terms of the outlook for the future, although there is apprehension over repercussions from inexpensive, nearby and short-duration leisure activities that intensified after the earthquake, with new prize products and coin-operated game machines, as well as the release of network machines, a gentle recovery should be on the way.