Presentation of Financial Results in FY2014
May 8, 2015
Question and Answer Summary
Based on results of operations and your plan for FY2015, it looks like reaching the medium-term plan goal for the Digital Contents business will be difficult. What will you have to do to accomplish this goal?
We can divide the market into two categories that cover all platforms: core games and casual games. In the consumer and PC online sectors, the core games market still accounts for more than half of sales and we believe that growth will continue Furthermore, we believe that the success of titles for these core users will be critical to the growth of our Digital Contents business. This is why we will continue to develop titles in our major game series with the goal of a core user game market share of at least 5%. For casual users in the mobile game sector, we will use casual games that use our intellectual property in order to entice casual users to start enjoying our core games.
What is your stance regarding alliances with other companies?
We have several alliances, including an alliance with Tencent Holdings Limited (Tencent) in China for "Monster Hunter Online". In Japan, we have no plans for alliances that would involve outsourcing the entire development process in order to achieve growth. Right now, our basic policy is to develop titles internally. But in other countries, and especially in Asia, we are forming alliances with local companies for game distribution and operations in order to attract a broader range of users with operations that reflect the characteristics of each region.
Does your FY2015 plan include earnings from alliance partner titles in China?
No, it does not include these earnings.
Are you making progress with measures to reduce the time needed to develop titles in major series?
During the past few years, we have reorganized our development operations and enacted significant structural reforms. We have completed a framework that can use several lines for the production of a single series and have started using this system. We believe that one of the benefits of this framework will be a shorter development period, which is something we have yet been able to achieve. For titles that we are working on now, we expect that major benefits will start to appear from the fiscal year ending in March 2017.
I have the impression that there is a delay in the distribution of "Monster Hunter Online", which was developed with alliance partner Tencent. What is the cause?
Development of this title is on schedule. However, there are a number of popular titles that are likely to compete with "Monster Hunter Online". We believe that Tencent, which has considerable experience with operations and marketing in China, is very carefully considering the proper timing for the launch of this title.
Please provide information about the performance of Beeline, your other brand for Mobile Contents.
Beeline is still one of the key components of our operations. Our strategic objective for Mobile Contents is to use smartphone games to build relationships with casual users, ultimately making them buyers of our core games, a category where we are very competitive. The most important goal for Beeline is to create global hit titles by distributing "light content" targeting female casual users, the customer segment that has the least experience with playing games.
If performance of the PC online and Mobile Contents categories falls short of your plan for this fiscal year, could other categories offset this shortfall?
Profitability is now stable in the PC online and Mobile Contents categories because of the extraordinary loss we recorded in FY2013 and the actions we took to strengthen these operations in FY2014. As a result, we are confident that performance will be in line with the fiscal year plan. Furthermore, even if sales of a particular title are below our plan, we believe that the lower earnings can be offset because we have eliminated unnecessary expenses to establish lean operating frameworks in the other segments that are consistently profitable.
Please explain your policy for dividend to shareholders.
Distributing earnings to shareholders is one of our highest priorities. Our basic policy is to pay a stable dividend while making the investments required for growth. There is no change in this policy and we expect a dividend payout ratio of about 30% for this fiscal year.
Capcom is using downloads to sell remastered and other versions of catalogue titles. What is the relationship between package and digital download sales? Isn't there a risk of competition between these two channels?
HD remasters of our catalogue hit titles will be one of our key business activities. Overseas, it is becoming difficult to sell these lower-priced and re-mastered titles at stores because of the declining number of stores and sales area limitations. Therefore, we started aggressive digital download sales activities. These activities created new demand for these titles. For example, overseas download sales of "Resident Evil" (HD Remastered) in the past fiscal year were far higher than we expected. It is not a risk but rather the growth of the download sales channel gives users more options. We regard this as growth in opportunities to have allow access for more people to enjoy our games.
What are Capcom's major problems now and what are you doing about them?
One significant issue involves the growth of our game development workforce. We need to recruit these people and manage them efficiently after they join Capcom. Creating core games for today's generation of platforms requires larger development teams. That means we need to build a sound framework to support development operations. We are establishing a development management system that is capable of consistently creating core series titles. To recruit developers, we have extensive activities to hire new graduates. We also have a system for transferring know-how gained from our operations to new developers so they can quickly improve their skills. By using this cycle, we believe that we can maintain a high workforce utilization rate even after hiring more developers as we expand and upgrade our development lines.
What are the risks associated with the rapid growth in your development team?
One risk is the growth in fixed costs as the number of developer increases. But we believe we can hold down these costs by using our 52-week map for managing the utilization rate of these developers. In addition, we do not foresee significant additional costs resulting from stepping up recruiting activities. Therefore, we believe that additional expenses from growth in the number of developers will be minimal.
Will you submit a proposal for a takeover defense program at this year's shareholders meeting?
We have talked with many shareholders and other investors about this subject based on the events of last year. We are currently considering the submission of a proposal by Capcom at the shareholders meeting and have not yet reached a decision.
3rd Quarter in FY2014 Presentation of Financial Results
February 4, 2015
Question and Answer Summary
Do you think structural reforms will continue to produce benefits (improvement in the cost to sales ratio) in the Consumer sub-segment in the next fiscal year?
Since the previous fiscal year, we have been realigning our content development process management system. The goals are to increase the ratio of internal development, which has a higher profit margin, and use our development personnel more efficiently. Taking these actions has enabled us to use our people and manage costs with more flexibility.
As a result, we have largely completed the establishment of a framework that can more easily generate earnings. In addition, we believe that we can achieve more gains in efficiency by revising this organizational framework as it is used in order to more closely match our business operations. Consequently, we believe that benefits will continue to emerge for our development operations in the next fiscal year and the following years.
In the fourth quarter, will Mobile Contents sub-segment sales be less than in the previous quarter again?
Although we plan to launch new titles in the fourth quarter, we do not expect a significant increase in sales at this time. We believe that a contribution to earnings from the introduction of major new titles will start in the next fiscal year.
Please provide information about your title lineup for the fiscal year ending in March 2016.
We are currently developing a number of games, including major titles. We foresee more growth in our title lineup than in this fiscal year. But we are unable to provide more information because we are still working on the timetable for launching these titles and our plans for sales volume.
What specific actions have you taken to develop titles internally more efficiently?
We are unable to give you any details. But our actions primarily involved increasing visualization for the deployment of our development personnel in the Consumer sub-segment. This allows us to monitor with much accuracy how we are utilizing these people. We can reassign these creators with the proper timing and numbers as needed in order to prevent teams from having too many or too few members. We plan to further strengthen the use of this operating framework.
What are the potential risk factors concerning fourth quarter operating income?
There are no risk factors specific to any particular titles. In the fourth quarter, we will launch two major titles. One is "Monster Hunter 4 Ultimate", where we will start full-scale overseas distribution. The other is "Resident Evil Revelations 2", a title where we will for the first time start distributing episodes through digital download prior to the introduction of the complete game. Therefore, fourth quarter performance may differ somewhat from our current outlook.
Since your January 9 forecast revision, has there been any change in the impact of the alterations in the method used for testing new models by the Security Communications Association on the Amusement Equipments business?
There is no change. We are currently working on revisions to pachislo machine specifications and on the development of new models based on the revised rules.
How much do you expect to cut costs in the next fiscal year and afterward?
For fixed costs, we believe that we currently have an extremely lean operating framework. We will not place excessive emphasis on cost cutting from now on due to the risk of missing business opportunities by eliminating necessary expenses. For variable expenses, we can hold down costs in a manner that is linked to changes in sales. We plan to adopt a flexible approach to controlling these costs based the ratio of variable expenses to our sales plan. In addition, for the developing cost, we will continue to reduce the ratio of outsourcing while increasing the percentage of content we develop ourselves.
In Mobile Contents sub-segment, shouldn't Capcom form alliances with content development companies in order to develop games faster and gain more expertise involving the operation of content development activities?
In the Consumer sub-segment, we are shifting from external to internal development. But we need to outsource development tasks to other companies in some cases, such as when we require a specialized technology. For Mobile Contents, there have been many alliances involving content development and operations. So developing content internally is not always our highest priority. We will retain a flexible stance regarding this matter based on our workforce and our timetable for developing titles.
January 9, 2015
2nd Quarter in FY2014 Presentation of Financial Results
October 30, 2014
Question and Answer Summary
Are you making progress with your PC online and mobile contents operations in Asia?
We started distributing some titles in Asia in this second quarter and believe that we had a fairly good start. I am not able to provide numbers for individual titles. At this time, operations in Asia are a small share of our total sales and earnings because we have just started. We will continue to launch more content in Asia as we acquire more knowledge about marketing and other activities in this region.
My impression is that Capcom's Mobile Contents business has very few hit titles and is not moving fast enough in relation to new genres. How do you plan to deal with these issues?
Our Beeline brand faced challenges in fully taking advantage of the frontrunner position it gained with "Smurfs' Village". We worked on extending this brand's appeal from its core casual female user segment to other customer segments, but because our resources were spread out, we had difficulty in focusing on another big title. We will continue to focus this brand on casual games for women and we are developing games for distribution in the current fiscal year. For Capcom brand titles, we are using the new development framework created by our structural reforms to develop games that will be launched starting in 2015.
How have your conditions changed since you announced the medium-term plan? Can you reach your goals over the remaining three years?
When we established the plan, we were outsourcing the development of consumer games to a large number of companies. Now we have shifted to developing most of these games internally. We believe that we can achieve the plan's goals by using this more efficient development framework to increase profitability and thus operating income. In the P&S business, there have been revisions in the rules for testing these machines at the Security Communications Association and other changes. We believe that we can offset the fluctuating effect of these changes with higher earnings in our other businesses.
In the game industry, companies are focusing their resources by reducing the number of titles they develop and sell. What is your plan for new titles in the next fiscal year?
We are not able to share any details at this time about our plan for the next fiscal year. We will determine the number of titles to introduce based on our development operations, business plans and other factors.
How will the revision in the pachislo machine testing method of the Security Communications Association affect this year's performance of the Amusement Equipments business? Also, what is your outlook for the pachislo market?
Companies and organizations in this industry are currently discussing ways to respond to the new rules for testing. We are not able to make any comment now about how the new rules will influence the pachislo market. We have revised our fiscal year plan, and now plan to launch one new pachislo machine in the second half. Due to this change, we have revised our Amusement Equipments plan for the fiscal year to sales of 11 billion yen and operating income of 4 billion yen.
Why are companies that specialize in home video games having so much difficulty increasing their global share of the mobile market?
We believe the mobile market of today is similar to the period about 30 years ago when the arcade game market first emerged. When a boom takes place, it attracts a large number of people. But this popularity does not last forever. As we saw in the game market that followed the arcade game boom, we believe that the best opportunities for Capcom will appear once smartphone performance has become even more advanced and there has been even more progress with the volume and quality of games. From a short-term standpoint, it may appear that Capcom has challenges in generating earnings in the mobile market. But we are acquiring knowledge about the operation of mobile content (combining skills in marketing and development of high-quality games). Our plan is to concentrate on developing content that can reliably produce earnings several years from now after advances in performance and game quality have taken place.
Please provide information about sales of digital download content.
Full-game downloads of old and lower-priced titles are both higher than we expected.
What is your digital download content strategy?
We will place emphasis on both full-game downloads and downloads of add-on contents. Furthermore, as we will do with "Resident Evil Revelations 2", we intend to continue to explore new purchasing options, such as separate downloads for each chapter. In the marketing point of view, it would be difficult because of the enormous number of titles that people have to choose from. We must be able to provide people with information that precisely matches their preferences. This is why we will perform even more efficient marketing activities by conducting surveys to identify users' needs and taking other actions.
How do you plan to operate "Monster Hunter Online" in China?
Tencent Holdings Limited will be responsible for the development and operation of this game. Capcom will perform a supervisory role.
In what ways are the preferences of game users in China and Japan different?
We have not yet started full-scale game distribution in China. We plan to determine the preferences of consumers and gather other information after game operations have started.
Are there any negative aspects of an increase in the share of sales from digital download content?
A negative effect in the future could be possible. But with our current business model, we believe that the advantages of digital download content are greater, such as the absence of inventory risk.
What is the status of your activities to recruit developers and give them the skills to become project managers?
We will continue to hire about 100 developers each year. At first, new developers produce games as creators. As they gain experience, we will provide project management training while evaluating their management aptitude. We will deploy our human resources in an appropriate manner to meet our requirements.
What is your second half plan for pachislo machine introductions and sales volume?
We are currently planning to launch one new model in the second half and will submit an application by the end of November. Our second half sales goal is 10,000 units.
Please explain your activities involving new intellectual property.
Creating new intellectual property is one of our priorities. We allocate about 20% of our investments each fiscal year to intellectual property and are constantly working on developing new property. Producing an immediate hit from new intellectual property is not our objective. We want to build up this property in stages while incorporating the feedback and wishes of users.
What are your plans for emerging countries?
We have no specific announcements at this time, but in preparation for starting operations in these countries, we are conducting market surveys in Southeast Asia, South America and other regions.
1st Quarter in FY2014 Presentation of Financial Results
July 31, 2014
Question and Answer Summary
You have announced "Monster Hunter Explorer" today. How does it actually differ from "Monster Hunter Smart"?
One can play this title on Android in addition to iOS. Four players can cooperatively play in real time. Furthermore, several features such as the method of play, the manner of operation have also been improved. The game is being re-developed as a fresh title.
Is the development cost of "Monster Hunter Explorer" likely to exceed the initial estimate by a wide margin?
It is true that development costs rose because distribution was scheduled to start in 2015. However, the cost of development of this type of game is lower compared to that of home video games, so it will have no insignificant impact on the total development budget.
What are reasons for the year-on-year decline sales in the "PC Other" sub-segment?
The primary reason is the decline in sales of titles for the Asian markets. These titles made a contribution to sales in the previous fiscal year.
Please explain the cost reduction measures you have implemented in each business segment?
Compared to the previous fiscal year we reduced selling and general administration expenses by approximately 1.7 billion yen. The primary reasons for the reduction are as follows. We launched fewer titles so that sales promotion activities were also carried out more efficiently. As a result, sales promotion expenses came down by about 800 million yen. Reduction of administrative expenses across the company and a review of the timing of payments also contributed to bringing down expenses.
Please explain the trend in orders for in-house developed pachislo machine "Sengoku BASARA3"?
We are aggressively selling "Sengoku BASARA3". I am pleased to report that the order flow has been in line with our plan. We expect to reach the goal of selling 20,000 units.
Do you have any plans to release new titles at events such as the Tokyo Game Show?
A major title scheduled for this year, "Monster Hunter 4 Ultimate", has already been announced. We are now in the process of drawing up detailed plans for events such as the Tokyo Game Show. I am not in a position to provide you with more details at this moment.
Why have you partnered with multiple local partners for expanding business in Asia?
We are focusing on achieving efficiency through decentralization, while taking operational work load per title into consideration.
Do your business plans for the current fiscal year include expansion of online and mobile games in Asia?
The fiscal year plan includes online and mobile games related sales. However, I must point out that total sales will not be significant this year. We plan to expand steadily starting in the current fiscal year. We are also aiming at strengthening our earnings base by increasing the number of titles in these categories.
Please provide a breakdown of the 1.4 billion yen in mobile content sub-segment sales.
A breakdown of 3 months sales shows that the Capcom brand contributed 70% while the Beeline brand accounted for 30%. At present, the Capcom brand generates most of the operating income. We are on track to achieve the operating income target. I expect the ratio of the Capcom brand to the Beeline brand to be 6:4 in the current fiscal year.
Please explain the progress so far in reducing outsourcing of game development that is, developing more games in house?
Investment in in-house game development in the three months is in line with the initial plan. At the same time, outsourcing expenses are on the decline. I believe that the shift toward in-house game development is progressing faster than anticipated.
What is the outlook for reducing selling expenses for the whole fiscal year?
I am not in a position to disclose any concrete figures. All I can say at this point is that the review of sales promotion expenses, including enhancement of the efficiency of sales promotion activities, is an ongoing theme.
When it comes to expanding in the online and mobile markets in China, how do you view potential regulatory risks and risks arising from differences in preferences between gamers in Japan and China?
As a content developer, we are keenly aware of the difficulties associated with expanding business in China. For us, this will be the first attempt to get into the Chinese mobile and online game markets so I have nothing to add at this moment. Even if a problem surfaces after operations have commenced, in cooperation with our partners we will evaluate the options we have to solve the issue.
Have the changes you have instituted in the mobile game development organization started to produce results?
We completed organizational restructuring at the end of the previous fiscal year. Now, game development is being carried out under the new organization. Moreover, since issues related to individual projects have been clarified I believe that we now have a forward-looking development environment.
Please explain your position on free-to-play home video games (basically free, items are chargeable).
There is little precedent when it comes to free-to-play home video games. I believe "deep down", which we are in the process of developing, is an interesting title. Since this will be a new free-to-play title, it will increase the opportunities for signing up more users on more platforms. I see free-to-play games as a business model worthy of exploration.