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Conversation: An Analyst's Perspective on Capcom's Strategy for Growth

Haruhiro Tsujimoto /President and Chief Operating Officer (COO), Capcom co., Ltd.  // Kenji Kido / Analyst, Active Strategic Operations Division, Mizuho Trust & Banking Co., Ltd.

Discussion
Mobile Breakthroughs and New Business Opportunities in the Consumer Business

Amid rapid expansion in the mobile game market and structural changes in consumer game distribution, the market environment surrounding the game industry continues to undergo dramatic changes. How does Capcom view the changing environment, and what strategies will be employed to target further growth? Analyst Kenji Kido speaks with President and Chief Operating Officer Haruhiro Tsujimoto.

Response to Mobile Game Market

Kido
I'd like to begin with the mobile game market, which is the most active area within the game industry at present. Capcom's position in this market up to now has recovered profitability, yet it hasn't been all that successful. What are the reasons for this?
Tsujimoto
It is clear that smart devices as a game platform will further expand going forward. We recognize this is a crucial area, so Capcom will by necessity employ a multiplatform strategy. The biggest reason why we have not had obvious success up to now is because we did not have sufficient business knowledge in this area. Mobile games are basically free to play and attract many users, some of whom purchase additional content, which is how this business model generates earnings. We need to develop management capabilities that enable ongoing additional content purchases to be successful. Although we were successful with browser games, I think we need to enhance our knowledge of apps.
Kido
To that end, don't you first need to increase your number of experience points? To generate a hit, you multiply "at bats" by "batting average". I get a sense you haven't had many "at bats". Can't you acquire new knowledge through the experience of creating a slew of different titles?
Tsujimoto
In the fiscal year ending March 31, 2016, we will increase the number of mobile game releases compared to the previous fiscal year, but I don't think simply launching a variety of different titles is the answer. Given the extreme level of competition in the current market, users don't accept mediocre titles regardless of how many we put out there.
Kido
Well, the mobile game market certainly does seem to be coalescing around top-rate content, so I suppose it would be difficult to generate a hit with a new title released at this time. In that sense, rather than trying to monetize the market, shouldn't Capcom position mobile games as an entry platform for widening user perspectives and instead focus development investment on your forte in consumer games?
photo:Haruhiro Tsujimoto
Tsujimoto
Of course, we are focused on supporting current game consoles and the consumer segment as the top priority. However, once we generate a mobile hit in Japan, we can license it out for deployment in 200 countries around the world, including he massive Asian market. In this way, even a modest hit in Japan can generate a profitable synergetic effect. There are many regions that are highly profitable and pose no harm to consumer games, so rather than looking at mobile as a side business, we are making an all-out effort to move this business forward. This fiscal year, we will heighten our presence in the market, beginning with domestic distribution of "Monster Hunter Explore".

Distribution Structure Changes in the Core User Market

Tsujimoto
Regarding consumer games, there are dramatic changes taking place in this market's distribution structure. Up to now, package games sat in distribution warehouses or on retail store shelves, and profitability was limited due to allowance for sales returns and other problems. The arrival of digital download sales was a turning point. Accurately responding to these dramatic changes will lead to enormous business opportunities.
Kido
So changes in the distribution structure of games for core users will bring about an environment in which Capcom can easily make the most of its strengths?
Tsujimoto
Yes, that's right. For example, last year we launched "Resident Evil" (HD Remastered), which was available overseas via download only and performed extremely well. Regarding package sales in North America and Europe, up to now, major titles took up most of the space on retail store shelves, making it difficult for small and medium-sized titles to be seen, but digital download sales enable a direct connection with users. Going forward, we can approach users by appealing to the quality of each title.
Kido
I think this is an opportunity for Capcom, as you possesses numerous powerful IP (content). However, in the core user market overseas there is strong competition from Activision and other companies, which makes for somewhat challenging conditions. If other companies adopt a similar focus on the download business, we can expect that competition will intensify going forward. How would you compete in such an environment and what strategies would you employ?
Tsujimoto
First, we will launch titles with superior IP, our strength, on an approximate 2.5 year cycle. Second, after launching the full game, we will regularly release add-on content over the long term to ensure users do not lose interest. Third, we will make use of existing assets, as we did with "Resident Evil" (HD Remastered). Our strength lies in our IP brand power and the numerous titles we possess, so we invest the most in releases to enhance our core title lineup. From next fiscal year forward, I think we will be able to provide more tangible results.
photo:Kenji Kido

The Future of the Game Market and Capcom's Strategy

Kido
Focusing on changes in the market environments of mobile, consumer and PC online games, I'd like Capcom to move steadily forward to the future and do what needs to be done. However, I feel there is a bottleneck in terms of human resources. For the past two years, you have focused on in-house software development as you attempt to respond to a variety of changes, but do you have enough personnel to get the job done?
Tsujimoto
At present, we are engaged in efficient, high-quality game development through title enhancement via increasingly complex game development, in-house development engine R&D and improved staff productivity. We are aware that domestic game manufacturers are taking fairly independent paths, so rather than outsourcing personnel, we are cultivating them in-house. We will proactively promote hiring based on a plan to increase the number of developers we employ to 2,500 people by 2022. We are casting a wide net to attract personnel with proven success in areas other than games.
Kido
Are you confident these attempts will enable Capcom to secure talented staff?
Tsujimoto
With unique stories, characters and the development of multiple worldviews, Capcom game content has garnered numerous fans over the years. Among these, there are in fact many talented people who want to create games at Capcom. In recent years, we have proactively hired new graduates, as well as conducted a wide range of employment activities, including job fairs and developer performance seminars overseas. These efforts have enabled us to make modest progress in securing personnel with strong global potential.

After the Conversation

At present, Capcom has a minor presence in the mobile game market. In terms of pursuing the Single Content Multiple Usage strategy, mobile success or failure will have a major impact on achieving medium-term business goals. At the same time, in the consumer games market, Capcom should allocate resources to areas where returns can be expected using IP accumulated up to now. From my perspective, the structural changes in game distribution are still in the initial stages, so if Capcom moves quickly, there is strong potential for first-mover profits.

In terms of in-house development, I thought cultivating personnel would take time and be very risky, but I now understand that the internal know-how already exists and I recognize the merits of being able to exert control. Rather than simply increasing the number of personnel, the issue going forward will be the degree to which Capcom is able to retain high-quality personnel. (Kido)

Analyst Dialogue Profile: Kenji Kido

March 1993 Graduates Hiroshima University of Economics
April 1993 Joins Yasuda Trust & Banking (now Mizuho Trust & Banking)
Became analyst covering game and amusement sector

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