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Growth Strategy 2: Online Business Expansion

Achieve Sales of 13.5 Billion Yen in Next Fiscal Year, Resume Growth Trajectory

In the Online business (Mobile Contents + PC Online Games) we will pursue measures aimed at (1) strengthening marketing and monetization, (2) enhancing our lineup of titles created internally and (3) promoting business alliances in the Asia region.

In the high growth rate Online market, the previous fiscal year was an uphill battle as the Mobile sub-segment plunged into the red. However, thanks to stage 2 reforms involving decisive actions being taken on structural and policy revisions based on analysis of issues and factors behind missed targets, the Online sub-segment significantly recovered, with operating margins that had been in the red the previous year improving to approximately 20%.

However, I think we have yet to sufficiently allay the concerns of investors with respect to our (Online) growth strategy. The reason for this is because the elimination of unprofitable titles and cost revisions contributed greatly to this improvement in profitability, and sales for the period were 10.1 billion yen, which is lower than the 12.8 billion yen in sales from the previous fiscal year.

Accordingly, the issue we are facing in the next fiscal year is returning to a growth trajectory in terms of sales. We will promote the following three measures to achieve net sales of 13.5 billion yen in the next fiscal year (an increase of 33.7% compared to this fiscal year) in order to change investor concerns into hopes.

Capcom Online Sales

diagram: Capcom Online Sales

Measure 1Strengthening Marketing and Monetization (Mobile)

To succeed in the Mobile business, it is important to maintain (1) popular content that can be differentiated from a sea of competition and has low barriers to entry and (2) operational expertise developed by analyzing user behavior post-launch, then providing feedback to development.

Despite owning a number of popular IPs such as "Resident Evil" under the Capcom brand, insufficient knowledge regarding native app management domestically last fiscal year resulted in an uphill battle in terms of earnings across the board. Consequently, as part of stage 2 reforms, parallel mobile development teams in Tokyo and Osaka were unified under the Tokyo team, which has a wealth of Online management business experience. As a result, we were able to make efficient use of management know-how and internal human resources.

At the same time, the Beeline brand also struggled in the last fiscal year. This was due to focusing too much on further growth and allocating resources to titles targeting male users and other areas traditionally not part of this brand's strength. Accordingly, in stage 2 reforms, we redirected focus to the female casual user segment, Beeline's traditional strength.

During the fiscal year under review, the immediate effect of eliminating unprofitable titles and revising costs resulted in sales of 4.1 billion yen (down 36.9% over the previous fiscal year) while the operating margin recovered to the 20% range. Next fiscal year, we are projecting increased sales amounting to 5.5 billion yen (up 34.1% from this fiscal year) due to an enhanced title lineup and expansion into Asia (Measure 3). We recognize next fiscal year as one in which the true value of our structure based on use of popular content and management expertise will be put to the test. The key to achieving these goals are "Monster Hunter Explore" and "Smurfs Village and the Magical Meadow".

Capcom Online Strategy (Matrix)

diagram: Capcom Online Strategy (Matrix)

Measure2Enhancing Titles Developed Internally (PC Online)

In the PC Online sub-segment, profitability declined significantly to the break-even point in the previous fiscal year due to intense competition from other companies' titles and the late execution of brand strategy. The issue was breaking dependence on "Monster Hunter Frontier G", in other words, making our title lineup more robust and efficient. Consequently, stage 2 reforms involved a drastic revision to the flow of Online development and the formulation of a new development map to establish a structure for medium-term growth.

This year, as in the Mobile sub-segment, the immediate effect of measures including the elimination of unprofitable titles and cost revisions resulted in sales of 6 billion yen (down 4.8% from the previous fiscal year), and the operating margin recovering to the 15% level. Next fiscal year, we are projecting increased sales amounting to 8 billion yen (up 33.3% from this fiscal year) due to an enhanced title lineup and expansion into Asia (Measure 3); we must make the coming year the starting point of full-scale growth. The key to achieving this, outside of titles targeting Asia, are the titles "Dragon's Dogma Online" and "Breath of Fire 6".

Measure 3 Maintaining Business Alliances in the Asia Region (Mobile and PC Online)

I think expansion into Asia has the potential to dramatically accelerate Capcom's growth. There are two methods of approaching this. The first method involves internal development and management through our Taiwan subsidiary, who is currently distributing "Onimusha Soul" and "Monster Hunter Frontier G" in Taiwan.

Business Alliances in the Asia Region Society-Related Capital

diagram: Business Alliances in the Asia Region

The other method involves development and management through business alliances with Asia's leading operating companies. The graphic below indicates the companies with which we have licensing agreements in China, the largest market in the world, as well as South Korea and Thailand. In particular, our collaboration with China's Tencent Holdings Ltd. on "Monster Hunter Online" (which began closed beta testing in April 2015), has been well-received by users. Furthermore, in terms of Mobile content, we are using existing apps to expand titles including "Monster Hunter Hunting Quest" in the Asia market, where the adoption of smartphones continues at a rapid pace.

List of Licensed Titles in Asia Society-Related Capital

Title Region Alliances
Mobile Contents
"Monster Hunter Hunting Quest"
(Simplified Chinese character version)
China Qihoo 360 Technology Co., Ltd.
"Street Fighter Battle Combination" China, South Korea,
Taiwan, Hong Kong
Teeplay Interactive社
"Street Fighter IV Arena" South Korea Nexon Korea社
PC Online Games
"Monster Hunter Online" China Tencent Holdings Ltd.
"Ghosts'n Goblins Online" China, South Korea Shanda Games Ltd.
PC Browser Games
"Onimusha Soul"
(Simplified Chinese version)
China Cayenne Entertainment Technology Co., Ltd. (Taiwan)
BLUE PANDA Network Technology Co., Ltd. (China)
"Onimusha Soul" (Thai version) Thailand Asiasoft Corporation Public Co., Ltd.
"Monster Hunter Mezeporuta Kaitakuki"
(Simplified Chinese version)
China Tencent Holdings Ltd.

The reasons why we are promoting business alliances in addition to internal development are to avoid country risk and gain management expertise. Thus, we have determined that at this time, alliances with leading companies in countries other than Taiwan are an effective means of maximizing earnings.

I consider the Online business to be the core of our growth strategy. The growth potential of this market also applies to management expertise and an increased digital download ratio in the Consumer sub-segment. In other words, sharing information and expertise with the Digital Contents business maximizes the synergetic effect.

As the COO and head of Capcom's development, I will do everything in my power to achieve success with this strategy and meet investor expectations.

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