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Business Activities and Future Outlook

This business develops and sells package games and digital download contents for the Consumer sub-segment. It also develops and manages Mobile Contents and PC Online Games. Consumer games involve creative original content focused on action and adventure. Many of these million-seller titles are used for smartphone, tablet device and PC online games distributed worldwide in an attempt to maximize earnings.

Net Sales/Operating Margin

diagram: Net Sales/Operating Margin

Assets/ROA

diagram: Assets/ROA

SWOT Analysis

SWOT Analysis

Market Trends

Consumer (Package and Digital Download Contents): Despite Continued Growth in Digital Download Contents, the Market Declined 8.9% in 2014

In 2014, the consumer (Package and digital download contents) market was worth 21.6 billion dollars (down 8.9% from the previous year), the third straight year of negative growth. This was due to (1) a limited supply of major titles despite the steadily increasing switchover to current game consoles and (2) the declining average unit price of software. The consumer market is primarily comprised of North America, Europe and Japan. In Europe and the United States, representing approximately 80% of the market, although download sales expanded along with the increasing spread of current game consoles, (1) and (2) resulted in a 5.3% decline year on year. In Japan, competition among apps for smartphones led to a 25% decline compared to the previous year.

However, in line with network infrastructure developments and the establishment of the online premium model, the digital download market, involving the download of full games, add-on content and past archive titles, is clearly growing, providing a degree support to the slumping market, which expanded globally to 8.7 billion dollars (up 17.6% compared to the previous year).

Consumer (Package and Digital Download Contents) Market

graph: Consumer (Package and Digital Download Contents) Market

Mobile Contents: The Market Expanded 53.1% in 2014 on Eye-Opening Growth in Japan and Asia

The Mobile Contents market grew from 14.7 billion dollars in 2013 to 22.5 billion dollars in 2014 (up 53.1% from the previous year), expanding to the same size as the Consumer market.

The main reasons for this were (1) the ongoing adoption of smartphones in all countries of the world, (2) the rise of sophisticated tablet devices and free communication apps such as LINE and (3) the growing game user population in line with the spread of native app games.

By region, the North American market was worth 5.4 billion dollars (up 38.5% from the previous year), the European market was worth 3.5 billion dollars (up 52.2% from the previous year) and the Asian market including Japan was worth 11.6 billion dollars (up 64.7% from the previous year). Furthermore, in emerging and Eastern European markets, as well as other areas, the global market grew steadily to 1.9 billion dollars (up 46.2% from the previous year).

The freemium (virtual item purchases/in-game purchases), a earnings model where users download a game for free, then purchase access to additional items and other game content as needed, has predominated in the market since about 2010. With freemium games, the key to manageability is using content power (brand/game function) to offer the appropriate services and premium games. For game companies with lots of popular software titles as well as mobile development companies with operational expertise, the opportunity to improve earnings is growing.

In 2014, smartphone shipments amounted to 1,252.3 million units (up 23.8% from the previous year), maintaining double-digit growth that is forecast to continue in 2015 amid the ongoing adoption of smartphones worldwide. Furthermore, higher demand for game devices in Japan and Asia and the expansion of popular content worldwide is expected to support ongoing expansion in the market. As a result, we forecast growth in the mobile contents market to 37.4 billion dollars in 2019 (up 66.2% compared to 2014).

Mobile Contents Market

diagram: Mobile Contents Market

PC Online: SNS Game Sluggishness Caused the Market to Shrink 14.2% in 2014

Despite contributions from the spread of cloud game services and digital sales in Europe and the United States, and an increase in Massively Multiplayer Online (MMO) game users in the Asian region, games played on Facebook and other SNS were sluggish, resulting in the 2014 PC online market declining to 24.7 billion dollars (down 14.2% from the previous year).

We expect growth to resume in 2015 and forecast the market to expand to 26.4 billion dollars (up 6.9% from the previous year). In the Asian market in particular, continued expansion mainly of MMO games is expected to drive growth from 9.1 billion dollars in 2014 to 9.8 billion dollars in 2019 (up 7.7% compared to 2014). As a result, the PC online game market is forecast at 26.6 billion dollars in 2019.

Operating Results for This Fiscal Year

Consumer (Package and Digital Download Contents): Despite the Repercussion from Lower Sales Last Fiscal Year, Sales Declined While Profit Increased Due to Earnings Composition Improvements Sales Were 35.2 Billion Yen (Down 33.6% From Last Fiscal Year)

Core title "Monster Hunter 4 Ultimate" generally met projections, selling 3.4 million units while "Ultra Street Fighter IV" targeting overseas users enjoyed brisk sales. "Resident Evil Revelations 2" made use of a variety of sales methods including download sales of episodes and package sales after digital distribution to become a million-seller title with 1.1 million units sold. Furthermore, "Resident Evil" (HD Remastered), a high-quality version of the original "Resident Evil" created for current game consoles, sold via download overseas is performing well and has already surpassed the sales projection of 900,000 units. However, the backlash from sales of major title "Monster Hunter 4" last fiscal year and a narrowing down of core software titles led to a significant decline in sales compared to the previous fiscal year.

At the same time, development structure revisions aimed at eliminating unprofitable outsourced titles and steady growth in the unit sales of previously developed repeat titles with wide profit margins resulted in an improved digital download sales ratio, from 18.3% last fiscal year to 25.6% this fiscal year, which significantly improved profitability.

As a result, package and full-game download sales totaled 13 million units (down 25.7% from the previous year), package sales were 26.2 billion yen (down 39.5% from the previous year), digital download sales were 9 billion yen (down 7.2% from the previous year) and Consumer sales were 35.2 billion yen (down 33.6% from the previous year), yet the operating margin still increased into the 20% range.

Mobile Contents: A Lack of Leading Titles Under the Capcom and Beeline Brands Resulted in Sales of 4.1 Billion Yen (Down 36.9% From the Previous Year)

Existing titles were unable to support the lack of leading titles under the Capcom and Beeline brands. Despite the success of some titles, including "Monster Hunter Hunting Quest" and "Monster Hunter Freedom Unite for iOS" under the Capcom brand, and "Smurfs' Village" under the Beeline brand, the intensely competitive environment posed an uphill battle dulling these achievements.

As a result, net sales tumbled to 4.1 billion yen (down 36.9% from the previous fiscal year). In terms of profits, the earnings composition was successfully restructured, raising the operating margin into the 20% range.

PC Online: Stable Contribution from "MHF" Maintained Nearly the Same Level of Sales as Last Year at 6 Billion Yen (Down 4.8% Year on Year)

"Monster Hunter Frontier G" (MHF), which is extremely popular in Japan, provided a stable contribution to earnings. We also released a new browser game "Monster Hunter Mezeporuta Kaitakuki".

As a result, sales were generally on track, amounting to 6 billion yen (down 4.8% from the previous year). In terms of profit, the success of cost reductions and selling, general and administrative expense revisions raised operating margins to the 15-20% range.

Summary

As a result, the Digital Contents business this fiscal year achieved sales of 45,351 million yen (down 31.1% from the previous fiscal year) and operating income of 10,208 million yen (up 127.4% from the previous fiscal year).

Sales by Genre

diagram: Sales by Genre

Outlook for the Next Fiscal Year

Consumer (Package and Digital Download Contents): Projecting Sales of 35 Billion Yen (Down 0.6% From the Previous Year) Based on the Release of Two Core Titles and Enhanced Digital Downloads, Maintaining the Same Level with a Lean Organizational Structure

To achieve the medium-term business goals, we are engaged in (1) strengthening digital download and (2) enhancing our title lineup through the full-fledged operation of a 60-month title development plan.

Efforts within (1) include expanding unit sales by strategically releasing full-game and add-on contents. Also, we will utilize one of our existing intellectual properties to proactively release an HD remastered version of a previous title for download sales in an attempt to create sales opportunities and increase the digital download sales ratio.

In terms of (2), we will (a) promote compatibility with multiple platforms aimed at both current and older game consoles and (b) release a new title within an existing popular series every 2.5 years based on our 60-month map title portfolio.

Units Shipped by Hardware (Package Only) Production Capital

diagram: Units Shipped by Hardware (Package Only)

Next fiscal year, we will release core titles "Monster Hunter X (Cross)" and "Street Fighter V" while further strengthening download sales, forecasting 13 million unit sales again this year. Accordingly, we anticipate sales of 35 billion yen (down 0.6% from the previous year). Operating margins are also expected to remain at nearly the same levels as this fiscal year due to stage 3 reforms aimed at creating a lean organizational structure.

Digital Contents Business Development Staff Human Capital

diagram: Digital Contents Business Development Staff

Mobile Contents: Forecasting Sales of 5.5 Billion Yen (Up 34.1% From the Previous Year) on Release of Highly Anticipated Title Releases in Japan and Overseas

Focusing efforts on creating the next hit titles, Mobile Contents will (1) make use of proprietary brands and accumulated management knowledge in the Capcom brand and (2) return to the source of our area of expertise in the Beeline brand.

Two Mobile Contents Brand Strategies Intellectual Capital

Brands Targets User Attributes
Capcom brand Mainly Japanese user segment Traditional Capcom fans
Beeline brand Global user segment High percentage of female and senior users

With respect to (1), Capcom brand development structure reforms were completed in the previous fiscal year, thus we are aiming for a solid hit in the domestic market using this new structure. We will combine the content power of the Consumer sub-segment with PC Online sub-segment management capabilities to release the highly anticipated title "Monster Hunter Explore" and distribute carefully selected native app games. We will also expand aggressively into the Asian market, including China, where smartphones continue to spread rapidly.

In terms of (2) the Beeline brand, we will distribute titles globally for the casual user segment making use of popular content including "Smurfs Village and the Magical Meadow" and "Ghostbusters Puzzle Fighter" while focusing efforts on managing existing titles such as "Snoopy's Sugar Drop" in Japan. As a result of these measures, we forecast Mobile Content sales of 5.5 billion yen (up 34.1% from the previous year). Operating income is also expected to increase compared to the previous fiscal year.

PC Online: Projecting Sales of 8 Billion Yen (Up 33.3% From the Previous Fiscal Year) Due to Stronger New Title Releases in Japan and Asia

In addition to a major "MHF" update, we will release "Dragon's Dogma Online" and "Breath of Fire 6", titles using popular IP expected to contribute to earnings. We will deploy "Monster Hunter Online" in the Chinese market through an alliance with China's Tencent Holdings Ltd, among other efforts to strengthen licensing in the Asian region. As a result of these measures, we forecast sales of 8 billion yen.

Summary

In summary, we expect both sales and income to grow, mainly in the PC Online and Mobile Contents sub-segments, and forecast net sales of 48.5 billion yen (up 6.9% from the previous year) and operating income of 11 billion yen (up 7.8% from the previous year) next fiscal year.

  • Image: "Monster Hunter 4 Ultimate"
    "Monster Hunter 4 Ultimate"
  • Image: "Ultra Street Fighter IV"
    "Ultra Street Fighter IV"
  • Image: "Resident Evil Revelations 2"
    "Resident Evil Revelations 2"
  • Image: "Resident Evil" (HD Remastered)
    "Resident Evil" (HD Remastered)
  • Image: "Monster Hunter Frontier G"
    "Monster Hunter Frontier G"
  • Image: "Monster Hunter Mezeporuta Kaitakuki"
    "Monster Hunter Mezeporuta Kaitakuki"
  • Image: "Monster Hunter X (Cross)"
    "Monster Hunter X (Cross)"
  • Image: "Street Fighter V"
    "Street Fighter V"
  • Image: "Monster Hunter Explore"
    "Monster Hunter Explore"
  • Imgage: "Smurfs Village and the Magical Meadow"
    "Smurfs Village and the Magical Meadow"
    © Peyo ‒ 2015 ‒ Licensed through Lafig Belgium ‒
    www.smurf.com. All game code
    © 2014 Beeline Interactive, Inc.

     
     
  • Image: "Dragon's Dogma Online"
    "Dragon's Dogma Online"
  • Image: "Monster Hunter Online"
    "Monster Hunter Online"
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