We are engaged in two businesses based on the contents used for our home video games. The Pachinko & Pachislo (PS) business is involved in the development, manufacture and sales of frames and LCD devices for gaming machines as well as software. The Arcade Games Sales business develops, produces and sells arcade games for amusement facilities, creating synergy between businesses.
Net Sales/Operating Margin
During the previous fiscal year (ended March 31, 2014), the Pachinko and Pachislo market declined to 1,083.2 billion yen (down 10.0% from the previous year). The main reason for this was a fourth consecutive year of contraction in the Pachinko machine market. At the same time, the increasing size of new facilities contributed to the Pachislo market, which grew for the fourth consecutive year, to 473.3 billion yen (up 10.1% from the previous year), propping up the market.
Gaming Machines Market
Classic characters and prizes using popular content led to brisk sales in the arcade games for amusement facilities market, amounting to 36.6 billion yen (up 18.4% from the previous year). However, coin-operated games, accounting for 15% of the market, were pushed back by a stream of low-cost products from Asia, resulting in sales of 24.5 billion yen (down 29.8% from the previous year). As a result, the overall arcade games for amusement facilities market remained nearly the same at 163.5 billion yen (down 2.4% from the previous year).
Arcade Game Market
This fiscal year (ended March 31, 2015), the Pachislo market contracted significantly due to a decline in the number of new machines caused by a change to the rules governing Pachislo machine model certification methods*1, which the Security Communications Association made effective in September 2014. Furthermore, the arcade games for amusement facilities market declined due to a loss of investment appetite caused by the April 2014 consumption tax ike.
In terms of the future outlook, despite the elimination of changes to the rules governing Pachislo machine model certification methods*2, we plan to implement functional limitations on sub-substrates in December 2015 and expect ongoing uncertainty in the second half of the fiscal year. Also, in the arcade games for amusement facilities market, we anticipate sales of music game machines, card game machines and a variety of other prominent machines will likely spur investment among facility operators and maintain market stability.
|*1. Model certification||A public test to verify whether or not gaming machines are in accordance with regulations conducted by the Security Communications Association on behalf of public safety commissions in each of Japan's administrative divisions.|
|*2. Changes to certification methods||Three self-imposed restraints implemented in stages. Up to November 2014 (1) guarantee a minimum (55%) ball dispensing ratio, (2) implement limits on penalty functions, and from December 2015 (3) implement functional limitations in sub-substrates.|
Capcom's strength in this business is our ability to maintain high profitability through the multiple usage of our wealth of intellectual properties in a variety of areas.
In the PS sub-segment, Capcom develops attractive software featuring our proprietary content along with that of other companies, using our technological expertise in high-resolution image processing cultivated through the development of home video games is our strength. This year (ended March 31, 2015), the PS sub-segment sold 20,000 units of "Sengoku BASARA 3" as highly profitable repeat sales supported earnings. However, the sale of new machines was postponed due to Pachislo model certification method revisions implemented in September 2014, resulting in a weak product lineup.
In terms of Arcade Games Sales sub-segment, we will make use of widely recognized Capcom content and our strength in developing coin-operated games, an area where we anticipate heightened market needs and steady sales. This fiscal year, no major new products were released, leaving only coin-operated machines and existing products as the main drivers of sales. The lack of products resulted in overall poor performance in this sub-segment.
Consequently, sales were 7,540 million yen (down 67.4% from the previous year) and operating income was 2,736 million yen (down 61.6% from the previous year), resulting in an unavoidable decline in sales and profits.
In terms of business development in the next fiscal year (ending March 31, 2016) in the PS sub-segment, although companies will be releasing machines compliant with the new model certification rules, and despite the rules being implemented in three stages, we expect the market environment to remain uncertain. In addition, we think competition between companies will intensify due to differentiation via advanced hardware and cabinet designs and sharp distinctions in hall investment models. Thus, Capcom will (1) strengthen the consignment business which is expected to contribute stable profits, (2) enter into an alliance with the Fields Corporation to enhance development capabilities and strengthen sales network and (3) aim to increase sales by introducing unique Pachislo machines with elaborately planned playing styles and visual elements using popular Consumer business contents.
Also, regarding sales of Arcade Games for amusement facilities, we think the release of music game machines, card game machines and a variety of other prominent machines will spur investment among facility operators. Accordingly, we will develop coin-operated games using popular Capcom contents in an attempt to differentiate from other companies' products. Furthermore, we will release new music games employing the pay-as-you-go model intended to create long-term earning opportunities.
As a result of these measures, we expect sales and profits to rise in the next fiscal year. We forecast sales of 15 billion yen (up 98.9% from the previous year) and operating income of 3 billion yen (up 9.6% from the previous year).
|Business Activities and Future Outlook (PDF:1.19MB/10 pages)|