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

Conversation: Focusing on Growth: Adapting to the Operational Model and Maximizing Utilization of Proprietary Content

Haruhiro Tsujimoto, President and Chief OperatingOfficer (COO), Capcom Co., Ltd / Jay Defibaugh, Senior Analyst, Research Division CLSA Securities Japan Co., Ltd

Analyst Jay Defibaugh and President and COO Haruhiro Tsujimoto discuss how Capcom will promote its growth strategy amid a major revolution in the Consumer game market driven by the expansion of digital distribution.

Service managed over the long-term

The digital distribution of games has solved a number of distribution issues overall, and Capcom has been able to steadily grow its sales in the US, Europe and Asia as well. However, as some of your overseas competitors have already grown their ratio of digital distribution to nearly 40%, I feel that Capcom's ratio is still quite low. How do you plan on improving this going forward?
At present, the merits of digital distribution translate only to sales: however, if we utilize the always-online connectivity of consoles, we can offer new and improved ways to enjoy games as a service managed over the long-term, which will stimulate new needs. To this end, we plan to coordinate with first party developers, who maintain the user data.
In terms of improved profitability from digital sales, you are able to create sales opportunities in Southeast Asia and other regions where until now package sales had been impossible. At the same time, post-sales management and marketing capabilities will become more critical. Does Capcom possess this operational expertise?
Although there is still room for improvement in this area, we will utilize our experience in the Online and Mobile businesses to create a new internal structure geared toward service-oriented management. We will pursue a policy whereby we gradually increase the digital download ratio while researching competitor products and user behaviors.
Investors consider Capcom to be a "company able to create powerful content," but my sense is that you haven't put out much successful new content recently despite the ongoing release of new high-performance game consoles. Going forward, will you be able to continuously release quality IP? Also, some overseas competitors have shortened the time required to develop sequels using a two-team system. What kinds of initiatives is Capcom engaged in?
The creation of new IP is the cornerstone of our business, so we must perpetually engage in it. If we are unable to continue generating content qualitatively equal to global AAA titles, Capcom has no future as a company specializing in games. In terms of shortening the time required for development, we are engaged in streamlining from a technical standpoint, including the development of our RE ENGINE and innovations in 3D scanning systems, which will enable us to develop major IP on a two and a half year cycle.

Move toward maximizing usage of IP

A lot of Capcom IP is lying dormant, and although you are skilled at creating IP, I get the impression you are not as skilled in terms of marketing aimed at leveraging IP. The ideal scenario is one in which you make the most of your IP to maximize profits. What are your thoughts?
Despite our basic strategy of Single Content Multiple Usage, it's true at present there are some IPs we certainly have not made the most of. Titles that had large fanbases in the past are powerful assets, thus we are beginning to move toward maximizing usage through region-based testing of individual IP and the release of promising IP remakes and reimagined titles.
The subject of IP usage also applies to Mobile games. Capcom has yet to realize major success in this ever-expanding market.
Mobile platform strategy is one of the issues we must address in the Mobile business. Considering future smartphone performance enhancements, I think there is a significant opportunity for us to leverage our strengths. Recently, we switched over to a development structure mainly focused on Capcom IP and integrated our Mobile structure in order to create hit titles.
Alternatively, wouldn't focusing on the Consumer business, with its strengths in in-house resources, while collaborating with other companies on licensing for Mobile achieve higher management efficiency?
Going forward, regardless of the platform, there is the potential to transition any category of game into the long-term operational model. Thus, the accumulation of data analysis, marketing and other Mobile management expertise will be effective not only in the Mobile business, but also in the Consumer business. If we license out titles, it will be difficult to accumulate in-house expertise. This is why we must continue to invest in comprehensive internal strengths —even in the Mobile business—to achieve success.

After the Conversation

I sensed the COO's confidence in terms of Capcom IPs. I have no doubt about his basic strategy of creating excellent content and maximizing the usage of these assets. Compared to competitors, Capcom has allocated a modest amount of resources to the Mobile business. Given their business structure this is understandable, but the fact is, when looking at the game industry overall, the mobile market is expanding rapidly. In certain situations, being flexible with regard to development and borrowing some of the strengths of other companies would be entirely acceptable from the investors' point of view. I feel this would present Capcom with significant opportunities. (Jay)

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