One important strategy for Capcom to achieve ongoing and stable growth in the Consumer business—referred to as the hit business—is transforming the foundation of our Consumer business model from a traditional one-time sale "transactional model" to a continuous "recurring revenue model."Going forward, the consumer market will continue to maintain a scale of 22 billion dollars as the number of game makers' declines due to high barriers to entry. Companies that possess an abundance of popular IPs and strong technological capabilities will easily win the market and enjoy profits in this environment. For Capcom, the Consumer business is the source of our corporate value. We will implement the following three measures, each positioned as one of the most important strategies for growth over the medium- to long-term.
The penetration of digital download sales is driving the sales ratio of our recurring revenue model higher each year and generating continuous profits, unlike the transactional model.
Capcom's biggest strength is the in-house creation of powerful brands and ownership of numerous popular IPs. At the same time, unit sales of major titles has fluctuated depending on the fiscal year, thus high earnings volatility was an issue.
For this reason, we shortened the sales cycle for titles in each series from three to four years to two and a half years and increased the number of titles released in a single fiscal year. Employing a medium-term strategic (60-month) map, we are forming a title portfolio enabling sustainable growth and establishing a structure that appropriately allocates employees to teams when needed from 2,000 developers via a 52-week map. These two maps enable the stable release of multiple major titles each fiscal year and control earnings volatility. Furthermore, we think the creation of new brands that will become our future primary sources of earnings is indispensable for medium- to long-term growth. Thus, we are allocating approximately 20% of development investments toward new IP development.
To achieve stable earnings growth, it is important to steadily provide numerous popular titles and shorten development periods
The merits of digital downloads include (1)avoiding inventory risk and reducing package production costs through full-game downloads, (2) additional earnings opportunities through full-game downloads of catalog titles whose package sales are difficult for retailers and (3) anchor users through ongoing add-on contents and stable acquisition of additional revenue over the long term.
These represent one measure to counter concerns over intense sales volatility due to dependence on hit titles in the Consumer business and skyrocketing development costs. In addition to the stable provision of core brands, the accumulation of steady digital download sales each fiscal year will further the transition to a recurring revenue business model. At present, we are focused on points (1) and (2), but going forward, we will strengthen point (3) to increase the digital download ratio, which is currently 26%, to 50% over the medium-term. This will bolster additional recurring revenue by anchoring users for more than one year after launch, and as these games will have a large number of active users, it will also lead to the acquisition of new users, effectively controlling sales volatility each fiscal year.
Digital download sales of mainly full games (new and past titles) are growing on track and expected to comprise approximately 30% of the digital download sales ratio in the fiscal year ending March 2017. Going forward, we will strengthen additional digital download content and raise the digital download ratio to 50% overall.
In the game industry, once neglected, it is difficult to pursue research on cutting-edge technologies. Constant technological research in new areas and continued exploration of gaming possibilities are the stepping stones for establishing a groundbreaking position in the next-generation.
In 2016, new devices including PlayStation VR and Oculus Rift appeared on the market and brought with them huge expectations in what has been called "VR year one." Capcom's specialty in the action and horror genres is extremely compatible with VR and by offering new experiences with VR, our games will be even more appealing.
This fiscal year, we are proactively approaching this development with RESIDENT EVIL 7 biohazard, which offers full Playstation VR support. We are also focusing efforts on eSports as a new genre. With the Street Fighter series in particular, we had held events mainly in North America, which were well attended. However, going forward we plan to develop activities in other regions. With these new business challenges, we will attempt to maximize earnings through the active use of content and enhanced brand value.
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