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Game Industry Characteristics and Capcom Business Characteristics

Game Industry Characteristics

Characteristics of Each Market

Diagram: Characteristics of Each Market
Consumer Market Characteristics
(Package + Digital Download Contents)

Package and digital download contents are a 21.7 billion dollar market, forecast to remain nearly flat with growth to 22.1 billion dollars in 2018. The customer segment is composed mainly of core users who are highly loyal to game titles. They have a relatively high willingness to purchase sequels and a low sensitivity to price and economic conditions. This market is the lowest among the three in terms of margin, yet occupies a high position in the Japanese industry overall. Hereafter, we expect the digital sales ratio to increase, shrinking the gap between the other two markets' margins.

Mobile Market Characteristics

This is a 39 billion dollar market, forecast to grow to 53.3 billion dollars in 2018. The customer segment is primarily composed of casual users, many of whom play games just to pass the time, thus they demonstrate the lowest loyalty toward game titles. They have a limited willingness to purchase games and have the highest sensitivity to price and economic conditions. Although this is the most profitable among the three markets, only a limited number of titles are able to generate stable earnings over the long term. Going forward, we expect smartphones will continue to grow rapidly as the most pervasive game device.

PC Online Market Characteristics

This is a 25.1 billion dollar market, forecast to grow to 27.8 billion dollars in 2018. The customer segment is primarily composed of core users who demonstrate the highest loyalty toward game titles. They have a fairly strong willingness to engage in ongoing purchases, and are unique for having the lowest sensitivity to price and economic conditions. In terms of profitability, PC Online is comparatively high among the three markets, typically generating stable earnings over the long term. Going forward, we do not anticipate any major changes and expect the market to remain stable.

Five Competitive Factors in Each Business (Five Forces Analysis)

  Consumer (Package + Digital Download Contents) Mobile Contents PC Online
Threat of New Entrants 普通High capital and differentiated technology requirements 非常に高いFew capital or differentiated technology requirements 低いOngoing capital investment and cutting-edge technologies required
Threat of Substitute Services and Products 普通Users somewhat compartmentalized 低いFrom standpoint of mobility, low user outflow to other two markets 普通Users somewhat compartmentalized
Buyer Power 高いMany transactions with major overseas retailers with strong purchase power 低い

Direct sales to users

低い

Direct sales to users

Supplier Power (Hardware Manufacturers) 低いContent is flexibly compatible with all platforms 低いContent is flexibly compatible with all platforms 低いContent is flexibly compatible with all platforms
Degree of Rivalry 普通Appropriate environment at present, expected to soften somewhat in the future 高いMany new entrants, tough environment 普通

Appropriate environment at present

Capcom Business Characteristics

Digital Contents Business Portfolio

Diagram: Digital Contents Business Portfolio

Digital Contents Business
(Proportion of Net Sales: 68%)

Consumer Business
(Proportion of Net Sales: 55%)
Package + Digital Download Contents

Capcom's core business is to create a multitude of original content for home video game consoles. The regular release of sequers of popular IPs and an increased download sales ratio have, in recent years, led to a greater volume of sales and operating margins over 20%.

Mobile Contents Business
(Proportion of Net Sales: 4%)

This business distributes games featuring popular Capcom content on smartphones, cultivating new markets such as the casual user segment to create new earnings opportunities. However, in sufficient know-how in ongoing game operations, which differs from Consumer, has resulted in sales underperforming market growth.

PC Online Business
(Proportion of Net Sales: 9%)

This business distributes games featuring popular Capcom content to PC online users, cultivating core users in the Asian region to create new earnings opportunities. In particular, there is great business growth potential in entering China, the world's largest market.

Net Sales by Business Segments (Millions of yen)

Diagram: Net Sales by Business Segments

Total Business Portfolio

Diagram: Total Business Portfolio

Arcade Operations Business
(Proportion of Net Sales: 12%)

By opening facilities in large commercial complexes in Japan, this business has secured a stable stream of customers and maintains operating margins of around 10%. At the same time, sales in this business are low due to our strategy of carefully limiting the number of facilities and the impact of the consumption tax increase. In recent years, we have focused efforts on services for new customers including young children and seniors.

Amusement Equipments Business
(Proportion of Net Sales: 17%)

The Pachinko and Pachislo and Arcade Games Sales sub-segments maintain operating margins around 20–30% due to the release of machines featuring popular Capcom content and the culmination of development expertise. However, legal changes and other external factors impacting the gaming machine business may pose a significant risk of postponed sales, so this business experiences substantial earnings volatility.

Other Businesses
(Proportion of Net Sales: 3%)

Our character licensing business involves the use of popular Capcom characters for publishing and films in Japan and overseas, providing high profitability and stable margins around 30%. At the same time, licensed products bring in a low return, so the amount of sales in this business is small at this moment.

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