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.
Consumer (Package + Digital Download Contents) Business
In 2015, the consumer (package + digital download contents) market was worth 21.7 billion dollars (up 0.5% from the previous year), halting three straight years of negative growth. This was due to (1) continued steady switchover to current game consoles, (2) the progressive supply of major titles for current game consoles and (3) growth in the digital download sales market. The consumer market is primarily comprised of North America, Europe and Japan. The U.S. and European markets, which account for approximately 85% of this market, were particularly robust. In terms of overall trends, while package sales contracted slightly, the highly profitable digital download market grew steadily to account for 43% of the consumer market.
Capcom's latest title in its flagship series, Monster Hunter X (Cross), was extremely popular, surpassing initial projections of 2.5 million units to sell 3.3 million units, which contributed substantially to earnings. Also, Resident Evil 0 HD Remaster enjoyed solid sales of 800,000 units and catalog title Resident Evil Revelations 2 sold 850,000 units, pushing earnings higher. At the same time, although Street Fighter V, which enjoys solid popularity mainly overseas, performed well, unit sales fell short of projections. In digital downloads, sales of catalog titles with wide profit margins accelerated in the U.S. and Europe, resulting in solid sales growth to 6.1 million units amounting to 10.9 billion yen, an increase of 21.1% compared to digital download sales in the previous year.
As a result, package and full-game download sales totaled 15 million units (up 15.4% from the previous year). Package sales were 31.2 billion yen (up 19.1% from the previous year), and digital download sales were 10.9 billion yen (up 21.1% from the previous year). Together, they resulted in Consumer sales of 42.1 billion yen (up 19.6% from the previous year), with operating margins improving to the upper 20% range.
The consumer market is forecast to grow globally to 22 billion dollars (up 1.4% from the previous year) due to an expanded title lineup for the PlayStation 4 and Xbox One and further growth in digital downloads. Furthermore, the market is thought to be entering a harvest period due to anticipation of new trends including the launch of Nintendo's new console in March 2017, as well as PlayStation VR, Oculus Rift and other VR gear.
For Capcom, one of the major keys to achieving medium-term business goals and Consumer business growth are initiatives to (1) strengthen digital download content and (2) enhance title lineups through the full-scale execution of 60- month title development plan and 52-week map.
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 HD remastered versions of previous titles for download sales in an attempt to create sales opportunities and increase the digital download sales ratio.
In terms of (2), we will promote compatibility with multiple platforms and release a new title within an existing popular series every 2.5 years based on our 60-month map title portfolio.
Next fiscal year, in addition to new titles in global core series such as RESIDENT EVIL 7 biohazard and Dead Rising 4, we will attempt to increase sales by aggressively launching major titles including a Monster Hunter-related title. We will also strengthen digital download sales to increase unit sales 10.0% compared to the previous year to 16.5 million units, forecasting net sales of 47 billion yen (up 11.6% from the previous year) and a high level of operating income about the same as the fiscal year under review.
Mobile Contents Business
In 2015, the mobile contents market was worth 39 billion dollars (up 73.3% from the previous year), expanding in scale to surpass the consumer market. The main reasons for this were (1) the ongoing adoption of smartphones throughout the world and (2) the increase of popular native app games particularly in Japan and Asia that continue to attract game users. By region, the Asian market including Japan was worth 22.9 billion dollars (up 97.4% from the previous year), while developing country, Eastern European and other regional markets grew rapidly to 4.8 billion dollars (up 152.6% 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 many popular software titles and mobile development companies with operational expertise, the opportunity to improve earnings is growing. In Japan in particular, numerous distributions of a wide range of games that offer a style of play matching the national identity, such as those that take advantage of idle moments and games that use popular content, are driving rapid market expansion.
In September 2015, Capcom launched Monster Hunter Explorer, which has exceeded 3 million downloads and is generally selling as projected. However, regarding other existing titles, both Capcom and Beeline brand performance has been lackluster and continue to struggle amid an intensely competitive environment.
As a result, net sales declined to 3.3 billion yen (down 19.5% from the previous year). In terms of profit, although contributions from new titles secured earnings, profitability was declined compared to the previous year.
In 2016, the annual shipment of smartphones is expected to maintain a single-digit growth rate at approximately 1.48 billion units (up 3.1% from the previous year) compared to approximately 1.43 billion units (up 10.1% from the previous year) in 2015. However, the demand for smartphones as game devices is expected to further increase in Japan and Asia amid ongoing expanded adoption in India, the Middle East and Africa, which we think will lead to the expansion of global game contents. As a result, we expect the 2016 mobile market to increase to 45.7 billion dollars (up 17.2% from the previous year) and grow to 53.3 billion dollars (up 36.7% from 2015) in 2018.
In 2016, Capcom unified its Group-wide mobile development structure and established the new Mobile Business Division. We combined the organizations of the Capcom and Beeline brands, which up to now had promoted independent strategies and concentrated development and management know-how. We will expand titles in Japan and overseas utilizing proprietary content based on quick decisionmaking facilitated by organizational unification.
Next fiscal year, this new organization will distribute titles using popular brands including Monster Hunter, Sengoku BASARA and Mega Man, thus we expect net sales of 4 billion yen (up 21.2% from the previous year).
PC Online Business
Despite sluggish sales of package games for PC in the U.S. and Europe and games played through SNS, the Chinese and Asian markets, which account for nearly half the overall market, continued to grow to 25.1 billion dollars (up 1.6% from the previous year), about the same scale as the market in the previous year.
For Capcom, in addition to stable earnings contributions from firm favorite Monster Hunter Frontier G (MHFG), sales of Dragon's Dogma Online were on track. Also, in December 2015, we launched Monster Hunter Online in collaboration with China's Tencent Holdings Ltd., which contributed royalty revenue.
As a result, net sales were 7.1 billion yen (up 18.3% from the previous year). In terms of profit, the recognition of amortization expenses related to the launch of new title services caused profitability to decline.
In 2016, we expect the market to continue growing to 26.5 billion dollars (up 5.6% from the previous year). While the U.S. and Europe are expected to remain stable, the Asian market, focused on China is expected to continue growing driven by core MMO online games. We expect this market to continue expanding, from 10.6 billion dollars in 2015, to 11.2 billion dollars (up 5.7% from 2015) in 2018.
In addition to ongoing major updates to MHFG, Capcom will grow Dragon's Dogma Online into a new flagship title in an attempt to establish dual pillars for expanded earnings in Japan. Furthermore, we intend to improve our position in the Chinese market through an ongoing proactive cooperative relationship with China's Tencent Holdings on Monster Hunter Online. At the same time, with respect to other titles, we will proceed with negotiations with local companies to develop similar licensing businesses in the Asian region.
As a result of these measures, we expect net sales of 8 billion yen (up 12.7% from the previous year) as well as an increase in operating income.
|Business Activity Achievements PDF (PDF:2.33MB/6 pages)|