Consumer (Package + Digital Download Contents) Sub-segment

Market Trends and Operating Results for This Fiscal Year

Despite market stalling at the previous year’s levels, net sales increased 16.8% thanks to growth of major titles and digital download contents

In 2016, the consumer (package + digital download contents) market stayed at approximately the same level as the previous year, reaching 21.2 billion dollars (down 2.3% from the previous fiscal year).
This was due to a changeover to current-generation game consoles and the enhancement of online functionality, accompanied by an increase in digital download sales and a decrease in packaged sales. The consumer market is primarily comprised of North America, Europe and Japan, and this trend was especially evident in the North American and European markets, which account for approximately 85% of this market. The highly profitable digital download contents market now accounts for roughly 48% of the consumer market.

The latest titles in Capcom’s flagship series performed favorably overall, with Resident Evil 7 biohazard selling 3.5 million units and Monster Hunter XX (Double Cross) selling 1.7 million units.
Moreover, with support from a steady user base, Resident Evil 4, Resident Evil 5 Resident Evil 6, which were rereleased on current-generation consoles, gave a solid performance (selling a combined 2.8 million units); catalog title Monster Hunter X (Cross)sold 1 million units, pushing earnings higher. On the other hand, despite enjoying solid popularity and consistent demand, sales of Dead Rising 4 and the youth-orientated Monster Hunter Stories were weak overall. In digital downloads sales of the aforementioned rereleases, as well as catalog titles with wide profit margins, accelerated in the North America and Europe, resulting in solid sales growth to 9 million units amounting to 15.5 billion yen, an increase of 42.2% compared to digital download sales in the previous year.

As a result, package and full-game download sales totaled 19.4 million units (up 29.3% from the previous year). Package sales were 33.7 billion yen, and digital download sales were 15.5 billion yen. Together, they resulted in Consumer sales of 49.2 billion yen (up 16.8% from the previous year), with operating margins in the mid 20% range.

Mobile Contents Sub-segment

Market Trends and Operating Results for This Fiscal Year

Market Grew up 24%; Profit Increased in Conjunction with 15% Increase in Sales

In 2016, the mobile contents market was worth 48.5 billion dollars (up 24.4% from the previous year), expanding to twice the size of 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 North American market was worth 10 billion dollars (up 51.5% from the previous year), Eastern European, developing countries and other regional markets were worth 6.1 billion dollars (up 27.1% from the previous year), and the Asian market including Japan was worth 27.6 billion dollars (up 20.5% from the previous year), all showing continued growth.

The freemium (virtual item purchases/in-game purchases) model, where users download a game for free, then purchase access to additional items and other game content as needed, has predominated the market since about 2010. With freemium games, the key success factors are IP (brand/game content) coupled with operating know-how, which includes offering the appropriate services in conjunction with monetization. Because of this, the opportunity to improve earnings is growing for game companies with many popular titles as well as mobile development companies with operational expertise.

In April 2016, we unified our mobile development structure group-wide and launched our new Mobile Business Division. We combined the organizations of the Capcom and Beeline brands (which up to that point had promoted independent strategies) to concentrate both development and management knowhow, and to enable quick decision-making.

Under this restructured organization, we began distributing Otomon Drop Monster Hunter Stories in November 2016, which, along with the existing Monster Hunter: Explore, contributed to full-year profits. We also broke new ground with Toraware no Paruma, a romance game that was developed primarily by female staff, and which captured the number one paid app spot in the App Store rankings the day it was launched.

As a result, net sales increased to 3.8 billion yen (up 15.2% from the previous year). Profits were also up despite the recording of a loss on valuation of unprofitable titles.

PC Online Sub-segment

Market Trends and Operating Results for This Fiscal Year

The Asian Market Grew Substantially, but Decreased Revenue from Licensing Resulted in a 19.7% Decrease in Net Sales

In 2016, the PC online market grew substantially to 31 billion dollars (up 23.5% from the previous year) owing to worldwide growth, especially in China and Asia, which account for more than 40% of the market.

For Capcom, in addition to stable earnings contributions from domestic favorite Monster Hunter Frontier Z (MHFZ), sales of Dragon’s Dogma Online (DDON) were on track. However, due to a downturn n license revenue from Monster Hunter Online (MHO), which was launched last year in cooperation with China’s Tencent Holdings, net sales dropped to 5.7 billion yen (down 19.7% from the previous year).
Profitability was down due to amortization costs for DDON and other titles being up from the previous year and the recording of a loss on valuation for some titles.