Topic 1

Entering a New Business Overseas

Executive officer in charge of overseas business

(After finishing an overview explanation of new businesses) Regarding this issue, Japan is not a possible target of business for legal reasons, but many areas in Europe and the U.S. are. When thinking about entering this business, I would like to consider feasibility from a multi-faceted perspective, including marketability, platform technology, legality, etc.

Tsujimoto (Kenzo)

This is not an agenda item, but merely a preliminary report. If there are any questions regarding entering this new business, I would like to ask for recommendations by the time of our next meeting, where we will make decisions. The reason that I would like to press forward with some optimism is that, while there are risks, it is necessary to take healthy risk in order to achieve sustainable growth. But if we are slow to act, we lose. So, with that, I would like to identify the risks and returns, and thoroughly discuss their suitability.

Sato

I’ve heard that access from Japan and some other areas is excluded based on a player’s location information, but would it be possible for them to play via a third country?

Executive officer in charge of overseas business

The specifications will be set so that they will be excluded based on GPS data.

Tsujimoto (Kenzo)

Even if they do access the game, they will not be able to make in-game purchases. Also, when entering a new business, I would like to hear everyone’s opinion as to what you would like us to preserve.

Matsuo

OK, I understand that players cannot play these games from Japan. However, as a publicly traded Japanese company, not an American one, is there any meaning for us in this new business? Who will operate it and whose idea is it? I would like those points to be clarified.

Executive officer in charge of overseas business

In principle, the business will be run by a U.S. company.

Tsujimoto (Kenzo)

By way of example, if a Japanese company buys a Las Vegas casino, it is legal to run it as an overseas subsidiary, and it is also legal for a Japanese person to visit the casino. But it is a problem to place bets from Japan. This case (though not gambling) is the same situation. I would like our deliberations to consider this point when making a decision.

Muranaka

When the division in charge moves this project forward, I would like the legality to be assured. I would like us to proceed following a sound third-party monitoring approach, such as having a separate division check whether the division in charge is properly managing legality and the like. As an ideal, I understand the desire to promote this business, but I would like consideration to be paid to operating it.

Iwasaki

Since the target area includes the EU, I would like us to carefully consider whether we clear the regional restrictions related to the EU competition law.

Tsujimoto (Kenzo)

We will take into account the issues raised by our external directors and reassess risks as we outline the suitability of entering this business.

Topic 2

Discussion on Policies for Improving the Mobile Business*

External Audit and Supervisory Committee member

I think that the Mobile business is one growth area, but it has not led to major gains for Capcom thus far. What analysis has been done looking into the reasons why? Is it a problem of not investing sufficient management resources, such as people, material, and money? Or, is it a problem with Capcom’s mobile development expertise and capabilities?

Internal Audit Officer

Although this is an interim report, I think the reason why expected results have not emerged from the Mobile Business to date is due to both issues you mentioned. These were included in the issues I reported on today, and, I would like internal auditing to proceed by verifying matters through further interviews, as well as data gathering and analysis. After these steps, we can clarify the challenges and propose improvements to the business division.

Internal Audit and Supervisory Committee member

To add to that, our in-house resources are not sufficient for mobile game development, so for the Asian market, we are trying to work on multiple titles through an out-licensing approach with local development companies. We are also trying to find a starting point domestically, such as pursuing joint development with mobile development companies.

External Audit and Supervisory Committee member

Since mobile is an important field within Capcom’s growth strategies, we need to be quick in our approach. Also, from a macro perspective, the Asian market’s growth rate is extremely high, so I think one issue is how we should tackle this market going forward.

External Audit and Supervisory Committee member

Regional preferences are particularly important for mobile games. A game that is a hit in Japan will not necessarily do well overseas. I would like that point to be covered as well when internal audits are performed.

Internal Audit Officer

Currently, the division has deployed a strategy that first emphasizes business in Japan. As for overseas markets, such as Europe, the U.S. and Asia, it will confirm plans going forward.

External Audit and Supervisory Committee member

Approximately what percentage of the global market is the Japanese market?

Internal Audit Officer

The Japanese market has about a one-fifth share. The Japanese market has evolved in a very peculiar direction (emphasizing "gatcha," or lottery-style microtransactions).

External Audit and Supervisory Committee member

Thank you. This gives me a better understanding of the current state and issues for the Mobile business. I hope we can continue to have timely progress reports on internal audits.

Internal Audit Officer

Understood. I plan to proceed so that we can further clarify any problem points and make proposals that will translate to future growth.

* This discussion contains comments gathered from the Audit and Supervisory Committee meetings during the period under review, and from other individual meetings as well.