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Quarterly Reports Archives FY2017

FY2017

    • Consolidated Financial Results for the year ended March 31, 2018

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    Question and Answer Summary

    What will your Consumer games lineup be in the fiscal year ending March 31, 2019?
    For strategic reasons, we are refraining from providing details at this time, however, our scheduled lineup for this fiscal year includes two million-selling major titles.
    Tell me about your progress with the mobile titles you are developing in cooperation with external partners, and your release schedule for these titles.
    We are unable to provide specific details at this time. We are working to be able to release titles with these partners, both in Japan and in overseas markets, during the fiscal year ending March 31, 2019.
    Monster Hunter: World was a hit during the fiscal year ended March 31, 2018; what impact will it have on the Consumer business going forward?
    We created Monster Hunter: World as a title that takes full advantage of game hardware specifications in order to build Monster Hunter into a global brand. Our success in making it a hit shows both the capabilities of our developers and the brand power of our IP. In order to continue growing as a global company, we are making the level of quality found in Monster Hunter: World a benchmark for the AAA titles we develop going forward.
    How much time will be needed to monetize Capcom’s eSports business?
    In order to monetize our eSports business, or acquire sponsors who provide funding, we believe that first, in addition to expanding the base of users who enjoy esports, it is necessary to build a track record of success in the esports market. To this end, we would like to take a medium-term approach to this business, rather than focusing on short-term monetization.
    What will be necessary for Capcom to grow over the next five years?
    While the Japanese home video game market is sizable, it is less than 10% the size of the global market. We believe that Capcom must win out against publishers on the global stage, such as those in the U.S. and Europe, in order to grow in the medium- to long-term. Esports, which has been garnering attention throughout the globe, provides the perfect opportunity for us to compete on the world stage. The Capcom brand already enjoys high levels of recognition globally; as such, we are streamlining our corporate structure in order to leverage this brand recognition and win out at the global level.
    • Consolidated Financial Results for the 3rd Quarter of FY2017

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    Question and Answer Summary

    Monster Hunter: World (MHW below) has shipped 5 million units. Tell me how this title is performing against its target and about your methods for recognizing expenses.
    We have not disclosed our target unit sales for MHW, however it has already achieved our target for the current fiscal year. Looking at recent sales trends for our major titles, we had anticipated a slower pace of first-year sales compared to previous entries in the series; however, its initial performance has exceeded our expectations. As the development cost of each of our titles is distributed across the title’s lifetime unit sales target, we will recognize a portion of MHW’s total cost of development proportionate to its Q4 sales.
    Will the success of MHW offset the underperformance of certain Consumer titles and Pachislo (PS below) ?
    We are aware of the risk presented by certain titles not performing to their targets in Consumer as well as by PS, and believe it must be addressed. The market environment of PS in particular is uncertain, and while the likelihood of delaying the release of the new machine scheduled for Q4 is high, we are not at a point at which we are able to communicate our outlook for the full year; however, we will endeavor to achieve our plan for the year.
    Tell me about your plans for MHW in the next fiscal year and beyond.
    As we are prioritizing our strategy to achieve the lifetime unit sales target for this title, we are not at a point at which we can discuss additional content. We plan to monitor and analyze the sell-through of the title moving forward.
    What does the future advertising expense incurred in FY17 Q3 refer to?
    These were primarily overseas promotional expenses associated with MHW.
    60% of MHW unit sales came from overseas. How does this compare with your initial plan?
    This result does not drastically deviate from our expectations for the ratio of domestic to overseas unit sales in our initial plan.
    Will the lifetime unit sales for MHW grow to the level of Resident Evil?
    Shipping 5 million units in the three days from its release was a strong start, however, we would like to more thoroughly ascertain the title’s sell-through in Europe and in the Americas before examining the outlook for its unit sales.
    The current-generation re-release of Resident Evil: Revelations sold 500 thousand units. Can you give me a breakdown of this by sales region?
    For physical unit sales, 100 thousand units were from Japan and 270 thousand units were from overseas. The remaining 130 thousand units were from global digital sales. Of the total 500 thousand units sold, approximately half were the Nintendo Switch version of the title.
    Colopl is currently involved in a lawsuit with Nintendo. Will this affect Capcom, given the cross-licensing deal the company has with Colopl?
    This will not affect Capcom.
    The speed of MHW sales is different than what was expected. Have you analyzed the cause of this and its future impact?
    We have not completed a detailed analysis at this point in time. However, a number of factors contributed to its success in satisfying existing fans of the series while also appealing to new players, especially overseas. In addition to bringing this instalment to home video game systems, these factors include new features such as seamless transitions between map areas, smooth on-the-fly actions, displayed damage points dealt to monsters and mid-quest drop-in functionality during online co-op. We will continue to evaluate other factors and their future impact going forward.
    • Consolidated Financial Results for the 2nd Quarter of FY2017

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    Question and Answer Summary

    Given its current sell-through, how likely is Marvel vs. Capcom: Infinite to achieve its full-year target of 2 million units sold?
    First-half results for this title are in line with our expectations. Going forward, we aim to achieve its full-year target by releasing additional characters, along with holding promotions for the title during Black Friday and the holiday season.
    How much of Marvel vs. Capcom: Infinite’s cost was recognized in the first half of the current fiscal year?
    While we do not disclose detailed figures, we follow accounting principles concerning recognizing development costs, and work to recognize them at the same time as we recognize sales. Because development costs are distributed over a title’s lifetime unit sales, in this case we recognized a portion of the total development cost proportionate to the 900 thousand units sold in the first half of the fiscal year.
    How has Monster Hunter: World been received?
    This title received high praise at the Tokyo Game Show as well as other events all over the world, and we feel that our users are currently very satisfied with it. Going forward, we look to maximize sales by carrying out robust promotional activities not only in Japan, but also in the North American and European markets as well.
    What progress have you made in connection with the mobile licensing deal from the first quarter? What licensing deals are on the horizon?
    There is nothing that we can comment on at this time. We will provide ongoing announcements when we are able.
    What is the breakdown by sub-segment of the ¥2.7 billion year-over-year profit increase in Digital Contents?
    Of this ¥2.7 billion increase, approximately half is attributable to Consumer, and the remainder to Mobile and PC Online.
    What are your expectations for the Nintendo Switch, and how will you support it going forward?
    We feel the favorable performance of the Nintendo Switch, and the impact it is having on reaffirming the status of home video game consoles, are very positive. Going forward we will support the Nintendo Switch based on our fundamental strategy of multiplatform development.
    Further, we are cognizant of the need to evaluate further how to best utilize the unique features of this platform, which differ from those of other home video game consoles.
    In recent years, the number of smaller-scale titles you release has decreased. What is your thinking with regard to appropriating development resources to not only AAA titles, but also to small- and medium-scale titles, and do you feel the resource allocation within your development structure is appropriate?
    We concurrently invest in small- and medium-scale titles, and currently have unannounced titles in development. Further, with regard to the allocation of development resources, we are able to maintain a high productivity rate by hiring 100 or more new graduates each fiscal year, and assigning them to positions after thoroughly evaluating their aptitude.
    How will the regulatory changes following the 5.9 pachislo machines affect results going forward?
    There is uncertainty in the current market environment, and we expect that conditions will worsen following the regulatory revisions scheduled for February of next year. We are running a number of simulations in order to devise an appropriate response, however, given that this is a ¥10 trillion market and that there are factors besides compliance rule changes that must be considered, we believe that it would be premature to make a decision based solely on the current information available. Moreover, the two models we plan to release in the second half of this fiscal year are already compliant, and we plan to launch them at a time best suited to maximizing unit sales.
    Revenue has continued to increase year-over-year in the Arcade Operations business. What are your current and future expectations for this business?
    Sales and profit were up year-over-year thanks to contributions driven by popular prizes, including those of specific characters, primarily at stores located in shopping centers. While the effect of the increase in customer transactions stemming from revisions to the Entertainment and Amusement Trades Act wore off in July, even now existing stores are outperforming year-over-year, and going forward we believe the market environment will continue to be favorable.
    With regard to recognizing development costs in Consumer, for example, if it became difficult to amortize through sales of a title, would this necessarily lead to an impairment?
    If it is judged that amortization is not feasible, the alternative would be to declare impairment. We do not disclose the criterion for this, however, we make decisions on how to proceed after consulting with our accounting firm each quarter.
    Will Monster Hunter: World include in-game monetization?
    At the moment we have nothing we can share other than what information has already been made public.
    What measures are you taking to make PC Online profitable and grow?
    Because growth in the PC market has slowed, we are prioritizing growth of Consumer and Mobile. We aim to make PC Online profitable by maintaining sales for Dragon’s Dogma Online and Monster Hunter Frontier, while implementing measures such as cost control.
    Will you be able to release the two pachislo models scheduled for the second half of the fiscal year?
    Both of the models we plan to sell are already verified compliant.
    What are the costs and revenues associated with eSports?
    In general, eSports revenue consists of revenue from licensing deals, as well as admission fees and fees for broadcasting rights for event operators. On the other hand, associated costs can include expenses stemming from holding events for event operators.
    What are your expectations for future eSports revenue and profit?
    We are currently at a stage where we are considering monetizing this business from a number of angles, including through promotional activities and running events; as such, we have not set any concrete revenue goals at this point in time.
    Do you lack knowhow in planning, developing and operating games in the Mobile business?
    Planning, developing and operating knowhow must be thought of as a unified concept; currently, we believe we have room for improvement overall.
    What is your medium- to long-term policy regarding mobile alliances?
    Our strategy remains the same, specifically that we will explore all available options, without setting restrictions upon the kinds of measures we adopt, so as to continue developing mobile games in-house while also working with external partners. Supported by the market, we aim to release high-quality content.
    Looking forward, it’s technologically feasible that the barriers to rolling out content to mobile, home video game consoles, and PCs will disappear. Is your development and alliance structure prepared for this?
    Our current development structure allows our developers to move between title development regardless of platform, and we have had examples where developers from our Consumer sub-segment have developed titles for mobile devices.
    • Consolidated Financial Results for the 1st Quarter of FY2017

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    Question and Answer Summary

    Concerning the licensing agreements in Capcom’s mobile business, what kind of agreements have been made, and when will the games be released?
    We are unable to share any specific details regarding which IP we will use, the names of potential business partners or when service for games will begin at this time. The mobile business is an important matter for us, and we see these licensing agreements as the first step toward building alliances there.
    Having booked licensing revenue this quarter, how will Capcom approach mobile going forward?
    The contract in question is a single milestone within our larger endeavors in the mobile space. Our ultimate goal is to increase the value of our IP by launching games and growing our user base. We are moving forward with efforts to produce a hit title while looking at all available options, including strengthening internal development as well as building alliances with other companies.
    The full-year unit sales guidance for new Consumer titles of 10.3 million units is on par with the previous fiscal year; however, considering Resident Evil 7 biohazard was launched last year, is this number not bullish? What is your outlook going forward, including your expectations for this year’s Monster Hunter: World?
    We are confident that we will be able to achieve this number because the full-year unit sales guidance for new games consists of 37 titles (counted on a SKU-basis) that include re-releases of catalog titles for current-generation hardware. Further, we have received positive feedback on Monster Hunter: World, which was well received when announced at E3. Going forward, we will maximize sales by carrying out proactive measures not only in the Japanese market, but in the North American and European markets as well.
    What were the regional unit sales for Ultra Street Fighter II: The Final Challengers? (Ultra Street Fighter II, below)
    100 thousand units in Japan, and a combined 350 thousand units in Europe and North America.
    Following the sales results of Ultra Street Fighter II, what will Capcom’s approach to the Nintendo Switch be going forward?
    The Nintendo Switch seems to be doing very well, and we look forward to further growth in its install base. Beginning with Monster Hunter XX (Double Cross) Nintendo Switch Ver. for Japan, we are evaluating how we will support this platform in the future.
    Stronger regulations in the pachislo market have been announced. What is your policy and future outlook for the PS business?
    The overall market here has been shrinking, and we believe the situation will grow more severe due to these new regulations; however, we do not intend to revise our plan at this time, as there remains room for us to display ingenuity here with improved entertainment as well as through cost reductions via utilization of used materials.
    Are there any other licensing matters on the horizon for the Mobile business this fiscal year?
    There is nothing further that we can communicate regarding alliances at the present time. We believe it is possible to achieve our full-year plan through strengthening our existing titles and through contributions from new titles.
    What are your criteria for selecting mobile alliance business partners?
    We are negotiating with companies that possess both high-level knowhow and a track record of results running games as a service. Further, whether a company can understand the value and characteristics of our IP while utilizing them is a criterion.
    When will Capcom experience real growth in mobile?
    We are currently taking the appropriate steps to position ourselves for growth from the next fiscal year onward. If efforts, including approaching new genres, proceed smoothly, it is possible we will start to see some results beginning this fiscal year.
    The profit margin in Consumer for this first quarter seems high; why is that? Further, will it be possible to maintain this level in the future?
    Our profit margin received a boost because, in addition to Ultra Street Fighter II, which was released this quarter, being a re-release and having lower-tier development costs, its actual sales outperformed our unit sales plan for the title. Going forward, we will work to achieve continuous sales in Consumer via pricing strategies, including seasonal discounts and other measures.
    How do you determine which game to release on which platform?
    As platform trends are in a constant state of flux, we consider everything from the content of the game to our users’ tastes in order to make the optimal choice for each title.
    Do you expect to continue booking the licensing revenue in mobile from this quarter into the second quarter of this year?
    This licensing revenue was a one-time occurrence for this quarter that sprang from progress in building our alliances.
    Who will carry out service operations under the licensing agreement in question?
    Currently, we plan to have our business partners carry out operations, with Capcom receiving a set amount of revenue.
    Is Capcom considering working with companies in the Asian region, including those in China?
    We are open to considering alliance opportunities in all regions, including China.

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