Overview of Capcom's Business and Outlook for the Future
We are engaged in two other businesses based on the content used for our home video games. The Pachinko & Pachislo business is involved in the development, manufacture and sales of frames and LCD devices for gaming machines as well as software. The Arcade Games Sales business develops, produces and distributes arcade games for amusement facilities,creating synergy between businesses.
* In the fiscal year ended March 31, 2011, Capcom restructured its business segment divisions, and as a result, some figures before the fiscal year ended March 31, 2009 have been retroactively adjusted.
Pachinko Machine Market Contracts by 10.0%, Pachislo Machine Market Expands 26.9% and Arcade Game Market Bottoms Out, Heads for Recovery
The Amusement Equipments business consists of two businesses that develop the content of our home video games, the Pachinko & Pachislo business and the Arcade Games Sales business.
The size of the Pachinko & Pachislo sales market during the previous fiscal year (ended March 31, 2011) contracted slightly to 1173.6 billion yen (down 3.1% from the previous year). This was primarily due to significant contraction in the Pachinko machine market, which accounts for 60-70% of the market.
During this fiscal year (ended March 31, 2012), in accordance with the modification to the gaming aspect of Pachinko machines under the "Regulations on the Entertainment and Amusement Trades Rationalizing Act" revised in 2004, although the market has until now continued to focus on decreasing Pachislo and increasing Pachinko, with Pachinko machine oversupply and the greatly improved operational experience of Pachislo machines, the Pachislo machine backlash continues.
In terms of the outlook for the future, with respect to Pachislo machines, the arrival of major hit machines selling over 50,000 units, as well as the development of cases that meet market needs stimulating purchase intention of Pachislo halls, we expect the market to be revitalized.
Next, in the previous fiscal year, in line with the bottoming out of the amusement facilities market, the arcade games domestic product sales market surpassed the previous year for the first time in four years, growing to 161.6 billion yen (up 3.2% from the previous year) . By genre, prize game machines (accounting for 20.4% of the market), which are easily affected by the economy, increased to 32.9 billion yen (up 9.3% from the previous year). Other factors affecting market recovery were coin-operated games (accounting for 18.9% of the market), which grew to 30.6 billion yen (up 5.9% from the previous year). In this fiscal year, the market is nearly on track with last year due to the return of facility operators' need for capital expenditure and additional customers from the release of popular character-themed products.
In terms of the outlook for the future, although there is apprehension over repercussions from inexpensive, nearby and short-duration leisure activities that intensified after the earthquake, with new prize products and coin-operated game machines, as well as the release of network machines, a gentle recovery should be on the way.
Operating Results for This Fiscal Year
Repercussions from Last Year Lower Pachislo Machine Profitability, "Monster Hunter" Series Arcade Games Doing Well
Capcom's strength in this business is our ability to maintain high profitability through the multiple usage of our wealth of intellectual properties in a variety of areas.
In the Pachinko & Pachislo business, Capcom develops attractive software featuring our proprietary content along with that of other companies, using our technological expertise in high-resolution image processing cultivated through the development of home video games is our strength. In the P&S business this fiscal year, sales of approximately 7,000 "Street Fighter IV" Pachislo machines with cases created in house and favorable sales of outsourced Pachislo machine "Monster Hunter" contributed to earnings. However, margins were lower compared to the high margins of last year's cases developed in-house.
Making use of the high awareness of Capcom content, the strength of the Arcade Games Sales business is the ability to develop coin-operated game machines that anticipate steady sales by meeting stringent market needs. This fiscal year, although the effect of the Great East Japan Earthquake has impacted consumer consciousness, the Arcade Games Sales business is heading in a favorable direction on arcade invigoration from inexpensive, nearby and short-duration leisure activities and brisk sales of "Monster Hunter" branded coin-operated game machine "Monster Hunter Medal Hunting" and "MONHAN NIKKI SUGOROKU AIRU MURA ". Capcom also promoted cost reductions and rationalization across all businesses.
The resulting net sales increased to 7,663 million yen (down 3.0% from the previous fiscal year), and the operating income was 890 million yen (down 66.2% from the previous fiscal year).
Outlook for the Next Fiscal Year
P&S business to Strengthen Sales of Outsourced and In-House Cases Arcades Games Sales to Concentrate on the Popular Content of Coin-Operated Games
Next fiscal year (ending March 31, 2013), P&S business developments will include the release of a higher number of Pachislo machines as a result of increased demand for Capcom's specialized machines fitted with LCD screens. High performance hardware and a spike in promotion expenses are intensifying competition among companies, resulting in further polarization. In light of this, Capcom will (1) expand the consignment business which is expected to contribute stable profits, (2) enter into an alliance with the Fields Corporation to enhance development capabilities and strengthen sales network and (3) introduce major popular home video game contents in an aim to increase the number of outsourced and in-house cases sold.
At the same time, although the market has bottomed out, in the Arcade Games Sales business facility operators will continue to be cautious about the selection and concentration of their investments. Capcom will focus on the development of coin-operated games using popular in-house and well-known content from other companies in an attempt to differentiate from other company's products.
As a result of these measures, we forecast net sales of 10,000 million yen and operating income of 2,300 million yen.
This Year's Major Title
"Super Street Fighter IV"
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"CR Sengoku BASARA 3
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"Monster Hunter Medal Hunting"
"MONHAN NIKKI SUGOROKU AIRU MURA"