Outline of Tokyo Game Show 2011 Keynote Speech held on September 15, 2011

*This keynote was made by the president and CEO of Square Enix Holdings in his role as chairman of the Computer Entertainment Supplier’s Association.

(Continued from previous page.)*

Video games are incredibly complex applications. When they first appeared, machines owned by the average user could not play them under normal means. As a result, to play one game, you had to make one “special device” upon which to play it. For example, if you wanted to play Space Invaders, you needed a special Space Invaders-only machine. It goes without saying that individuals could not afford such machines, and thus the first video games began as arcade games. The video game market started here, with "one game, one machine," whereby arcade game operators bought these machines and recouped their investment by charging customers one coin at a time.

Next, Nintendo created its Nintendo Entertainment System (NES). Atari had previously released game consoles, but the explosive growth began from the NES. The NES was by no means cheap, and it was a pain to string up all those cables behind your television, but it was affordable enough for individuals to purchase. This is the red and orange areas on the graph. This is the console game segment. "One game, one machine" became rapidly less expensive, transforming into a single piece of dedicated hardware that could play multiple games. A time of growth and expansion occurred for the first half of the 1990s, whereby all the home electronics makers participated in what appeared to be a great market opportunity. Gameplay was enriched, and the market expanded, as both the participants and the customers increased dramatically. The video game market did not change for quite a while, but a change occurred in 2000, with the PlayStation 2 (PS2).

I think that there are people here who remember the kind of debut that the PS2 had at the 2000 Tokyo Game Show. It was like something from the movie the Matrix. The PS2 was a multimedia device; a combination of game console and DVD player. Prior to the PS2, customers had to purchase a dedicated piece of hardware to play games, but after the PS2, you could also use it as a DVD player, and so the relative investment to play video games decreased.

Thus, as is summarized in the slide, a driver of growth for the game market's expansion is the reduction of barriers of entry to the consumer. As the investment to play is reduced, the market grows proportionally. The market moved from "one game, one machine" to a dedicated game console which could play multiple games, to a multimedia game console which could play multiple games.

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