CEO Interview
Summary of the First-Half Period Ended September 30, 2008

Nov 13, 2008

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Japan’s Game Industry Environment, and the Company’s Overseas Strategy
Japan’s game industry needs to move towards networking

In your keynote speech at the opening of the Tokyo Game Show on October 10, you said that Japan’s game industry was no longer the world leader.

WADA

Even though Japan’s game industry has the power to lead the world, I believe it is not achieving its full potential.

You mentioned that the “soil” for the development of games has become less fertile. What is your prescription for this?

WADA

Firstly, we must recognize the dangers facing Japan’s game industry. Then, I believe we must work together to share and standardize interfaces and move aggressively towards creating a network across companies, industries, countries and regions for the business and the development process.
Currently, a reorganization of the game industry is taking place across the globe. If you were to draw a world map of the industry based on the most recent figures for market capitalization and operating income, game publishing in the West would be dominated by four companies, including Activision Blizzard and Electronic Arts. Then again, the rise to prominence of Chinese and Korean companies will mean that the industry map will look completely different in five years.
However, Japanese companies have the advantage of creativity in the production of original content, sound financials, and so on. To make full use of these advantages, so that Japan’s game industry can once again lead the world, we have to make positive efforts to become a major force in the global community and not just in Japan, and to become the global hub for the provision of the finest content.

So how is Square Enix progressing in this global market?

WADA

Company-wide overseas sales ratio for the first-half period was 18% of our total revenue. As our Publication and Amusement segments are focused on the Japanese market, the company has focused on expanding our overseas operation in Games (Offline), Games (Online) and Mobile Phone Content segments. However, the figures for software unit sales by region that I mentioned before (2.05 million in Japan, 1.56 million in North America, and 1.36 million in Europe) are not completely satisfactory. I think the key to global competitiveness is to have as many titles as possible that sell more than 2 million units, together with 1 million- and 500,000-unit titles in support.
Furthermore, to become a major player in the global game market, I believe it is necessary to strengthen our role as a publisher. Last year we began publishing other companies’ software through our subsidiary in Europe. From next year, our publishing activities will begin in earnest through both our European and North American subsidiaries. And, since we became a holding company in October, we are looking to engage actively in strategic alliances such as M&A projects.

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