CEO Interview
Results for fiscal year ended March 31, 2010

May 28, 2010

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Network-Centric Businesses
Shift to network-centric business model, changing the Group’s sales and profit sources

At the Results Briefing Session, you talked about a shift of business framework to one that is “Network-centric”, could you elaborate?

Wada

It’s expected that the rapid advancements in network infrastructure will soon make online business models standard. While I don’t necessarily believe everything will go online, I want to change our sales and profit structure through transforming our business framework to one that best matches the network. Already, online fee-based games, as well as DLC (downloadable content), downloadable games, net community services are developing within the Group, but I want to take these much further. If we are not fully prepared, we won’t be able to beat the competition. We must continue to actively plant seeds in key areas - so far, we are still only beginning to see early signs of the fruits from our labor.

Please tell us about your initiatives of online contents in addition to SUARE ENIX MEMBERS and Nicotto Town.

Wada

Our free membership website SQUARE ENIX MEMBERS, for example, has grown quickly and already gained more than 1.3 million registered users in Japan, North America and Europe. We plan to further enrich the content available on the site. In our online strategy going forward this will also serve an important marketing function.
And, although having only been established two years ago, SMILE-LAB, a wholly-owned subsidiary, has already reached profitability boosted by its online community service called Nicotto Town. With the number of registered members already surpassing 500,000, we are benefitting from our strong reputation in this area.
There are other examples where our efforts taking advantage of network services are beginning to show signs of bearing fruit. Our free online comic magazine, GANGAN ONLINE, started last year has already generated several hundred million yen in revenue in the year ended March 2010. Furthermore, we achieved success content for iPhone / iPod touch with CHAOS RINGS, which achieved #1 sales ranking in 14 countries in just three days. Titles like FINAL FANTASY and TAITO’s SPACE INVADERS INFINITY GENE are other examples of hits we’ve generated based on our widely praised content for iPhone / iPod touch. We are also strengthening our development of our social games for SNS as well as browser-based games.
In the current fiscal year, we want to assemble and build on these and other budding successes to aggressively transform our business model.

SQUARE ENIX MEMBERS / GANGAN ONLINE

For the year ending March 2011, you mentioned the topic of developing business in China and other emerging markets.

Wada
We see business development through alliances in China preferable to making investments on our own. We are still, however, in the study phase. We feel that business development through online games is a better fit with the market characteristics than a packaged good approach.
We are also in the middle of research and analysis on Korea, Taiwan, Vietnam, Hong Kong and other potential markets.

Lastly, I wanted to ask you about the issues for the entire industry such as used game market in the U.S., which appears to be a difficult and worsening issue.

Wada

In the largest retailers in the U.S., there are disturbing cases where customers planning to buy a new game are actively encouraged to buy a used copy instead. There have been a number of industry policies to battle the used game market, including a company’s plans for online aspects of future games that can only be downloaded once. However, these counter-measures are provoking a lot of controversy.
And beyond this, piracy problems caused by devices like the so-called “Magicon” are examples of a worsening copyright infringement situation worldwide. As an industry, we are still working on what can be done. It seems necessary to first estimate and clarify to the world the extent of the financial damages the industry is suffering. Reviews of unfair competition prevention and copyright laws are among the significant number of issues that need to be considered. For these issues, it’s necessary that various countries work together in the planning of overall industry solutions to these problems.

(Interviewer: Motoshi Isobe, Journalist.)
Interview conducted on Jun 18, 2010

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