The new fiscal year has begun and we must fundamentally strengthen our Digital Entertainment segment

At the earnings announcement, you said that your game development capabilities have become weaker that you had anticipated.

WADA

Not only our game development capabilities, but our business creation skills also need to be improved. On the whole, I believe that our strategic vision needs to more thoroughly permeate our organization. We have, however, taken several important actions to ensure this vision takes hold. For example, in the past a project under development by one team would be kept secret from others. Now, however, we are sharing information in order to try to improve by learning from others. In an area we must build as a new revenue source, PDLC (premium downloadable content), we are planning to hold training programs for all employees. Also, we have created a system in which my thoughts on group-wide direction are streamed as video messages directly to all our Group's employees worldwide. By communicating specific examples, I believe we can raise the understanding of our strategy.

As a group strategy, you have listed globalization, becoming network-centric and the strengthening of own-IPs– what's the latest progress here?

WADA

We are making good progress with our Japan, North America and European based global content development structure. From this year, we must strengthen the capabilities beyond sales at our European and North American operations as well as simultaneously entering emerging markets. Specifically, we want to make progress in India, Southeast Asia and Eastern Europe in the current fiscal year. In general, our plan is to create some type of new content to match the consumer tastes in each of these regions. Right now, our urgent task is the development of alliances with each of the local distributors with the strongest network operations.

In terms of becoming network-centric, we are continuing game development in the high growth areas such as browser based games and smartphone games. In this area our browser game collaboration with Yahoo! Japan called SENGOKU IXA has already gained more than 500,000 registered users in just eight months since launch, while our virtual community site called NICOTTO TOWN has also become a success. Taito's social game series called RENAI JIJO is another successful game in this field. In fact, these three examples alone have already generated 1.5 billion yen in profit. In March of this year we created a subsidiary called Hippos Lab. With all these activities and more, we expect to at least double profit generation from these new areas next year. Going forward we plan to similarly develop such businesses in European and American markets as well. Here, we will create new network content based on the regional tastes of each market.

In the strengthening of our own-IPs, we are referring to AAA titles, that is, core titles developed for several platforms. We believe it is necessary for us to establish 10 or more strong IP pillars. In the past three years, our failure was in spreading ourselves too thinly across titles and not spending enough time in the early planning stages. We feel very strongly that we must return to our Square Enix origins as a company intensely focused on the highest quality game development. By studio, in Tokyo where we have FINAL FANTASY® and DRAGON QUEST® we want to add two more comparable IPs. For our studios in Canada, Denmark and the U. K., it is our goal to create one additional new IP at each of these studios. While some development is already underway, this goal will probably take three years or so to complete.
If possible, we want to start bringing these large titles to the market from next year. In any case, our difficulties came out last year, this year is a year of rebuilding and from next year we aim to achieve substantially higher profits.

(Interviewer: Motoshi Isobe, Journalist.)
Interview conducted on May 16, 2011

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