Investor Relations

Secondly, we posted valuation losses in the Games for Smart Devices/PC Browsers sub-segment. While our smart device titles are performing well overall, some titles are struggling. We posted valuation losses on the struggling titles in order to clear depreciation/amortization charges off of our books quickly. In the PC browser game space, we have begun offering several ambitious titles to meet e-sports demand in Japan. We posted valuation losses on games of that nature that were struggling to produce adequate earnings. We are less-experienced in the new genre of e-sports, which prevented us from gaining player acceptance in some cases. While we need to work to develop e-sports offerings over the long term, we wanted to recognize the valuation losses on our books earlier rather than later. Because of the strategic value of the e-sports genre, we will remain tenacious in our efforts in that space, including considering offerings for consumer game consoles, as well as global roll-outs. The third reason was upfront marketing spending for HD Games and Games for Smart Devices/PC Browsers. Sales from smartphone games are posted with a month’s lag. The marketing spending we engaged in in September went on September’s books, but the September sales that reflect the benefits of that marketing spending will not be posted until 3Q. As such, marketing spending is running ahead of sales. 2Q also saw the booking of some of our marketing spending for major HD game titles slated for release in 2H. Lastly, we also booked valuation losses associated with US subsidiary Shinra Technologies, Inc. as an extraordinary loss. These were the factors that resulted in a QoQ decline in net income. We nonetheless saw solid development in the earnings foundations of each of our businesses. This was especially the case for the MMO and Games for Smart Devices/PC Browser sub-segments. I will elaborate momentarily.

This chart tracks our content production account balance. The balance was up significantly in 1H, but we look for it to be down as of end-March 2016 thanks to major title releases slated for 2H.