Outline of Financial Results Briefing by SQUARE ENIX HOLDINGS held on May 11, 2018

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SQUARE ENIX HOLDINGS CO., LTD.
FY2018/3 Financial Results Briefing Session Q&A

Date/Time: May 11, 2018 (Fri); 5:30-6:30 pm (JST)
Questionee: Yosuke Matsuda, President and Representative Director

Q&A

Q. What do you see as the ideal operating margin for HD Games and when do expect to reach it?

A. Considerable amortization charges are associated with the development of major HD titles. As such, it is difficult to assess their operating margins based solely on their first year on the market. Digitization is extending the lifetime of our titles, and they should therefore be assessed over their full lifetime. We will be able to improve our operating margin as digital sales continue after a title has been fully amortized. I see the possibility of the operating margin averaging around 15-20% over the next three to five years.

Q. Why did you give specific numbers for FY2019/3 guidance as opposed to ranges as you previously had?

A.  We changed to specific figures in order to present more straightforward guidance.

Q. Would you say that the figures you have released for FY2019/3 guidance would be the upper limit, the middle, or the lower limit under the range system you previously used? Also, could you please share the underlying assumptions for your guidance, such as sales volumes for your new titles?

A.  I believe we can target net sales of ¥300 billion, but because that will hinge on how well our new titles sell, we have issued conservative guidance figures.
The previous installment in a series generally serves as a benchmark for sales volume, but “TOMB RAIDER” does not lend itself to comparison given that Rise of the TOMB RAIDER had a staggered release schedule across platforms. The next game in the series, SHADOW OF THE TOMB RAIDER, will be launching on all platforms simultaneously this September 14.

Q. On the topic of e-commerce, when do you plan on completing the app version of your sales website?

A. We plan to announce that at E3. I want to make it happen in time for the launch of “SHADOW OF THE TOMB RAIDER.”

Q. How does your Digital Entertainment segment guidance split between HD Games, MMO, and Games for Smart Devices/PC Browsers?

A.  We do not disclose the exact monetary values, so I’ll describe the trends we expect. We look for sales of HD Games to rise given our plans to launch multiple major new titles. It’s likely to be an average year for MMO since we have no expansion pack releases planned. We meanwhile target ¥100 billion in sales of Games for Smart Devices/PC Browsers.

Q. Could you tell us about your plans to step up your development capabilities under your medium-term plan? In what areas are you planning on bolstering headcount?

A.  As regards HD games, the number of third-party development studios in Japan capable of creating console games is on the decline, and we are struggling to recruit developers. Recruiting resources overseas and collaborating with overseas development firms is going to be key.

Q. How is the expansion in HD game platforms affecting your earnings?

A. Growth in the number of platforms is basically a good thing, and we intend to further advance our multiplatform approach.

Q. Do you plan to port any of the overseas titles slated for release in FY2019/3 to non-HD formats?

A. We will not be insistent upon developing mobile versions of our overseas titles in-house. We could consider, for example, collaborating with the Chinese or South Korean firms that excel at developing multiplayer shooter games.

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