To Our Shareholders

Key Business Development Initiatives

The business environment that surrounds our Group undergoes major changes on a daily basis. However, what we strive for remains unchanged: providing our customers around the world with the ultimate in content-based experiences. That and that alone is where our importance to society and our enterprise value lie. Working flexibly to achieve that goal in an ever-changing business environment is the duty with which you, our shareholders, have entrusted us, the management of this Group. With this in mind, we intend to pursue the following three key business development initiatives going forward: 1) enhancing our offering of premium apps for smart devices; 2) developing VR (virtual reality) and AR (augmented reality) offerings; and 3) expanding into emerging markets, especially India, the Middle East, and Latin America.

1) Enhancing our offering of premium apps for smart devices

Currently, the global market for smart device games is dominated by F2P (free to play) games, and the market for premium games that players pay to purchase is practically nonexistent. However, our Group has for some time been offering premium games for smart devices, including brand new titles. When viewed across the Group, these offerings represent a considerable volume of earnings. F2P games have achieved remarkable growth thanks to their massive download numbers and significant active user bases that generate fee revenues. Many companies entered the market because of the perception that F2P games cost less to develop than traditional console games while also offering the potential for significant earnings. As a result, the market as a whole saw major growth, but competition reached excessive levels. Meanwhile, marked advancements were made in smart device performance, and consumers of F2P games grew more demanding. As such, the market ceased to provide major returns for low-budget development. However, the picture for premium games is different. Initial development costs for both F2P and premium games are roughly the same as or even higher than those for new games for dedicated handheld game machines. In other words, the level of investment required cannot be considered low risk. The risk involved in F2P games is even higher than for premium games because of the need to spend on ongoing operational and additional development efforts. F2P games generate massive download numbers because basic play is free. They thereby establish significant active user bases and present major earnings potential. Premium games, meanwhile, offer the advantage of generating purchases over a long period of time after their initial development costs have been fully depreciated. Premium games naturally need to be modified to keep pace with frequent OS updates and require ongoing marketing spending to generate user awareness. However, smart devices still provide a better platform for playing greatly loved games for many years than dedicated game consoles do because of the latter’s issues with backward compatibility. Continuing the comparison with dedicated handheld game machines, we note that significant advances have been made in both the specs and operability of smart devices and that this evolution is likely to continue unabated. Moreover, smart devices have a much greater installed base globally than dedicated handheld game machines. The smartphone-native generation already sees smart devices as all-in-one game consoles. For these reasons, it makes sense for game manufacturers such as ourselves to supply games that we have traditionally developed for dedicated handheld game machines not only for such consoles but also for multipurpose smart devices. We believe that the operability of smart devices makes them a good match for turn- and simulation-based RPGs, among other games. We see turn-based RPGs as a style or format of game and do not believe them to be outdated at all. The development of such RPGs is something that our Group has exceled at for some time. By releasing new RPGs not only for dedicated handheld game machines but also for smart devices, we hope to develop the premium game market into a pillar of our business on a par with the F2P market. In so doing, we believe that we can enrich the portable game market in the broader sense in order to respond to a variety of customer needs.

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