To Our Shareholders

Business Segment Overview

Digital Entertainment Business Segment

In the fiscal year ended March 2017, the Digital Entertainment Business Segment posted net sales of \199 billion and operating income of \33.3 billion, with both figures representing year-on-year growth. In the HD (High-Definition) Games sub-segment, major titles such as “FINAL FANTASY XV,” “Rise of the Tomb Raider” for PlayStationR4, “Deus Ex: Mankind Divided,” and “NieR:Automata” made major contributions to earnings. We released “FINAL FANTASY XV,” the latest series title in the FINAL FANTASY franchise, simultaneously in all markets on November 29, 2016. Thanks to your support, the title has been a major global hit enjoyed by gamers the world over. Since the game’s launch, we have released DLC (downloadable content) and updates to ensure its many fans can continue to play it over the long term. In the case of “Rise of the Tomb Raider,” we first released versions for Xbox One and Xbox 360 followed by Windows in the fiscal year ended March 2016, before making it available for PlayStationR4 in the fiscal year ended March 2017. The global response to the title has been excellent, putting it on par with “Deus Ex: Mankind Divided” as a symbol of the high quality of our Group’s products. In addition, “NieR:Automata,” which we released in February 2017, has proven a global hit far in excess of our expectations. It has not only reminded the world of the high quality of Japanese games, but also demonstrated significant potential for future franchise development. In the MMO (Massively Multiplayer Online game) sub-segment, we strove to maintain stable operations for our “FINAL FANTASY XIV” and “DRAGON QUEST X” titles. In the case of “FINAL FANTASY XIV,” we not only worked on operational stability but also announced in December 2016 a release date for the “Stormblood” expansion pack, thus bolstering the number of our paid subscribers. Moreover, when we launched that expansion pack in June 2017, we achieved the greatest paid subscriber count we had seen since the launch of “A Realm Reborn” in August 2013. With an expansion pack release slated for “DRAGON QUEST X” during the fiscal year ending March 2018, we see the MMO business as a major contributor to the stability of our earnings. Our Games for Smart Devices/PC Browsers sub-segment struggled in the first half of the fiscal year ended March 2017, but we were able to make up lost ground in the second half by releasing successful titles, primarily leveraging our own IP (intellectual property). While we often hear that the Japanese mobile game market has reached maturity, we do not believe that “maturity” is synonymous with “stagnation” or “decline.” “Maturity” only means that mobile devices in general and smartphones in particular have already established solid positions as gaming devices and that gamers playing games on their smartphones have become a common sight. In addition, with a multitude of titles on offer, including both new and classic titles, gamers are becoming more discerning in their choices. Competition over their playtime has intensified, and the race to grab a spot on their smartphone screens is growing ever more heated.
This means that only fun, appealing games will survive, which is of course only natural. As such, the market is at last in a stage where the capabilities of the game companies will truly be tested. That is what we understand “maturity” to mean. Based in part on the lessons we learned in the fiscal year ended March 2017, we intend to leverage our strengths to deliver even more sophisticated games in the fiscal year ending March 2018, so that we can target Smart Devices/PC Browsers sub-segment sales in excess of \100 billion.

Amusement Business Segment

In the fiscal year ended March 2017, the Amusement Business Segment saw stable earnings, with net sales coming in at \42.7 billion and operating income at \3.6 billion. We released new arcade titles such as “GUNSLINGER STRATOS 3” and “LOVE LIVE! School Idol Festival – after school ACTIVITY –” receiving a positive response from our customers. In addition, September 2016 saw the opening of Taito Station Ikebukuro Nishiguchi, a large arcade in the busy Ikebukuro area of Tokyo featuring a jumbo screen on the exterior. Along with the “STORIA” cafe that we opened at the same time, the location has proven popular with customers as a new source of gaming experiences. In the fiscal year ending March 2018, we plan to establish a new arcade format in Hakata, the largest town in Kyushu, in collaboration with teamLab Inc., where we hope our customers will come to experience the latest evolution in arcades.

Publication Business Segment

Despite the publishing industry struggling, our Publication Business Segment was able to achieve sales and profit growth in the fiscal year ended March 2017, posting sales of \10 billion and operating income of \2.4 billion. This was in spite of some of our major titles ending and there being a lull in our anime adaptations. Moreover, we have at last begun to see growth in digital sales, which has been an area of focus for several years. Digital sales now account for more than 15% of the total for the Publication Business Segment. It is clear that our customers are moving away from print media and that the shift to e-books and digital media is an irreversible trend. Publishers have no choice but to respond to changing customer reading styles, and no time can be wasted in transitioning to a structure that leverages the unique attributes of the digital media business, including the elimination of inventory and the challenge of product returns. In the fiscal year ended March 2017, we not only offered traditional e-books, but also released a new app called “Manga UP!” in order to offer customers additional convenience and inspire them to make new purchases. We have also released many titles with future potential such as “The Case Study of Vanitas,” “Yakumo-san wa Eduke ga Shitai,” and “Happy Sugar Life.” As I always say, our Publication Business Segment is a fertile field from which we can cultivate new content. Japanese manga and anime represent powerful pieces of IP that enjoy strong reputations around the world. It is our Publication Business Segment that gives rise to such IP, so how we go about evolving it in a multifaceted way for the digital age will be a key part of our strategy. Rather than thinking that the segment’s boundaries end with traditional comic sales, we intend to define its reaches more broadly in order to pursue further earnings expansion.

Merchandising Business Segment

Both net sales and operating income grew at the Merchandising Business Segment in the fiscal year ended March 2017, coming in at \6.4 billion and \2.1 billion, respectively. The segment represents a key part of our business portfolio, helping to compliment and bolster our lineup of original products. In the fiscal year ended March 2017, sales of products and services commemorating the 30th anniversary of “DRAGON QUEST” and “FINAL FANTASY XV” tie-in products were especially brisk, enabling us to significantly grow our earnings. The “SQUARE ENIX CAFE” that we opened in the Akihabara entertainment district of Tokyo in October 2016 has generated traffic far beyond our expectations and inspired many customers to purchase merchandise associated with their favorite game titles. Our hope is that the cafe will not only generate product sales in its role as our official shop, but also serve as an important source of information regarding our products and services. We will continue to enhance its product and service offerings in order to attract even more customers.

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