We have implemented our digital sales enhancement initiatives against a backdrop of customers increasingly purchasing full games—especially HD games—via digital download rather than in boxes. These initiatives have included enhancing and renovating our sales site to make for a smoother purchasing experience for our customers. As a result, the fiscal year ended March 2018 saw download sales of our catalog titles grow, which led to a sharp increase in the portion of our HD game sales that we generate digitally to more than 40%. The trend toward greater digital shopping is irreversible, so we will now need to go beyond simply renovating our sales site to creating the capability to provide our customers with tailored recommendations based on their preferences and game-play style. We must admit that our Group is behind in terms of such initiatives, but we will ramp up our system development and other relevant efforts to make up for lost time. We will in fact take things a step further by not only bolstering the digital sales of our games, but also establishing an e-commerce strategy as the fifth pillar of our growth initiatives to better leverage our Group’s IP portfolio. To date, we have recognized sales of IP-derived figures and other merchandise produced either by ourselves or via licensing arrangements under our Merchandising Business Segment and positioned such offerings as a way of supplementing the original IP. However, of late we have noted that consumers increasingly want not simply to enjoy games and manga in isolation but in a more wholistic way that includes merchandise based upon such contents. They have begun not only to want to play games but also to have a deeper appreciation for the universe of the game and the characters that inhabit it. Social networks have made it possible for players to share their playing experiences and reviews with many other players, thus creating global communities. In those communities, fans enjoy games, manga, and other content as though they are all part of a single universe, irrespective of whether they are engaging with the original IP or derivative products. For this reason, we believe that we should no longer limit our Merchandising Business Segment to a supplementary role vis-à-vis the original IP but to redefine it as “e-commerce,” applying a broad interpretation to the term and including in it the digital sales of our games, manga, and other products. We further believe that we should strive to grow such business, thereby giving additional depth to our earnings base and enabling investment in the development of more new content. We intend to pursue e-commerce as a new thematic initiative starting in the fiscal year ending March 2019.
In the context of Multiplatform Utilization, we note that game streaming was a hot topic at E3 this year. Game streaming is finally becoming a reality just as the current generation of game consoles are approaching the end of their lifecycles and the next-generation consoles are beginning to be discussed. The telecommunications landscape looks poised for dramatic change over the next few years with the roll-out of 5G or the fifth-generation mobile network, and we expect the gaming industry to face a major paradigm shift spurred by the advent of client-agnostic gaming services. This may fundamentally change the look of the gaming industry, not only in terms of how it designs its games but also even in terms of its business models. To respond to these changes, our Group will strengthen its R&D and sales functions to lay the groundwork for further expanding our businesses. New technologies such as AI (artificial intelligence), blockchain, and XR (a catchall term covering VR, or virtual reality; AR, or augmented reality; and MR, or mixed reality) may give rise to new platforms. We will invest aggressively in such new technologies with an eye to the post-smartphone world. As we have already announced, we have set aside US$25 million to invest via a venture capital fund. Through such investment, we will develop content businesses befitting the times in which we live.
We look forward to your continued support.
President and Representative Director