Capcom Announces Third Consecutive Year of Record Profits Driven by its Strong Gaming Business

Today Capcom announced its financial results for for the full fiscal year ended March 31, 2020.

Not only all the relevant profit figures are in the black, but the company announced that profits hit a record high for the third year in a row, despite the fact that overall sales were down 18.4% year-on-year.

Operating income saw a 25.8% growth year-on-year. This excellent performance was driven by the Digital Contents business, which is the segment including video games.

Speaking of the future, Capcom predicts that the fiscal year ending on March 31, 2021, will see net sales of 85,000 million yen and operating income of 25,500 million yen, which would be a further improvement on both figures.

Among the drivers for the Digital Content business are Monster Hunter World: Iceborne (which is still marked at 5 million units shipped worldwide) worldwide and catalog titles like Resident Evil 2 and Devil May Cry 5, which continue to see “healthy” sales.

“In this business segment, Monster Hunter World: Iceborne (for PlayStation 4, Xbox One and PC) delivered solid sales and served as the key driver of profitability growth owing to a focus on high-margin digital sales.

Further, healthy sales of catalog titles also contributed to profit. Specifically, Resident Evil 2 (for PlayStation 4, Xbox One and PC) and Devil May Cry 5 (for Xbox One, PlayStation 4 and PC), both released in the previous fiscal year and recipients of an Award for Excellence at the Japan Game Awards: 2019, saw continued growth in sales buoyed by a growing user base.

Monster Hunter: World (for PlayStation 4, Xbox One and PC), released two fiscal years ago, also continued to display its long sales life, achieving cumulative sales of 15 million units.”

The documentation also includes an interesting look at the future outlook, including the foundation of an eSports Academy for training professional players and the establishment of regional teams and leagues for female players.

In this industry, it is expected that entertainment choices for customers will undergo diversification; for example, high-definition, cloud-based simultaneous multiplayer games for smartphones should be made possible by the high-speed, large-capacity, low-latency communications accompanying the rollout of commercial 5G services this year in markets including Japan.

Further, the possibility of a full-scale market entry by external players has brought a seismic shift in the landscape and a wave of new business opportunities.

Situated in an industry that undergoes rapid environmental change, the Company is focusing on securing stable revenue annually while building a competitive advantage via a strong management system and pursing a
a high-margin, digital-forward strategy focused on expanding digital download sales.

At the same time, the Company has been bolstering developer personnel through securing and training excellent human resources in order to build out its core business of home video game software development. With a maturing market, declining birthrate and aging population in Japan, overseas business expansion is indispensable to the Company’s future growth plans.

For this reason, in addition to Europe and the United States—its primary competitive markets—the Company aims to build an advantage in rapidly growing Asia through delighting customers there with releases of world-renowned IP while increasing its share of sales in the region.

Further, the Company sees esports as an integral part of its future growth strategy and is working to consolidate its position in this expanding market with upfront capital allocation and investments in human resources; it plans to found the Esports Academy (tentative name) for training professional players as well as to establish regional teams and leagues for female players.

In addition to implementing organizational reforms in response to changes in the environment, the Company is focused on improving corporate value while aiming to optimize its business portfolio. This is achieved through efficiently allocating management resources via a method of selection and concentration, investing in growth areas and reviewing its position in unprofitable businesses.

Plans for the future include promoting digital sales and eSports, alongside expanding Caocom’s global operations.

A. Promotion of digital strategy

a) One of the reasons for increased profits in the fiscal year under review is the expansion of digital download sales. The Company will continue to accelerate the focus from physical packaged sales to digital sales in step with advances in internet technology and the overall trend of digital transformation.

b) In addition to eliminating manufacturing costs of the disks and packaging containers, digital sales can reduce distribution cost and inventory risks, and allow for more flexible pricing by region and sales period. Moreover, they help minimize piracy and second-hand sales, while
allowing for a long-term sales-life, contributing to stable profits each year.

c) Through digital marketing the Company will conduct efficient promotional activities. For instance, it will analyze and predict customer preferences with centralized management of user play data and carry out development based on meeting market needs. It will also set prices flexibly in real time through digital initiatives matched to diverse customer behavior.

d) In pursuing digital strategy, marketing to capture users is critical. Therefore, it is important to secure human resources with advanced skills and special expertise in utilizing the latest technology to carry out activities such as analysis of customer play history and behavioral prediction. For this reason, in addition to acquiring such human resources from outside the firm, the Company will work to train-up the necessary human resources through in-house training and practical education.

B. Strengthening the eSports business

a) Going forward, esports are expected to attract more attention due to various activities that should energize the market. In addition to the first esports tournament in the history of the National Sports Festival being held at the Ibaraki National Sports Festival last year, esports are being considered for inclusion as a medal event at the Asian Games in Hangzhou, China in 2022.

b) Esports are also attracting attention as a form of entertainment that can take advantage of 5G, and are rapidly growing even in Japan, which had lagged other regions of the world up to now. For instance, leagues featuring professional sports teams are being launched and major companies
are crossing industry boundaries to enter the market by sponsoring esporting events in Japan.

c) The Company is investing management resources for development of this new business because it has accumulated a wealth of esports experience and operational know-how by holding the Capcom Pro Tour through its U.S. subsidiary for many years.

d) Nonetheless, the domestic market is still in an early phase of seed-sowing. Several issues to be addressed remain, including regulatory obstacles, training of professional players and building out the environment. Therefore, in order to monetize this business, it is necessary to build a model with a medium- to long-term perspective, with the understanding that it will take sometime before the fruits of any investment can be reaped.

C. Expansion of global operations

a) To pursue growth strategies while the domestic market matures, it is indispensable to cultivate overseas markets.

b) The Company is a world-leader in content and holds multiple, internationally popular brands having continuously produced hit titles in the U.S. and Europe, including in the Street Fighter and Resident Evil series, both of which have been adapted into Hollywood films.

c) In recent years, the company’s presence overseas has been steadily rising due to the huge success of Monster Hunter: World. In addition to the U.S. and Europe, the Company plans to aggressively expand business opportunities in other regions by further promoting the Capcom
brand. As the Asian market is expected to grow in the future, the Company will restructure local subsidiaries and focus on expanding sales in the region. It will also develop new markets such as South America.

If you’d like to compare, you can also check out the previous financial results, announced by Capcom in February.