Social Network Gaming

02 November 2012 Asia Pacific/Japan Equity Research

Connections Series

Impact of higher-spec social network games? ■ Issues and overview: With the implementation of self-regulation and current rollouts of games in existing genres now over, top-line growth in the domestic social network gaming market has slackened. Despite strong potential, it will likely be some time before overseas operations begin to make genuine profit contributions (the role of platforms remains unknown), so overseas markets do not offer much relief either, in our view. As the market shifts to native smartphone applications, the balance between increased costs and growth in user numbers in the domestic market will likely become a critical earnings variable for social network game developers. In this report, we look at earnings under different scenarios, as well as the The Credit Suisse Connections Series potential for business diversification to help stabilize earnings. leverages our exceptional breadth of ■ Conclusions: Game development costs are set to increase in response to: macro and micro research to deliver (1) higher royalty payments and (2) the ongoing shift to higher-spec games. incisive cross-sector and cross-border thematic insights for our clients. With no increase in the number of users, we estimate operating margins would fall to around 30% (from a peak of nearly 50% in Jan–Mar 2012),

Research Analysts equating to about 15–20% downside for share prices. We believe P/Es Yuki Nakayasu remaining around 10x at current share prices would require: (1) migration of 81 3 4550 9966 console game users, and (2) gaining new users to boost the number of [email protected] paying users by 1mn (from a little over 7mn currently). We would expect 20– Shunsuke Tsuchiya 30% upside for share prices if paying users grew by 2mn and overseas 81 3 4550 9740 operations moved to profitability earlier than anticipated. [email protected] ■ Our picks: In social network games, we look at the two main scenarios of an expansion of the higher-spec games market or continued growth in the current low-spec games market. Growth in the higher-spec market would likely come at the expense of the console game market, so our ranking of firms by level of expected impact is: third-party > Gree (3632) and DeNA (2432) > Nintendo (7974). Among third-party developers, we favor Konami (9766) due to its strength in higher-spec games, a likely recovery in earnings momentum from 2H 2012, and low valuations. Figure 1: Case simulations/stock picks according to social network gaming market changes High-spec market High-spec market Low-spec market No expansion Probable expansion Probable expansion Positive 3rd Party 3rd Party GREE / DeNA・SAP Neutral Nintendo・SAP GREE / DeNA Nintendo Negative GREE / DeNA Nintendo・SAP 3rd Party Note: Third parties include Konami, Square Enix, Capcom, and Namco Bandai Holdings. SAP include Klab, Drecom, and Crooz Source: Credit Suisse.

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02 November 2012 Table of contents

Key charts 3 Earnings situation at dedicated social network game makers 4 Costs: Shift to native smartphone apps resulting in two factors that are raising costs 5 Revenue: Potential for market growth driven by shift to higher-spec games 10 OP estimates: What levels of (1) migration of console users a (2) new users needed to keep current profit? 15 Shedding reliance on games through diversification: Comparison with console games17 Overseas social network gaming: More time needed for earnings contributions 20 Appendix 22

Social Network Gaming 2 02 November 2012

Key charts

Figure 2: Social network gaming shifting to higher-spec Figure 3: Can an increase in user numbers cover higher games as smartphone capabilities improve costs associated with the shift to higher specs OP per Paying User Decreasing margin due to the increases Network type Package type in loyalties and R&D. Freemium type One-time charge type Monthly OP per paying user: Y 1,700

Konami Attracting new users and users from home Square Enix video games. High spec Paying Users ? Namco Bandai HD Monthly OP per paying user: Y 1,400 ARPU ? CAPCOM Sega Sammy

Many paying users / Low ARPPU

GREE DeNA CyberAgent Low spec Klab Drecom Crooz Paying Users: +1M?, +2M?, +3M? Mobc as t Few paying users / High ARPPU

Paying Users: 7.2M # of Paying Users

Source: Credit Suisse Source: Credit Suisse

Figure 4: Social network game OP estimates by scenario: Share price falls once higher costs priced in; current price seems to reflect increase of 1mn paying users, but not yet 2mn increase or overseas profit

50 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep- 13 Oct-13 Nov-13 Dec-13 1,200 (Y bn) (Y bn) OP Market Value (RHS) PER PER PER PER 45 x12 x10 x8.2 x7.5

1,000 40

35 +30% 800 CS想定 +20%

30 -15-20%

25 600

43 20 40 37 36 37 400 32 15 31 26 24 25 10 Share price once higher costs, no market growth 200 factored in. 5

- - Mkt increase Mkt increase Mkt increase Mkt increase 1Q 2Q 3Q 4Q 1Q 2Q Japan 0 1 mn people 2 mn people 2 mn people

2011 2012 CY13 2H CY13 2H CY13 2H CY13 1H Overseas +ve profit +ve profit +ve profit +ve profit Source: Company data, Thomson Reuters, Credit Suisse estimates

Social Network Gaming 3 02 November 2012

Earnings situation at dedicated social network game makers In the final phase of the era of phones with unique-to-Japan specs, DeNA and Gree drove rapid expansion of the Japanese social network gaming market. The market hit quarterly sales of ¥100bn, generating OP of nearly ¥50bn in Jan–Mar 2012 at the major companies. Sluggish top line growth: End of current game genre launches, implementation of self-regulation measures In early 2012, the industry underwent changes, implementing self-regulations in response Struggling at the top line to opposition to: (1) games that encourage gambling and (2) unfair practices of targeting certain heavy fee-based users. The popularity of “card battle” games also began to decline, culminating in the peaking out of the domestic market we are seeing now. Higher development costs: Efforts to expand range of game genres With the aim of accelerating their social network gaming development programs, all New initiatives driving rise in companies are aggressively hiring engineers. With hiring currently running at a QoQ pace employee headcount of over 500 people, the supply of talent in the industry remains tight. Per-employee sales and OP are both falling rapidly. We believe margins, which used to be Per-employee revenue double those at console game developers, fell to about the 30% level in Jul–Sep and that falling the gap will continue to shrink over the next quarter or two. With top-line growth having leveled off as a result of self-regulation measures and the end of gains from hit titles, we estimate OP at the six major industry firms is down about 25% from peak levels and expect a second consecutive quarter of declines in Jul–Sep.

Figure 5: Sales at six social network game companies / Figure 6: Comparison of sales per employee: social OP / No. of employees: Growth in no. of employees network gaming is experiencing a rapid decrease, outpacing sales narrowing the gap with console games 140 7,000 30.0 (Y bn) (Y mn) Sales per head (Social Game) Sales (Gree/DeNA/CA/Klab/Drecom/Crooz) Sales per head (Video Game) OP (Gree/DeNA/CA/Klab/Drecom/Crooz) 6,632 # of employee (RHS) 118.9 120 116.5116.1 6,000 25.4 5,956 25.0 24.2 23.4 23.3 22.7 23.1 99.6 22.3 100 5,000 21.7 21.7

4,817 84.9 19.5 20.0 80 4,270 4,000 72.4 17.9 3,913 64.0 58.7 60 3,339 3,000 53.5 15.0 49.8 46.5 2,740 41.8 41.2 39.7 2,316 2,313 36.6 36.9 40 2,086 2,000 27.2 28.9 1,744 24.5 22.1 10.0 18.3 20 16.5 1,000

- - 5.0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3QE 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3QE CY10 CY11 CY12 CY10 CY11 CY12 Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Social Network Gaming 4 02 November 2012

Costs: Shift to native smartphone apps resulting in two factors that are raising costs The shift in the social network gaming market from web browser-type games used on Two factors driving up costs traditional feature phones to native applications for smartphones will raise costs, in our (feature phones→smartphones) view. We see the two main factors as: (1) an increase in royalty fees and (2) a jump in development costs as the focus of development efforts shifts to higher-spec games. (1) Royalty increases: Higher commission payments to Apple and Google In the “feature-phone era”, when users typically had feature phones with specs unique to Royalties from unique-to- Japan, carrier billing was standard and settlement fees ran at around 10%. The remaining Japan phone era 90% was split between the developer and the platform provider, typically at a ratio of 70/30. By contrast, in the smartphone era, payment for native apps accessed through the App Royalties from smartphone Store or Google Play are handled by Apple and Google, which charge commissions of era around 30%. The only exception is for web browser-based games, which currently can be downloaded from the App Store or Google Play (and redirect users to browser-based platform sites) without any need to check out through Apple’s or Google’s billing system. However, given the advantage held by the device side at this point, we expect this exception to be eliminated eventually as Apple and Google tighten their billing systems.

Figure 7: Feature phone Internet game earnings allocation Figure 8: Native smartphone game earnings allocation Payment Commission, 10

Payment Commission, Platform 30 Royalty, 27 Developer, → → 49 Developer, 63 Platform Royalty, 21

Source: Credit Suisse Source: Credit Suisse (2) Jump in development costs: Shift to higher-spec games driving increase in development man-hours In console games, increased CPU performance on the platform side and expansion of Console game development game software capabilities on the development side have combined to raise man-hours, costs also set to rise as driving up per-title development costs. Per-title development costs used to be around software capabilities grow ¥50mn for Nintendo DS (NDS) and PlayStation Portable (PSP) games, but climbed to around ¥130mn for Wii games and close to ¥400mn for PlayStation 3 (PS3) games. Development costs for smartphone applications have also risen as improvements in CPU Social network gaming R&D performance and mobile data transfer rates have driven a shift to high-definition imagery costs also rising with shift to that has in turn pushed up programming man-hours. According to leading social network smartphones game developer Klab, native application development man-hours have risen to about three times the levels for browser-based games. At the same time, the company aims to halve cost increases by moving development overseas, so it assumes a total increase in development costs of around 50%.

Social Network Gaming 5 02 November 2012

Figure 9: Video game software capacity by generation and Figure 10: Mobile processor clock rates: hardware R&D per title: R&D increasing with software capacity capacity improving over 1–2 year cycles 450 1,400 (Y mn per title) (MHz) iPhone CPU PS3 400 1,200 OMAP series (Feature Phone)

350 1,000 300 800 250 600 200

150 Wii 400

100 200 NDS PSP 50 (Capacity, GB) - 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0.1 1.0 10.0 100.0 Source: CESA game white paper, Credit Suisse Source: Credit Suisse These two cost increase factors are already in play, leading to cost ratios rising at Gree and DeNA. Even assuming marketing and other SG&A expenses remain flat, if the user base does not expand, we would expect higher commissions and increased development costs (primarily subcontracting costs) to undermine operating margins. To secure the level of profits generated previously (in Apr–Jun 2012), we estimate revenue (user charges) will need to rise about 30%.

Figure 11: Social network game value and fixed cost Figure 12: Social network game value and fixed cost breakdown (Gree/DeNA total yen value) breakdown (Gree/DeNA total weighting) 120 (Y bn) OP Outsourcing Commission Labor Cost Ad Others OP Outsourcing Commission 100% Labor Cost Ad Others 100 90% 32% 80% 46% 43% 50% 49% 48% 49% 80 31 70%

37 43 60% 22% 60 R&D 36 22 50% 15% increase 13% 13% 32 R&D 11% 13% 13% 26 13 increase 40% 40 11 10% Commission 9% 11% 14% 20% 24 9 Commission 19 10% 13% increase 12 30% 9 11 increase 6% 7% 7 8 8% 9% 7% 8% 5 20% 8% 20 6 7 7 8 8 6 16% 5 4 5 17% 3 13% 14% 11% 11% 10% 10 10 10 10 10% 8 9 8 4 5 5 6 7 7 7% 8% 8% 7% 7% 8% 7% - 3 0% 1Q 2Q 3Q 4Q 1Q 2Q Future 1Q 2Q 3Q 4Q 1Q 2Q Future 2011 2012 2011 2012 Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Social Network Gaming 6 02 November 2012

Figure 13: New/Old game comparison: clear improvement with higher-specs

Note: Upper left: “Tanken Driland” (C) GREE, Inc. Upper middle: “Kaito Royale” © DeNA Co., Ltd. Upper right: “DRAGON COLLECTION” © Konami Digital Entertainment, Inc. Lower left: “War Corps” (C) GREE, Inc. Lower right: “RESIDENT EVIL VS.” © CAPCOM CO., LTD. 2012 ALL RIGHTS RESERVED Source: Company data.

Social Network Gaming 7 02 November 2012

Profitability of console games: Revenue growth insufficient to cover development cost growth In considering the impact of the shift to higher-spec social network games, there are Lessons from past console lessons to be learned from the console game market, which has seen the “hardware games performance improvements drive development cost increases” pattern repeat itself a number of times in the past. As shown in Figure 14, operating margins at third-party developers have been on a general downtrend for the past 10 years (though they have been improving lately owing to growth in high-margin social network games). We see three possible reasons for this: (1) development costs—a significant increase in Three factors behind software capabilities, (2) resource allocation failures—PlayStation platform share decline shrinking margins at and Nintendo/Xbox platform delays, (3) yen appreciation—decline in overseas console Japanese third-party game unit prices. developers Of the above, the impact of the shift to higher-spec social network games is most evident A problem facing both social in: (1) development costs. As noted earlier, we expect a risk of shrinking margins without network and console rapid growth in both the overseas social network games market and the number of social games: Development costs network users in the domestic market. up sharply

Figure 14: Video game profitability: On a downtrend if Figure 15: No. of employees at third-party developers: On current boost from social network games excluded an uptrend (Game Segment OPM%) (Total OPM%) (# of Game Segment Employee ) 21% 16% 3500 Capcom Total OPM% (RHS) Konami Game Segment OPM% (LHS) 14% 3000 Namco Bandai 19% SQEX Konami Namco Bandai 12% 2500 SQEX 17%

10% 2000

15% Capcom 8% 1500

13% 6% 1000

11% 4% 500

9% 2% 0 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Source: Company data, Credit Suisse Source: Company data, Credit Suisse In contrast, the shift to higher-spec social network games has not had an impact on (2) The difference maker resource allocation failures. The development period for console games is long at 1–2 between social network and years, so focusing efforts on a single platform can make it difficult to shift to another console games: Resource platform in a timely manner. This was the case in 2006, when Japanese third-party allocation developers began to suffer as the PlayStation, which they had concentrated development resources, began to lose share to the Wii and Xbox 360, platforms for which their development efforts had fallen behind. However, in the case of social network games the development period is short at just 3–9 months, so if a platform begins to take off, it is relatively easy to shift resources to it. We see content providers as enjoying a clear plus from lower risk than in the console era.

Social Network Gaming 8 02 November 2012

Figure 16: Market share weighting by platform (total): Figure 17: Market share weighting by platform (Japanese Nintendo, Xbox shares have grown since 2006 third-party developers): Focusing on PlayStation even after 2006 100% 0% 0% 0% 100% 0% 0% 0% 3% 4% 3% 3% 3% 7% 5% 6% 8% 9% 11% 10% 13% 12% 14% 17% 14% 16% 16% 90% 20% 21% 90% 25% Xbox Xbox

80% 80%

70% 61% 60% 53% 70% 63% 40% 31% 57% 57% 65% 29% 69% 32% 67% 57% 51% 60% 63% 61% 60% 78% 68% 58% 57% 82% 37% 73% 57% 62% 59% 58% Sony Sony 50% 50%

40% 40%

30% 30% 52% 51% 48% 46% 42% Nintendo Nintendo 20% 39% 40% 38% 20% 40% 41% 38% 37% 35% 32% 31% 31% 29% 30% 30% 30% 28% 27% 24% 25% 26% 10% 10% 22% 21% 18%

0% 0% FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11

Note: Calculated based on software shipment volume Note: Calculated based on software shipment volume Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 18: Third-party game business breakdown: In social network games, Konami and Bandai lead (areas highlighted red are social network game-related)

100% 3% Other 90% 6% 7% 9% 9% 2% 7% 10% 5% 80% 11% 10% 10% 7% 13% 31% 30% SNS-PC 9% 8% 32% 2% 31% 70% 6% 11% 15% 32% 17% 2% 3% 60% Foreign SNS-mobile 1%

50%

Domestic SNS-mobile 40% 74% 72% 72% 67% 63% 30% 61% 62% 61% 56% 56% 58% 52% Online-monthly charge

20%

10% Package

0% FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E Capcom (9697) SQEX (9684) Bandai (7832) Konami (9766)

Source: Company data, Credit Suisse estimates

Social Network Gaming 9 02 November 2012

Revenue: Potential for market growth driven by shift to higher-spec games We see the following upside from growth in the market for smartphone native applications. To present: Migration of console game users and attraction of new users The domestic console game market began to slow after peaking in 2007 on growth in NDS Social network gaming and Wii titles. At the same time, users steadily migrated from console games to social market (to present) network games. Over the past year or so, successful efforts to capture new users have buttressed this trend. The combined market (yen value) for console games and social network games continues to set new all-time highs.

Figure 19: Console game and social network game market size (¥): Market increases on shift from console games, growth in new users 250 (¥bn) Consumption amount for home video game (moving avarage by quarter) Consumption amount for social game Gaining new 200 users

150 Shifting from home video game

100

0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 Source: Company data, Credit Suisse estimates Social network gaming market comprises: (1) Figure 20: No. of paying console and social network game users and ARPPU (to present) console game users who ARPPU migrated over and (2) newly recruited users Monthly ARPPU: Y 4,700

Gaining new users Social Game

Shifting users from home video Shiftof core users to social game

Monthly ARPPU: Y 1,030

Home Video Game

# of Paying Users Paying Users: 7.2M Paying Users: 43M Source: Credit Suisse

Social Network Gaming 10 02 November 2012

Going forward: Smartphone native games move into high-spec market, the major market for console game vendors LTE smartphones, along with mobile data transfer rates and general hardware Social network games performance improvements, make higher-spec games possible. Social network game market going forward firms are aggressively hiring engineers as they ramp up efforts to develop high-spec games. At the same time, console game developers like Konami and Square Enix (third-party developers) have more experience developing high-spec game content. Going forward, the network-based high-spec game market could see intensification of competition while cooperation between social network and console game developers could also accelerate.

Figure 21: Social network games are becoming higher-spec with smartphones Network type Package type Freemium type One-time charge type

Konami Square Enix High spec Paying Users ? Namco Bandai HD ARPU ? CAPCOM Sega Sammy

Many paying users / Low ARPPU

GREE DeNA CyberAgent Low spec Klab Drecom Crooz Mobcast Few paying users / High ARPPU Source: Credit Suisse

Figure 22: Console game and social network game market changes High-spec market also to comprise: (1) console game ARPPU users who migrated over, and (2) newly gained users Monthly ARPPU: Y 4,700

(1) Shiftinghome video users (2) Gainingnew users

Social Game Shiftof core users for high spec to social game

Monthly ARPPU: Y 1,030

Home Video Game # of Paying Users

Paying Users: 7.2M Paying Users: 43M

Source: Credit Suisse

Social Network Gaming 11 02 November 2012

Unit prices: Social network gaming ARPPU not too low or high Social network game unit prices likely to run flat for Social network gaming should see growth in user numbers, in our view, but we believe unit the time being price increases are likely to be limited. Owing to the popularity of “card battle” games, monthly ARPPU for fee-based social network game users has risen to ¥4,700, nearly 4–5 times that for console games (at a little over ¥1,000). However, for reasons we indicate in the next paragraph we believe this gap will remain. Console game prices have run basically flat for some time now. Although unwilling to pay more for higher performance, users also seek a minimum acceptable value. With respect to online fee payment, in the case of Final Fantasy XI, three-year cumulative console game and online sales were about the same. Even though there were only about one-sixth as many online paying users as console users, online paying users’ per-person spending was about six times as high.

Figure 23: Social network game monthly ARPPU (assuming 10% payment rate) Unit prices for social network games unlikely to ¥7,000 Average ARPPU (GREE/DeNA) rise any higher in domestic ¥6,000 Gree: Gross ARPPU (RHS) market DeNA: Gross ARPPU (RHS) ¥5,000

¥4,000

¥3,000

¥2,000

¥1,000

¥0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3QE CY08 CY09 CY10 CY11 CY12 Source: Company data, Credit Suisse estimates

Figure 24: Monthly spending by leisure activity: Social network games 4–5 times higher than console games

Monthly 'Consuming=Invest-Return' amount per active user (mn) # of Active user (RHS) 46.80 ¥20,000 ¥18,790 44.40 50 42.90 ¥18,000 ARPPU: x4-x5 45 ¥16,000 40 ¥14,000 30.00 35 ¥11,880 27.70 ¥12,000 30 ¥9,930 ¥10,000 25 ¥7,480 ¥8,000 16.70 ¥7,070 20 11.30 ¥6,000 ¥4,700 ¥4,480 15 8.10 7.22 5.78 ¥4,000 ¥3,190 10 ¥1,170 2.50 2.00 ¥1,800 ¥1,320 ¥2,000 1.44 0.60 ¥1,030 ¥950 ¥670 5 ¥0 - Golf Lottery Karaoke Pachinko Bike race Bike Auto race Auto Horse race (Average) Video Game Social Game Game Arcade Game Social Game Social Motorboat race Motorboat Social Game (Core users 2%) Amusement park

(Casual users 8%) users (Casual Source: Company data, Credit Suisse estimates

Social Network Gaming 12 02 November 2012

A new reality for console games: With almost no change in unit prices and the shift to higher performance set to mitigate deflation, cyclical behavior to be governed by increases/decreases in user numbers alone

Figure 25: Japan: Console game prices essentially Figure 26: North America: Console game prices basically unchanged for past 10 years flat for past 10 years (local-currency basis) JP Console JP Portable JP Total ¥7,000 $55 US Console US Portable US Total

$50 ¥6,500

$45 ¥6,000

$40 ¥5,500

$35

¥5,000 $30

¥4,500 $25

¥4,000 $20

¥3,500 $15 13579111357911135791113579111357911135791113579111357911135791113579111357911 13579111357911135791113579111357911135791113579111357911135791113579111357911 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Change in user numbers/ARPPU due to networkization: Only one-sixth as many online as console users, but ARPPU up about six-fold → Likely to maintain gap between console and social network game payments

Figure 27: Console and online game sales: Three-year Figure 28: Change in no. of users: Only one-sixth as many cumulative amounts almost the same online as console users, but ARPPU up about 6x (unit '000) (Y million) 0 1000 2000 3000 4000 5000 110,000 Billings year 10 97,900 Conventional 100,000 Billings year 9 packages 4,500 100% past average 90,000 Billings year 8

80,000 Billings year 7 Online packages 2,590 58% 10 years 70,000 Billings year 6 cumulative 60,000 Three-year cumulative sales almost same for Billings year 5 online and console games Online 50,000 Billings year 4 packages 700 16% First 3 years 40,000 Billings year 3 30,000 28,300 30,000 Paying users Billings year 2 550 12% peak level 20,000 30000 Billings year 1 10,000 17000 Package Paying users 5000 0 current/estimat 260 6% Conventional Online — 1st 3 Online — 10 ed packages years years cumulative Note: Figures refer to Final Fantasy XI online game Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Social Network Gaming 13 02 November 2012

Estimating potential from capturing share of high-spec market

Figure 29: Higher-spec social network game (and console game) market size estimates: Potential from (1) users shifting from console games, and (2) gaining new users Market size growth % (vs Apr-Jun Q 2012) Market size (Y mn, Quarterly base) # of new users # of new users Social game Social game ：Monthly ARPPU ¥4,700 ('000 users) ：Monthly ARPPU ¥4,700 ('000 users)

- 500 1,000 1,500 2,000 - 500 1,000 1,500 2,000

- 0% 7% 14% 21% 28% - 101,300 108,400 115,400 122,500 129,500 Monthly Monthly Monthly

： 1,500 5% 12% 19% 25% 32% ： 1,500 106,000 113,000 120,100 127,100 134,200

3,100 9% 16% 23% 30% 37% 3,100 110,900 118,000 125,000 132,100 139,100

5,000 15% 22% 29% 36% 43% 5,000 116,800 123,800 130,900 137,900 145,000 ARPPU ¥1,030 ('000 users) ('000 ¥1,030 ARPPU users) ('000 ¥1,030 ARPPU

10,000 30% 37% 44% 51% 58% 10,000 132,200 139,300 146,300 153,400 160,400 Shift from home video game game video from home Shift game video from home Shift ++ # of new users # of new users Home video game：Monthly ARPPU ¥4,700 ('000 users) Home video game ：Monthly ARPPU ¥4,700 ('000 users)

- 500 1,000 1,500 2,000 - 500 1,000 1,500 2,000

- 0% 0% 0% 0% 0% - 114,000 114,000 114,000 114,000 114,000 Monthly Monthly Monthly

： 1,500 -4% -4% -4% -4% -4% ： 1,500 109,400 109,400 109,400 109,400 109,400

3,100 -8% -8% -8% -8% -8% 3,100 104,400 104,400 104,400 104,400 104,400

5,000 -14% -14% -14% -14% -14% 5,000 98,600 98,600 98,600 98,600 98,600 ARPPU ¥1,030 ('000 users) ('000 ¥1,030 ARPPU users) ('000 ¥1,030 ARPPU

10,000 -27% -27% -27% -27% -27% 10,000 83,100 83,100 83,100 83,100 83,100 Shift from home video game game video from home Shift game video from home Shift II II # of new users # of new users Game total：Monthly ARPPU ¥4,700 ('000 users) Game total ：Monthly ARPPU ¥4,700 ('000 users)

- 500 1,000 1,500 2,000 - 500 1,000 1,500 2,000

- 0% 3% 7% 10% 13% - 215,300 222,400 229,400 236,500 243,500 Monthly Monthly

： 1,500 0% 3% 7% 10% 13% ： 1,500 215,400 222,400 229,500 236,500 243,600

3,100 0% 3% 7% 10% 13% 3,100 215,300 222,400 229,400 236,500 243,500

5,000 0% 3% 7% 10% 13% 5,000 215,400 222,400 229,500 236,500 243,600 ARPPU ¥1,030 ('000 users) ('000 ¥1,030 ARPPU users) ('000 ¥1,030 ARPPU

10,000 0% 3% 7% 10% 13% 10,000 215,300 222,400 229,400 236,500 243,500 Shift from home video game game video home from Shift game video home from Shift Note: Gray areas indicate current situation (Apr-Jun 2012), yellow areas indicate level we estimate are needed for social network game developers to maintain current OP levels Source: Credit Suisse estimates

Social Network Gaming 14 02 November 2012

OP estimates: What levels of (1) migration of console users a (2) new users needed to keep current profit? Quantifying the above-noted cost factors (increased fees and development costs) and Estimates assume OP per market growth scenarios, we have run a number of scenarios for social network game OP. paying user falls, while we Since the number of new users that can be attracted is truly an unknown, we plug in run different scenarios for different numbers. new user numbers

Figure 30: Current issue is whether increase in no. of users can cover higher costs from shift to higher-spec OP per Paying User Decreasing margin due to the increases in loyalties and R&D. Monthly OP per paying user: Y 1,700

Attracting new users and users from home video games. Monthly OP per paying user: Y 1,400

Paying Users: +1M?, +2M?, +3M?

Paying Users: 7.2M # of Paying Users

Source: Credit Suisse We expect monthly OP per paying user to decline from ¥2,000 to ¥1,500 due to the shift to About 2mn paying users smartphone native apps, as this promises to drive up both: (1) royalty payments, and (2) needed to maintain current development costs related to high-spec games. Looking at how many new users would profit levels need to be added in order to compensate for this decline in per-user income, we estimate that OP on par with that generated in the Apr–Jun 2012 quarter could be maintained if the high-spec market saw: (1) the addition of 1mn new paying users, and (2) the migration of 3.5mn console game users, of which about 800,000 could be expected to become fee- paying social network game users.

Social Network Gaming 15 02 November 2012

Figure 31: Growth needed for social network game to keep current profit standard (L: Comparison with current profit, R: OPM) # of new users # of new users OP YoY：Monthly ARPPU ¥4,700 ('000 users) OPM ：Monthly ARPPU ¥4,700 ('000 users)

- 500 1,000 1,500 2,000 Current 43% - 500 1,000 1,500 2,000

- -32% -22% -13% -4% 6% - 29% 31% 33% 34% 35% Monthly Monthly

： 1,500 -26% -16% -7% 3% 12% ： 1,500 30% 32% 34% 35% 36%

3,100 -19% -10% 0% 9% 19% 3,100 32% 33% 35% 36% 37%

5,000 -11% -2% 8% 17% 26% 5,000 33% 34% 36% 37% 38% ARPPU ¥1,030 ¥1,030 ('000 ARPPU users) ¥1,030 ('000 ARPPU users)

10,000 9% 19% 28% 38% 47% 10,000 36% 37% 38% 39% 40% Shift from home video game game video home from Shift Shift from home video game game video home from Shift Source: Credit Suisse estimates

Figure 32: Social network game OP estimates by scenario: Share price falls once higher costs priced in; current price seems to reflect increase of 1mn paying users, but not yet 2mn increase or overseas profit

1,000 40

35 +30% 800 CS想定 +20%

30 -15-20%

25 600

43 20 40 37 36 37 400 32 15 31 26 24 25 10 Share price once higher costs, no market growth 200 factored in. 5

- - Mkt increase Mkt increase Mkt increase Mkt increase 1Q 2Q 3Q 4Q 1Q 2Q Japan 0 1 mn people 2 mn people 2 mn people

2011 2012 CY13 2H CY13 2H CY13 2H CY13 1H Overseas +ve profit +ve profit +ve profit +ve profit Source: Company data, Thomson Reuters, Credit Suisse estimates

Social Network Gaming 16 02 November 2012

Shedding reliance on games through diversification: Comparison with console games Companies in the social network gaming industry have starting to expand the scope of Focusing on potential for their businesses beyond games. Console game developers are reducing exposure to diversification to stabilize console games by diversifying into arcade games and licensed goods, and have achieved: earnings (1) reduced earnings volatility, and (2) a more stabilized cash flow. It will be interesting to see if social network gaming companies can further stabilize earnings and tap into new demand through continued business diversification efforts.

Figure 33: Change in social network gaming vendors’ balance sheets: Higher sales increase stability, focus on diversification 25.0 x

(8), 0.0 (7), 0.0 (9), 3.7 20.0 x

15.0 x (1), 19.4 (7), 0.7 (8), 0.0 10.0 x (1), 5.1 (10), 19.4 (9), 4.6

(2), 2.3 5.0 x (3), 1.4 (4), 0.2 (10), 7.2 (2), 1.9 (5), 2.5 (3), 0.2 (4), 0.4 (5), 0.8 (6), 1.0 0.0 x (6), 0.4 3/05, 6/05 3/12, 6/12

(1): Cash (3): Others current asset (5): Intangible fixed assets(7): Interest-bearing debt (9): Other liability (2): Account receivable (4): Tangible fixed assets (6) Other fixed asset (8): Account payable (10): Equity Note: Indicates balance sheet items as multiples of monthly sales Source: Company data, Credit Suisse estimates DeNA: Purchased baseball team, beefing up online shopping presence (Seiyu, Mixi) In December 2011, DeNA formally agreed to buy the Yokohama Bay Stars pro baseball team. Management sees the purchase as a means of expanding its advertising reach and attracting middle-aged and older consumers to its Mobage user base. In March 2012, it formed a tie-up with Mixi. DeNA plans to establish a social network commerce service within Mixi called Mixi Mall, where users can recommend products to friends who can then purchase them. In July 2012, DeNA formed an alliance with Seiyu aimed at strengthening that company’s online shopping services. DeNA plans to open a one-stop shopping site in spring 2013 where consumers can purchase or order from anywhere in the country products including food, sundries, supplies, and clothing. Gree: Amended articles of incorporation, aiming at TV broadcasting, restaurants, entertainment production, licensed goods Gree passed a resolution at its annual shareholders meeting (25 September) to change some of its articles of incorporation. With an eye to diversifying and entering new business areas, it expanded its stated objectives. In addition to the licensed “character goods” business it has already entered, it plans to move into some 20 different other areas, including domain registration and hosting services, settlement services, call centers, TV broadcasting, restaurants, entertainment production, coin-op arcade management, investment, finance and insurance, and job placement services.

Social Network Gaming 17 02 November 2012

Income and balance sheet changes at console game vendors from past diversification efforts Console game developers have in the past diversified into such areas as arcade Console game vendors management and licensed goods retailing. Packaged games are a highly volatile business diversification record model due to the multi-year development and cash outlays required before recovering initial investment, which often leaves a company in the red for extended periods of time, in a permanent boom-boost cycle. To mitigate risks, companies have tried to diversify operations by opening secondary content channels (such as arcades, character goods, and DVDs). This allows stable cash flow every year, making for a stronger balance sheet.

Figure 34: Change in social network gaming vendors’ balance sheets: More equity and cash, less debt

14.0 x

12.0 x (7), 1.5 x (1), 3.4 x (7), 4.8 x (1), 4.1 x (8), 1.1 x 10.0 x (9), 2.1 x (2), 2.9 x 8.0 x (8), 1.2 x (2), 1.8 x

(9), 1.6 x 6.0 x (3), 3.0 x (3), 2.5 x

4.0 x (10), 8.1 x (4), 1.8 x (10), 5.5 x (4), 2.9 x 2.0 x (5), 1.2 x (5), 0.0 x (6), 1.0 x (6), 1.4 x 0.0 x 3/93 3/12 (1): Cash (3): Others current asset (5): Intangible fixed assets (7): Interest-bearing debt (9): Other liability (2): Account receivable (4): Tangible fixed assets (6) Other fixed asset (8): Account payable (10): Equity Note: Indicates balance sheet items as multiples of monthly sales Source: Company data, Credit Suisse estimates

Figure 35: Segment sales weightings at games majors Figure 36: Segment sales weightings at games majors (FY1992) (FY2011) Others Others 4% FY92 2% FY11

Package Package Media/toy Game Game 23% 27% 30% Online → → 1% AM Media/toy equipment 50% AM 18% Mobile equipment 9% 16% AM operation 20%

Note: Bandai, Konami, Capcom, Square, Enix Note: Namco Bandai GHD, Konami, Capcom, Square Enix Source: Company data, Credit Suisse Source: Company data, Credit Suisse

Social Network Gaming 18 02 November 2012

Figure 37: Big four console game developers’ sales & OP 1,200 Total sales 16% (¥ bn) OPM (RHS) 14% 1,000 12% 800 10%

600 8%

6% 400 4% Diversification reduces profit 200 fluctuation. 2%

0 0%

3/91 3/92 3/93 3/94 3/95 3/96 3/97 3/98 3/99 3/00 3/01 3/02 3/03 3/04 3/05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 Source: Company data, Credit Suisse Note: Big four: Konami, Square Enix, Capcom, and Namco Bandai Holdings.

Figure 38: Big four console game developers’ cash flow 150 (Y bn)

100

0 3/00 3/01 3/02 3/03 3/04 3/05 3/06 3/07 3/08 3/09 3/10 3/11 3/12

-50

Inv CF -100 OPCF KONAMI: Acquisition Square Enix: Acquisition Square Enix: of sports gym of Taito Acquisition of Eidos FCF -150 Source: Company data, Credit Suisse Note: Big four: Konami, Square Enix, Capcom, and Namco Bandai Holdings.

Social Network Gaming 19 02 November 2012

Overseas social network gaming: More time needed for earnings contributions Although the overseas social network gaming business has considerable potential, the Overseas issue: Number of current aim is simply to turn a profit, and it will likely be some time yet before this business paying users still small begins making genuine contributions to earnings. Both Glee and DeNA generate less than ¥1bn a month in overseas revenue, with OP margins we assume are at 6–10%. Although hit titles are beginning to appear, the number of paying users remains insufficient. A virtuous cycle in which high-volume paying users migrate from one hit title to another has yet to establish itself. Sales/OP breakdown: Current target is to turn a profit

Figure 39: GREE: Japan and overseas monthly sales Figure 40: DeNA: Japan and overseas monthly sales estimate (July 2012) estimate (July 2012) 14,000 12,000 (Y mn) 11,200 Sales (Y mn) 12,700 Sales OP 12,000 OP 10,000 10,000 8,000 8,000 6,200 6,600 6,000 6,000

4,000 4,000

2,000 2,000 800 800

- - Japan Overseas Japan Overseas -600 -700 -2,000 -2,000

Source: Credit Suisse estimates Source: Credit Suisse estimates Top domestic titles increasing overseas, but number of paying users still too low

Figure 41: US App Store gross sales ranking: Games in upper ranking increasing (Ranking) US AppStore Gross Ranking 1

Zombie Jombie (Gree)

100 Alien Family (Gree) Dark Summoner (Ateam) KingdomConquest (Sega) Modern War (Gree) Crime City (Gree) Rage of Bahamut (DeNA/CA) 1000 2012/01/01 2012/02/01 2012/03/01 2012/04/01 2012/05/01 2012/06/01 2012/07/01 2012/08/01 2012/09/01 2012/10/01 Source: AppAnnie, Credit Suisse

Social Network Gaming 20 02 November 2012

Figure 42: US Google Play gross sales ranking: Rage of Bahamut has been ranked first since end-April (Ranking) US Android Gross Ranking 1

Crime City (Gree) 100 Ninja Royale (DeNA) Tap Fish (DeNA) Texas Poker (DeNA) Rage of Bahamut (DeNA/CA) Deity Wars (DeNA/Crz) Dark Summoner (Ateam) 1000 2012/02/20 2012/03/20 2012/04/20 2012/05/20 2012/06/20 2012/07/20 2012/08/20 2012/09/20 2012/10/20 Source: AppAnnie, Credit Suisse

Figure 43: App Store/Google Play gross sales ranking trend: Many Japanese games have increased their rank but are still at a low standard AppStore Title Ranking Google Play Title Ranking 2012/05/13 2012/10/21 2012/05/13 2012/10/20 Game Title Developer Game Title Developer Game Title Developer Game Title Developer Cygames Cygames Cygames 1PokerZynga NEW Rage of Bahamut 1 Rage of Bahamut Rage of Bahamut (CyberAgent) (CyberAgent) (CyberAgent) The Simpsons 2 Slotomania Playtika Electronic Arts 2ZyngaPoker Zinga NEW Dar k Summoner Ate am Tapped Out Backflip Clash of LiveHoldem Slotomania 3 DragonVale Supercell 3 Dragonplay Playtika LTD. Studios Clans PokerPro slot machines Kingdomsof Kingdoms of Gameview Studios 4 Kabam Kabam 4 TapFish NEW Blood Brothers DeNA Camelot Camelot (DeNA) Bejeweled s lot City - 5 Minecraft Mojang PopCap 5 SlotCity Dragonplay Dragonplay Blitz Slots machines AngryBirds Rovio 6 DragonVale Backflip Studios 6 Slotomania PlaytikaLTD. Zynga Poker Zinga Space Mobile Legend of アプリボット Live Holdem 7 BejeweledBlitz PopCap NEW 7 DefenderII DroidHen Dragonplay the Cryptids (CyberAgent) Poker PRO CardAce SelfAware 8 Slotomania Playtika LTD 8 Dr aw Something OMGPOP Tiny Monsters TinyCo Casino Gam es Poker Creative BeelineInteractive 9 TheSims ElectronicArts Zynga 9 DragRacing Smurfs' Village by Zynga Mobile (CAPCOM) Draw Minecraft – TeamLava 10 OMGPOP Mojang 10 NinjaRoyale DeNA Dragon Story Something Pocket Edition Games TapParadise BeelineInteractive Hothead 11 PocketGems CSR Racing NaturalMotion 11 Smurfs'Village Big Win Football Cove (CAPCOM) Games DEERHUNTER 12 N.O.V.A.3 Gameloft Bingo Bash BitRhymes 12 GluMobile GSN Casino GSN.com RELOADED Imangi 13 Zom bieJombie GREE Hay Day Supercell 13 TempleRun Arcane Empires Kabam Studios KAMAGAMES Tap Paradise FEELING 14 TexasPoker Pocket Gems 14 TinyVillage TinyCo Zombie Frontier (DeNA) Cove TOUCH Rovio KAMAGAMES 15 CastleAgeHD PhoenixAge Bad Piggies 15 TexasPoker Ninja Royale DeNA Entertainment (DeNA) Flick Funzio KAMAGAMES 16 infinitypocket NEW Modern War 16 CrimeCity Funzio(GREE) Texas Poker HomeRun! (GREE) (DeNA) BeelineInteractive Electronic Funzio 17 Smurfs’Village Bubble Mania TeamLava 17 TheSimsFreePlay Crime City (CAPCOM) Arts (GREE) Design Minecraft - 18 AppMinis Castle Age HD Phoenix Age 18 GSNCasino GSN.com Mojang ThisHome Pocket Edition DeerHunter 19 GluGames 三国来了 RedAtoms 19 Comics comiXology NEW Deity Wars DeNA Reloaded GameInsight Kingdoms of 20 RaceOrDie2 Addmired Battle Nations Z2Live 20 RuletheKingdom Kabam International Camelot: Battle Source: AppAnnie Credit Suisse

Social Network Gaming 21 02 November 2012

Appendix Social network game market user breakdown

Figure 44: Number of social network game users and ARPU ARPU

Core users 1.4mn (20% of paying users)×Y18,790

Paying users 7.2mn×Y4,700

Casual users 5.8mn (80% of paying users)× Y1,170 72.2mn×Y 470

# of users Paying users 7.2mn (Paying ratio: 10%) Total # of account users: 72.2mn

Source: Credit Suisse

Social Network Gaming 22 02 November 2012

Companies Mentioned (Price as of 01-Nov-2012) mixi (2121.T, ¥136,900) DeNA (2432.T, ¥2,511) Gree (3632.T, ¥1,357) KLab (3656.T, ¥565) Nintendo (7974.OS, ¥10,290) Square Enix Holdings (9684.T, ¥1,101) Konami (9766.T, ¥1,849) Apple Inc (AAPL.OQ, $596.8) Google, Inc. (GOOG.OQ, $688.21)

Disclosure Appendix Important Global Disclosures Yuki Nakayasu and Shunsuke Tsuchiya, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

Price and Rating History for DeNA (2432.T)

2432.T Closing Price Target Price Target Price Closing Price 2432.T Date (¥) (¥) Rating 3,000 01-Dec-11 2,330 3,000 O * 21-May-12 1,953 2,200 N 2,500 * Asterisk signifies initiation or assumption of coverage. 2,000

1,500

1,000 1- Jan- 12 1- Mar- 12 1- May- 12 1- Jul- 12 1- Sep- 12 1- Nov- 12

O UTPERFO RM NEUTRAL

Price and Rating History for Gree (3632.T)

3632.T Closing Price Target Price Target Price Closing Price 3632.T Date (¥) (¥) Rating 3,500 01-Dec-11 2,457 3,500 O * 06-Apr-12 1,982 3,300 3,000 22-May-12 1,376 1,400 N 2,500 * Asterisk signifies initiation or assumption of coverage. 2,000

1,500

1,000 1- Jan- 12 1- Mar- 12 1- May- 12 1- Jul- 12 1- Sep- 12 1- Nov- 12

O UTPERFO RM NEUTRAL

Social Network Gaming 23 02 November 2012

Price and Rating History for Nintendo (7974.OS)

7974.OS Closing Price Target Price Target Price Closing Price 7974.OS Date (¥) (¥) Rating 38,000 05-Jan-10 22,930 NR 02-Jul-10 26,640 35,000 O * 07-Oct-10 21,160 30,000 28,000 02-Jun-11 18,370 26,000

04-Aug-11 11,950 13,500 N 18,000 01-Mar-12 12,040 12,500 * Asterisk signifies initiation or assumption of coverage. 8,000 1- Jan- 10 1- Jul- 10 1- Jan- 11 1- Jul- 11 1- Jan- 12 1- Jul- 12

NOT RATED O UTPERFO RM NEUTRAL The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of October 2, 2012 Analysts’ stock rating are defined as follows : Outperform (O) :The stock’s total return is expected to outperform the relevant benchmark* by at least 10-15% or more, (depending on perceived risk) over the next 12 months. Neutral (N) :The stock's total return is expected to be in line with the relevant benchmark* (range of ±10-15%) over the next 12 months. Underperform (U) :The stock's total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months. *Relevant benchmark by region: As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American, Japanese, and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Restricted (R) :In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

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Global Ratings Distribution Rating Versus universe(%) Of which banking clients (%) Outperform/Buy* 43% (52% banking clients) Neutral/Hold* 40% (48% banking clients) Underperform/Sell* 15% (40% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Social Network Gaming 24 02 November 2012

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

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See the Companies Mentioned section for full company names The subject company (2432.T) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (7974.OS, 3632.T, 2432.T) within the next 3 months.

Important Regional Disclosures Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (7974.OS, 3632.T, 2432.T) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Japan) Limited ...... Yuki Nakayasu ; Shunsuke Tsuchiya

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Social Network Gaming 25 02 November 2012

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