February 4,2004
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February 2,2004 - February 4,2004 1 Statements made in this document with respect to SQUARE ENIX CO., LTD. and consolidated subsidiaries' (together, "SQUARE ENIX") plans, estimates, strategies and beliefs, including any forecasts or projections, are forward-looking statements about the future performance of SQUARE ENIX. These statements are based on management's assumptions and beliefs in light of information available to it at the time these material were drafted and, therefore, the reader should not place undue reliance on them. Also, the reader should not assume that statements made in this document will remain accurate or operative at a later time. A number of factors could cause actual results to be materially different from and worse than those discussed in forward-looking statements. Such factors include, but are not limited to: 1. changes in economic conditions affecting our operations; 2. fluctuations in currency exchange rates, particularly with respect to the value of the Japanese yen, the U.S. dollar and the Euro; 3. our ability to continue to win acceptance of our products and services, which are offered in highly competitive markets characterized by the continuous introduction of new products and services, rapid developments in technology, and subjective and changing consumer preferences; 4. our ability to expand internationally successfully with a focus on our digital content business, online business and mobile business; and 5. regulatory developments and changes and our ability to respond and adapt to those changes. The forward-looking statements regarding earnings contained in these materials were valid at the time these material were drafted. SQUARE ENIX assumes no obligation to update or revise any forward-looking statements, including forecasts or projections, whether as a result of new information, subsequent events or otherwise. These statements are included pro-forma for historical data reflect the aggregation of former two companies' operating results (former ENIX and former SQUARE). 2 11.. WhoWho isis SQUARESQUARE ENIX?ENIX? 22.. EnvironmentalEnvironmental ChangesChanges andand NewNew BusinessBusiness OpportunitiesOpportunities 3.3. OurOur BusinessBusiness StrategyStrategy 3 SQUARE ENIX holds two of the most successful game series. Japan US & Europe (as of September 30, 2003) (Million units) (Million units) I (NES&PS&Other) I (NES) II (NES&PS&Other) II (NES) III (NES) I&II (SNES&GB) III (NES&SNES&GB) IV (SNES&PS&Other) IV (NES&PS) V (SNES&PS) V (SNES) VI (SNES&PS) VI (SNES) VII (PS&PC) VII (PS) VIII (PS&PC) M (GB) IX (PS) M2 (GB) X&X-2 (PS2) M1&2 (PS) XI (PS2&PS/Online) MC (GBA) Kenshin Collection(NES&PS) 01234567 012345678910 Sold over 47 million units worldwide. Sold over 31 million units worldwide. 4 SQUARE ENIX is the 5th largest digital content company in the world. Market Capitalization (as of January 27, 2004) (Millions of USD) NINTENDO 14,579 ELECTRONIC ARTS 14,562 Sony Computer Entertainment (SCE) 13,300 KONAMI 3,476 SQUARE ENIX 3,009 BANDAI 2,311 SEGA 1,672 ACTIVISION 1,593 NAMCO 1,425 TAKE-TWO INTERACTIVE SOFTWARE 1,413 NCSOFT COPORATION 1,194 KOEI 1,152 CAPCOM 710 THQ 672 ATARI 430 (Source: Bloomberg Data compiled by SQUARE ENIX.) (USD1=JPY110, USD1=EUR1.17, USD1=KRW1,170) (SCE’s data is as of November 28, 2003 according to a Nikkei article.) 5 All business segments are expected to achieve profit margin of 20-40%. FY2003 (fiscal year ending March 31, 2004) Projections – Consolidated Segments Net Sales (Billions of Yen) Operating Income (Operating Margin) 34.3 Includes two of million-seller titles (world-wide); GAME (off-line) FINAL FANTASY X-2, and DRAGON QUEST V. 13.8 (40.2%) The PlayOnline™ service has surpassed 500,000 8.8 registered users in Japan and North America, GAME (on-line) which are at the top level in the world. 2.0 (22.7%) Cumulative subscribers of Cross Gate (PC-based online game) in China and Taiwan has reached Mobilephone 3.0 12 million, and is currently one of most popular online games in China. Content 1.0 (33.3%) Sales have doubled since last fiscal year. Entry into the North American market has Publishing 6.8 also started. 1.4 (20.6%) Strong sales of magazines and comics thanks to Others 3.1 the phenomenal hit of “FULLMETAL ALCHEMIST”. 0.8(25.8%) Consolidated 56.0 14.4* (25.7%) * Net of elimination and headquarters expenses of Yen 4.6 billion. 6 11.. WhoWho isis SQUARESQUARE ENIX?ENIX? 22.. EnvironmentalEnvironmental ChangesChanges andand NewNew BusinessBusiness OpportunitiesOpportunities 3.3. OurOur BusinessBusiness StrategyStrategy 7 US/European markets growing, while the Japanese market continues to saturate. Console-based World-wide Game Software Market (Millions of USD) 15,000 Europe&Others 10,000 North America 5,000 Japan 0 FY1994 1995 1996 1997 1998 1999 2000 2001 2002 2003E 2004E * FY2002 is the fiscal year ended March 31, 2003. (Source:Company data collated by SQUARE ENIX) 8 “Ecosystem” in the game industry will change. Change of Business Environment Change of Ecosystem • Game consoles are losing their advantages as a user interface • Emergence of terminals as other terminals such as PCs that accommodate multiple become powerful in terms of entertainment content. graphic processing. • Users are becoming • Fundamental shift in increasingly interested in customer ownership. network entertainment. 9 Game consoles are losing their advantage as a user interface, and various terminals will accommodate multiple entertainment content. Terminal Now Mobile Game DVD CD Portable Future TV PC entertainment Phone Console Player Player device expansion Game Movie • Game will be just one of many entertainment content available on Music each terminal. TV Program • Terminals are being E-mail integrated each other to be multi-functional. Type of Content Chat Phone 10 Users are becoming interested in network entertainment. 2003 Online Game Market Mobilephone Game Market 2007 Sales Volume CAGR Sales Volume CAGR (Million of USD) (%) (Million of USD) (%) Japan 97 211 34.1 21.4 314 459 North 134 37 44.3 81.6 America 581 402 115 93 Europe 75.2 735 59.0 877 Asia 139 34.0 214 68.4 448 1722 (Source:INFORMA MEDIA GROUP “The Dynamics of Games” 3rd edition, August 2003 ) 11 ネットワークによる事業構造変化 Network triggers fundamental shift in customer ownership. Now Future Content Network … … Terminal PS/PS2 X-box – Vertically integrated by terminal type – Open network will break the vertical integration. Close relationship with console maker Close relationship with many of platform is important technology holders become important. – Product out oriented mindset – Relevance of terminal and network differences diminish. Customer ownership shifts to content provider. – Community management to capture customers’ needs and reflect them to the service become key factor for success. 12 SQUARE ENIX is well-positioned in the new Ecosystem. KFS* in the new Ecosystem Our competitive advantages ・Experience of creating interactive •Ability to create new type of content will be critical in developing content suitable for multi- new original concept to be deployed in functional terminals. various new terminals with interactivity. ・Alliance with leading platform •In-depth understanding of technology companies such as Intel advanced platform technologies. and UIEvolutions. ・Community management know-how •Expertise in managing online accumulated through multiple practice community effectively and since May 2002. efficiently. ・Experience of community management in multi-cultural environment. * Key Factor for Success 13 11.. WhoWho isis SQUARESQUARE ENIX?ENIX? 22.. EnvironmentalEnvironmental ChangesChanges andand NewNew BusinessBusiness OpportunitiesOpportunities 3.3. OurOur BusinessBusiness StrategyStrategy 14 Two prone approach balancing short and midterm businesses Create New Entertainment ・Conduct experiments to create new type of entertainment that utilize the new network environment. Expand Online/ Mobile Businesses ・Shift resources to online and mobilephone content businesses to capture their full potential. Enhance Global Business ・Establish full business lines in the U.S., Europe and Asia. Exploitation of Current Franchise ・Continue to enhance current franchise such as Final Fantasy, Dragon Quest, and Kingdom Hearts. Timing to profit contribution 15 We will continue to exploit current franchises. Franchise Titles Terminal Release “FINAL FANTASY XII” PS2 2004 Summer FINAL FANTASY “FINAL FANTASY VII Advent Children” DVD 2004 Summer “DRAGON QUEST V” PS2 March 25, 2004 DRAGON QUEST Under “DRAGON QUEST VIII” PS2 development “KINGDOM HEARTS II” PS2 Under development KINGDOM HEARTS “ KINGDOM HEARTS CHAIN GBA OF MEMORIES” 2004 16 We enhance our business segments/functions globally. Now Future Business Segments Japan North Japan North America Europe Asia America Europe Asia Game (off-line) Game (on-line) Mobilephone content Publishing/Others Functions Development Publish/Distribution Community management Less Operation Full Operation New Area to be focused. 17 We actively expand online business with our “3 Multi-s” concept. •Create cross-platform online community Multi-Platform covering multi-platform such as PS2, PC, mobilephone, etc. •Establish cross cultural community that Multi-Country can be accessed globally: Japan, North America, Europe, and Asia. •Expand content offering to meet various customer needs. Multi-Content •Communities for different content are becoming increasingly multi-layered. 18 We expand mobilephone business globally. •Quickly develop business in the U.S., Europe and Asia. Build Global Presence