For Tomorrow Establishing a Dominating Position

Operational Review Pachislot & Machine Business

Aiming to stake out the leading share not only of the pachislot machine market but also the pachinko machine market, this business segment will advance a multibrand strategy based on Sammy Corporation, TAIYO ELEC Co., Ltd., RODEO Co., Ltd., and GINZA CORPORATION.

For details on market trends, please see the supplementary “Today” document.

ELEC Co., Ltd., RODEO Co., Ltd., and GINZA Composition of Net Sales Basic Information CORPORATION. The Group aims to mitigate the risk of ¥212.0 billion Driving the Group’s Growth by Generating significant changes in earnings conditions due 53.5% Stable Earnings to regulatory revision while winning out in a

Other Accounting for approximately 53% of net sales, pachinko and pachislot machine market in 1.5% ¥3.2 billion Pachislot Machine Business the Pachislot and Pachinko Machine Business which increasingly it is only the fittest compa- 44.8% ¥94.9 billion segment is the Group’s earnings driver. nies that are surviving. To this end, the Group As the business segment’s core operating is building a system that is able to create com- company, Sammy Corporation has more often petitive titles in the pachinko and the pachislot than not held the largest share of the pachislot machine business while moving forward deci- machine market by continuing to break new sively with multifaceted efforts to strengthen ground in the market. The industry record of cost competitiveness. Pachinko Machine Business 53.7% ¥113.9 billion 620,000 unit sales that the pachislot Hokuto No Ken set in 2004 is still unsurpassed. From fiscal 2008, the business segment trans- Fiscal 2011 Business Results Overview ferred to a new development system and

Net sales ¥212.0 billion honed its comprehensive capabilities, which include development, manufacturing, and % ▲ 32.2 sales. In addition to further extending our lead- Operating income ¥64.2 billion ing share of the pachislot machine market, 117.9% this initiative significantly enhanced the appeal ▲ of our products and brand in the pachinko Pachislot machine unit sales 302,000 units machine market and entrenched our position 85.5% among the leading companies. ▲ In order to cater to diverse market demand, Pachinko machine unit sales 343,000 units the business segment pursues a multibrand Pachinko CR Hokuto No Ken Kenshiro © Bronson & Tetsuo Hara / NSP1983, ▼ 4.7% strategy through Sammy Corporation, TAIYO © NSP 2007 Approved No. YKN-101 © Sammy

34 pachislot machines generated, and cost FY 2011 Overview reductions through the reuse of parts. In the pachinko machine business, we Earnings Up Significantly on Higher are actively promoting sales of pachinko Pachislot Machine Unit Sales and boards, which provide us with high margins Cost Reduction while lightening the investment burden of Deftly identifying and capturing the recovery pachinko hall operators. In fiscal 2011, in demand for pachislot machines, the reflecting the introduction of our new-model pachislot machine business saw unit sales pachinko frames, the percentage of pachinko rise a steep 85.5% year on year, to 300,000 machine unit sales that pachinko boards units. As a result, net sales of the business accounted for was down from the previous were up 83.6% year on year, to ¥94.9 billion. fiscal year’s 69.1% to 28.5%. Pachislot SOUTEN-NO-KEN shipped 92,000 Because certain pachislot machines Oreno Sora ~Spirit of Young Justice~ © Hiroshi Motomiya / SHUEISHA / FIELDS units, while Pachislot Shin Onimusha, launched in fiscal 2011 were operating at © Sammy © RODEO released under the RODEO brand in the abnormally high payout rates, we offered previous fiscal year, posted solid sales. free replacement machines to pachinko hall In the pachinko machine business, operators no longer wishing to have these mainstay title Pachinko CR Hokuto No Ken machines while providing compensation for

Net Sales sold more than 200,000 units. Meanwhile, operational losses. As a result of this, the Billions of yen overall unit sales declined 4.7% year on year, segment recognized an extraordinary loss of 250 to approximately 340,000 units, because ¥5.2 billion. We are strengthening our quality 200 we strategically postponed the marketing of control system to prevent recurrence. 150 certain titles until the current fiscal year. 100 We embarked upon fresh initiatives, such 50 as introducing the Dejiten series, which 0 FY 2012 Outlook and Strategy ’08 ’09 ’10 ’11 ’12 (plan) FY* incorporates innovative gameplay features. ■■ Net sales 212.0 235.0 Thanks partly to flexible pricing strategies Aiming to Advance Dramatically based upon enhanced brand power, the through Integrated Strengthening of Operating Income/Operating Margin Billions of yen % business recorded a 10.5% year-on-year the Group’s Competitiveness

80 40 increase in net sales, to ¥113.9 billion. Fiscal 2012 is likely to see an increasingly

60 30 In fiscal 2010, the Group’s pachinko marked division between winners and machines accounted for 11.8% of the mar- losers in competition among manufacturers 40 20 ket, up from the previous fiscal year’s as well as a continuing shift in demand 20 10 10.8%, while pachislot machines claimed from pachinko machines toward pachislot 0 0 ’08 ’09 ’10 ’11 ’12 (plan) FY* 30.9% of the market, compared with 21.3% machines.

■■ Operating income (left) 64.2 59.0 for the previous fiscal year. Amid these conditions, for the Pachislot Operating margin (right) 30.3 25.1 Consequently, the Pachislot and Pachinko and Pachinko Machine Business segment in Machine Business segment grew net sales the current fiscal year we expect a 10.8% Pachislot and Pachinko Machine Unit Sales 32.2% year on year, to ¥212.0 billion. year-on-year increase in net sales, to ¥235.0 Thousands of units %

500 100 Operating income was up 117.9%, to billion, and an 8.1% year-on-year decline in

400 80 ¥64.2 billion, and its operating margin operating income, to ¥59.0 billion. Our

300 60 improved significantly, up from the previous assumption is that the increase in revenues

200 40 fiscal year’s 18.4% to 30.3%. will come from higher unit sales in the

100 20 Underpinning the increase in operating pachinko machine business. We are project- 0 0 income and improved operating margin were ing lower earnings mainly due to concerns ’08 ’09 ’10 ’11 ’12 (plan) FY* the effect of higher volumes, an increase in over a rise in the cost of procuring core parts ■■ Pachinko machines (left) 343 455 Pachinko board sales ratio (right) 28.5 60.8 the proportion of sales that high-margin for which supply is unstable as a result of ■■ Pachislot machines (left) 302 290 * Years ended March 31

SEGA SAMMY HOLDINGS ANNUAL REPORT 2011 35 the earthquake. Because parts procurement is not likely to stabilize until the fall, we expect sales will

be much brisker in the second half, particularly for Product Portfolio As of July 31, 2011 the pachislot machine business. Sammy’s Product Lineup – Powerful Brand Appeal By business, the pachislot machine business is HOKUTO NO KEN SERIES projecting decreases of 12,000 units in unit sales, Pachinko Machine to 290,000 units, and down 3.3% in net sales, to Cumulative unit sales ¥91.8 billion. The business is targeting 42,000 units thousand for the first half and 248,000 units for the second 680 units (3 series) half. We aim to meet this target by bringing main- stay titles to market in the second half, when part Pachislot Machine procurement has stabilized. Cumulative unit sales thousand As for the pachinko machine business, we aim 1,110 units to achieve increases of 111,0 0 0 units, to 455,000 Pachinko CR Hokuto No Ken Raoh Pachislot Hokuto No Ken (3 series) © Bronson & Tetsuo Hara / NSP1983, © Bronson & Tetsuo Hara units, and 21.7% in net sales, to ¥138.6 billion, by © NSP 2007 Approved No. SAF-308 © Sammy © Sammy releasing 15 titles including several mainstay titles. JUOH SERIES Also, we expect pachinko board sales as a percent- Pachinko Machine age of net sales will rise to 60.8%. Cumulative unit sales On August 1, 2011, TAIYO ELEC Co., Ltd., thousand units became a wholly owned subsidiary of Sammy Corpo- 120 (2 series) ration. Going forward, Sammy and TAIYO ELEC will Pachislot Machine collaborate more closely. This will entail joint parts Cumulative unit sales procurement, reducing manufacturing cost by adopt- thousand ing common machine cabinets, exchanges of devel- 260 units Pachinko CR Juoh Pachislot Juoh (2 series) opment personnel, and joint product development. © Sammy © Sammy We will maintain and grow the dominant market SOUTEN-NO-KEN SERIES share that the pachislot machine business enjoys Pachinko Machine by building a robust system for advancing our Cumulative unit sales multibrand strategy. At the same time, we will thousand elevate the position of the pachinko machine busi- 110 units (1 series) ness among market-leading companies. Pachislot Machine Cumulative unit sales thousand 90 units Pachinko SOUTEN-NO-KEN Pachislot SOUTEN-NO-KEN (1 series) © 2001 Bronson & Tetsuo Hara, © 2001 Bronson & Tetsuo Hara, Approved No.SAH-309 © Sammy Approved No.SAH-310 © Sammy

ALADDIN SERIES Pachinko Machine Cumulative unit sales thousand 70 units (2 series)

Pachislot Machine Cumulative unit sales thousand 420 Pachinko CR ALADDIN NEO Pachislot ALADDIN Evolution (5 series) Pachislot Shin Onimusha The Capital of Little Princess and Evil Spirit © Sammy © CAPCOM CO., LTD. ALL RIGHTS RESERVED. © Sammy © Sammy © RODEO

36 For Tomorrow Leading a Long-Term Market Development

Operational Review Amusement Machine Sales Business

This business segment aims to increase investment efficiency for amusement center operators in Japan and acquire stable long-term earnings for the Company. At the same time, it will step up initiatives to acquire new earnings sources overseas.

For details on market trends, please see the supplementary “Today” document.

SENGOKU TAISEN ©

that uses the ALL.Net network service for Basic Information machines. The aim of this service is to lessen amusement center opera- Implementing an Array of Measures to tors’ initial investment burden while enabling Composition of Net Sales Invigorate the Market the Company to establish a platform for long-

¥47.2 billion The Amusement Machine Sales Business term stable earnings. Further, focusing on segment has consistently remained at the China, we have begun rolling out products in 11.9% forefront of developments in the amusement Asian markets with strong growth potential.

Overseas Amusement industry by using novel ideas and outstanding Machine Sales Business 9.5% ¥4.5 billion Domestic Amusement technological capabilities to create a broad vari- Machine Sales Business 90.5% ¥42.7 billion ety of world-first and industry-first concepts. FY 2011 Overview We are attracting and catering to a wide base of users by drawing on an extensive product Revenue-Sharing Business Model and lineup that encompasses large, high-value- CVT Kits Contribute to Stable Earnings added machines—traditionally an area of For fiscal 2011, the business segment’s net particular strength—through to amusement sales were up 4.7% year on year, to ¥47.2 arcade machines that appeal to families. billion. This reflected steady revenues Fiscal 2011 Business Results Overview As a major company in the industry, this throughout the fiscal year thanks to favorable

Net sales ¥47.2 billion business segment has a priority strategy that utilization of BORDER BREAK which were % seeks to invigorate the amusement center launched in the previous fiscal year and ▲ 4.7 industry, which has suffered a continuing HATSUNE MIKU Project DIVA Arcade, based Operating income ¥7.3 billion slump due to a loss of consumer spending. To on a revenue-sharing business model. Also 3.1% realize this strategy, the business segment is recording solid sales were SENGOKU TAISEN, ▲ exploiting its prowess in advanced technology mainstay titles, and CVT kits for upgrading R&D expenses/content production expenses to provide a variety of products and services. such amusement arcade machines as WORLD ¥9.1 billion A good example of such initiatives is our intro- CLUB Champion Football Intercontinental ▲ 16.7% duction of a revenue-sharing business model Clubs 2009–2010.

SEGA SAMMY HOLDINGS ANNUAL REPORT 2011 37 Operating income rose 3.1% year on product development cycle, which will lead year, to ¥7.3 billion, as increased sales of FY 2012 Outlook and Strategy to a decrease in the number of titles for high-margin CVT kits and a rise in revenues which we sell CVT kits and higher part prices due to favorable utilization of titles based Full-scale Business Development due to board changes. In fiscal 2012, plans on the revenue-sharing business model off- in the Asian Market call for the release of the latest installment set a 16.7% year-on-year increase in R&D Amusement center operators are likely to of the highly popular Star Horse series,

expenses and content production expenses, continue facing tough earning conditions StarHorse3 Season I A NEW LEGEND to ¥9.1 billion. against the backdrop of prolonged lackluster BEGINS. and SEGA NETWORK MAHJONG Overseas, SEGA JINWIN (SHANGHAI) consumer sentiment in the wake of the MJ5. We are targeting a 13.2% year-on-year AMUSEMENTS CO., LTD., a joint venture Great East Japan Earthquake in March 2 011. reduction in R&D expenses and content established by SEGA and Shanghai JinWin The business segment will enhance invest- production expenses, to ¥7.9 billion. Investment Co., Ltd., acquired a license to ment efficiency for amusement center opera- In contrast to Japan’s market, which manufacture and sell amusement arcade tors and realize long-term, stable earnings is likely to see modest growth over the machines in China and began developing for the Company. medium- to long-term as birth rates decline operations for amusement arcade machines For fiscal 2012, the business segment is and society ages, the amusement arcade in the country. targeting a 5.9% year-on-year increase in net machine markets of Asia, centered on China, sales, to ¥50.0 billion. In addition to steady and other emerging countries offer substan- revenues from titles sold under the revenue- tial growth potential. Based on collaborations

Net Sales sharing business model, we expect overseas with local partners, this business segment Billions of yen businesses to contribute revenues. will develop and manufacture products 80 Meanwhile, we anticipate operating locally in order to realize products that match 60 income will decline 45.2% year on year, the user preferences of each region at

40 to ¥4.0 billion. This will primarily result from competitive prices and thereby open up

20 the business segment’s position in the new markets.

0

’08 ’09 ’10 ’11 ’12 (plan) FY* ■■ Net sales 47.2 50.0 Product Portfolio SEGA products using the ALL.Net service Operating Income/Operating Margin Billions of yen %

8 20

6 15 BORDER BREAK 4 10 This became the first game in the industry to realize nationwide games in which up to 20 players can participate simultaneously. As one of our representative products based on a revenue-sharing 2 5 business model, BORDER BREAK has earned continuous endorse- SEGA NETWORK MAHJONG MJ5 ment since launching in September 2009. © SEGA 0 0 This is the latest installation of SEGA’s mahjong game series, ’08 ’09 ’10 ’11 ’12 (plan) FY* which enables players nationwide to play each other online. Large numbers of fans take part in regular nationwide events. ■■ Operating income (left) 7.3 4.0 © SEGA Operating margin (right) 15.5 8.0

R&D Expenses and Content Production Expenses Billions of yen %

16 20

12 15

8 10 Initial D Arcade Stage6 AA The latest release in our driving game series, which incorporates a 4 5 popular manga as a motif. It has become a firm favorite thanks to StarHorse3 features allowing players to compete with other players nationwide Season A NEW LEGEND BEGINS. through a network and tune up their cars. 0 0 I Themed on horse racing, this medal game enables player to enjoy © Shuichi Shigeno/KODANSHA All Rights Reserved. © SEGA ’08 ’09 ’10 ’11 ’12 (plan) FY* highly realistic races displayed on an impressively large monitor in Manufactured and produced by SEGA under license from Kodansha Ltd. the comfort of reclining seats. All manufacturers, cars, names, brands, and associated imagery R&D expenses and content 9.1 7.9 ■■ © SEGA featured in this game are trademarks and/or copyrighted materials of production expenses (left) their respective owners. All rights reserved.

% of net sales (right) 19.3 15.8 * Years ended March 31

38 For Tomorrow Strengthening Revenues Structures

Operational Review Amusement Center Operations We will reinforce our portfolio of amusement centers in order to build a robust earnings structure. For details on market trends, please see the supplementary “Today” document.

Composition of Net Sales segment’s net sales were down 16.6% year on Basic Information year, to ¥45.6 billion. ¥45.6 billion Capital expenditures of ¥7.7 billion were at the Reforming Our Earnings Structure % same level as the previous fiscal year, while depre- 11.5 SEGA operates a diverse network of amusement ciation and amortization declined 25.6%, to ¥6.1 Overseas Amusement Center Operations center formats to suit different locations around 6.8% ¥3.1 billion billion. Thanks to lower operating expenses, includ- Domestic Amusement Japan. In response to market contraction, this Center Operations ing personnel expenses, and other improvements 93.2% ¥42.5 billion business segment is continuing to improve its in efficiency, the segment achieved profitability for earnings structure by restructuring its portfolio of the first time in four years, recording operating centers in Japan and overseas and strengthening income of ¥0.3 billion, compared with the previous the operational capabilities. year’s operating loss of ¥1.3 billion.

FY 2011 Overview Number of Amusement Centers in Japan/ FY 2012 Outlook and Strategy Net Sales from Existing Amusement Centers Moves into the Black for the First Time in Centers % Four Fiscal Years Strengthening Our Portfolio at Home and Abroad 400 110 In fiscal 2011, the business segment continued Uncertainties are likely to persist in the market

300 100 efforts to build a portfolio able to generate stable due to a lengthy slump in consumer spending

200 90 earnings by closing or selling amusement centers following the earthquake. Due to the suspension of operations at some amusement centers, for 100 80 with inadequate profitability or potential. In Japan, we opened six amusement centers fiscal 2012 we anticipate a year-on-year decline of 0 0 ’08 ’09 ’10 ’11 ’12 (plan) FY* and closed or sold 1 7. By fiscal year-end, we had 7.9% in net sales, to ¥42.0 billion, and an operating ■■ No. of amusement centers (left) 249 237* 249 amusement centers, down 11 from the loss of ¥1.6 billion. After completing restoration on Existing amusement center sales (right) 99.3 96.3 * Due to a change in the aggregate calculation method, the number of amusement previous fiscal year-end. centers that suspended operations, we are steadi- centers is one less than previously announced. During the first three quarters, SEGA’s exist- ly resuming operations, beginning from amuse-

Operating Income (Loss) / Capital Expenditures ing amusement centers in Japan saw net sales ment centers confirmed as safe. Also, we intend and Depreciation and Amortization trending higher year on year due to firm sales of to continue closing or selling amusement centers Billions of yen prize game machines and the strengthening of with inadequate profitability or potential. In the 18 operational capabilities. However, due to the current fiscal year, in Japan the business segment 9 earthquake, some amusement centers, mainly plans to open 6 amusement centers and close 1 7, 0 in the Tohoku region, suspended operations. giving at total of 237* at fiscal year-end, down 11

–9 Also, planned power outages led the segment from the previous fiscal year-end. SEGA’s existing

–18 to shorten the business hours in the Tohoku and amusement centers will likely see a 3.7% year-on- ’08 ’09 ’10 ’11 ’12 (plan) FY* Kanto regions. Consequently, full-year net sales year decline in net sales. Overseas, the business ■■ Operating income (loss) 0.3 –1.6

■■ Depreciation and amortization 6.1 6.9 at existing amusement centers in Japan edged segment sold all 7 of its amusement centers in Capital expenditures 7.7 9.2 down 0.7% year on year. As a result, the business North America in May 2 011. * Years ended March 31

SEGA SAMMY HOLDINGS ANNUAL REPORT 2011 39 For Tomorrow Gathering Strengths Creating New Entertainment

Operational Review Consumer Business

While using management resources effectively and maximizing the value of intellectual properties, we plan to speed up the development of new markets.

For details on market trends, please see the supplementary “Today” document.

Composition of Net Sales that promise reliable returns. At the same

¥88.8 billion Basic Information time, we are focusing more management resources on offerings for smartphones and 22.4% Game Content Business social networking services (SNS), which is Focusing on Mainstay Game Software and a rapidly growing market. Toy Sales Business 13.3%* ¥12.0 billion Accelerating the Development of New Markets Animation Business SEGA and Sammy NetWorks Co., Ltd., operate Toy Sales Business 12.1%* ¥10.9 billion Game Content Business the game content business, which accounts Creating New Value through Alliances 74.6%* ¥67.1 billion for more than 70% of this business segment’s with Major Companies net sales. SEGA is advancing a multiple plat- Responsible for the development of the toy form strategy, which entails providing software sales business, SEGA TOYS CO., LTD., is pio- for a wide range of platforms. The business neering new marketsh for suc customers as segment has an extensive selection of highly adults and seniors. In these initiatives, it is

* Excluding ¥1.26 billion of corporate and elimination appealing intellectual property, such as Sonic actively forging alliances with major companies the Hedgehog. Overseas, where it has estab- and intellectual property owners in Japan and Fiscal 2011 Business Results Overview lished SEGA as a brand with strong appeal, the overseas across a range of Net sales ¥88.8 billion business segment includes SPORTS INTERAC- industries in order to lever- 26.9% TIVE Ltd., responsible for developing the Foot- age expertise and original ▼ ball Manager series, The Creative Assembly ideas that transcend the Operating income ¥1.9 billion Ltd., which develops the Total War series, and toy industry’s traditional 68.9% other development studios that own competi- boundaries. SEGA TOYS ▼ tive intellectual properties. minimizes the risk Home video game software Sammy NetWorks operates pachinko and associated with unit sales 18.7 million units pachislot game web sites that have established product rollouts by ▼ 30.1% leading shares of their markets. remaining a fab- R&D expenses/content production For traditional packaged game software, less company that expenses ¥18.1 billion we are pursuing improved profitability by con- outsources all manu- centrating management resources on titles facturing operations. ▼ 7.7% © SEGA

40 Through tie-ups with Group companies, we Operating income was down 68.9% are maximizing the intellectual property value from the previous fiscal year, to ¥1.9 billion, of BAKUGAN. Jointly developed with the mainly because of lackluster game software Canadian toy manufacturer Spin Master Ltd., sales overseas. We reduced R&D expenses BAKUGAN won the 2009 Toy of the Year and content production expenses 7.7% year Award in the United States and has become on year, to ¥18.1 billion. a hit product in 120 countries worldwide. Made Three Listed Companies Wholly Animation Business Owned Subsidiaries Boasting Numerous High-Quality Animation Establishes Foundation to Assets and State-of-the-Art CG Animation Concerted Capabilities The core operating company of the animation Sammy NetWorks Co., Ltd., SEGA TOYS CO., business, TMS ENTERTAINMENT, LTD., is LTD., and TMS ENTERTAINMENT, LTD., one of Japan’s foremost production compa- became wholly owned subsidiaries of SEGA HOMESTAR AQUA © SEGA TOYS nies, having created more than 9,000 epi- SAMMY HOLDINGS INC., through exchanges sodes of such animation series as Detective of shares on December 1, 2010. These three Conan, , and Lupin the 3rd. Making companies delisted on November 26, 2010.

Net Sales full use of its many animation assets, the This initiative will enable the Group to Billions of yen company developed animation-viewing deploy personnel and physical resources in an 160 terminals for preparation* support at hospi- even more timely and appropriate manner and

120 tals, Smile Touch, which it began leasing in rapidly make and implement management

80 September 2010. decisions based on its business strategies. Using Japan’s leading-edge technology to By linking powerful intellectual properties and 40 realize high-quality animated rendering, MAR- content dispersed throughout Group compa- 0 ’08 ’09 ’10 ’11 ’12 (plan) FY* ZA ANIMATION PLANET INC. aims to provide nies more closely, the Group will create syner- ■■ Game content 67.1 94.5 the global market with high-quality, made-in- gistic and complementary benefits and there- ■■ Toys 12.0 14.5

■■ Animation 10.9 11.5 Japan CG (computer graphics) animation. by fully realize its concerted capabilities.

* A method of encouraging children and their families to feel posi- Operating Income (Loss)/Operating Margin tive about medical treatment by explaining a medical condition, Billions of yen % examination, or treatment in a way suited to the child’s age or Game Content Business level of understanding. Records Steady Sales by Narrowing 10 10 Down Titles in Japan 5 5 FY 2011 Overview The game content business recorded a 0 0 28.9% year-on-year decline in net sales, to –5 –5 Earnings Decline Due to Slumping ¥67.1 billion, due to sluggish sales of new –10 –10 Game Software Market Overseas titles overseas. ’08 ’09 ’10 ’11 ’12 (plan) FY* In fiscal 2011, the Consumer Business seg- In fiscal 2011, , launched ■■ Operating income (loss) (left) 1.9 4.5 Operating margin (right) 2.1 3.8 ment’s net sales were down 26.9% year on in Japan, the United States, and Europe, year, to ¥88.8 billion. shipped 2.18 million units. Also, for the R&D Expenses and Content Production Expenses Billions of yen

40

30

20

10

0 ’08 ’09 ’10 ’11 ’12 (plan) FY*

■■ R&D expenses and content 18.1 22.1 production expenses Zoobles BAKUGAN * Years ended March 31 © SEGA TOYS / SPIN MASTER / © SEGA TOYS / SPIN MASTER ZOOBLES COMMITTEE

SEGA SAMMY HOLDINGS ANNUAL REPORT 2011 41 United States and Europe markets we Toy Sales Business titles in Japan and overseas through the unveiled IRON MAN 2, which sold 1.54 mil- Steps up Overseas Roll-Outs by game content business. We project operat- lion units. In the fourth quarter, we released Collaborating with Partners ing income to rise 136.8%, to ¥4.5 billion, as Portable 2 Infinity in Japan and The toy sales business saw a 29.8% year-on- higher game software unit sales in the game SHOGUN 2: Total War in the United States year decline in net sales, to ¥12.0 billion, as content business counteracts an increase in and Europe. Meanwhile, in Japan we post- consumer spending slumped in Japan. amortization of goodwill and other operating poned until the current fiscal year the launch In Japan, BAKUGAN-related products, expenses accompanying the conversion of of the major title Ryu ga Gotoku OF THE which Bakugan Limited Liability Partnership three listed subsidiaries into wholly owned END, which we had originally slated for (Bakugan LLP) promotes, grew sales, while subsidiaries. R&D expenses and content pro- release in the fourth quarter. such mainstay products as Anpanman toys duction expenses are likely to grow 22.1% In Japan, the business marketed 15 and HOMESTAR AQUA sold well. year on year, to ¥22.1 billion, reflecting a rise titles, which sold 2.63 million units in total. In overseas markets—following on from in the number of title releases and stepped- We were able to appropriately balance earn- the BAKUGAN character for boys—we jointly up development for new platforms. ings size and development expenses by con- developed a second product with Spin Mas- tinuing efforts to concentrate development ter Ltd., the new Zoobles character for girls, Game Content Business and sales on titles likely to generate a certain which is growing sales. Planning to Increase Revenues and level of unit sales and return. We also realized Earnings by Launching Major Titles improved profitability. Animation Business For the current fiscal year, this business is As for overseas markets, we released 16 Hit Products Based on Strong Intellectual targeting net sales of ¥94.5 billion, up 40.8% titles in the United States and 20 in Europe. Property Grow Revenues year on year. With unit sales of new titles struggling, unit The animation business posted a 12.4% year- In Japan, plans call for marketing 19 sales were only 7.83 million units in the Unit- on-year increase in net sales, to ¥10.9 billion. titles,4 more than in fiscal 2011, and shipping ed States and 8.23 million units in Europe. Revenues were up thanks to the success 3.36 million units, a year-on-year increase of The pay-per-use services of Sammy 777 of the 14th movie-theater version of Detec- 0.73 million units. We aim to reach this tar- Town, a pachislot and pachinko game site for tive Conan. Also, in Japan and overseas get by pursuing a product lineup strategy mobile phones, performed steadily. royalty revenues from the BAKUGAN project that focuses strongly on major titles likely to In another initiative, from 2010 we began remained favorable. And, BAKUGAN contin- realize a certain level of popularity. The first distributing Kingdom Conquest, a free online ued to be a hit television series overseas, quarter will see the release of the latest RPG for Apple’s iOS mobile operating sys- mainly in North America. installment of the mainstay Ryu ga Gotoku tem. After launching, this service met with a series, which has shipped 5 million units to very positive reception around the world, date. Overseas, although we will launch 34 claiming the top spot in the free role-playing FY 2012 Outlook and Strategy titles, 2 less than in fiscal 2011, we are tar- game download rankings of seven countries geting a 3.86 million increase in unit sales, simultaneously and surpassing 1. 5 million Expecting Major Title Releases to to 19.92 million units. downloads by August 2 011. Grow Revenues and Earnings For fiscal 2012, the segment plans to increase net sales 35.1% year on year, to ¥120.0 billion, by bringing to market major

Kingdom Conquest Mario & Sonic at the London 2012 Olympic Games™ © SEGA TM IOC. Copyright © 2011 International Olympic Committee (“IOC”). All rights reserved. SUPER MARIO characters © . Phantasy Star Portable 2 Infinity characters © SEGA © SEGA

42 These new offerings will include Mario & Sonic at the London 2012 Olympic Games™, , and Virtua Tennis™ 4. Overseas, Product Portfolio markets are shrinking and becoming increas- The Consumer Business—Highly Popular Intellectual Properties ingly polarized between major-hit titles and titles with persistently low unit sales. Therefore, MARIO & SONIC SERIES TMS ENTERTAINMENT, LTD. ANIMATED MOVIES as we are doing in Japan, we will heighten development focus and efficiency. As a result of these efforts, in fiscal 2012, the game content business plans to increase game software unit sales 4.58 million units year on year, to 23.29 million units. Further, Sammy NetWorks will strengthen services for smartphones that its Sammy 777 Mario & Sonic at the London 2012 Olympic Games™ Town pachislot and pachinko game site for TM IOC. Copyright © 2011 International Olympic Committee（ “IOC”）. All rights reserved. SUPER MARIO characters © NINTENDO. SONIC THE HEDGEHOG characters © SEGA ANPANMAN mobile phones provides to approximately © Takashi Yanase / Froebel-kan · TMS · NTV © Takashi Yanase / ANPANMAN Project 900,000 members. By actively supplying con- Total series unit sales tent by SEGA, the business will enhance its million 19 units offerings for such new platforms as smart- phones and SNS. SONIC SERIES

Toy Sales Business For fiscal 2012, this business aims to grow sales 20.8% year on year, to ¥14.5 billion. While promoting sales of BAKUGAN and Zoobles in markets worldwide, we will bolster initiatives for the Anpanman series and other Detective Conan : Quarter of Silence perennial favorites in Japan. © 2011 Gosho Aoyama / DETECTIVE CONAN COMMITTEE

Sonic Generations Animation Business © SEGA In the current fiscal year, we plan to achieve a Total series unit sales 5.5% year-on-year increase in net sales, to million units ¥11.5 billion. 70 In addition to the 15th movie-theater ver- sion of Detective Conan, released in April 2011, RyU GA GOTOKU SERIES we will produce multiple new titles, including Toaru Hikushi he no Tsuioku for movie theaters and Battle Girls: Time Paradox for television. BAKUGAN -Battle Brawlers- © SEGA TOYS / SPIN MASTER / BAKUGAN 3 PROJECT · TV Tokyo

Ryu ga Gotoku OF THE END © SEGA Total series unit sales million 777 TOWN.net 5 units © Bronson & Tetsuo Hara / NSP1983, © NSP 2007 Approved No.GT-706 © Sammy

SEGA SAMMY HOLDINGS ANNUAL REPORT 2011 43