Capcom released its total financial results for 2017, and the outlook is pretty good for the gaming company. Thanks to a combination of highly successful titles, Capcom had the best year in its history in terms of profitability.According to the announcement, this is the “highest level of profitability” in all of Capcom’s history, thanks to the launch of Monster Hunter World.
Monster Hunter World shipped an incredible 7.9 million units as of March 31st. Resident Evil 7 Biohazard sales have been updated to 5.1 million units in total. We already knew that Monster Hunter World was a smash-hit, but we didn’t see this coming.
The company saw more than 26% growth in their digital sales division, a 7% increase in total Arcade sales and support, and most other sectors saw growth as high as 12% compared to last year. However, their “Amusement Equipments” (think Pachinko & Pachislo) sub-division saw a significant shrink, down more than 53% from last year. Although this can be attributed to lack of new products leading to massively reduced popularity and demand, and it isn’t necessarily indicative of more troublesome problems.
There’s a lot more to the press release, so let’s dig in.
The performance spike is certainly due in large part of Monster Hunter World, but other titles had a major hand in ensuring success last year for Capcom. The home console market as a whole has seen some explosive growth this last year due to the newest generation of hardware, and the great first-party support from major companies. Capcom was able to tap into that vein and created a series of strong growth periods over the course of fiscal year 2017.
During the fiscal year ended March 31, 2018, our industry saw major growth in the market for home video games due to the strong performance of both hardware and software. In addition, “esports” (Electronic Sports), which are becoming increasingly popular in Europe, the U.S., China, South Korea and other overseas markets, are raising hopes for further market growth. This is driven by games coming to be recognized as a new sport, following esports’ adoption as an official event at the 2022 Asian Games. Furthermore, opportunities to develop this new business domain in Japan, a region that trails other countries, have been building, as evidenced by the overwhelming audience response for Street Fighter V, one of the Company’s popular titles, at the esports event held during the Tokyo Game Show 2017.
Under these circumstances, the Company’s flagship title Monster Hunter: World (for PlayStation 4 and Xbox One), which was released worldwide in January 2018, significantly contributed to the Company’s performance after garnering immense popularity for its near-flawless execution and shipping more than 7.5 million units worldwide, a landmark achievement that made it the bestselling game in the Company’s history. Of particular note is that the worldwide expansion of the user base due to the game’s tremendous success overseas—in addition to its established domestic popularity—has marked the start of a new era for the brand, and that this international recognition has served to energize the Company’s global operations. The Company has made strategic preparations for a full-scale entry into the esports business in Japan, which include the establishment of the Capcom Esports Club at the Plaza Capcom arcade in Kichijoji (Tokyo). Additionally, the Company strove to bolster its management structure, enhance its development team and improve its development environment, enabling it to focus on home video game software development, which is the source of its competitiveness.
Further, in addition to one-time physical product sales, the Company concentrated its efforts on expanding its digital offerings, which promise recurring revenues. At the same time, in an effort to shore up its stagnant mobile contents performance, the Company made organizational reforms and developed appealing titles, aiming to increase customer satisfaction.”
The announcement goes into the specifics of the Digital Contents business, which includes Capcom’s console segment. Besides Monster Hunter World, Resident Evil 7 biohazard, Monster Hunter XX (which shipped 1.8 million units on 3DS), and Ultra Street Fighter II: The Final Challengers have performed strongly, while sales of Marvel vs. Capcom: Infinite are defined “soft.”
And sure, MvCI dropped in popularity and has seen a waning tournament presence, but it still managed to clock in over 1 million units shipped according to the reports we’ve seen.
Capcom also spent some time discussing the mobile market and how their projections stack up with reality. If the character of their statements are to be believed, Capcom may join Nintendo with pushing into new markets with a mobile-first strategy, while putting similar efforts into growing their domestic market in unique ways. Capcom also reaffirmed their commitments to supporting the fighting game community that has been stalwart across multiple platforms for years now.
“In this business, the record-breaking success of Monster Hunter: World (for PlayStation 4 and Xbox One) drove the increase in sales and contributed greatly to improved profit. Furthermore, in addition to Resident Evil 7 biohazard (for PlayStation 4, Xbox One and PC) and Monster Hunter XX (Double Cross) Nintendo Switch Ver. (for Nintendo Switch) giving strong performances, Ultra Street Fighter II: The Final Challengers (for Nintendo Switch) became a smash hit.
Meanwhile, sales of Marvel vs. Capcom: Infinite (for PlayStation 4, Xbox One and PC), which was launched in September 2017 targeting the US and European markets, tended to be soft.
In Mobile contents, amid business reforms, including alliance strategies carried out by the Company to bring about a breakthrough in the business, Monster Hunter Explore maintained steady popularity, as licensing revenue utilizing our intellectual property (IP) successfully contributed to increased profits.”
The company also discussed their continued efforts to expand the Japanese gaming markets, especially the home console sectors. Their outlook even paints the picture that the mobile market will lose ground to a resurgent console scene. They even mention the potential for VR to gain some ground in some markets where it’s lagging behind.
Capcom also plan to focus heavily on diversifying their digital content offerings to increase post-sales revenue for games. The company is currently working with data analytics principles to refine their advertising and similar marketing efforts to better adapt to changes in user preferences.
The company is devising new methods of marketing that focus on combining interests across market sectors to increase overall appeal. And judging from the statements below, they plan to be a leader in providing coverage and support for the emergent esports scene in Japan. It’s not known exactly what games they would push to help build this momentum though, so we’ll just have to wait and see. Capcom sees a lot of opportunity in emerging markets like machine learning as well, so maybe they’ll end up innovating a new combination VR esports powered by AI, okay, maybe not anything that crazy.
“In terms of future outlook, despite a slowdown in the domestic mobile content market, which has experienced continuous growth, the home video game market is expected to gain momentum from the revitalization of game software, owed in part to the massive success of Monster Hunter: World, and from the greater penetration of new hardware; additionally, the scale of VR (virtual reality) and AR (augmented reality) markets is expected to increase as well. What’s more, in recent years AI (artificial intelligence) that can play “go” (an Asian strategy board game) and “shogi” (Japanese chess) against professional players and win has emerged; with such advancements, we expect the use of AI in games only to increase, and further, that rapid technological innovation will lead to drastic changes in the external environment while the balance of power within the industry undergoes rapid reversals, where “winners” and “losers” swap positions as swiftly as discs turn in a game of Othello.
Meanwhile, it is believed that 2018 will mark “esports year one,” the start of a new era, as Japan—which is trailing other markets—begins taking significant steps in promoting esports. These include the establishment of JeSU (Japan eSports Union) in January, which integrated three industry groups, and the announcement by the JLeague (Japan Professional Football League) in March of its entry into the esports sector.
Under these circumstances, the Company will work to increase its corporate value through flexible business development based on “selection and concentration;” it will allocate business resources to priority divisions and growth areas by restructuring strategies and operations in response to shifts in the business environment, whilealso conducting a review of unprofitable divisions and revising its business portfolio.”
Here’s their DLC strategy in three parts. Overall, their plans to diversify and adapt tell the story of a publisher and developer who is ready to become a leader through innovation. Let’s just hope their continued success holds true for years to come when it relates to releasing great video games.
a: The Company will focus its efforts on the development and sales of software for home video games, which is not only its principal business and core competence but also a growth driver. To this end, by clarifying the development processes and managing revenue with precision, based on medium- to long-term strategic maps, as well as through strategic alliances, strengthening its development
structure, enhancing the development team and improving the development environment, the Company will strive to expand the development pipeline and product lineup, working toward being
able to produce multiple million-seller titles each fiscal year.
b: In order to diversify its sales structure, the Company will focus its efforts on expanding digital offerings, which involve less inventory risk while promising sustained profitability that is
comparatively higher than one-time physical product sales.
c: Regarding mobile contents, the Company looks to make a breakthrough and capture new customers while further cultivating existing customers via efforts that include bolstering the development
structure, carrying out optimal post-launch operations (e.g., identifying customer trends, incorporating data insights into games, etc.), and developing business alliances.