Capcom’s future; more DLC and possible resurrection of sleeping IPs

I was supposed to do this one few weeks back, but work’s being hell as we come closer to the annual end of the business year for the company. Working like a dog has its downsides.

Anyway, Capcom Investors Relations, Annual report. Maybe we should note that in their statement of corporate philosophy, the core statement is to create entertainment culture. Video games may be Capcom’s main business for sure, but movies and arcades are part of that too. If you don’t want to read the whole thing, I’m dropping a tl;dr read version at the end.

Kenzo Tsujimoto, CEO of Capcom, makes a statement that what made Street Fighter a globally recognized brand was the movie they invested in, not the games themselves. This is an interesting point to take, and if taken as face value, further enforces Nintendo’s old tactics of cross-media advertising. All the Super Mario cereals, cartoons and the like were there to make the brand recognizable in order to have the main dish, the games, in the consumer head space. Hollywood may think they have the jackpot when it comes to entertainment, but when it comes to games, no other media can replicate the feeling of doing it yourself. This applies to sports as well.

The 4 billion yen Capcom invested into Street Fighter the Movie netted them 15 billion yen. That’s no slouch. Tsujimoto continues that despite movies only getting few weeks of attention in the theatres, each new home release and licensed showing, like on television, always extends the time public is being exposed to the brand. It’s easy to see why Capcom would continue to invest into the Resident Evil movies. While they may not be all that great, they’re further putting exposure to the brand.

The games are still the main point, and Tsujimoto’s take that having something else to exist along the games’ three years of development is important to keep consumer interest relevant. The reason why so many game franchises fail to garner expanded audience attention is because there is no expanded media around them. You can argue that games can makes great sales on themselves and having targeted audience is great, but that really doesn’t expand the market all that much.

Japan manages to keep its brands relevant through numerous comics that adapt the games. These comics can run anywhere between few specialised chapters to years. Considering how much Japan reads, this is relatively traditional way to keep things in the consumers’ minds. In the West this doesn’t work as well, despite the latest Mega Man comic being excellent. The problem of course was that there was no Mega Man game to make use of it.

While this multimedia approach seems like done deal and what most companies do to some extent, this isn’t so. Vast majority of companies are more or less ignoring the world wide stage when it comes to their IPs. The few game based movies we’ve getting here and there have been less about expanded media and trying to capitalise on the Comic book movie boom that’s been so successful. These have been more or less failures, but as said, the brand just has to be kept relevant in the consumers’ minds. Twitch and word of mouth are good ways to get into the core consumer market’s mind, but this does not expand the market itself. This is Red Ocean, where companies cannibalise each other. Electronic games industry has to expand their market in order to survive and advance, and Capcom’s approach to expand the awareness of its brands into movies series like Resident Evil is doing just that. This is why we are getting the Monster Hunter movie. The game has a strong brand recognition, part of Capcom’s Big Four million-sellers, share the title with Street Fighter, Resident Evil and Mega Man.

Capcom notes that during the last gives years since 2014, the operating costs have risen. Monster Hunter World‘s success has increased revenues, but overall the trend isn’t exactly healthy. Capcom had almost a ten-year slouch between 2005 and 2015, and it is noted that sales declined in 2010. With constant major releases since 2014 has seen raise in net sales and thus in income. All this really means that Capcom has to keep releasing new and well developed titles at a constant pace, something that applies to every game company out there. More importantly, this does no mean the games have to be high budget, but we’re going to get to that a bit later. With Capcom internally reforming itself since 2015, things have become more rosy. This would sign that Capcom has somewhat new internal direction, which has resulted in successful titles like Resident Evil 7. Of course, the cost and workload of new titles on new hardware has been on a rising trend, but that’s to be expected if the company intends to push graphical and interface boundaries in their usual pace.

Hauhiro Tsujimoto, the COO, mentions that he intends to continue on Single Content Multiple Usage strategy. For example, Street Fighter V is a title like this, where the the base game is expanded upon rather than creating creating an additional, new title. He also mentions changes in the mobile market and specifically uses the term over-reliant when mentioning gatcha. Using lottery in the same context however would signify that in countries where any form of lottery is considered gambling and require governmental approval, these titles may be breaking the law. Tsujimoto also mentions that he experts esports to still have a rising market, something I do not share with him, considering the aforementioned SFV and Marvel VS Capcom Infinity have not exactly being mass successes compared to their rivals like Dragon Ball FighterZ.

Capcom’s further strategy to grow franchises as global brands is very similar to Sega’s on outer appearance. The major part of this is simultaneous launch of games across the world. Capcom has also taken steps to listen more to the consumer feedback, and uses how they approached Monster Hunter World‘s PC port’s problems solely based on user feedback. Beta testing was also important in making the title. All these have been more common among PC gaming, but considering how much modern consoles are dumbed down PCs, this only to be expected.

Another example with more robust examples is SFV. Server problems, continuing improvement of the game, expansion in esports scene and pricing strategies have all served the game more or less in a positive light, though the overall perception of the game is still questionable.

All this really amounts to Capcom aiming to iron out issues before launch and concentrate on consumer feedback whenever possible. The idea of One content Multiple Uses however does signify that Capcom will rely on digital distribution further, meaning future Capcom games of this caliber will be used as a base platform and you won’t be buying a full, one-package deal game, at least not on launch. SFV had an updated retail version with most additions included, but whether or not we can count that as a true new version of the game is somewhat an open question.

This also shows in Capcom’s financial strategy. Kenkichi Nomura, the CFO, mentions that Capcom intends to enhance their development environment and Digital Contents business. While this does not mean Capcom will cut production of physical goods, it does signify that the aforementioned plan most likely will be carried out with further titles in the future. However, digital titles do have longer lasting power thanks to them never really vanishing from digital stores, unless license runs out or the company goes down.

The most interesting bit of Nomura’s notions is in What is the status of Internal reserves and fund procurement?, where he states that game development has been on the rise since current-generation and multifunctional game consoles arrived. While it is natural for higher spec machines requiring higher development costs, singling this out is strange. Does this mean multifunctional consoles have some inherent in their nature that raises development costs?

Overall, it would seem Capcom wishes to further streamline their development process and eliminate  stuff that would only cause costs. Usual business, nothing special to see here. However, Digital Content will have further emphasize still.

Of course, Capcom can’t compete in the field without original content, and that’s something they wish to emphasize.

The three titles showcased are Devil May Cry 5, the remake of Resident Evil 2, and Mega Man 11. DMC5 is the weirdest example, mostly boasting about the RE Engine and how engaging the IP has been across mediums. It would seem that this is more a showcase piece towards the fans at its core over everything else. In contrast, Resident Evil 2 is used to showcase of constant releases of their flagship franchise. Both emphasize the level of realism in their own ways, making both of them graphical cornerstones in the presentation, and how proper utilisation of both recognized brands will make a mark on the industry.

Mega Man 11 however is the most interesting of the three. The foundation for Mega Man 11 was diversity; all the members had different histories, different views what Mega Man was and had a wide variety of experiences from young newcomers to industry veterans working on it. It is specifically mentioned that the game may not look technologically advanced, but is designed to play extremely well. Or as they out it, it is loaded with techniques that could be described as “master handicraft”.

Capcom has a thing for technologically advanced games and they’re not afraid to use it in their PR. Pushing boundaries has been their thing for a long time now as a company, but at some point this meant that games that could not really push boundaries were put on the back burner. Mega Man games do not require to push the hardware to the maximum anymore, and titles like Mega Man X8 arguably suffered from trying to make a big-budget Mega Man game. It would seem that the success of Mega Man 11 has made Capcom take notice of this, it being lower on the budget and relying on visual design and style over raw graphics power. Reawakening dormant IP is Capcom’s keyword for MM11, and if they were to follow in suite, Capcom could have a one-two punch strategy with high-end games accompanied by less costing games with higher emphasize on core design. Without a doubt the upcoming Capcom Beat-Em Up collection is testing waters whether or not they should dabble in that genre again.

This coincides with Yoichi Egawa’s foundation to produce World-Class quality and profitability. He puts Capcom’s thinking to simple words; first, if the game isn’t good, it won’t sell; second, if you don’t pursue global brands, you won’t survive in the game industry. Considering Capcom had a slouch where their game simply weren’t all that great, this would ring true. Capcom is also one of the few Japanese companies that truly try to keep itself on the global market, and ultimately modern Capcom has surprisingly low amount of Japanese exclusive titles. They were also publisher for titles like GTA in Japan, meaning they’ve been dabbling on trying to introduce Western games to the Japanese market as well.

In addition to this, Egawa wishes to create hot mobile titles (in which manner is open to question) and address development of esports and long-term sales model. This would combine with his wanting to further enforce online-multiplayer. Long-term sales can be tied to the Digital Content method discussed previously, whole esports and multi-player is directly tied to competitive scene. He specifically mentions having artisan pride in developing games, something which further has emphasize on how Capcom wants to approach their titles at this moment in time. Capcom, however, is still a corporation intending to make profit, but it would seem that they are a corporation wanting to make profit with master craftsmanship level products, but they can’t do that without proper personal and budget. Thus, hiring and training has to be considered.

As for Social sections, Capcom has initiatives to hire more non-Japanese and women. They have installed a system that enables workers to have childcare leave and shortened work hours in order to allow them to spend more time with their child after birth. This also extends to men, and there a number of male employees who have taken up on this chance. Capcom states that 21% of their workforce and 10.3% of their manager staff are women. None of this should matter in terms of business, only that they drive business up. This is PR however, and part of this PR is that Capcom has follow the General Employer Action, which sees women consisting 20% of the newly graduated staff and have at least 15% manager women. While this would fight against the idea of best first, it is probable that Capcom’s training program will level the new workforce across the board. Successful business tends to run on pure meritocracy, but it nice to see Capcom extending its child leave program across the board. How Japanese corporate culture sees this is another issue altogether.

Part of the social strategies Capcom is enacting attempts at revitalization of areas across Japan. This includes helping with events and business by paying money to advertise on buses and such, using Capcom’s characters to promote regions and include arcades in given areas. Similarly, Capcom has managed to cut out environmental loads via Digital Content and further promoting power saving methods across the company, but the most important bit can be found in their aim to reduce environmental impact of their Pachislot machines. If you follow any pachislot manufacturer long enough, you will see parts and gimmicks being redressed and recycled. There has also been a slight trend to tone down the flashiness of pachislot machines, which would save power further.

With that all the way, Capcom’s risk management pretty much covers everything discussed thus far. Expanding market, making their IPs more global, developing regions, stabilise revenues and so on. The weirdest bit is to expand on VR, but this most likely coincides with Capcom’s wishes to cultivate a VR game market in amusement equipment business, meaning arcade-specific VR titles. This probably is better option than to dedicate workforce on home-use VR.

There are few statistics that are interesting relating to risk management; used game sales in Japan are on a downward trend, mostly likely due to longer development cycles and increase of digital content, and arcades have seen ever so slight increase in users. Is there a generation that wishes to be play more outside of their home in Japan? This would require further studies and statistics to say for sure.

Further risks and responses are Capcom usual; create sequels or remakes on obsolete games, expand market and boost brand recognition if core consumer disinterest becomes relevant, expand game sales periods with sluggish sales, and establish recurring cumulative revenue models and expand to different media if decrease in users is met for more boost brand recognition. Risk assessment section is probably one of the more important parts, as it has to be straightforward, cutting away most of PR bells and whistles.

Capcom’s analysis on the game market shows that they see console and PC market overlapping. This is due to the overlap of titles released across the two, whole mobile market is its separate thing. The continuing rapid growth of mobile market is still present, but Capcom hasn’t had the best success with their mobile games due to their over-reliance on gatcha and the way how smartphone gamers tends to jump between games. Furthermore, Capcom’s lack of know-how in the market is marked as one of the reason why they’ve been failing on mobile while PC and consoles have seen increased revenues.

Capcom’s constant move towards more DLC in their One Content Multiple Uses philosophy comes from sheer sales data; DLC has taken over package game sales as of 2017 and is estimated to increase with time. Mobile market is estimated to rise on a similar manner, though it should be noted how fierce the competition ultimately is; vast majority of smartphone users that make revenue for the company reside in Asia. However, in terms of best growth was seen in PC market, mainly in China and other Asian regions, but unlike with smartphones, the rate of growth is estimated to slow down. The Western view of markets are a bit skewed, and what we see in Capcom’s analysis’ that Asian PC and smartphone markets are on the rise and making more profits than their bread and butter console games consumer market. Furthermore, Capcom intends to capitalise on esports’ rising popularity and they are intending to see it to rise as a valid new form of sports in order to further their sales in competitive titles like Street Fighter V. In addition, Monster Hunter World is effectively cornerstone in current mindset Capcom has, despite their initial hesitation whether or not it would be a success. The same level of emphasize on graphics and polish should be seen in future titles, like the remake of Resident Evil 2, though clearly Mega Man 11 is buckling this trend a bit.

The SWOT analysis is pretty much everything we’ve covered thus far; Capcom’s main strength is in strong quality development of titles and their own IPs, but at the same their weakness is reliance on specific genres. Overall, Capcom mainline library of current games has a limited scope in these terms, and they are more known for their action titles than anything else. Another weakness is of course the lack of any major success in the mobile market. However, the opportunities Capcom sees is in the decrease of competition, meaning that the titles they put out like Monster Hunter World have no direct competition. There are no games like MH that would be on the surface. Expansion of esports and VR are soon a market possibilities, though with the lacklustre expansion of VR market overall puts this into question. Main threat is noted as the diminishing consumer presence due to the increased presence of entertainment in general. The ways we entertain ourselves nowadays has changed since two or three decades ago, something the electronic games industry should consider a threat in terms of general market. Of course, in mobile gaming the sheer amount of firms and titles released is Capcom’s main concern, especially with them lacking in software and skills in the market.

tl;dr version

Capcom intends to increase brand recognition via movies and other forms of entertainment. There’s going to be more DLC in the future, as Capcom has taken the philosophy of One Content Multiple Uses. The success of Mega Man 11 has made Capcom aware of the their sleeping IPs’ values. Monster Hunter World will be used as an example how to go onward with business in the near future. They also intend to expand in esports scene to promote their games and wish to see esports recognized as legit sport. They suck at mobile market and still want a nice slice of that pie. They have an upwards trend in profits since 2015, and they intend to keep it going with titles they consider to be high-end and have a high-cost.

 

 

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