Capcom’ next year’s plans is to continue on the same path

Capcom’s yearly integrated report was out at the end of the quarterly year, so nab yourself a .pdf copy if you’d rather read it yourself. Otherwise, let’s see what this year’s report says and how the year has come to pass. Grab some snacks and a drink, this’ll be a doozy.

Right off the bat, the report states two thing; Monster Hunter World has been Capcom’s most successful game to date, though the state the number of shipped units rather than sold units. Shipped units just sounds better, as it always is a larger number. The claim for the game’s success is twofold; Globalisation and Digitalisation. The aim for Iceborne, the Ultimate or G expansion to the game, to push further sales. It should be noted that the two games are treated as two separate entities, as this sort of updated version of the base game has been the standard for Monster Hunter since the first game.

MHW made the series a global success. Despite 4U selling well on the 3DS, the truly wall-breaking moment was MHW. The game’s overseas sales ratio increased to 60% of total sales compared to previous 25%. Bulk of Iceborne’s sales are expected to be digital, and whatever data they gather from that will determine Capcom’s future plans. Considering how well the game has been doing on Steam alone, it’s probable that Capcom will push more of their games on digital frontier and cut down production of physical goods. This has been a trend for a while now, but this most likely will only matter for the Overseas markets, as Japanese markets still prefer physical goods over digital. If MHW was offered as a physical product for PCs without any ties to Steam, it’d sell just as well there.

The report starts properly after this, listing Capcom’s Capcom’s method of business and ideology. Capcom shows itself as Creator of entertainment culture that stimulate your senses. Bits like this should remind you that company indeed is Japanese. Their net sales for the end of the year, that is March 31st, was 82.9 billion yen. This is their main bread and butter, counting home video games, PC online, mobile titles and DLC. Their multimedia net sales, that is all the merch in books, toys etc, movies, their arcade games and Capcom’s own arcade centres, events and eSports, netted then 17.0 billion.

Here’s the kicker though; Capcom lists four of their major franchises next, the ones you should consider to be the essence of Capcom at this moment; Street Fighter, Resident Evil, Monster Hunter and Mega Man’s sales are listed, tho after the report Mega Man reached another million units sold. The sales numbers in respective order is, 42 million, 91 million, 54 million and 35 million, now 36. Fiscal year 2019’s biggest hits were, unsurprisingly, Devil May Cry 5 at 2.1 million units sold, REmake2 at 4.2 million and MHW at 4.5 .MHW is noted to be a catalog title, meaning it is a game that was published earlier and not during the fiscal year, showcasing that a game can continue to sell for a long damn time as long as it is available.

The core idea of Capcom’s Single Content, Multiple Usage is effectively effective franchising. It all starts with digital content and with a popular video game. The core of this digital content can be expanded to PC online gaming, via multiplayer modes or similar as well as create spinoff titles or additional tools, wallpapers or whatever other applications for mobile devices. The base concept of something like Resident Evil can be put into use in arcades by using the same world and characters in different pachislot games or similar arcade games. Other business section is major, as that mostly includes third and second parties using that core game to expand the amount of uses. Books, comics, character toys, events, tournaments, eSports, television shows and movies are all part of this extremely expansive Other Business section Capcom is not directly involved with in most cases. All this leads into creation of a new game, that will be used multiple times over. The importance is in having strong IPs that can be used multiple times, that the titles have global popularity to ensure that these franchised elements will sell (though if we’re completely honest, most of the franchised stuff Capcom puts out stays in Japan) and then you have the movies. It is probable that Capcom has the most games made movies out of. We can question their quality in many ways, but they still make money. Every time Street Fighter the Movie is shown on telly, Capcom gets about a million yen.

This method of using single content is nothing special in of itself, yet the whole movie business makes it a bit special. Konami, for example, has a very similar multimedia approach to their business, though they are rather separate in most cases. Konami can have a successful toy franchise going on, but no real game or other media of it. Capcom recognises their main point is the games, and they aim to make a mass-appealing game they can franchise further. This ideology probably permeates the game design at its core level, where designers at Capcom have to ask themselves How can this be used multiple times down the line? This also explains why certain IPs, despite being strong previously, have not appeared in any modern form outside ports, as they can’t be used multiple times nearly as easily.

This method of franchising is dependent on the core quality of the game, however. Capcom’s quality in games was all over the map during 00’s and early 10’s, but after some financial problems they’ve managed to level out with increasing sales. Their Operating Incopme is up 13.1% from last year, Margin is 1.1 point up, a slow but steady rise from 2016. Their net sales are 5.8% up, continuing the trend from 2015, where their sales dipped. It should be possible for Capcom to reach their 2014 level of sales during this next fiscal year. After the slump of net income from 2013, Capcom has been doing much better with 14.8% rise from last year, about triple the amount since 2014. Research and Development costs have gone down a bit, mostly thanks to establishing their new engines and streamlining development, but it is expected to rise next year. The balance of work in progress for games went down major 34%. This was gained by closing down overseas studios and release of games that requires lots of works, i.e. REmake2 and DMC5. This is interesting though; Capcom split its stocks 1:2 last fiscal year, meaning the payout was decreased, but dividends increased. They’ve been managing to pay out dividends 29 times in a row. More people may have access to stocks, but payout per stock is smaller. Might’ve been a good chance to jump into the bandwagon at that point. Return of Equity, a.k.a. the  measure of how effectively management is using a company’s assets to create profits, is up one point. Should be noted that it barely beat 2009, meaning ever since 2010 Capcom was in a rut and had to fight hard to get back up.

With WHO recognising gaming disorder, something I’ve covered few times already (it has no basis), Capcom has Sustainable Development Goals, effectively meaning Capcom wants to showcase themselves as a company that balances their own economic growth with the sustainability of the society. In short, Capcom is supposedly trying to showcase themselves as a company that would not take advantage of people with gaming disorder. EGS, Environmental, Social and Governance form EGS material issues that come in four sections; Securing and Training human resources, Promoting diversity, Development of Solid Relationship with Society, and Enhancement of Corporate Governance. This needs a bit breaking down, as EGD and the four spots mingle slightly. All this is according to UN’s goals, which Capcom wants to go by. Furthermore, Capcom is to continue their 2011 program of supporting educational themes whenever a classroom requests such, meaning that Capcom has a program that would educate students about video games and career opportunities. However, this is largely Japan-only, though with Capcom wanting to globalise themselves further, they might want to tackle most major schools around the world in some manner, and maybe even send e-mails to smaller schools around the globe, offering some assistance in game studies.

Capcom is tackling Environmental issues with the usual fashion, like changing old light bulbs to LEDs to reduce carbon dioxide emissions and reducing paper resources by digitalisation. This has reduced costs, but also means that Capcom can showcase their push for further digital sales as part of ESG. Energy conservation will be their future goal.

For Social, Capcom is aiming to hire more non-Japanese employees and increase the number of women in management position, but an approach like this won’t serve well in of itself. All these people need to be competent in their work, as companies that will hire or kick up people into the higher up’s board for the sake of diversity does no good for the company itself. Whether or not this goal will be healthy on the long run will be seen. Forced diversity is not a solution, but that is the wind of the era. Capcom has been increasing the amount of women workers in their ranks, though in reality it shouldn’t matter what junk the employee has between their legs, just the quality of their work. It should be noted though that Capcom’s Relationship with Customers has a spot mentioning how they’ve monetised DLC without high-pressure microtransactions, something that a company like EA can’t say with all the lootboxes and whatnot. According to Capcom, games should be enjoyed for the entertainment value they provide with gameplay, not fir the thrills associated winning a lottery. Capcom intends to deliver core content for free for their games, with DLC being its own thing at a low cost. With their mobile games, they supposedly intent to continue have small as possible gacha elements. Localisation and culturalisation gets mentioned as well, and rather than talk about translation or localisation, Capcom wants to culturalise games so they’d be enjoyed in whatever locale. This sounds highly suspicious, but it also explain why mention of dragons got removed from Monster Hunter World in China.

Capcom is surprisingly effective when it comes to Relationship with the Regional Community, as they Capcom is involved with number of events in Japan, offering possibilities for cities and municipalities to make profit off of their own from these events and whatnot. This also doubles as an effect of Capcom getting their name out there to people who wouldn’t recognise it otherwise.

For Governance, Capcom has been increasing ratio of external directors and increased dialogue with the shareholders. Basically, Capcom wants to have more openness with their shareholders as well as be more transparent all around. Capcom even lists reasons why external directors have been selected, e.g. Masao Sato is expected to be able to contribute to the auditing and supervision of the Board of Directors via his experience and knowledge from serving the police administration. This is part of the whole “visible” governance, and we’re even given a third-party assessment of Capcom’s corporate governance. Capcom’s strength lies in capital efficiency and information disclosure, with Effectiveness being the lowest. This is pretty much as expected, as per the business culture Capcom resides in.

Rather surprisingly, Capcom has an increasing number of annual discussions regarding the market opinion. Whether or not these discussions with take true market opinion into count, or just what the gaming press wants the opinion to be, is wholly another question.

Regarding Capcom’s achievements for the year, there’s nothing much to cover. Their catalog titles i.e. older titles continued to sell decently, with MHW being still a top seller. Their two new releases, DMC5 and REmake2 sold extremely well, and apparently Capcom is satisfied with the sales of ports and such. As for arcades, Capcom apparently started an online crane game, and have been aiming to expand their target market towards middle-aged and the elderly. Plaza Capcom was opened in Hiroshima, which probably explain why they closed down one arcade and opened two new ones at different locations. Despite their five different Pachinko and Pachislot models sold reasonably, the changes they made in testing their equipment meant lower overall sales; 3,422 billion compared to last year’s 7,803 billion. Numerous events were held to maximise sales of games, as well as further use of eSports like Capcom Street FIghter League powered by Rage. Net sales increased and operating margin was 31.5%.

Capcom’s intention to build a strong business portfolio hasn’t changed any. Their aim, after all, is to make games they can make multiple uses out of. For the next year, Capcom seems to intent promoting their mobile games more and explore possibilities more, which is why we’re getting Rockman X DiVE rather than a home game release. Standard consumer releases are abound from major IPs. We already know REmake3 has been in the works for some time and will be out somewhat soon. Whether or not something else like DMC5 will be out is another question, tho Capcom would count MHW Iceborne on Steam a new title, and the base game a catalog title. Capcom also has to restructure their development to handle the new regulations Japan has made regarding gambling, as it impacts their pachinko and pachislot business. Business as usual, and in hindsight, REmake2 and DMC5 last year was Capcom reviving old IPs for new generation. Much less than what was expected, but the reception and sales of both titles speak for themselves.

Kenzo Tsujimoto’s section is up next, which is more or less a view on Capcom’s CEO’s commitment and look at the company’s history. Without much going in too deep, Capcom has six points in their philosophy, something we’ve already seen; Aim to become the best in the world, Compete with strong IPs, Stable long-term growth, Managing their IPs and companies properly to ensure the two aforementioned, enforce and encourage relationship with societies locally and globally as well as with stakeholders; and avoiding management risks with transparency. We’ve effectively covered most of these spots, but I’d like to give some spotlight on the third bit about stable long-term growth.

Capcom struggled most of the new Millennium to find their spot in the gaming market after the crash of the arcades, but their long-term growth has been better than most of their competitors. Their Operating Margins have been overall better than their main competitors’ with +66% operating income and margin being +7.9 points. While Konami may have +90% income, their margin is just below Capcom’s at +7.5 points. Contrast this to Square-Enix, who has -8% income and -3.3 points in margin. This of course could change during next fiscal year, when Final Fantasy VII Remake hits the store shelves. Neither Sega Sammy or Bandai-Namco can really compete with Capcom or Namco, as their respective numbers are -53% and +41% in Operating Income, with +1.8 and +1.1 points in margins. Effectively, Capcom has been making most of their last financial year’s success with just three titles, one of which was a catalog title. If they manage to keep both REmake2 and DMC5 selling well as catalog titles all the while rolling new titles as part of their main growth driver as per their management strategy, they should see further increases in profits and margins during 2020. Nevertheless, it seems that their most stable source of profit is still in arcade and amusement equipment with no real changes how well they’re selling.

Capcom will aim to increase profits with three-angled long-term plan. This plan consists of increasing digital sales on the global marketplace, preparing for the next generation of standards that will be rolling around during the next few years as well as focusing on eSports and aiming to popularise a new culture for content. First part is easy, overall speaking. All Capcom needs to do is release their new games via Steam alongside the usual home console market. That’s effectively what it amounts to. Capcom’s overseas games sales have increased drastically since 2015, while homeland sales have not really changed any. You could say that Capcom’s secret of being successful is to have IPs that are globally attractive. After all, Japan in itself is a very small market compared to the Americas, Europe and Australia, and the rest. China is of course a place they’d like to gain a strong foothold, but that’s going to be difficult still. Make digital the first option, and you’ll save in manufacturing costs. Capcom is also taking note of both Cloud gaming and Subscription services and are exploring ways to enter both of these. Cloud gaming, however, is still a pipe dream, while subscription services should be nothing new to them, technically speaking.

With new standards like 5G wireless, Capcom can’t help but make use of third-party outsider know-how. This is mostly for mobile market and most likely relevant only in Japan, but the underlying message does touch upon upcoming Microsoft and Sony consoles as well.

eSports was a major thing for Capcom last year, and apparently it netted some 1,096 million USD for them during 2019. That’s nothing to be scoffed at, and it is estimated 2020 eSport scene would net some 1,790 million USD. This is through the usual establishing of new leagues, analysis of trends and then promoting regional developments. As long as Capcom manages to establish a profitable and sustainable ecosystem, they should be able to maintain their practices. I’m sure this is part of the reason why Street Fighter V is the way it is, where the game is stable and easily accessible in various regions. The Marvel VS series, while superbly popular in the US, didn’t exactly have the same position in Europe, for example. Street Fighter V aimed to be very safe game and something they can build further revisions on easily, and it has been that. Certainly a success in financial terms, but not really a loved game in the series. However, in the next five years Capcom will assess if there is any more growth in eSports and whether or not it is profitable to continue promoting sales through it.

All this really amounts to Capcom’s plans to effectively follow 2019’s lead in terms of business. MHW has made them recognise that games can, and in future will have, longer sales periods than before. This is partially because digital marketplaces don’t run out of copies and are constantly available. On the long-term, if Capcom is to keep their current standards in visuals and sounds, the Hollywood look in their games, it will cost them more to research and develop. Something they are well aware. This probably means Capcom will put out only few new games per year, which most likely will be sequels or remakes, that they will bet on as their heavy hitters all the while ports and catalog sales are supporting them and making the risk of these big titles slightly smaller. Digital, however, is the thing that is being pushed further.

Interestingly enough, Capcom seems to aim to have their younger employees work on their popular IPs, meaning legacy IP in Capcom is a living thing. If there are more people like Yoshinori Ono, who want to revive a sleeping but still popular IP, in principle we could see some level of resurgence of some IPs down the line. This might be wishful thinking, but history has shown how legacy IP under younger employees can bloom like no other. Take Mega Man and Street Fighter as examples.

Rather than establishing new IPs, Capcom intents to expand new markets and find new customers. You can expect to see more remakes in the future, as games are considered to be obsolete after some time have passed. This seems to be their long-term plan; remakes and ports. At the same time, they aim to curb sales of used-games somehow as well as address piracy, especially in the Asian markets. Capcom loves to talk about their IPs, but at the same time the they’re not having new blood in their library. In the end, their aim is to expand into new territories they’ve yet to make an impact and raise global earnings. This applies to their arcade business as well, where they aim to attract new customers and enhance their lineup of titles.

Their analysis of game industry and market hasn’t changed, with general consumer and PC market overlapping somewhat and offering the most balanced place to be successful in. Mobile market may have large sums of money moving about, but the competition is extremely intense. Consumer market is 77% of all of Capcom’s net sales, followed up by mobile with 2%. PC online, like the crane catcher, makes double that at 4%. While they are in a good position to expand, Capcom currently has mostly high-risk options in their Value, Rarity, Inimitability and Organisational evaluation. Capcom doesn’t have as high competitive edge as they want to believe, as other companies possess all the same external edges as they do. Capcom being slow at making quick decisions probably have already bitten them in the ass couple of times, but the lack of direct competitors to their main selling IPs should be a concern. In Mobile market, however, Capcom is still at a complete loss. Then you have their directors competitors still rolling their IPs in the media and can easily overcome Capcom.

What is Capcom’s plan for the future then? To use their existing Intellectual Properties to make games and leverage them into further franchising. They are no intending to make new IPs at the moment, but deliver further remakes. REmake3 is the direct result of this. Long-term and steady growth seems to be their aim. Expanding their target market and find some new regions in Asia to make some more money. While all this probably will continue to continue kicking just fine, Capcom is not offering anything that could add to their existing strategies or IPs. Perhaps it could be said that Capcom intents to keep their current core customers happy while offering new generation of players the possibility to play classics in a remade fashion and in modern terms. Their plant to “make use of sleeping IPs” ultimately ended up being a remake and DMC5 with some ports. Maybe they could follow suit with some other of their sleeping IPs, like Commando and turn it into a generic Call of Duty clone or something similar. I don’t expect Capcom to expand IP library anytime soon. Now if they’d begin to remake games that would need them, like the original Street Fighter, rather than games that were already well made.

I mentioned Capcom Hollywood games, because it sounds what Hollywood blockbusters are doing; one or two big budget titles per year by using well established IPs carrying the whole studio. Smaller games are not even a thing really with Capcom anymore. Mega Man 11 seems to have been a sort of fluke, as the franchise was moved to mobile once again. All the small titles Capcom has been pushing out as of late have been ports and re-releases. Currently, it seems Capcom is not intending to launch a new IP anytime soon, but in long-term, that should be one of their priorities as well. After all, all of the IPs they like to talk about has to be established at some point, and it is necessary to have something that’s designed from the ground up to the current generation. However, the global popular culture has been marred with rehashes, remakes, adaptations and reboots for good two decades more than previously. Sadly, it must be admitted that relying on existing franchises and IPs with a built-in fanbase to revitalise business has been successful. However, as of late we’ve seen big franchises like Star Wars and Star Trek faulting during the run with lessening revenues and falling consumer interest. Capcom’s management has to work hard to avoid the same pits Hollywood studios have stumbled upon. Capcom has a history of falling on their face and success with this kind of approach, but there’s only so much they can use as existing material for remakes, unless there’s going to be complete and utter reboots.

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