Sega released today its financial result for fiscal year 2016, ended on March 31st. All numbers are in the black, with slightly lower revenue year on year and substantially flat operating income.
The press release included an overview of the status of the business, with a mention of rising expectations for the console market due to the penetration of the current generation of machines:
“During the fiscal year ended March 31, 2016, the gradual recovery of the overall Japanese economy continued despite a lackluster performance in certain respects, as evidenced by such developments as improvement of both corporate earnings and the labor market due to the effects monetary and fiscal policies. With regard to individual consumption, in general, consumption levels have not fallen owing to steady improvements in both the employment environment and personal incomes. However, attention should be paid to the risk of downward pressure on the Japanese economy, caused by factors such as a downswing in China’s economy and other overseas economies, and fluctuations in financial and capital markets. Thus, a full recovery of the economy will require more time.
In this climate, with regard to the pachislot and pachinko industry, machine utilization of titles compliant withthe standards before the change in the application of the model test procedure by the Security Communications Association, which conducts model tests for pachislot and pachinko machines, remains firm in the pachislot machine market. On the other hand, titles with outstanding performance are arising mainly in some series with successful track records even for the pachislot machines corresponding to the change in the application.
With the exception of some major titles, replacement demand for new pachinko machines was also weak in line with the application of the voluntary agreement on measures to prevent players from becoming too immersed in playing (hereinafter the “agreement”), which were decided by Nikkoso, an association of pachinko machine manufacturers. In order to revitalize the market going ahead, it is essential to develop and supply machines that are compliant with various voluntary regulations and capable of appealing to a wide range of players.
Regarding the environment of the Entertainment Contents Business, a slowdown in the spread of smartphones in Japan and the predominance of top titles are increasing in the market for digital games for smart devices market, and fall of medium to lower titles can be expected in the future. Therefore, provision of higher-quality content is expected, resulting in a trend of longer development lead times and higher operating costs.
With regardto the packaged game software market, expectations are rising for future expansion of the market in line with the penetration of next generation hardware of home video game console.
As for the market for amusement centers and amusement machines, which is shrinking, initiatives to expand the player base are being carried out. In the resort industry, thanks to a continuous increase in the number of foreign visitors to Japan, an upward trend in the hotel occupancy rate is still evident and revenues of amusement parks and theme parks continue to exceed the previous year’s level. With a view to establishing Japan as a popular tourist destination, a bill concerning the promotion of the establishment of specified integrated resort areas (Integrated Resort Promotion Bill) was submitted to the Diet.
In this business environment, net sales for the fiscal year ended March 31, 2016 amounted to ¥347,981 million (a decrease of 5.1% from the previous fiscal year). The Group posted an operating income of ¥17,617 million (an increase of 0.7% from the previous fiscal year) and profit attributable to owners of parent of ¥5,369 million (loss attributable to owners of parent of ¥11,375 million for the previous fiscal year).”
We also get a more specific statement regarding the Entertainment Contents segment, where the company shipped 9,220,000 copied of packaged games at retail:
“With regard to the Entertainment Contents Business, in the field of digital game software, sales remained robust for major titles including “PHANTASY STAR ONLINE 2,” launched over three years ago, as well as titles for smart devices such as the updated “CHAIN CHRONICLE – Kizuna no Shintairiku,” “Puyopuyo!! Quest,” and “Hortensia SAGA.” However, with regard to certain titles for smart devices and the South Korea expansion of “Football Manager Online,” a new online game for the Asian market, costs including advertising expenses increased due to a review of the value of assets relating to the titles that were less well-received than expected in the initial plan, as well as an increased number of new titles.
The number of titles distributed domestically in the field of digital game software (free-to-play types) was 49 as of the end of March 2016. In the packaged game software field, sales amounted to 9,220 thousand copies, which was lower than the level in the previous fiscal year, despite the launch of “Football Manager 2016,” the latest addition to the “Football Manager” series, which has continued to attract diehard fans for over 10 years, mainly in Europe. On the other hand, profitability was improved as a result of focusing on the sales of major titles by narrowing down the number of titles. In the amusement machine field, sales were strong for the new medal pusher machine “THE MEDAL TOWER OF BABEL,” as well as “CHUNITHM,” a new music game in which users can enjoy a new sense of play, which was developed by the development team of “maimai,” a popular music game operating in game centers across Japan.
In the amusement center operations field, like-for-like sales were robust at 103.1% compared with the previous fiscal year owing to reinforced management of prizes etc. at the existing game center operations. In the animated film and toy field, program sales were strong for “LUPIN THE 3rd,” the first new title for the TV series in 30 years, and the highest-ever box-office revenue for the series were recorded for the theater film “Detective Conan Sunflowers of inferno.” In addition, the Group implemented the sale of toy products particularly “Anpanman” series and “Disney Character Magical Pod.”
As a result, while net sales in this segment were ¥199,720 million (a decrease of 0.5% from the previous fiscal year), operating income was ¥3,653 million (operating income of ¥63 million for the previous fiscal year) because of an improved profitability for the packaged games field, amusement machines field and animated film and toy field due to the effects of structural reform measures implemented in the fiscal year ended March 31, 2015.”
Last, but not least, we get the forecast for the current fiscal year for the Entertainment Content business, with a mention of the release of Persona 5, Yakuza 6 and Total War: Warhammer:
“With regard to the Entertainment Contents Business, in the field of digital game software such as for smart devices and online PC games, the Group is working to improve profitability by launching service for the PlayStation 4 edition of “PHANTASY STAR ONLINE 2,” which is receiving high acclaim from many users over the long term, and sequentially carrying out major updates of existing major titles mainly “CHAIN CHRONICLE – Kizuna no Shintairiku,” “Puyopuyo!! Quest,” and “Hortensia SAGA,” in addition to optimizing advertising expenses and operating costs.
Furthermore, the Group will promote the expansion of the advertising business in “Noah Pass” of the marketing platform for smartphone game software, and launching of the overseas-oriented platform “goPlay” business focused on Southeast Asia. In the fiscal year ending March 31, 2017, the number of newly launched titles distributed domestically in the field of digital game software is planned to be 7 (including 7 Free-to-play types). In the packaged game software field, the Group is building a structure in which revenue can be created with stability, and will introduce new titles focusing on mainstay IP titles held by the Group.
In the fiscal year ending March 31, 2017, the Group plans to introduce “Persona5,” the latest title in the “Persona” series and “Ryu ga Gotoku6,” the latest title in the “Ryu ga Gotoku” series in Japan, and for overseas, “Total War: WARHAMMER,” the latest title in the “Total War” series.
In the amusement machines field, in addition to the new title “Kancolle Arcade,” the Group will introduce new titles for a wide variety of users and markets including a new title in the trading card game “SANGOKUSHI WAR,” which has operated for over ten years since its appearance in March 2005. With regard to the amusement center operations field, as part of strengthening operations of existing game centers, the Group will advance the introduction of electronic money to game centers, and will continue past efforts such as enhancement of prizes. In the animation film and toy fields, the Group aims to improve profitability by primarily developing classic and mainstay products and services, premiering the theater film “Detective Conan The Darkest Nightmare,” and developing toys for the character “Rilu Rilu Fairilu” series, the second joint development with Sanrio Company, Ltd.”
Last but not least, the company expects significantly higher revenue and income in the current fiscal year:
“In light of the above, the Group is forecasting consolidated net sales of ¥380,000 million (an increase of 9.2% from the previous fiscal year), operating income of ¥20,000 million (an increase of 13.5% from the previous fiscal year), and profit attributable to owners of parent of ¥10,000 million (an increase of 86.2% from the previous fiscal year) for the fiscal year ending March 31, 2017.”