Square Enix 2007 Annual Report Download - page 7

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Now, I present the progress we made in TAITO, which became
fully consolidated in fiscal 2006. From the strategic point of
view, integrating TAITO, which develops and sells arcade
machines and operates arcade facility, into the Group is signifi-
cant in two ways.
First, our new portfolio of businesses increases our touch
points with customers, rounding out our strategies in this
respect. Various entertainment media are beginning to cross-
penetrate. In such a business environment, we need to increase
our touch points with customers to understand and respond to
various demands of customers. Square Enix had far to go in the
virtual space, addition of Taito will enhance our ability to use
physical locations and to create the entertainment that appeals to
5 senses nurtured through arcade game development.
The second significance is financial one. Games (Offline) and
Games (Online) become increasingly capital intensive and
require longer time of investment. TAITO, on the other hand,
runs a flow-based business, require less capital
and generate stable flow of cash. The financial
risk profiles of these two businesses are polar
opposites, a balance that I believe will allow us
to develop our business more aggressively.
TAITO’s performance to date, however,
had not been strong enough for it to function
as a supporting pillar of the Group. We posi-
tioned fiscal 2006 as a time of restructuring,
preparing TAITO to make a fresh start in fiscal
2007. What we needed to do was simple. We
had to reallocate resources optimally. The key
was to take actions in the fastest manner.
First, we moved out of unprofitable busi-
nesses, closed down arcade facilities that were
losing money, and made personnel cutbacks.
In addition to businesses that were obviously
generating losses, we also shut down busi-
nesses where the use of capital is not efficient.
We completed this process in fiscal 2006.
The next step was to allocate additional
resources and invigorate businesses that
were delivering borderline performances.
As the first step, we needed to revitalize
arcade facility operation. This business gen-
erates revenue through investment in three areas: real estate,
arcade machines and people. In the past, being overly obsessed
with arcade facility location resulted in disadvantageous real
estate agreements that sapped funds for arcade investment.
Consistent renewal of arcade machines on arcade floors was
allowed to fall behind for lack of funds. Arcade revenue and
profit suffered as a result, leaving too little money for proper
personnel investment. The cycle was vicious.
Our basic approach was to reverse this cycle by making
appropriate and audacious investments to reenergize personnel
and renovate arcade machines, then make clear that we will
only accept real estate with terms reasonable to us. The amount
of funds we actually invest will be at the same level as before,
but this structural reform should erase the chronic deficits.
Taking a determinedly proactive approach should also boost
employee morale and positively impact sales. As Figure 3 shows,
these efforts have already begun to bear fruit.
After the completion of revitalizing the arcade facility
operation business, we plan to move on the next step of
TAITO unit Poised at the Starting Line
Creative & Innovative
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