Square Enix 2008 Annual Report Download - page 6

only has the segment grown greatly, but it has achieved a high
operating income margin of 26.7% in the fiscal year under
review. However, a key issue for the Mobile Phone Content
segment is its over-dependence on the Japanese market. In
developing overseas markets, we will not rely excessively on
independent ventures, but work with strong partners in each
region to accelerate business development.
In the Publication segment, sales recorded a CAGR of
11.7%, moving from ¥6.4 billion to ¥11.2 billion over the five-
year period. The operating income ratio stood at 32.5% in the
fiscal year ended March 31, 2008. This rate of sales growth and
profit margin are both exceptional when viewed within Japan’s
publishing industry.
Our cross-media strategy involving magazines, anime, and
comics is producing effective results. However, our unrivaled
strength lies in the harmonious teamwork between authors and
our editorial staff, as well as our business stance emphasizing
early-stage investment in prospective talent and content.
Thanks to these strengths, we have produced a constant
stream of hit titles each year in this unpredictable business,
leading to a very healthy pattern of business development.
The Others segment comprises the sum of our
merchandising business and the arcade game machine
business of SQUARE ENIX (excluding TAITO). Sales have risen
from ¥4.2 billion to ¥9.0 billion over five years, resulting in a
CAGR of 16.4%, while exhibiting a robust operating income
margin of 36.9% in the fiscal year ended March 31, 2008. The
merchandising business has provided steady growth, and we
have also made a sound start in the development of overseas
businesses, so we anticipate significant progress in the near
future. In the fiscal year under review, arcade game machines,
including “DRAGON QUEST Monster Battleroad,” made a
significant contribution to sales. By bringing TAITO into the
Group, we have been able to utilize SQUARE ENIX’s renowned
game development capabilities to bolster the arcade game
business, thus reaping valuable synergies.
The Amusement segment is comprised of all the former
TAITO Group businesses to date. As TAITO was integrated into
the Group in September 2005, it falls outside the calculations
covering our business portfolio at the time SQUARE ENIX was
formed. Consequently the whole of sales in this segment, ¥69.1
billion in the fiscal year ended March 31, 2008, contribute to
growth in sales of the Group. Substantial improvement in profits
by the Amusement segment is of particular note. In the fiscal
year ended March 31, 2006, the initial year in which TAITO
joined the Group, the segment recorded an operating loss of
¥0.7 billion (before amortization of goodwill). However, by the
fiscal year ended March 31, 2007, we had turned this around,
achieving an operating income of ¥1.0 billion (ditto). In the fiscal
year under review, operating income reached ¥4.4 billion (ditto).
Seizing on this momentum, we plan to expand this segment to
a level of ¥10 billion.
As can be seen from this summary, over the past five
years all businesses outside of Games (Offline) have performed
to a respectable level, although there are still a number of
outstanding issues to be dealt with. Next, I will take a closer
look at the challenges we are facing in the Games (Offline)
segment and outline some of the key strategies we have
formulated to deal with these issues.
Challenges in the Games (Offline) Business
The game software we create is primarily centered on role-
playing games (RPGs), and one of the features of our products
is our unrelenting pursuit of the highest possible quality
standards. This quality-focused culture is something in which
we take great pride, and we intend to maintain this approach.
Contrarily, if this focus on quality becomes too extreme, it can
turn into a form of stubbornness, which can sometimes lead to
situations where an organization becomes unable to respond
appropriately to changes in its operating environment. Our track
record shows that we have created works of unrivaled quality
by specializing in the development of games for the leading
game console of the time, thus enabling us to fully capitalize
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