Square Enix 2010 Annual Report Download - page 8

To Our Shareholders
avatar-based casual portal site called “Nicotto Town.” We felt
this type of community service is a promising business area and
that it would be difficult to generate such ideas from our current
employees. Therefore, we created a separate entity independent
from the Group in which all company staff came from the
outside. Created in September 2008, “Nicotto Town” has
successfully issued over 500,000 IDs, allowing SMILE-LAB to
already reach profitability in the fiscal year ended March 2010.
In the increasingly important area of downloadable content,
we are releasing over 50 downloadable titles for game consoles
alone during the fiscal year under review.
We are also placing a priority on games for new devices
such as smartphones. This has included, for example, game
titles for iPhone/iPod touch like “CHAOS RINGS,” “SPACE
INVADERS INFINITY GENE,” and “FINAL FANTASY,” which
each reached #1 in sales rankings on the App Store.
Additionally, we are making steady progress in the development
of social network games.
However, the true impact of networks is not only on the
content layer that I’ve described so far. There will be a structural
transformation of business in which the very core of the ecosystem
changes.
How will the distribution of the profit generated from the
market change under a network centric model?
Put another way, what will happen to profits among the
various market participants due to changes in media?
In the prior game media shift from mask ROM to CD, the
benefits generated by improvements such as production cost
savings and inventory risk reduction were shared by customers
and software developers. As a result, profits at platform manu-
facturers improved and the entire industry grew.
So, what is happening this time? Cost savings resulting
from the shift in media from discs to networks are mostly
becoming the profits of network operators. Further, the reality is
that customers are demanding price reduction in excess of the
cost savings.
Without a successful network strategy, software developers
will face structural difficulties in making profits.
On the other hand, these challenges are also accompanied
by opportunities.
Through the use of a common infrastructure, it is possible
for us to become a network operator or even a platform holder.
We plan to transform ourselves into a “community platform
operator.”
How will market growth change in a network-centric world?
In comparison with physical media, the pricing of network-
based content is clearly falling. This will be a negative factor for
industry growth.
However, there will be a far greater positive boost from the
wider geographic reach and larger potential customer-base
offered by the very nature of networks.
Furthermore, we will be able to create a variety of new
business models that were not possible in the packaged
software business. In-game item sales are just one of the early
examples of what is coming in the future.
This, therefore, represents a business chance for companies
Cannot be copied
“Experience Value”
Can be copied Provided data
User-generated data Personal data
Community data
Code
Data
Hardware
Software
Product
Shifts in Value
Figure 8
FY2010
*Composition in parentheses
Million units
North America
Japan AsiaEurope
0246
FINAL FANTASY XIII
DRAGON QUEST IX:
Sentinels of the Starry Skies
Batman:
Arkham Asylum
5.55
4.26
3.24
(1.85) (1.79)
(4.26)
(0.3) (1.82) (1.39)
(1.77) (0.14)
Sales of the Main Titles by Region
Figure 7
06