Square Enix 2010 Annual Report Download - page 9

that are fast and flexible in business development.
The die is cast. We shall not refuse to face this reality.
By properly reading the trends in networking, we can utilize
this torrent of changes to our advantage.
I would next like to discuss the importance of networking
from another perspective.
That is, how are customer perceptions of value shifting?
A shift from hardware to software is one theme that has
been around for a long time.
However, this represented only the starting point for further
shifts in value.
We can learn more about the shift in value by looking at
phases of the value shift for software. Within software, value
was originally found in code, but later transitioned to data. This
value flow can be seen using personal computers as an
example. Value first shifted from PCs to application software.
However, while application software such as spreadsheets was
initially highly valued, commoditization of the application
occurred and value shifted to the data used for input to the
application.
The value found in data can be broken down further. In
games, for example, game-play data (user-generated data) is
becoming more important than the enormous amount of data
for use in games (provided data). In Asian markets an example
of this has been the emergence of games that are often distributed
free of charge, creating business models that generate earnings
from in-game item sales. Such new business models are
examples of the value shift within software. Taking this a step
further, the value of individual user data will likely be
surpassed by community data.
The latter part of the shift is driven by network infrastructure.
The characteristic of “bit” data that allows perfect copies at no
cost has created the destructive power of widespread diffusion.
However, because of this diffusive nature, “bit” data has lost
its rarity value. On the other hand, with the emergence of user
data and data shared among users, bit data can finally achieve
rarity and value.
Earlier, I discussed our Group’s transformation into a com-
munity platform operator.
By this, I mean that we are shifting from a creator of game
data to a manager of individual and community data.
Strengthening Own-IPs
In establishing networks at the core of our business, we shall
have a free hand in deploying certain titles into various content
and services. While it is impossible to predict what future oppor-
tunities might be possible at the time of original title development,
the current copyright system gives only IP holders the rights to
determine what modifications can be made. As a result, titles
based on external IPs face the risk of structural bottlenecks in
business development.
This is why we insist on focusing on our own-IPs.
At SQUARE ENIX and TAITO, almost all of our titles are our
own-IPs. And with the acquisition of Eidos, we increased our
stable of AAA and potential AAA titles including “Tomb Raider,”
“Hitman” and “Kane & Lynch,” to name a few.
We, of course, are also continuing to challenge ourselves in
the creation of altogether new titles as well.
These are the three pillars of our growth strategy.
Constant Improvement
It takes strength to support transformation. In preparation, we
took reinforcement measures in the fiscal ended March 2010.
These included a slimming of our content production
account and an accelerated amortization of goodwill.
We also conducted a headcount adjustment to strengthen
our fundamentals and energize the organization. Our over 350
new graduate and mid-career hires were more than offset by a
headcount reduction of over 800, resulting in a net decline of
457 employees.
We achieved record profit in the fiscal year under review.
However, this industry is deep in the middle of a rapidly
changing operating environment.
As I have discussed, we are making every effort to become
the industry leader in the next evolutionary stage. In these
endeavors, I look forward to your continuing loyal support.
Yoichi Wada
President and Representative Director
SQUARE ENIX HOLDINGS CO., LTD.
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