It’s earnings season in Japan again and so that means we’re getting updates from all major Japanese companies on how they did during fiscal year 2015, the 12 month period ending March 31st 2016. As I write about the games market, and Koei Tecmo are my favourite company, I thought I’d do a quick write up on how Koei Tecmo did this year and it’s good news all round the for company. In this article I’ll talk about Koei Tecmo’s financial performance, how each of their segments have performed, and what to expect from them in the future. I also have included a fully translated slide deck from Koei Tecmo’s earning report which can be downloaded below. The presentation was fully translated by Blackkite and so I would like to thank him for all the time and effort he put in to help out. Please be sure to follow him on Twitter as he is always bringing the latest Japanese gaming news in as it comes.
Do note that the presentation above is not currently available in English from Koei Tecmo so this is the only place you can get English translations at the moment.
First lets start with some sales data-
As of September 30th 2015-
- Arslan: The Warriors of Legend – 60,000 units sold in Japan and Asia
- Nights of Azure – 150,000 units sold in Japan and Asia
- Samurai Warriors 4: Empires – 100,000 units sold in Japan and Asia
- Nobunaga’s Ambition 201X – 600,000 downloads
As of March 31st 2016-
- Romance of the Three Kingdoms 13 – 180,000 units sold in Japan and Asia
- Attack on Titan – 280,000 units sold in Japan and Asia
- Dead or Alive Xtreme 3 – 190,000 units sold in Japan and Asia
- Atelier Sophie – 170,000 units sold in Japan and Asia
- La Corda d’Oro 4 – 30,000 units sold in Japan
- Dead or Alive 5: Core Fighters (F2P) – 6 Million downloads worldwide
- My GameCity (Gaming Platform) – 870,000 Members and over 35 games
Attack on Titan: Wings of Freedom (PS4, PS3, PS Vita), a Tactical Hunting Action game based on the anime adaptation of a mega-hit comic that sold over 50 million books in total, was released and had favourable sales in Japan and Asia. The game is planned to release in the West in Fiscal Year 2016. Furthermore, Hyrule Warriors Legends (Nintendo 3DS), which is a collaboration title between Nintendo’s Legend of Zelda series and Warriors series, was released worldwide and has continued the success of the Warriors series. This year Koei Tecmo developed other titles in collaboration with many well known companies and IP’s. Yokai Romance of the Three Kingdoms (Nintendo 3DS) which is a collaboration title with the very popular series Yokai Watch and released by Level-5, also Square-Enix’s DISSIDIA FINAL FANTASY (Arcade) has started operating.
For Koei Tecmo’s IP, Romance of the Three Kingdoms XIII (PS4, PS3, Xbox One, Windows) which is the 30th anniversary title of ROTK and Nobunaga’s Ambition Sphere of Influence: Sengoku Success Stories (PS4, PS3, PS Vita, Windows) were released, and managed to garner discussions and increase overall sales of the series. Furthermore, other than DEAD OR ALIVE 5 Last Round’s Core Fighters free-to-play version surpassing 6 million downloads globally, DEAD OR ALIVE Xtreme 3 Fortune/Venus (PS4, PS Vita) was also released, and had sales extended not only from inside Japan but also in Asia where the game performed well too.
For the Gust brand, other than the brand-new title Nights of Azure (PS4, PS3, PS Vita) pioneering a new fan base, expansions of existing IPs are also progressing with games like Atelier Sophie: The Alchemist of the Mysterious Book (PS4, PS3, PS Vita) and Atelier Shallie Plus: Alchemists of the Dusk Sea (PS Vita). Gust are also working on a new IP to launch in the future.
The collaborations with other publishers and new & old titles transitioning favorably, along with the Extension of Digital Content Sales and Usage of Self-Developed Tools are all contributing to the large increase of profitability, and Koei Tecmo are able to raise both revenue and profit, setting a record high Segment Profit ever since the merger between Koei and Tecmo.
Koei Tecmo had a record year in Fiscal 2015 as this was the third year of consecutive revenue increase and the 6th year of consecutive profit increase. Koei Tecmo saw revenues increase 1.4% YoY to ¥38,332 million yen and Operating Profit increased 14.7% YoY to ¥11,069 million yen. This represented an Operating Profit ratio of 28.9% which is up a total of 3.4 percentage points. Koei Tecmo have grown Operating Profit ratio from around 18% 3 years ago to nearly 30% this year which was their original target set all those years ago. It was the Game Software segment which remained the biggest and most profitable segment for Koei Tecmo once again accounting for 66% of total revenue for the year. The segment also accounted for 78% of Koei Tecmo’s overall Operating Profit which shows how Koei’s focus on expanding their current IP, Collaborating with others, streamlining development through in house tools and focusing on digital has helped increase profit margins and overall profit for the company.
Koei Tecmo’s Online and Mobile segment also saw an increase in revenue this year, up 6% YoY, but it was Operating Profit that was up 32% YoY that really shows how well the Online and Mobile division is doing for Koei right now. Koei are continuing to invest in online browser games and mobile games and plan to introduce more games to market soon with the hope of creating a hit title in the space. In Koei’s Media rights business they released the Neoromance 20th anniversary title Angelique Retour (PS Vita, PSP) and La Corda d’Oro 4 (PS Vita). Furthermore, other than holding events like Neoromance Festa: La Corda d’Oro Featuring Jinnan High School Op.2 and Neoromance Festa Haruka Matsuri 2016, they progressed on new efforts like Virtual Lives using Stereoscopic Vision technology. The Media Rights business remained flat in FY2015 in both Revenue and Operating Profit.
In Koei’s SP business they released a total of 7 titles & 9 machines, including Pachinko CR Fist of the North Star: Ken’s Rage 2. Whilst revenue was down in this segment, Koei Tecmo were able to make development much more efficient which contributed to overall profit increase. Koei Tecmo plan to further increase their strength in efficient development within this business and attempt to will increase profit power much more. Koei Tecmo saw revenues decrease in their Amusement management business due to organizing unprofitable stores. However, Koei Tecmo introduced Kids Facilities into main stores, like Large-scale Indoor Athletics and Shooting Rides, and reconsidered policies around management costs for Prize Games. Both of these initiatives helped them increase overall profit in the segment.
Total sales revenue in Japan decreased 3.7% YoY but still accounted for 75% of total revenues which shows that the domestic market is still the biggest for Koei Tecmo. The total amount of sales revenue generated in Japan for the the full year reached ¥28,768m. Sales revenue overseas was up 20.7% YOY and accounted for ¥9,564m. Thus the total increase in revenue was primarily due to sales overseas more than offsetting the slight decline seen in Japan. However it wasn’t North America and Europe that contributed to rising revenues as North America saw revenues slide 8.7% this year and Europe saw a bigger decrease of 13.3% this year. It was Asia that has seen huge growth and this year took over both North America and Europe to become the largest region for Koei Tecmo outside Japan. This can mainly be attributed to the success of online and browser games in Asia as well as the successful console launch in China which saw Dynasty Warriors 8 with Xtreme Legends become a top seller in the country. Sales in Asia increased 129.8% YoY to ¥4,052m and accounted for 10.6% of overall revenue, or 42% of all overseas revenue.
North America is now the second largest overseas region outside Japan for the company as sales declined 8.7% YoY to ¥3,404 million. This gives North America an 8.9% of overall revenue share and the decline can primarily be attributed to the lack of mainline Koei Tecmo IP launching this year as the majority of titles were spin offs. Europe also saw a 13.3% revenue decline this year and is now the smallest region for Koei Tecmo with just ¥2,108 million giving them just 5.5% share of total revenue this year. It’s not to say that sales in North America or Europe are bad, it’s just that Asia has been a huge growth region for Koei Tecmo over the last 3 years and has gone from being the smallest region, outside of Japan, to now being the biggest region outside Japan.
Koei Tecmo’s Game Software segment saw revenues increase 1.7% in total as declines in Japan, North America and Europe were offset by increases in Asia. Operating Profit in this segment was up 11% YoY as Koei Tecmo’s focus on in house development tools and digital business saw costs decrease and overall margin increase. Total software sell in for the year declined 20.9% YoY to 5.58 million units worldwide compared to 7.05 million unit shipments in the prior year. Shipments in Japan for the 12 month period ending March 31st 2016 declined 29.6% YoY, or by 1.12 million units in absolute terms. This meant that only 2.67 million units were shipped in Japan which was only 48% of total unit shipments. This meant that 52% of shipments came from outside of Japan which is the first time this has happened in a while and shows that Koei Tecmo are increasingly seeing overseas become a more important part of their Game Software segment during this transition to 8th generation.
Sell in to North America declined 24.1% YoY to 1.28 million units, down from 1.68 million in the year prior. However North America still accounted for 22.9% of total shipments which was only slightly down compared to 23.8% in the prior year. Software sell in to European regions declined from 1.1 million units last year to 0.79 million units this year, down 25.1%. Once again this didn’t have a huge impact on proportion of total sales with Europe still accounting for 14.2% of total sell in this year, just down from 15% last year. It was Asia that saw the biggest increase this year with a total of 840,000 units shipped compared to 520,000 units last year, a total increase of 61.5%. Asia has been seeing huge growth over the last few years with just 155,000 unit shipments back in fiscal 2010 to now nearly 1 million. Asia saw their total share of shipments grow from 7.4% last year to 15% of overall shipments this year. Asia has seen huge growth thanks to the launch of many console games in China this year + continued focus on releasing physical games and content in Southeast Asia.
ONLINE & MOBILE
Koei Tecmo’s Online and Mobile segment also saw an increase in revenue this year, up 6% YoY, but it was Operating Profit that was up 32% YoY that really shows how well the Online and Mobile division is doing for Koei right now. Smartphone native applications for Android and iOS are constantly being created and improved upon in order to create hit smartphone games based on their current IP’s as well as new IP’s. Koei Tecmo’s mobile title, Nobunyaga guruguru dungeon is heading towards 1 million downloads across iOS and Android. Koei Tecmo will continue to develop new Mobile titles with the plan to create big hit titles in the Mobile game space.
For the Social Game business, as a result of promotions like Multi-platform expansion, Continuously holding events, and Actively doing collaborations with titles from other companies, the 1 Million People series like 1 Million Nobunaga’s Ambition, 1 Million Romance of the Three Kingdoms and 1 Million Winning Post had profits exceeding last year’s. Furthermore, Uncharted Waters V is transitioning firmly as Koei Tecmo run the service in Asia. For my GAMECITY which is developed & managed by Koei Tecmo, the service expansion for smartphones gave contribution to the member amount reaching 870,000 members. For the Online Game business, each title has a stable transition, especially Dynasty Warriors Online Z which had successful measures like having a PS Vita version added.
SUMMARY OF FINANCIAL RESULTS
Koei Tecmo continue to grow as a company in terms of both revenue and profit and there is no sign of them slowing down anytime soon. Operating Profit and margin continues to increase as Koei Tecmo focus on collaboration titles and transitioning to becoming a digital business. Koei Tecmo are also focusing on growing their social and browser games business, especially in Asia where they have been very well received. They are now looking to expand this business overseas as well as to smartphones. Koei Tecmo also announced that they were moving to a new structure this fiscal year which encompasses a 5 brand approach. I will talk about this in depth a bit later and what it means for the company overall.
To sum up, this year has been great for Koei Tecmo with all segments seeing some sort of positive whether it be increased revenue, increased profit or increased profit margin. Koei Tecmo plan for FY2016/17 to see an even larger jump in revenue and expect operating profit to grow as well. This suggests that not only will the products they release this year generate more revenue, but Koei Tecmo will continue cost cutting/utilising in house development knowledge and transitioning to digital in order to increase margins.
LOOKING TO THE FUTURE
Koei Tecmo CEO, Yoichi Erikawa stated that fiscal 2016 has been very successful thanks to all their segments performing well. Koei Tecmo will continue their slogan of IP CREATION AND EXPANSION. Erikawa explained that Koei Tecmo’s slogan: “IP Creation and Expansion” is the creation of brand new titles for multiple platforms as well as expanding traditional franchise games to multiple platforms as well. Koei Tecmo this year are using their own development tools to adhere to multi-platform solutions and continue maximising the profitability of each current and new IP.
Koei Tecmo’s aim is to develop games for Console, Smartphone, Online browser, Online platforms such as Mobage (Japan) and even for Sony Interactive Entertainment’s new PlayStation VR and Nintendo’s new NX. Koei Tecmo released a technical demo entitled “Dynasty Warriors VR” at TGS this year and will be utilising this experience should they decide to go ahead and develop titles for the virtual reality system. So far the only confirmed title for PlayStation VR is Dead or Alive Xtreme 3 and there are no titles confirmed for NX.
Below I will be discussing this policy in more detail to explain what all of the above means and how this will be implemented in the future-
First let us take a look at Platform Expansion. Koei, Tecmo and Gust are all working on new titles to introduce this year. Games for smartphones are being developed as well. There will be active and intense promotion on Koei’s smartphone titles this year. Koei Tecmo will be promoting new and existing IP across various hardware, software and internal platforms. The hardware platforms announced for upcoming titles are PS4, PS3, PS Vita, PS VR, WiiU, 3DS, Xbox One, NX and other platforms like STEAM. The software platforms announced for upcoming titles are DeNA, GREE, dGAME, Mobage, as well as Android, iOS and traditional internet browsers. Koei Tecmo will also continue to promote their online, social and mobile titles via my GAMECITY which now has over 870,000 members and more than 35 games.
Koei Tecmo’s multiplatform strategy has worked for them very well in Japan due to the decline of the console industry there. As the PlayStation 3 is being phased out, the PlayStation 4 is not seeing fast adoption rates and therefore the dedicated console install base has seen a big decline in Japan. Even the popular handheld market in Japan is declining somewhat with PlayStation Vita unable to match the install base of PlayStation Portable. Koei Tecmo have taken to release games across PS4, PS3 & PS Vita and this has allowed their IP to see stable sales across all 3 platforms and in turn reach all players and increase total sell through.
In global markets we’ve seen Koei Tecmo cater to Asian audiences by releasing games there in physical formats more often, cater to North American audiences by releasing games on Xbox One and global audiences by releasing games on PC & Steam. Koei Tecmo hope to continue this strategy in order to maximise sales across all traditional console platforms and hope that this strategy will also work on Mobile and PC software distribution platforms.
Koei Tecmo reconfirm that this year is the year when they introduce new IP, introduce sequels and expansions to their current IP and, continue to collaborate with other companies on various IP. In fact the company recently set up a department that deals specifically with collaborations and as Koei Tecmo has experience in this sector they are now working on more collaborations than before. Examples given during the investor briefing were Dragon Quest Heroes II & Attack on Titan for PlayStation systems, Yokai x Romance of the Three Kingdoms for Nintendo systems & Dissidia Final Fantasy for arcade systems. Koei Tecmo also said that they have made a collaboration deal with a very big Western IP and look forward to bringing us news on this large scale collaboration in the future.
This year we look forward to Nioh which represents Koei Tecmo’s global strategy to simultaneously launch a new IP worldwide. Koei Tecmo are working to ensure that the game meets the requirements of global users and even launched an Alpha demo (Ongoing) in order to receive feedback on the game. This game is being developed by Team Ninja and will release exclusively on PlayStation 4 in 2016. Toukiden 2 is also part of Koei Tecmo’s IP expansion and multiplatform strategy with the game taking on a new open world genre and being released across many platforms in order to expand sales. This game is also due to launch in Japan during 2016. In terms of collaboration titles, Yokai x Romance of the Three Kingdoms has been more successful than Pokemon Conquest and has sold in more than 500,000 units in Japan to date.
Koei Tecmo also talked about game tie-ups after the success with the Samurai Warriors Anime. Koei Tecmo expressed that they would like to continue working with other organisations to build the brand of their IP’s. Koei is aiming for their IP’s to have additional support via Anime, Toys, Movies, Food, Books, Apparel, TV, Music, Events, CD, Performances and other areas. The Fatal Frame movie was given as an example of a successful tie up in the past.
This biggest news of this year is that a DYNASTY WARRIORS movie is in the works. Production of the movie will be handled by China 3D Digital Entertainment, a Hong Kong based company. The movie will be directed by Roy Hin Yeung Chow, whose previous credits include Nightfall (2012) and Rise of the Legend (2014), and written by Christine To (Chi-long To), who also handled the screenplay for said films. China 3D Digital Entertainment will prepare for shooting in 2016 and begin shooting in 2017, and the film will release throughout China, Hong Kong, and Macau in 2018. It should be noted that a Japanese and Western release date has not yet been announced.
The preliminary cast list includes – William Feng, Ethan Juan & Eddie Peng
The Asian market has seen huge growth for Koei Tecmo and now accounts for more than 10% of total revenue for the full fiscal year and 15% of game unit sales. Asia is now the biggest market for Koei Tecmo outside of Japan, and ahead of North America and Europe, so it is clear that Asia is becoming increasingly important for the company. Koei Tecmo are continuously releasing smartphone titles and online browser games in the Asia region and with the launch of PS4, PS Vita and Xbox One in China the company now plans to launch more console titles in the region. Uncharted Waters V and Samurai Cats have been very successful in the Korean and Taiwanese markets, Samurai Cats will continue to release across South East Asia as planned.
In China, Koei Tecmo finally have a chance to officially release console games after the console ban was listed last year and the company have been taking full advantage of this by launching games for all the systems thanks to support and marketing deals by Sony Interactive Entertainment and Microsoft Asia. We can expect to see Asia grow in the coming years.
Koei Tecmo confirmed last month that there would be an internal reorganisation within the company to help move focus to the company’s various IP’s. Starting on April 1st 2016, the company introduced five IP related brands to allow them to focus more on each of their established franchises as well as introduce new IP’s. This is in accordance to the company’s vision of being the “number one entertainment content provider in the world” through “IP creation and deployment”. With this change it means that the Games Software, Mobile & Online and Media Rights segments will be integrated into one “Entertainment” brand”.
The five brands introduced are listed below-
- Kou Shibusawa – Led by Kazuhiro Fujishige
- Omega Force – Led by Kenichi Ogasawara
- Team Ninja – Led by Yosuke Hayashi
- GUST – Led by Hisashi Koinuma
- Ruby party – Led by Mei Erikawa
Please note that Akihiro Suzuki, the general producer of Dynasty Warriors series still remains within Omega Force.
What this allows Koei Tecmo to do is transition away from a company that has no brand value to one that is all about brand value and can leverage their IP to be successful through core titles, genre expansions, tie ups and collaborations. Ultimately this is all about giving each brand the freedom to create and expand their new IP to maximise the value of each IP which will in turn lead to increasing the value of their brands and the company as a whole.
Dynasty Warriors: Heroic Legends (tentative title), is an example of Omega Force expanding and strengthening the Dynasty Warriors IP by taking the series in a new direction as a console strategy RPG. The game is at its core a grid-based strategy RPG, but since it’s a Warriors series title, you’ll have a single military commander unit as well, and there will be tons of peons to destroy. During battles, it switches to action scenes, and while you don’t control the action, Warriors-style action scenes will seemingly unfold. The game is due to launch in Japan this year and the release date for the title will be announced on May 12th during a Nico Nico livestream.
Digital game sales continue to grow for Koei Tecmo thanks to their focus on online browser and mobile games as well as the increased focus on digital download and free to play content for consoles. Koei Tecmo noted that their digital download business now accounts for nearly 35% of total sales and they plan for digital to account for nearly 45% of total revenue by the end of fiscal 2016/17. Digital Download sales are also having an impact on Koei Tecmo’s bottom line as the high margin content means that Koei Tecmo are able to increase profit margins on digital content and therefore overall profit as well.
The majority of digital revenue is generated from their Online and Mobile games division but there is a clear trend of Games Software digital sales increasing as well. Full game downloads and DLC content for console and PC games generated around ¥4,000 million in revenue this year which was up from the amount last year. That represents that around 16% of total games software revenue came from digital console. This has been primarily driven by Koei Tecmo’s Free to Play games such as Dead or Alive 5: Core Fighters, their expanding DLC model, and the introduction of many games on Steam.
FISCAL YEAR 2016/2017
One of the significant changes this year, as mentioned above, is that Koei Tecmo will now be removing the Games Software, Online and Mobile & Media Rights segments and putting them into one big segment called “Entertainment”. The SP, Arcade Management, Real Estate and Other categories will still remain. Koei Tecmo plan for a record breaking year in Fiscal 2016/17 with total revenue forecasted to increase 9.6% YoY to ¥42,000 million. Operating Profit is expected to increase 3.9% as well to ¥11,500 million whilst operating profit ratio will decrease ever so slightly. This could be due to higher investment this year in new technologies and areas compared to last year.
Koei Tecmo’s Entertainment division, which includes Game Software, Online & Mobile and Media Rights is expected to grow 11% YoY to ¥38,500 million this year whilst operating profit for the division is expected to remain flat. The increase in revenue will be explained a bit later as Koei Tecmo plan to increase unit sales of game software this year compared to the year just gone. All other divisions are expected to perform in line with current trends and if the forecast is met then we’ll have Koei Tecmo’s 7th consecutive year of growing profit and 4th consecutive year of revenue growth.
Koei Tecmo expect Japan to grow when it comes to total sales revenue this year. Koei Tecmo are forecasting that sales will be up 14.7% YoY to ¥33,000 million and also for sales to in Japan to account for 78.6% of total revenue. An increase of 3.6 percentage points over the year just gone. Overseas sales are expected to see a slight 5.9% decline to ¥9,000 million due to Asia seeing a slight decline in revenue. North America is expected to see slight growth this year and generate ¥3,500 million in revenue, up 2.8% whilst Europe is expected to see a bigger 18.6% to increase with sales revenue hitting ¥2,500 million. After growing rapidly, Asia is expected to decline this year by 26% down to ¥3,000 million. The decline can be explained by the closing of various online and mobile games this year and the lack of boost from China’s console launch. Asia will continue to be the second largest region outside of Japan though, bigger than Europe.
In terms of Game Software unit sales, Koei Tecmo plan to ship a total of 6.2 million units this year, up 11.2% YoY from 5.58 million units. Koei Tecmo expect sales to be rejuvenated in Japan by new titles as they forecast 3.5 million unit sales in the country, up 31.1% YoY. They also expect Japan to return back to being the premier market for Koei Tecmo with 56.5% of total unit sales compared to the less than 50% last year. Overseas sales are expected to decline by 7.1% slightly this year. North America and Asia are behind that decrease with Koei forecasting a 13.7% drop in sales in North America to 1.1 million. This is also considerably lower than the 1.68 million Koei Tecmo shipped two years ago when Hyrule Warriors came out. This suggests to me that Koei Tecmo are not expecting Nioh, their global new IP, to have a huge boost in sales overseas, nor are they planning to launch their big Western IP this year. Asia only see’s a slight decrease in unit sales from 840,000 to 700,000 whilst Europe is expected to see a 13.9% jump in sales to 900,000 units.
Operating Profit ratio is expected to slightly decline this year but Koei Tecmo are hopeful that it’ll pick up to the 30% that they are expecting in the next fiscal year. Overall it’s been a great year for Koei Tecmo and next year is set to look even better with new titles and games set to come out.
Here is a list of currently known console titles due to release in Japan this year:
- Toukiden 2
- Dynasty Warriors Heroic Legends
Known console titles due to release in North America & Europe this year:
- Attack on Titan
- Romance of the Three Kingdoms 13
- Atelier Sophie
List above is correct as of March 31st 2016.
Note. Toukiden 2 and Dynasty Warriors Heroic Legends have not been confirmed for release overseas, however this does not mean that they won’t come overseas.
Disclaimer: Please note that the numbers and estimates provided above are based on Koei Tecmo company data and analysis by ZhugeEX.com. While every effort has been made to ensure the accuracy of the data presented, we cannot guarantee that all the numbers above are correct and accept no liability for financial decisions made based on the information contained in this article. Readers should be advised that the article does not represent a recommendation to buy or sell securities of any kind regarding the company involved.