Koei Tecmo has released its H1 FY2016/17 report for the 6 month period ending September 30th 2016. This blog post is a continuation of the in depth reports I write on Koei Tecmo each six months. I’ve been following Koei Tecmo for a while and they are my favourite video game publisher and developer. This is due to my fascination with the Dynasty Warriors and Romance of the Three Kingdoms video game franchises which I grew up playing. I love sharing data on the video games industry in general, so why not share my findings on Koei Tecmo here!
First I have to thank the one and only Kite Stenbuck who was able to translate all of the text into English. This blog post is the only place you can find a full English translation of the financial results presentation as the time this was posted. Please feel free to support Kite at his Patreon here.
Koei Tecmo H1 FY2016/17 Report
Koei Tecmo have launched a number of games this fiscal year. I will talk about each of these games under the five Koei Tecmo brands:
In the Kou Shibusawa brand: Romance of the Three Kingdoms XIII was released for PS4 & Steam in America and Europe. The brand also published Winning Post Stallion, a horse racing simulation games for smartphones that was released in September. Social and smartphone titles in the catalog, such as 1 Million Nobunaga’s Ambition, Uncharted Waters V and Nobunaga’s Ambition 201x are continuing to do well.
In the Omega Force Brand: Toukiden 2
for PS4, PS3 & PSV launched in July. So far the game has sold in 250,000 units in Japan and Asia which is a notable decline over the first installment of the game which sold in 470,000 units in the region. Attack on Titan: Wings of Freedom was released in North America and Europe on PS4, PS3, PSV, XB1 & Steam. The game has sold in 350,000 copies in the West and a cumulative 700,000 copies worldwide. The game has been a hit for Koei Tecmo and is on it’s way to the 1 million unit milestone. Omega Force also released a strategy RPG spin off for the Dynasty Warriors franchise called Dynasty Warriors: Heroic Legends for PS4, PS3 & PSV.
In the Team NINJA brand: Dead or Alive 5: Core Fighters has surpassed the 7 million download milestone worldwide. Team NINJA note that collaboration DLC contents for the game has seen high sales and is a good monetisation strategy. Team NINJA plan to release Ni-Oh exclusively for the PlayStation 4 in February 2017. The game will be published by Koei Tecmo in Japan and Sony Interactive Entertainment in America and Europe. So far the game has received numerous awards and praise and the recent beta demo that was published in August received a 95% positive rating from American and European players.
In the GUST brand: New IP creations are progressing with the announcements of 2 new IPs – Heroic RPG BLUE REFLECTION: Girl’s Sword Dancing in Illusion, and Augmented Reality Girls Trinary, an anime cross-link RPG which fuses anime and game.
In the Ruby Party Brand: Geten no Hana with Yume Akari Collector’s Edition (PS Vita) has been released. In the Event segment, 6 events have been held, including Neoromance Festa: La Corda d’Oro: Seiso Academy Festival 5 and Harukanaru Toki no Naka de 2: Ushiromuki Jirettai Live. Ruby Party are also actively making efforts with new technologies, such as implementing Virtual Lives using three-dimensional video presentation.
Koei Tecmo achieved a new record for H1 results. Both Sales and profit were up for the period. Koei Tecmo reported sales of ¥16,576 million for the six month period ending September 30th 2016. This is a 9.3% increase YoY and can be attributed to the amount of titles released and published overseas. Last year the majority of games released during this period were Japan only. This year we saw Attack on Titan perform well overseas with 350k units sold in, contributing to the increase in sales. Operating Profit was ¥2,748 million, up 11% YoY.
It was the entertainment segment which remained the biggest again for the company. The entertainment segment includes Koei Tecmo’s console, PC, mobile and social games. Sales in the entertainment segment were up over last year at ¥14,638 million. The entertainment segment accounts for 87.5% of Koei Tecmo’s total sales revenue. The remaining 12.5% is split among Koei’s other activities such as Arcade Management and Real Estate management.
Sales were up across the board when looking at regional splits. Sales revenue in japan led the way thanks to the strong console and social game segments with mobile seeing growth too. Total sales revenue in Japan was ¥12,228 million, up 7.7% YoY and accounting for 74.8% of the total sales revenue. Koei Tecmo note that the Japanese economy is gradually recovering and that there is a continuous improvement in employment and income environments which is leading to higher spending among consumers.
Overseas sales were up 14.1% YoY, led by the release of Attack on Titan. Overseas sales revenue was ¥4,348 million, accounting for 26.2% of total sales revenue. America led the way overseas with an 11.7% share of total sales revenue. Europe had a 5.8% share. Asia has been a growing market for Koei Tecmo thanks to the console, mobile and social gaming divisions and this has led to Asia becoming the second largest overseas region for the company in recent years. Asia accounted for ¥1,445 million sales revenue, up 13% YoY. An 8.7% total share.
Koei Tecmo shipped a total of 2.55 million units of game software during the six month period ending September 30th 2016. This was up 21.4% over the 2.10 million units shipped during the same period last year. Japan led the way accounting for 1.63 million units, a 63.9% share. The 101% increase over the prior year was primarily driven by larger hit games such as Toukiden 2 and Attack on Titan being released vs mostly spin off games last year. Catalog sales continued to be strong for the company.
Shipments overseas were down YoY. This was due to lower unit sales in America and Europe which were partially offset by an increase in unit sales across Europe. 920,000 units of game software were shipped overseas, a decline of 28.7% YoY. 400,000 units were shipped in America, down 29.8% YoY. 280,000 units were shipped in Europe, up 51.4% YoY and 240,000 units were shipped in Asia, down 55.1% YoY. Overseas shipments of game software accounted for 36.1% of total units shipped.
Revenue and profit were both up for Koei Tecmo during the first half of the fiscal year. This allowed them to beat their earnings forecast on revenue but they fell short of the operating profit target. Koei Tecmo’s forecast estimated that operating profit would reach ¥3,000m but the actual number as mentioned in the summary above was ¥2,748. Net Profit however was higher than forecasted. Koei Tecmo notes that some titles were delayed into the second half of the year to improve quality and this has been a noticeable trend for Koei in recent years. Koei Tecmo are working towards an even better second half and a 7th year of consecutive profit increase since the Koei and Tecmo merger.
Koei Tecmo is working on various projects based on its new management strategy – “Creation and Expansion of IPs”. By actively promoting “Creation and Expansion of IPs” which puts brands and IPs as main axes, the company is moving to an organizational structure split into 5 brands, and making best use of each brand’s characteristics. The whole group is working towards raising corporate value. Koei Tecmo continue to expand the Toukiden brand through the release of Toukiden 2, now for home consoles. Attack on Titan was another collaboration title that builds on the development expertise of Koei Tecmo’s original genres. More titles are having tie ups, such as the Ni-Oh comic, and Koei Tecmo released Dynasty Warriors Heroic Legends which takes the musou franchise into a new genre.
All of these moves are being made with the aim to strengthen IP’s, maximise the value of those IP’s and in turn to maximise the value of each brand and the whole group.
Creation + Expansion of IP
The two slides below will show what Koei Tecmo is working on to achieve the creation and expansion strategy.
Koei Tecmo continue to innovate with new IP and genres. Ni-Oh is an upcoming action role-playing game developed by Team Ninja for the PlayStation 4. The gameplay, which has been compared to Souls series, revolves around navigating levels and defeating monsters that have infested an area. Nioh takes place in the 1600s during a fictionalized version of the Sengoku period, when Japan was in the midst of civil war prior to the ascension of the Tokugawa shogunate. Blue Reflection is another new IP from GUST which is set in a modern day Japanese school. In Blue Reflection, connections and human essence make up the themes. It is a “heroic RPG” that depicts a life-sized projection of female youth. Musou Stars is the latest new project from the company which is a crossover title similar to Warriors Orochi. Various characters from Koei Tecmo franchises team up to battle a new enemy.
In addition, Koei Tecmo will expand its current franchises this year with a sequel to the popular Nights of Azure, as well as new entries in the Samurai Warriors and Atelier franchise. The Musou franchise has been on a decline recently and Koei will really need to re-invent the franchise for the next generation. Dynasty Warriors 9 needs to be the title to do this, as do the upcoming collaboration titles.
In addition, Koei Tecmo are working on a brand new Nobunaga’s Ambition game after the success of the last anniversary game. The prior game sold considerably better than its predecessor and Koei Tecmo are looking to expand the franchise to a broader audience as well as appeal to core fans with the new installment.
Koei Tecmo’s plan for the future revolves around using their own development tools to adhere to multi-platform/device solutions and continue maximising the profitability of each current and new IP. Koei Tecmo have expressed interest in developing for Sony’s new PlayStation VR and have already created a Dynasty Warriors VR demo for the console to test the capability. Koei Tecmo are also releasing an update for Dead or Alive Xtreme 3 shortly which will enable VR functionality in the game.
Koei Tecmo are also a confirmed partner for the upcoming Nintendo Switch. The company has already confirmed that they are bringing Nobunaga’s Ambition to the console. I expect Koei to announce a number of titles for the systems first year on the market.
In addition, Koei Tecmo are pouring more resources into the smartphone space where they have yet to have a hit game. Koei Tecmo first started porting console IP gameplay to mobile but learned quickly that this did not work. Their new strategy of creating unique and tailored games for smart devices based on internal IP is working better but the games have only been moderately successful so far. Koei is still pushing forward in its console expansion plans and hopes that its smartphone and social game business will grow too.
Koei Tecmo are continuing to collaborate with IP Owners on new titles. Hyrule Warriors was a hugely popular title and Koei Tecmo have opened up a special collaboration game unit to create more hit titles with IP owners. Berserk is the latest title from the collaboration unit. However the recent anime feedback seems to be hurting sales of the game in Japan and it looks like the game may fail to meet or exceed expectations. Koei are still working on a bigger collaboration title that will be revealed in time.
Koei Tecmo are also developing the mobile title ‘Dissidia Final Fantasy’ for Square Enix. Koei Tecmo were responsible for the Arcade game of the same name.
Speaking of collaborations, a new original tie up promotion project has been announced by Gust and Toei animation. Augmented Reality Girls Trinary is being called an “anime cross-link RPG” which will fuse anime and video games for a unique experience. In Trinary, the characters exist on the other side of a device’s screen and players can interact with them. The animation will be done by Toei Animation and a weekly anime episode will be released through the app, as well as on Youtube, Niconico, and other paid distribution websites. Set in Tokyo, the story will revolve around a cast of young girls that must fight against enemies after a strange occurrence has altered the city.
A key element of the game will be communicating with the girls through mobile devices and will allow players to get to know the girls and create bonds with them. Augmented Reality Girls Trinary will be released for iOS and Android this year in Japan. It will be a free-to-play game with in-app purchases.
As noted before, Koei Tecmo are aggressively expanding into the Asia market where they have seen sales continue to grow. Asia is now the third biggest market for the company after Japan and Asia and this was originally down to the social game business there. Now Koei are seeing much more traction from its console and smartphone game business.
The company has benefited from the reversal of the console ban in China and it has now begun to sell the Dynasty Warriors, Warriors Orochi and Toukiden franchise for PS4 on the mainland. In addition, the company will be releasing Romance of the Three Kingdoms 13 in China for PS4.
Koei’s mobile strategy has mostly revolved around developing internal IP for release in the Japanese market. Overseas we’ve seen Koei Tecmo license its IP out to bigger developers/publishers. Dynasty Warriors Fierce Fights is a 3D 1V1 fighting game for smartphones that is being developed by Perfect World and will release in the China market on iOS and Android. Project Dynasty Warriors is being developed by Xpec and published Nexon and is akin to Dynasty Warriors 7 style of gameplay. The game will be released globally on iOS and Android.
Nexon also recently published ROTK: Cao Cao’s Legend in South Korea on mobile devices and the game has remained in the top 20 grossing charts since launch. Koei have licensed out IP to plenty of other developers in the region and this is one way that they are expanding their presence in the region. A Dynasty Warriors movie is also slated to release in China during 2018.
Koei Tecmo are continuing to focus on digital expansion of its business. Koei Tecmo’s social and mobile games business is seeing steady growth each year, but there hasn’t been any significant hit title in the business. Koei Tecmo are also seeing steady expansion in the digital console business through full game downloads, back catalog sales and DLC/MTX revenue. The success of the F2P version of Dead or Alive on consoles has prompted the company to replace more F2P versions of its paid games on console. This is a great way for consumers to experience the games at no upfront cost and adds as a gateway to the purchase of the full game.
Koei Tecmo is planning to have a nearly 50% digital ratio this fiscal year.
Outlook for full year:
Koei Tecmo still plan to have a record breaking year thanks to the continued success of their games software division and online and mobile division. Koei Tecmo plan to generate ¥42,000m in revenue for the fiscal year ending March 31st 2016. This would be up 9.6% year on year and be the fourth consecutive year that sales revenue had increased. Operating profit is forecast to reach ¥11,50m, up 3.9% YOY and would represent the sixth consecutive years of rising profits for Koei Tecmo. I actually believe that Koei may fail to hit this sales and profit forecast but still have a record year. Recent title performance has been week and this will have a negative impact on sales and profit this year, partially offset by the increased margin on digital contents.
Japan is once again set to account for 78.6% of sales revenue, up from 75.0% last year. Actual Sales value is expected to be ¥33,000 million which would be up 14.7%. North America is expected to account for 21.4% of sales revenue which would be down 3.6 percentage points versus the prior year. ¥9,000 million total revenue in North America would be down 7.7% YoY. Asia is also expected to see revenues decline due to no new big releases this year vs prior year. Europe is expected to see an increase in sales revenue due to the release of Ni-Oh this year, as well as continued sales of Attack on Titan.
Koei Tecmo plan to sell in 6.2 million units of game software for the fiscal year with 3.5 million sold in Japan, 1.1 million sold in North America, 0.9 million sold in Europe and 0.7m sold in Asia. Should the forecast come true then Japan will see an increase of 31.1% YOY whilst North America and Asia see decreases of 13.7% and 16.7% YOY. Europe should see an increase of 110,000 units compared to last year.
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Koei Tecmo have an interesting year ahead.