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- Magnagement Message [Restructuring the Consumer Business Segment]
Given the dramatic changes and the challenging earnings conditions in the market for home video game software, we realized that to improve the earnings of the Consumer Business segment and put it back on track for growth rapidly changing over to a system that refl ects changes in conditions was essential. Accordingly, in March 2012 we decided to restructure SEGA's Consumer Business segment.
Specifically, we took four steps. First, we streamlined organizations managing packaged game software in North American and European markets. Second, we disposed of inventory by charging it to expenses, including inventory in market circulation. Third, we conducted a rigorous and detailed analysis of the earnings outlooks for packaged game software in North American and European markets. Furthermore, as part of efforts to focus exclusively on major intellectual properties likely to generate earnings, we cancelled certain titles under development. Fourth, we reevaluated the profitability of work in process related to titles scheduled for release from the end of fiscal 2012 through fiscal 2013 and recognized valuation losses on work in process for certain titles.
In fiscal 2012, we recognized all of the expenses arising from these restructuring efforts as cost of sales of ¥4.9 billion and extraordinary loss of ¥6.6 billion. As a result of this series of measures, we expect the Consumer Business segment's cost of sales and operating expenses to decrease from the current fiscal year onward.
While streamlining organizations in this way to improve profitability, we took the first step toward returning the Consumer Business segment to a growth track.
In the Consumer Business segment, plans call for boldly allocating management resources to such rapidly growing areas as content for SNS and smartphones and PC online games. As the first step in this initiative, SEGA divested the main capabilities of its network business to establish SEGA Networks, Ltd., as a wholly owned subsidiary on July 2, 2012.
The aim of this divestiture is to maximize earnings in the expanding network market by expediting decision-making and by providing services that cater to diversifying customer needs. We have simplified management processes by, in principle, delegating responsibility for decision-making in the digital area to SEGA Networks. At the same time, for content development SEGA and SEGA Networks will collaborate closely to make full use of SEGA's many talented creators as a valuable management resource.
Furthermore, in light of social concerns, we halted all functions associated with the social game Complete Gacha by May 31, 2012. The game was one of the services that have driven rapid growth of the market for content for SNS and smartphones in recent years. Ending this game will affect the Group's business results negligibly. Going forward, demand is likely to focus on content quality and games that are truly fun. If market trends return to a focus on quality, this will give SEGA an excellent opportunity to bring to bear its traditional strengths. Eager to seize and benefit from this opportunity, we will exploit our extensive capabilities as a comprehensive entertainment company boasting a wide spectrum of outstanding intellectual properties and advanced development capabilities.
