PRESENT Opinion from an Outside Director

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Outside director Takeshi Natsuno speaks frankly about tasks the SEGA SAMMY Group faces. TAKESHI NATSUNO Outside Director SEGA SAMMY HOLDINGS INC.

Q.What are the SEGA SAMMY Group's three most important tasks?

The Group must advance rapidly and boldly through mold-breaking innovation.

The most important task for the Group is to become "non-linear." In other words, the Group must create new value rather than simply continuing past practices. I believe that the management team's earnest efforts to develop integrated resorts including casinos are a good example of non-linear initiatives. The management team has also shown an appetite for trying new businesses in other areas. However, most of these initiatives have yet to bear fruit. This is because, to some extent, the Group is still trying to create new products based on past practices. Existing businesses' influence on these initiatives could result in the Group creating products that are merely somewhat unusual rather than new. Therefore, to realize mold-breaking innovation, the Group must let go of the past. Furthermore, it needs to pursue such initiatives more rapidly and boldly. I think this is the approach the Group must commit to unequivocally.

Related to how the Group should tackle the first task, the Group's second task is to incorporate as much diversity as possible. Diversity is the main source of innovation. Accordingly, I believe the Group should embrace diversity as an organization. When a corporate group becomes as big as the SEGA SAMMY Group, the tendency is to overemphasize harmony. Of course, this is important, but if overemphasized, the danger is that the company will gradually lose its internal diversity. Although embracing diversity can be a cause of friction, converting this friction into positive energy, rather than disagreement, can produce major benefits. For this reason, taking a clearer stance on incorporating diversity, without fearing friction, and developing the Group as an organization accordingly is important for the management team.

The third task is SEGA's game content business. Conditions in the game content industry are turbulent. The market has been extremely volatile as the focus of competition has transferred from home video game consoles to feature phones to smartphones. As a result, it is the market that most severely tests companies' ability to create new value. The SEGA SAMMY Group has set out a strategy of shifting toward the digital game content business and is steadily accelerating efforts to this end. However, I think it should change its course toward the digital game content business even more decisively.

Q.As an outside director, how do you view the Group's initiatives in the casino-related business area?

If there are possibilities for the Group in this business area, it should take on the challenge. And, I would like to support this endeavor.

Generally, casinos have been given a negative image. If we consider Las Vegas, however, I have not heard about casinos being detrimental to society there.

The idea that casinos are dangerous is just an image. Meanwhile, as Singapore and Macau have shown, casinos can bring immeasurable economic benefits. Although the debate about casinos is still under way in Japan at present, without a doubt casinos are a wonderful business opportunity. If the chances of the Group succeeding seemed non-existent, as an outside director I would of course warn against entering this area. However, the possibilities for the SEGA SAMMY Group in this area are limitless. With this in mind, I want to support the Group's efforts.

Looking ahead, the Group will have to gain selection as a casino operator. Anticipating the legalization of casinos in Japan, the Group is increasing its chances of being selected by laying strategic foundations that will enable it to accumulate experience related to the management of integrated resorts including casinos. These efforts include acquiring Phoenix Resort Co., Ltd., establishing joint ventures with the Paradise Group, and developing a resort complex in Busan. The Group is preparing major strategies, analyzing the strategic moves it should make, and managing risk as it advances forward steadily and without trepidation. Therefore, I see this as a strategic initiative to develop the Group in a non-linear manner that is based on appropriate processes and goals. Naturally, as an outside director I monitor the Group carefully to ensure its strategic moves really are increasing its chances of success.

Q.How do you evaluate the Group's risk management in relation to integrated resorts including casinos and resort complexes?

The Group is undertaking rigorous risk management to heighten its chances of success.

At a glance, the Group's investments in integrated resorts including casinos and resort complexes seem extravagant. However, they actually do not incur significant risk. For example, the Group has acquired Phoenix Resort, which had an asset value of several hundred billion yen in the 1990s, at a very reasonable price. Similarly, viewed in the context of the Group's overall asset portfolio, the projects in South Korea are not on a scale that could shake the foundations of the Group's business management. Furthermore, to manage risk for each project, the Group conducts detailed analysis of risk and profitability. Documents prepared for the Board of Directors are astonishingly detailed. This enables the management team including outside directors to make decisions based on a good understanding of projects' revenue and expenditure forecasts and the Group's cash position. Absolutely nothing is left to guesswork. For this reason, I think the Group's risk management aimed at heightening initiatives' chances of success is rigorous.

Q.In the digital game content business, in which specific direction do you think the Group should expand its business?

I want to see a willingness to create businesses from scratch.

The Group has enjoyed some successes, but it must not feel that continuing in the same vein is enough. In this area, dynamic companies are developing businesses rapidly. And in many cases young companies are tackling large-scale businesses. I think the SEGA SAMMY Group should use what these companies are doing as a model. Recently, other companies have achieved great successes without relying on intellectual properties. I do not deny the importance of intellectual properties for entertainment companies. Ultimately, however, intellectual properties belong to the past. Relying on intellectual properties is nothing more than continuing along the same lines as before and cannot lead to rapid large-scale initiatives. I think the Group should be prepared to rethink the Consumer Business segment fundamentally and create games that players will really enjoy from scratch.

Q.In such efforts, what strengths do you think the Group should bring to bear?

The Group's scale will be a major advantage going forward.

Currently, excessive volatility is increasing pressure on players as they struggle to keep up with changes sweeping through the industry. Meanwhile, being a very big corporate group sets the SEGA SAMMY Group apart from companies that specialize in the digital game content area. The Group's market capitalization and financial position testifies to this scale and durability. No other video game company has a cash cow like the Pachislot and Pachinko Machine Business segment in its business portfolio. This will give the Group some leeway to prepare and implement strategies for the increasingly volatile digital game content area. In addition, the SEGA SAMMY Group can draw on a wealth of development personnel throughout its organization. By taking full advantage of the synergies that its size enables, the Group will be able to realize the value it creates from scratch, which I mentioned earlier, on a scale others cannot match and convert the current volatility into a major opportunity.

Q.What is the atmosphere like at meetings of the Board of Directors?

Discussions are lively to a point that it is almost worrying for me as an outside director.

Meetings of the Board of Directors of SEGA SAMMY HOLDINGS INC. are not the often criticized empty formalities where decisions are a foregone conclusion because participants' agreement has been obtained in advance. Members of the management teams of SEGA, Sammy, and other Group companies attend the meetings and discuss agenda items thoroughly. Often discussions become lively and involved to the point where even I as an outside director become concerned and think "we should just quietly move on to the next item." Of course, during such discussions I never hold back: I am able to speak my mind.



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