Facing Problems Directly, Beginning Structural reform with Firm Resolve

October 2014 will mark 10 years since the management integration of SEGA CORPORATION and Sammy Corporation, which established the SEGA SAMMY Group. Assessing our overall progress in the ensuing years, I feel, frankly, that the past decade has left us with an extremely large number of tasks. Immediately after management integration, our operating income was more than ¥100 billion. However, market conditions began changing dramatically from fall 2007—due to the effect of the July 2004 revision of regulations pertaining to the Entertainment Establishments Control Law. Accordingly, we took a range of countermeasures. For example, in the Pachislot and Pachinko Machine Business segment, we strengthened our pachinko machine developmental capabilities. Although these efforts have met with a certain degree of success, we have not reached the corporate profi le that I envisioned. Over the past two or three years, in particular, conditions have been more sluggish than expected. We have been facing conditions in which many different types of entertainment are vying for users as game apps for smart devices and other innovations diversify entertainment options and young adults' interest in pachinko and pachislot dwindles. Therefore, developing pachislot and pachinko machines that do not continue along the same lines as before and appeal to young customers is a task for the entire industry.

As for SEGA, in the Amusement Center Operations segment we have advanced a scrap-and-build strategy to optimize the scale of operations in response to a shrinking market. Furthermore, the Amusement Machine Sales Business segment has helped invigorate the market by developing and spreading the revenue-sharing business model and other new business models. Nevertheless, as SEGA's lackluster business results show, we have not exploited to the fullest the SEGA brand's potential. This is primarily because we have been unable to change SEGA's corporate culture rapidly enough to keep up with changing needs. To continue growing, we have to solve such structural problems in existing businesses urgently. At the same time, we must expand such growing businesses as the digital game area significantly and put the Group back on track for vigorous growth. In addition, preparing for large-scale investments of management resources in the integrated resort business and other areas is essential. With these tasks in mind, I have decided to embark upon decisive structural reform. Since the Pachislot and Pachinko Machine Business segment is still generating cash stably, I believe this is the best time to launch such an initiative.