Staying among the Winners

Despite previously having very stable profi tability and being an earnings mainstay second only to the Pachislot and Pachinko Machine Business segment, the Amusement Machine Sales Business segment recorded an operating loss in fiscal 2014, its fi rst since the SEGA SAMMY Group's establishment. Basically, the process of optimizing management resource deployment will give priority to allocating resources to the digital game area while optimizing the scale of the Amusement Machine Sales Business and the Amusement Center Operations segments. Compared with the digital game area, the Amusement Machine Sales Business segment incurs significant developmental expenses. On the other hand, even if products are not major hits, they can generate a certain level of stable earnings. Furthermore, having a large market share puts the SEGA SAMMY Group in a favorable position to benefi t as an industry survivor. As for the Amusement Center Operations segment, while the market is continuing to contract gradually, it still accounts for sales of between ¥400 billion and ¥500 billion. Similarly, our basic strategy in this segment is to benefi t as an industry survivor. However, I do not think we can survive by continuing along the same lines as before.

The main reason that the Amusement Machine Sales Business segment recorded an operating loss was sluggish shipments of major new titles. These weak sales were attributable to the segment's high cost structure and a development-led, production-oriented approach that did not fully appreciate market needs. We must get rid of the idea that if we market advanced specification amusement arcade machines, they will sell automatically. Primarily with a view toward tackling this problem, I intend to radically reform developmental structures and strategies.

When examining measures for the roughly 200 amusement centers of the Amusement Center Operations segment, we will break them down into two categories: measures for traditional amusement centers and those for theme park-type amusement centers, such as the fl agships TOKYO JOYPOLIS and Orbi Yokohama. For traditional amusement centers, we have been optimizing the network through a scrap-and-build strategy. While continuing to strengthen our amusement center portfolio without loosening the reins, we will focus on developing new users centered on families by strengthening amusement centers within shopping centers and taking on the challenge of new business formats. As for theme park-type amusement centers, we will increase their value and profi tability through developmental and management initiatives. At the same time, we intend to step up overseas licensing out.

Also, we will reform the Pachislot and Pachinko Machine Business segment's developmental organization. The main reasons for our failure to reach initial targets for two consecutive fiscal years are changes in businesses conditions and the concentration of new machine launches in the second half of the fiscal years—a cycle that has become entrenched. Due to efforts to improve the quality of pachislot and pachinko machines and refl ect market demand, some developmental lead times overran schedules. As a result, product releases straddled fiscal years and did not meet the expectations of shareholders and other investors. However, we have already begun reforms to better balance the developmental schedule between fiscal years' fi rst and second half, which we intend to continue steadily. However, because developing pachislot and pachinko machines takes about two years, the benefi ts of these reforms will take time to emerge.