セガサミー（6460） – INTEGRATED REPORT 2021 (2/3)

Entertainment ContentsEntertainment Contents BusinessIn addition to drawing on our abundant IP assets to roll out content globally, the Group will work to expand business value by taking advantage of our broad business portfolio.Business OverviewExternal EnvironmentGame Content Market Size(Trillions of yen)The global game content market continues to grow against the backdrop of rising download sales and the proliferation of game distribution platforms. Amusement Machine Sales and Amusement Center Operations market have been in a recovery trend due to steady performance of prizes and other factors, but these sectors were subsequently hard hit by the outbreak of COVID-19.101233112342123521345213462245722357224582242469324582’15’16’17’18’19’20’21(Forecast)’22(Forecast)’23(Forecast)’24(Forecast)(FY) Japan Asia N. America Europe OthersSource: SEGA SAMMY estimates based on data from Newzoo Global Games Market Report (June 2021) (US$1=¥110)Domestic Amusement Machine Sales and Revenues from Amusement Facilities Operations(Billions of yen)Number of Amusement Facilities and Amusement Machine Units Installed456.4422.2433.8462.0485.9520.1540.8175.0161.1156.9157.4152.9161.7164.7403,553377,8255,4394,856362,099354,463349,835340,383342,2114,5424,3814,1934,0223,9312013201420152016201720182019(FY)2014201520162017201820192020(CY) Amusement machine sales Revenues from amusement facilities operations Number of amusement facilities Number of amusement machine units installedSource: Japan Amusement Industry AssociationSource: National Police AgencyEnsuring steady earnings through expansion across a range of areasSEGA SAMMY’s Entertainment Contents Business has expanded into various entertainment domains, each of which presents different market growth potential and levels of competition. Leveraging its well-balanced portfolio, the Group is generating stable income without relying excessively on any specific IP, title, or business activity.Consumer AreaWe will expand the scale of profits by digging deeper into key exist-ing IPs and developing them globally. dormant titles, we will further develop these IPs by means of remasters, remakes, and reboots, etc., as well as offers them to subscription-based services.To capitalize effectively on our abundant IP assets, including Virtua Fighter 5 Ultimate Showdown©SEGAYakuza: Like a Dragon©SEGAAmusement Machine Sales AreaBy streamlining the product lineup, we will optimize business scale and shift development resources to the Consumer area, a growth area, and aim to improve return on investment by focusing on strong-performing prize categories.Anticipated Opportunities and RisksResponsesStarHorse4©SEGAOpportunitiesOngoing growth in the game content marketThe market for game content is expanding on the back of growth in Western and Asian markets. In addition, with the advent of various game distri-bution platforms and the increase in download sales, the potential for further growth is expanding.RisksRising development costsThe development costs of game content are on the rise due to the response to the new technologies and the longer development periods required. There is a risk of not being able to realize expected returns on investment.Expanding touch points with users Strengthening global roll-out Multiplatform support Multilingual supportProlonging product life cycles Utilizing IP assets Strengthening the digital sales Multichannel monetizationStrengthening user engagement Community management Strengthening the mix of mediaAnimation and Toys AreaIn the Animation area, in addition to producing animations of our major IPs, such as Detective Conan, Anpanman, and LUPIN THE 3rd, the Group is focusing on the animation licensing and merchandising businesses. educational toys, character goods, and products for adults.The Toys area is expanding to encompass a broad target audience, including mainstay Detective Conan the Movie The Scarlet Bullet©2020 GOSHO AOYAMA/DETECTIVE CONAN COMMITTEE All Rights Reserved.363737SEGA SAMMY HOLDINGSINTEGRATED REPORT 2021Achievements in FY2021/3Consumer AreaNew full game* titles were released, including Western versions of Persona 5 Strikers and YAKUZA: LIKE A DRAGON, as well as Football Manager 2021. Coupled with brisk sales of repeat titles, this resulted in a total of 41,770 thousand units sold (compared with 28,570 thousand units sold year on year). Newly released F2P* titles, including Re:ZERO –Starting Life in Another World– Lost in Memories and HATSUNE MIKU: COLORFUL STAGE!, also performed well alongside existing titles.*The Consumer area is divided into the following three business models.Full gamesMainly disc-based and download sales of full games for home video game consoles and PCs. (Sales of additional download content are not included.)F2POtherMainly free-to-play based game content along with item-based sales, etc., mostly for smartphones and PCs.Sales of additional download content, consignment sales of other companies’ titles, contract development, title transfer, bundled titles for platformers, sales of products other than game software.6.516.2FY2021/3 (Results)Net sales: ¥135.7 billion Operating income: ¥31.4 billionEntertainment Contents Business Performance247.6 217.8 12.827.920202021(FY) Net sales (Billions of yen) Ordinary income (Billions of yen) Ordinary income margin (%) To Be a Global Leading Contents ProviderOutlook Going ForwardWe are positioning the Consumer area as a growth business for the Group, with a strategic focus on the global development of key existing IPs. To this end, we are pursuing initiatives such as expanding touch points with users, prolonging product life cycles, and strengthening user engagement. We will also cultivate the F2P games for smartphones in domestic market, amusement machines, etc., into businesses that can secure stable earnings. off in repeat sales in the Consumer area following an upswing in the previous fiscal year. In the Amusement Machine Sales area, we expect to improve profitability through fixed cost reductions.In the fiscal year ending March 2022, we expect to see a drop PHANTASY STAR ONLINE 2 NEW GENESIS ©SEGAConsumer AreaFor full games, we anticipate a drop off in repeat sales following an upswing in the previ-ous fiscal year, as well as higher costs due to an increase of new titles. Meanwhile, in F2P, we have started the global roll-out of PHANTASY STAR ONLINE 2 NEW GENESIS.HUMANKINDTM ©Amplitude Studios 2021.©SEGA.Total War: WARHAMMER III ©Games Workshop Limited 2021. Published by SEGA. Shin Megami Tensei V ©ATLUS. ©SEGA. All rights reserved. FY2021/3 (Results)Net sales: Operating income: Ordinary income: ¥217.8 billion¥27.9 billion¥27.9 billionFY2022/3 (Forecast)Net sales:¥213.0 billion Operating income: Ordinary income: ¥23.0 billion¥25.0 billion FY2022/3 (Forecast)Net sales: Operating income: ¥140.0 billion¥21.0 billionPersona 5 Strikers ©ATLUS. ©SEGA. / ©KOEI TECMO GAMES. All rights reserved.HATSUNE MIKU: COLORFUL STAGE!© SEGA/© CP/© CFM Amusement Machine Sales Area, Amusement Center Operations AreaIn the Amusement Machine Sales area, we chiefly sold mainstay products such as the UFO Catcher® crane game series and prizes for these games. In the Amusement Center Operations area, in line with the transfer of shares of a subsidiary engaged in amusement facilities operations at the end of December 2020, results from the subsidiary were excluded from consolidated reporting from the third quarter of fiscal year 2021.FY2021/3 (Results) Net sales: ¥35.7 billion Operating loss: ¥1.6 billion* Amusement Machine Sales Area PerformanceAnimation and Toys AreaPerformance in the Animation and Toys area remained solid. In Animation, although COVID-19 caused a delay in the release of the film Detective Conan the Movie The Scarlet Bullet, a special omnibus film taken from the Detective Conan TV animation series, Detective Conan: The Scarlet Alibi, was released. We also recorded revenues from other animation production and distribution. In Toys, alongside mainstay products, we sold new products such as Fun to change mouse covers! Sumikkogurashi Personal Computer Plus.FY2021/3 (Results)Net sales: ¥23.2 billion Operating income: ¥2.1 billionDetective Conan: The Scarlet Alibi © Gosho Aoyama / Shogakukan/YTV/TMS 1996Initial D THE ARCADE © Shuichi Shigeno/KODANSHA All Rights Reserved © SEGAAll manufacturers, cars, names, brands and associated imagery featured in this game are trademarks and/or copyrighted materials of their respective owners. All rights reserved.The trademarks Porsche, Porsche Crest, Porsche Logotype, Carrera and 911 are used under license of Porsche AG.Amusement Machine Sales AreaAnimation and Toys AreaWe plan to improve profitability due to the effect of fixed cost reduction through structural reform. We also plan to release mainstay products such as the UFO Catcher® crane game series and prizes for these games as well as new products.In Animation, Detective Conan the Movie The Scarlet Bullet has been a hit and we expect to record revenue from other animation production and distribution as well. In Toys, we will continue to sell new and mainstay products.UFO CATCHER 9 third ©SEGADemon Slayer POD ©KoyoharuGotoge/ SHUEISHA, Aniplex, ufotableDetective Conan the Movie The Scarlet Bullet©2020 GOSHO AOYAMA/ DETECTIVE CONAN COMMITTEE All Rights Reserved.FY2022/3 (Forecast)¥43.0 billion Net sales: Operating income: ¥1.7 billionFY2022/3 (Forecast)¥26.5 billionNet sales: Operating income: ¥1.8 billion3839SEGA SAMMY HOLDINGSINTEGRATED REPORT 2021Pachislot and Pachinko MachinesPachislot and Pachinko Machines BusinessAs an “innovator in the industry,” SEGA SAMMY will launch new initiatives and strive to generate stable profits by enhancing profitability.Business OverviewExternal EnvironmentAlong with the slow decline of the player population since 1995, there has been a long-term downtrend in the overall number of pachinko halls, as well as in the number of machines installed and in annual machine turnover. On the other hand, the opening of large halls and an increase in locations of major hall operators has caused a rise in the number of machines installed per store.Market Size and Number of Pachislot and Pachinko PlayersNumbers of Pachinko Halls and Installed Pachislot and Pachinko Machines per Pachinko HallA powerful IP lineup and strong development capabilitiesSAMMY has an IP lineup that boasts strong brand aware-ness, led by titles in the popular Hokuto No Ken series.The Pachislot and Pachinko Machines Business draws on a powerful IP lineup and industry-leading development capabilities to supply prod-ucts that meet the demands of a diverse fan base. We are working to develop and market machines with innovative gameplay that will help bring vitality to the market for both pachislot and pachinko machines. We are also seeking to lower costs and environmental impact through measures centered on component reuse.17.4052.252.232.332.31.195,8334,89614,674336.57.1040.640.614.614.6443.39,035’03’04’05’06’07’08’09’10’11’12’13’14’15’16’17’18’19’20(CY) Pachislot and pachinko market (trillions of yen) Pachislot and pachinko players (millions of people)Source: White Paper on Leisure Industry 2021, Japan Productivity Center Other leisure markets (trillions of yen)’08’09’07’06 Number of pachinko halls (halls) Number of installed pachislot and pachinko machines per pachinko hall (units)’10’11’13’15’17’12’14’16’18’19’20(FY)Source: National Police AgencyPachislot and Pachinko Machines: Number of Installed Machines, Unit Sales, and Annual TurnoverPachislot and Pachinko Machine Approval ProcessWhen marketing a new pachislot or pachinko machine, manufactur-ers are required to go through multiple step licensing processes in accordance with the Entertainment Establishments Control Law.4,004Machine manufacturer0.331,3411. Application for prototype testing2. Prototype testing results issued3. Application for installation approval4. Installation approval issued5. Contract and product deliverySecurity Communications AssociationPublic Safety Commission in each prefecturePachislot or Pachinko halls8. Start of operations6. Application for approval 7. Final authorizationDistrict police station For more information on market data, see pages 77-78.’05’06’03’04’10 Number of installed pachislot and pachinko machines (thousands of machines) Pachislot and pachinko machine unit sales (thousands of machines) ’08’07’12’14’16’09’11’13’15’17 Annual turnover (times)’18’19’20(FY)Source: National Police Agency and Yano Research Institute Ltd. “Pachinko Manufacturer Trends 2021”Anticipated Opportunities and RisksResponsesOpportunitiesPossibility of expanding user baseAs the scope of development has expanded due to changes in regula-tions, machines conforming to the new regulation may expand the user base. Growing demand for new regula-tion machinesIf new regulation machines win the support of users, we can expect greater demand and an increase in the player population.RisksDecline in the player populationThe decline in the player population may undermine the purchasing power of hall operators and affect unit sales volume.Loss of users due to new regula-tion machinesNew regulation machines may fail to win broad acceptance among users, accelerating the decline in the player population.Risk of approval statusThe approval rate*, which has remained at a low level due to the recent revision of regulations, may have a significant impact on sales.* The rate of obtaining successful prototype testing results in the pachislot or pachinko machines licensing process.Component riskThere is a risk of losing sales opportuni-ties due to the inability to procure components.Create hit machines Revise the product lineup Increase hit potential Enhance media functionsImprove business efficiency Raise development efficiency Lower costs Promote online commerceP Shin Hokuto Muso Chapter 3 ©Buronson & Tetsuo Hara／NSP 1983 Approved No.KOJ-111 ©2010-2013 Koei Tecmo Games Co., Ltd.©SammyPachislot ANEMONE Psalms of Planets Eureka Seven HI-EVOLUTION ©2018 BONES/Project EUREKA MOVIE©BANDAI NAMCO Sevens Inc.©SammySeriesNumber of titles in seriesCumulative unit salesSeriesNumber of titles in seriesCumulative unit salesHokuto no Ken35 Approx. 2,990,000 units Hokuto Muso7 Approx. 210,000 unitsApprox. 560,000 unitsEureka Seven6 Approx. 160,000 unitsApprox. 510,000 units 〈Monogatari〉 Series11 Approx. 140,000 unitsSOUTEN-NO-KENApprox. 480,000 unitsCode Geass3Approx. 60,000 unitsALADDINBeast KingNote: As of March 31, 2021141513Value Chain of the Pachislot and Pachinko Machines Business1 Average development lead time: 1 year–2.5 years3 Average sales lead time: 1 month– In-house Outsourcing1 2 DevelopmentManufacturing3 Sales4OperationsComponent reuseCollection of trade-insSourcing materials through disassembly, etc.Lower component costs Lower environmental impact4041Sammy’s StrengthsMultiple well-performing seriesLowering costs and raising profitabilityPachislot and pachinko businesses are characterized by a reliance on electronic components that carry a high cost ratio. The Group is working to raise development efficiency and lower costs, such as through the reuse of materials.SEGA SAMMY HOLDINGSINTEGRATED REPORT 2021Achievements in FY2021/3Build a Stable Earnings StructureNew machines launched during the year included Pachislot Hokuto no Ken Shukumei and P Shin Hokuto Muso Chapter 3. Performance was impacted by factors including the shuttering of pachinko halls amid the COVID-19 pandemic, however, with full-fledged sales activities only resuming in the second half and the deadline for removing previous regulation machines getting pushed back, weakening demand for new regulation machines. As a result, we sold 35,000 pachislot units (down from 123,000 units a year earlier) and 69,000 pachinko units (down from 104,000 units). As a result of booking a valuation loss, largely on components, the Pachislot and Pachinko Machines Busi-ness recorded an operating loss for the first time.Pachislot Hokuto No Ken Shukumei ©Buronson & Tetsuo Hara/COAMIX 1983, ©COAMIX 2007 Approved No.YRG-121©SammyPachislot and Pachinko Machines Business Performance108.5 53.1 –11.3—2021(FY)22.720.92020 Net sales (billions of yen) Ordinary income (billions of yen) Ordinary income margin (%)30120720214221521620024119985671231381401591043569 Pachislot machine unit sales (thousands of units) Pachinko machine unit sales (thousands of units)Major Titles Sold in FY2021/321.715.39.88.724.321.916.814.712.010.514.814.111.610.99.99.08.07.4 Pachislot machines (%) Pachinko machines (%)* Settlement dates from July to JuneSource: Yano Research Institute Ltd. “Pachinko Manufacturer Trends 2021”Pachislot The Seven deadly Sins©Nakaba Suzuki,Kodansha/The Seven Deadly Sins Project,MBS©Nakaba Suzuki,Kodansha/The Seven Deadly Sins TVSP Project, MBS©Nakaba Suzuki,Kodansha©SammyMonth DeliveredUnit sales’13’14’15’16’17’18’19’20’21(FY)’12’13’14’15’16’17’18’19’20(FY*)PachislotPachislot Hokuto No Ken ShukumeiMarch 202117,456Pachislot The Seven deadly SinsNovember 2021Pachislot Initial DJanuary 20216,2075,369PachinkoP Shin Hokuto Muso Chapter 3December 202043,901P Psalms of Planets Eureka Seven HI-EVOLUTION ZEROAugust 202010,223P〈Monogatari〉 Series SecondseasonFebruary 20216,560P Psalms of Planets Eureka Seven HI-EVOLUTION ZERO ©2017 BONES/Project EUREKA MOVIE©BANDAI NAMCO Entertainment Inc.©Sammy42Outlook Going ForwardWe have started to roll out pachislot and pachinko machines that comply with new regulations. We are revising the product lineup and creating machines from a thoroughly user-centric perspective, centering on series machines that offer greater hit potential. We are also working to improve business efficiency, including raising devel-opment efficiency and lowering costs. The deadline for removing previous regulation machines falls in the fiscal year ending March 2022. We will work to meet replacement demand by launching new titles, including mainstay titles, and recover profitability. Although we project lower fixed costs in line with recent structural reforms, we also anticipate higher advertising expenses and other operating costs due to factors including an influx of newly launched titles and the lifting of restrictions on TV advertising.FY2021/3 (Results)Net sales: Ordinary loss: ¥53.1 billion¥11.3 billionFY2022/3 (Forecast)Net sales: Ordinary income: ¥89.0 billion¥9.0 billionPachislot CODE GEASS Lelouch of the Rebellion 3©SUNRISE／PROJECT GEASS Character Design ©2006 CLAMP・ST©SUNRISE／PROJECT GEASS Character Design ©2006-2008 CLAMP・ST©SUNRISE／PROJECT G-AKITO Character Design ©2006-2011 CLAMP・ST©BANDAI NAMCO Sevens Inc.　　©SammyPrevious regulations (1) (No. 4 models) to 2004 (three-year transition period)to 2004 (three-year transition period)Previous regulations (2) (No. 5 models) 2004–Feb. 2018 (four-year transition period)2004–Feb. 2018 (four-year transition period)Turnover, increase in installed machinesNew regulations (No. 6 models) Feb. 2018–presentTurnoverFeb. 2018–present2004 revision of regulations (tightening)2008 relaxation of regulations2004 revision of regulations (relaxation)’00’02’04’06’08’10’12’14’16’18’20’00’02’04’06’08’10’12’14’16’18’20 Number of installed pachislot machines Pachislot machine annual turnover Number of installed pachinko machines Pachinko machine annual turnoverSource: National Police Agency and Yano Research Institute Ltd. “Pachinko Manufacturer Trends 2021”Source: National Police Agency and Yano Research Institute Ltd. “Pachinko Manufacturer Trends 2021”Major Titles Sold to Date in FY2022/3PachislotPachislot Angel Beats!Pachislot GAMERAPachinkoP Kabaneri of the Iron FortressP Hokuto No Ken 8 KyuseishuP Cho Hane Beast KingP SOUTEN-NO-KEN TengokuMonth DeliveredApril 2021June 2021April 2021May 2021June 2021July 2021Pachislot GAMERA©KADOKAWA ©SammyP Hokuto No Ken 8 Kyuseishu©Buronson & Tetsuo Hara/COAMIX 1983, ©COAMIX 2007 Approved No.YTA-212©Sammy43Pachislot and Pachinko Machine Unit SalesMarket Share of Pachislot and Pachinko MachinesMarket Environment under Revised RegulationsThe need to replace pachislot and pachinko machines under revised regulations will cause a temporary downswing in the number of installed machines and in turnover. In such cases, however, the launch of hit machines typically tends to drive recovery. When pachislot regulations were last revised, the subsequent appearance of hit machines boosted the purchasing motivation of hall operators and fueled improvement in turnover.Pachislot Market environment and changes in regulationsPachinko Market environment and changes in regulationsSEGA SAMMY HOLDINGSINTEGRATED REPORT 2021To make the Resort Business a pillar of the Group over the medium to long term, we are building up our know-how in the integrated resort business in parallel with strengthening the profitability of existing resort facilities.Business OverviewThrough the operation of resort facilities, the Group is working to acquire development and operational expertise to enter the integrated resort field in Japan.External EnvironmentConcrete moves toward the opening of an integrated resort in Japan.The Integrated Resort Development Bill, which includes casinos, was enacted in July 2018, and moves toward the establishment of an inte-grated resort, which the government regards as essential for Japan to become “a tourism-oriented country,” are gaining momentum. Candidate locations and operators will be selected in the future.Anticipated Opportunities and RisksResponsesAcquisition of know-how for the success of IR business Deployment of personnel to PARADISE CITY Development and operation of resort facilities Addiction countermeasures For details see page 49. Acquired gaming machine manufacturer and distribution licenses in Nevada.Phoenix Seagaia ResortJapan’s leading resort complexPhoenix Seagaia Resort offers Japan’s finest resort stays, taking advantage of an ideal environment—such as three accommodation facilities including the Sheraton Grande Ocean Resort, a world-class convention center that can hold up to 5,000 people, as well as Phoe-nix Country Club, one of Japan’s preeminent golf courses, and a tennis club—all surrounded by a vast, nearly 700-hectare grove of Japanese black pines spreading roughly 11 kilometers north-south along the coast of the Pacific Ocean in Miyazaki Prefecture. By continuously improving the value of the facilities, the Group is work-ing to strengthen its ability to attract customers while accumulating know-how in the operation of resort facilities.The North Country Golf Club(Chitose, Hokkaido)As part of its activities to promote sports and contribute to the com-munity of Chitose City, the Company runs Sega Sammy Cup Golf Tournament and operates it as a facility for snow activities, North Snowland in Chitose, in winter.Resort BusinessOpportunitiesCommercialization of a domestic IR businessIf integrated resorts are realized in Japan in the future and our group’s entry into the market is realized, there is a strong possibility that this business will become a major revenue source.RisksRisks of entering into domestic IR businessDelays in legislation related to inte-grated resorts will have a major impact on our group’s long-term scenario. There is also a risk that investment may not be recovered unless the Company is selected as a business entity.Risks associated with response to addiction issuesNeglecting to respond adequately to addiction issues and other social issues could expose the Group to social criticism or render sustained develop-ment of the industry impossible.Achievements for FY2021/3The number of facility users at Phoenix Seagaia Resort continued to fall sharply due to the impact of COVID-19, declining 34.3% year on year. However, there were signs of recovery in individual demand, such as an increase in facility users of 10% year on year in October and November 2020, buoyed by the Go to Travel campaign. In addition, the business incurred expenses related to its move into the domestic Integrated Resort (IR) market. Overseas, PARADISE CITY, operated by PARADISE SEGASAMMY Co., Ltd. (affiliate accounted for using the equity method) saw substantial declines in the drop amount (amount of chips purchased by customers at the table) and Outlook Going ForwardWe forecast a moderate recovery at the Phoenix Seagaia Resort on the back of stepped-up measures aimed at individuals, while losses at PARADISE CITY are likely to narrow as travel restrictions ease.the number of guests in January to December 2020, with year-on-year declines of 66.2% and 54.5%, respectively, due to the impact of COVID-19 and other factors. * Results for PARADISE SEGASAMMY Co., Ltd. are posted with a three-month delay due to a December fiscal year-endFY2021/3 (Achievements)Net Sales: ¥6.3 billion Ordinary loss: ¥8.9 billionFuture IR Business StrategyThe Company needs to review its IR business strategy following the City of Yokohama’s decision to call off its selection process for IR operators. However, we are confident that the Company is now one of Japan’s top companies in the IR field after accumulating various expertise and know-how through sustained investment in the IR business over many years. We plan to continue seeking opportunities to participate in IR projects in order to capitalize on this expertise.PARADISE CITYSouth Korea’s first IR facilityPARADISE CITY, operated by PARADISE SEGASAMMY Co., Ltd., a joint venture with the PARADISE GROUP of South Korea, is the first IR facility in South Korea with hotels, casinos, commercial facilities, convention halls, and clubs. We aim to be the top IR facility in North-east Asia by providing high-quality space and services, and are accumulating development and management know-how with a view to entering the IR business in Japan.4445©Phoenix Resort©PARADISE SEGASAMMY Co., Ltd. All rights reserved.SEGA SAMMY HOLDINGSINTEGRATED REPORT 2021