Bandai Namco wrapped up fiscal year 2019 ending March 31 with impressive results. Both revenue and net profits were up year-on-year well above expectations. But 2019 wasn’t as easy a year for some other developers such as Square Enix. After a rough Q3, the Japanese video game developer plans to restructure its operations in Japan for greater efficiency.
Square Enix’s results come as a surprise to me. Given that we’ve seen the launch of the highly anticipated Kingdom Hearts 3 this year, I’d have expected annual results to be better. I was curious to find out what Bandai Namco did differently to deliver its results.
From the financial highlights, Bandai Namco 2019 net sales improved 8% year-on-year from ¥678 billion to ¥732 billion in FY2019.
Cost management was also well maintained as we look at operating profit margins. Operating profit accounts for profits less operating expenses. We see this improving year-on-year at 12% as well.
Across the business, the key segments are Toys and Hobby and Network Entertainment.
Both these segments contribute over three quarters of the full year revenue. Toys and Hobby posted a 50% increase in operating profits while Network Entertainment booked a 5% decrease despite bringing in higher sales figures. This can only mean that the expenses in this segment rose faster than revenue. Real Entertainment and Visual and Music Production booked 30% increases each.
The Intellectual Property (IP) Creation segment did exceptionally well in net sales.
This business unit handles the production planning of animations and the administration of copyrights. It registers a 30% increase from the previous year in a landscape where I’ve felt pushing new IPs would be difficult. Notably, Bandai Namco is adopting a conservative outlook for 2020 and forecasting lower profits.
A key strategy shared in last year’s annual report revolves around maximizing IP value. This is aptly named the IP Axis Strategy.
It works by leveraging IPs across a wide breadth of product and service delivery option, while optimizing for location and opportune timing.
An example of this would be the Mobile Suit Gundam IP. Since its launch in 1979, this IP has seen itself in plastic models, video games, arcade machines and even Hollywood films. The general strategy is to extend a similar scope to other established IPs. Seamless collaboration with the other business units will be critical to the success of the IP Creation unit.
Focusing on the Network Entertainment segment will also be important. This segment includes revenue from the growing mobile gaming market.
Mobile is particularly opportunistic for well-established IPs, and Dragon Ball has been responsible for the highest sales group-wide.
I suspect Dragon Ball Legends, a mobile title that has been getting tremendous traction in Japan, is the main force behind this segment’s growth. In console releases, titles such as Soul Calibur VI and Jump Force launched worldwide and also saw strong sales results.
The gaming industry becomes more competitive as time passes. Developers and publishers have to cast their net wide to ensure they capture as large an audience as possible. Everyone knows that the biggest market is in China, but who has taken a step to crack it?
China, with a population of 1.4 billion citizens, is poised to bring in revenue dollars of over $34B. This amount slightly edges over USA, but the opportunity to scale in Asia is immense. No prizes for guessing who has gotten a head start on monetizing this potential.
Bandai Namco expects to double its sales in China from 2019 to 2022 thanks to its comprehensive initiatives.
Few years ago in December 2017, they have established a presence in Shanghai to oversee operations in the country. They have also started collaborating with local partners to develop and run mobile games. This falls under the purview of key segment Network Entertainment. Not forgetting the equally important Toys and Hobby business, Bandai Namco is also making preparations for its local establishment. These measures will help to build its strong foundation in the Chinese market.
Being based in APAC gives me the privilege of witnessing the growth of our region in gaming. While China and Japan are the biggest markets to tackle, the measures undertaken by gaming companies will still provide a positive push to the other countries in the region. It’s a good time to be in Asia, and particularly in gaming.
Featured photo from Gaming News Inc.