Square Enix said:

1) Enhancing our offering of premium apps for smart devices



Currently, the global market for smart device games is dominated by F2P (free to play) games, and the

market for premium games that players pay to purchase is practically nonexistent. However, our Group

has for some time been offering premium games for smart devices, including brand new titles. When

viewed across the Group, these offerings represent a considerable volume of earnings.



F2P games have achieved remarkable growth thanks to their massive download numbers and

significant active user bases that generate fee revenues. Many companies entered the market

because of the perception that F2P games cost less to develop than traditional console games while

also offering the potential for significant earnings. As a result, the market as a whole saw major growth,

but competition reached excessive levels. Meanwhile, marked advancements were made in smart

device performance, and consumers of F2P games grew more demanding. As such, the market

ceased to provide major returns for low-budget development.



However, the picture for premium games is different. Initial development costs for both F2P and

premium games are roughly the same as or even higher than those for new games for dedicated

handheld game machines. In other words, the level of investment required cannot be considered low

risk. The risk involved in F2P games is even higher than for premium games because of the need to

spend on ongoing operational and additional development efforts.



F2P games generate massive download numbers because basic play is free. They thereby

establish significant active user bases and present major earnings potential. Premium games, meanwhile,

offer the advantage of generating purchases over a long period of time after their initial development

costs have been fully depreciated.



Premium games naturally need to be modified to keep pace with frequent OS updates and require

ongoing marketing spending to generate user awareness. However, smart devices still provide a

better platform for playing greatly loved games for many years than dedicated game consoles do

because of the latter’s issues with backward compatibility.



Continuing the comparison with dedicated handheld game machines, we note that significant

advances have been made in both the specs and operability of smart devices and that this evolution

is likely to continue unabated. Moreover, smart devices have a much greater installed base globally

than dedicated handheld game machines. The smartphone-native generation already sees smart

devices as all-in-one game consoles.



For these reasons, it makes sense for game manufacturers such as ourselves to supply

games that we have traditionally developed for dedicated handheld game machines not only for

such consoles but also for multipurpose smart devices.



We believe that the operability of smart devices makes them a good match for turn- and

simulation-based RPGs, among other games. We see turn-based RPGs as a style or format of

game and do not believe them to be outdated at all. The development of such RPGs is something

that our Group has exceled at for some time.



By releasing new RPGs not only for dedicated handheld game machines but also for smart

devices, we hope to develop the premium game market into a pillar of our business on a par with

the F2P market. In so doing, we believe that we can enrich the portable game market in the

broader sense in order to respond to a variety of customer needs.