* Net income came in at ¥23 billion ($288 million USD), an increase of 77% over the previous year. This is notable because gross revenue, at ¥266 billion ($3.3 billion USD), was only up 3% from FY11. Operating income is up 97% year-over-year.
* The Digital Entertainment Division was the largest driver of increased profit, operating at ¥33 billion ($413 million) in operating income.
* The company is expecting FY13 revenues and net income to remain flat.
* Market conditions that lead to what Konami calls an “uncertain” business environment includes the fallout from the Japanese Earthquake, the strength of the Japanese yen, and the ongoing issues in the European Union.
* In the gaming industry, social gaming is Konami’s biggest driver with 20 million users and counting bringing in revenue. Dragon Collection and Sengoku Collection have 6 million and 3 million users respectively. This led to revenues from social games rising to ¥36.7 billion ($459.5 million) from ¥15.8 billion in FY11. Consumer games (consoles and PC) brought in more revenue but it fell heavily from FY11; ¥50.4 billion ($630 million), compared to ¥65.7 billion ($822.7 million) in FY11.
* In terms of consumer games, World Soccer Winning Eleven, a.k.a. Pro Evolution Soccer, has cumulatively sold 76 million units over the lifespan of the franchise. However, specific sales figures for FY12 weren’t available. In terms of games visible in the West, Pro Evolution Soccer 2012 and the HD versions of Metal Gear Solid 2 and 3 were mentioned as performing well.
* Looking forward to FY13, Konami stated that they are looking to expand upon their social outings while narrowing their AAA focus with an eye on producing hits.
Konami closed today’s trading at ¥1,970 ($24.66) on the Tokyo Stock Exchange and has a market cap of ¥273.1 billion.
The full financial report in English is at the bottom of this piece. Information from GamesIndustry.biz contributed to this story.
Analysis: The timing of this is somewhat ironic, personally speaking. In last night’s Then and Now, I bemoaned the fact that Konami wouldn’t even give a digital release of Suikoden II when the physical copies—which Konami makes no money on—were selling for so high in the third-hand market. It was a rhetorical question: I know exactly why we haven’t seen any movement, and these numbers are why. Through perception or reality, social is taking off as gamers insist on paying massive amounts of money in free-to-play games—an oxymoronic statement, all told—while AAA retail is looking ever more risky. It looks even more startling when one takes into account the overhead for social (pitifully small; no shipping, no manufacturing, and gamers don’t own any part of the games they play) and AAA (low margins and no guarantee of making back even shipping/manufacturing costs) and the risks involved with AAA sales. Simply put, AAA is hit-or-miss, especially as the bigger games attach additional costs such as DLC and subscription services to further drain a consumer’s increasingly smaller entertainment budget. With development costs increasing, it’s simply not economically feasible to release a game unless someone’s willing to stake their career on its success. That bet looks less and less safe by the day, especially in the West where it seems the only guaranteed sellers are Call of Duty and Madden.
Financially, if I were a stockholder, I wouldn’t be touching this stock yet. Konami is expecting flat revenue this year, so there’s no real short-term, speculative gain to be had. Konami is going to suck up those high margins on social gaming for a little longer, but it should also be noted that Japanese regulators are coming down on the “Kompu Gacha” mechanic found in a lot of Japanese games1 as being against the country’s gambling laws, and that mechanic is key to a lot of this market. That doesn’t affect anything in the West, where gambling laws exist but aren’t as strictly enforced; but this could decimate revenue in Japan, which could affect the revenue of any company going forward. As an investor, I’d wait this one out because it was this very division that brought Konami such a good FY12.
From a gamer’s perspective, the news appears bleak, but dig deep and the reality isn’t so bad. Yes, Konami is crapping out a lot of “HD Collections” lately (the Silent Hill compilation was horrendous) and paying undue attention to Metal Gear and Silent Hill. But they also brought out Birds of Steel (new IP), Skullgirls (new IP, digital release), Blades of Time (risky sequel to the poorly received X-Blades) and are still doing well with Pro Evolution while not focusing on DLC, which is drastically unlike their competitor, EA’s FIFA series. So while we moan about a release of Suikoden II, and the prospects of Suikoden: The Woven Web of a Century coming to America would appear bleak, it’s not like Konami’s gotten as bad as, say, Capcom. There’s hope on the horizon that they’re not totally abandoning us. It’s important to remember that digital doesn’t just mean crappy mobile games, so while more development time will go to social just to keep up with other companies, don’t expect them to pull a Mega Man Legends 3 on their fans quite yet.
1 – Gaming Bus will have a full report on this likely next week.