Fair enough: here are a few excerpts from the FY 2005 results commentary:
In recent years, the sales volume of both pachinko and pachislo machines has been increasing, reflecting the accelerated rate of replacement due to vigorous introduction of new models to attract players and the shrinking of the period during which any given model enjoys great popularity.
During fiscal 2005, while demand for pachinko machines was fueled by the implementation of the revised ordinances...SANKYO Group introduced a stream of new products attuned to the needs of pachinko players and recorded outstanding sales in the industry.
Meanwhile, the declining population of pachinko and pachislo players in recent years is a source of concern. Although this is mainly attributable to social factors, notably, diversification of leisure pursuits, the tendency of pachinko machines to offer a similar gaming experience reduces their attractiveness while, on the other hand, the increasing complexity of the games, which is especially marked for certain pachislo machines, diminishes the attraction of pachinko and pachislo for players who prefer less demanding games.
SANKYO Group has been meeting the needs of enthusiastic players by offering products based on innovative concepts, such as MAX Type and Surprise Jackpot, making full use of the greater freedom available to developers of new models thanks to the revised regulations. At the same time, in an effort to maintain the intrinsic characteristic of pachinko as a leisure pursuit for everyone, the Group is also striving to develop and sell models that enable players to have lots of fun with a relatively small amount of money.
The Group intends to promote development of models that meet the expectations of long-standing fans as well as new players.
(1) Development
Pachinko and pachislo players are becoming increasingly discriminating about game machines. So it is very positive that the innovative gaming performance of Fever Daiyamato2, which pioneered a new game category for MAX Type machines and has become one of the leading models complying with the new regulations, and Neon Genesis Evangelion, which provides Surprise Jackpot function with story development mirroring the original animation series, have become big hits by attracting not only existing pachinko players but also animation fans. Machines complying with the new regulations are configured in the LUMINA model, a new pachinko frame, which offers a board area 30% larger than that of a conventional frame, to accommodate a large LCD display, and are equipped with high-performance speakers to provide a dynamic ambience supporting excellent content. The Company intends to proactively incorporate cutting-edge technologies in game machines to satisfy the ever more sophisticated preferences of players.
In fiscal 2005, there was a notable surge in sales of Bisty-brand products, the development and sales of which have been executed based on the tie-up with Fields Corporation, a leading marketer of game machines, since fiscal 2004. In particular, brisk sales of Neon Genesis Evangelion have underlined the benefits of the tie-up. Through further sharing of development know-how with Fields, the power of the Bisty-brand will be strengthened.
During fiscal 2005, although a moderate recovery of the Japanese economy continued, a decisive upturn did not materialize in view of such factors as sharp rises in the prices of oil and other raw materials and falling prices of digital consumer products. Also, globalization of capital markets advanced in fiscal 2005, as evidenced by a hostile takeover bid in Japan involving listed companies.
In the pachinko industry, a major chain with annual revenues exceeding ¥1 trillion emerged. The aggressive strategies of such well-financed large-scale parlor operators fueled competition, resulting in higher demand for new pachinko machines due to more frequent model replacement with the aim of attracting players. However, there was only sluggish growth in the population of pachinko players, reflecting structural changes in society, notably diversification of leisure pursuits. The goal of the pachinko industry is to raise the overall popularity of pachinko.
In July 2004, the revised ordinances including the National Public Safety Commission’s Enforcement Regulation of the Act to Control Businesses That May Affect Public Morals came into effect, which has been a major interest of the industry in recent years, and new regulations concerning development of game machines have come into force. Viewing the revision of regulations as a golden business opportunity, the Group made a concerted effort to commercialize models complying with the new regulations. In November 2004, the Company launched Fever Daiyamato2, the first pachinko machine in the industry complying with the new regulations. By releasing a stream of new models, the Company pioneered new game categories with innovative concepts, such as the MAX Type designed to maximizes gaming performance in compliance with the new regulations and Surprise Jackpot function, so called because the machine suddenly offers players a an excellent chance of hitting a jackpot.
As a result, the Company achieved record-breaking financial results. Consolidated net sales were ¥233.9 billion, an increase of 54.2% compared with the previous year, recurring income jumped 61.3% to ¥75.0 billion, and net income surged 68.1% to ¥45.8 billion.
Results of individual segments are as follows:
Pachinko Machines Business
Fever Daiyamato2
, a model complying with the new regulations, introduced in November 2004, is the successor to the first Fever Daiyamato introduced in 2002. The fusion between the dynamic presentation of the world of Leiji Matsumoto, a famous animation artist, on the 10.4-inch LCD screen and the Max Type gaming performance realized thanks to the new regulations has made Fever Daiyamato2 the leader among the machines complying with the new regulations. In December 2004, Bisty Co., Ltd., a consolidated subsidiary of the Company, introduced Neon Genesis Evangelion, a model complying with the new regulations. With story development based on the original animation series coupled with innovative gaming performance featuring the “Out-of-control” stage (Surprise Jackpot), Neon Genesis Evangelion rapidly became a firm favorite among players of all ages and following the sellout of the initial lot, Bisty made additional units available to respond to strong demand from customers. Sales of all the machines complying with the new regulations were brisk, including Fever STAR WARS (introduced in January 2005), which is a tie-up with an iconic science fiction movie, and Fever Neo Powerful (introduced in March 2005), which is the latest addition to SANKYO’s hit series with accumulated sales of 900,000 units of four titles since the 2002 debut. Among the models complying with the former regulations introduced in the first half of fiscal 2005, Fever Neo Queen (introduced in July 2004), a remake of a former popular model, and Fever Janken Battle (introduced in September 2004), which features all the Company’s characters, sold particularly well.
As a result, the number of pachinko machines and pachinko gauges sold amounted to 849,000 units, 244,000 more than in the previous year. Segment sales were ¥187.4 billion, an increase of 62.6%, and operating income was ¥73.3 billion, up 63.7%.
Pachislo Machines Business
The first Sankyo-brand pachislo machine Bomber Powerful (introduced in July 2004) was received favorably because it features a very popular animated idol and offers gaming performance with wide appeal. In addition, Fever Natsumatsuri (introduced in June 2004) and Daiyamato A (introduced in March 2005), which bear the Bisty-brand, feature the same characters as popular SANKYO-brand pachinko machines. 72,000 pachislo machines were sold in fiscal 2005, 2.3 times the figure for the previous year. Segment sales were ¥21.2 billion, up 119.4%, and operating income was ¥3.1 billion, an increase of 26.0%.
b. Forecast for fiscal 2006
The pachinko machine market is expected to stabilize in fiscal 2006 following the boom in fiscal 2005. In the second half of fiscal 2005 when models complying with the new regulations were introduced, explosive demand arose as parlors went on a buying spree following a period in which they had been reluctant to buy new machines. As more and more machines complying with the new regulations have become available, pachinko entertainment has been enriched and parlors have benefited financially. As machines complying with the new regulations have won an enthusiastic following, it is likely that an upward trend will continue although a boom comparable to that coinciding with their debut cannot be expected.
In these circumstances, competition among manufacturers centering on product development is likely to intensify. Customers’ confidence in the SANKYO and Bisty-brands has been enhanced because the new pachinko machines complying with the new regulations introduced by the Group during fiscal 2005—such as the MAX Type and Surprise Jackpot machines, which are noted for their innovative gaming performance—have won an enthusiastic following among parlors and players. In pursuit of ingenuity, by bringing the Group’s industry-leading comprehensive capabilities in development, sales & marketing and production into full play, the Company resolves to do its utmost to offer attractive products that appeal to pachinko players of all types, thus maintaining a strong financial performance and contributing to the success of the industry.
How the manufacturer sees it: Sankyo's annual report (in English)
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