The road to XBOX ONE. Follow the journey

Captivating the audience

James Batchelor
Captivating the audience

This is a game trade magazine, not a media trade magazine, so it would be irrelevant and indulgent to bang on about what a dream David Reeves is to interview.

He is excellent value, though. It’s unclear whether or not a certain amount of time has been allocated for MCV in his schedule. If there has, he doesn’t seem to care. And in the 90+ minutes that pass, he talks in depth and with passion about Capcom and the wider industry.

He’s also not shy of some future-gazing and the occasional leftfield analogy. It’s an interesting encounter.

Reeves joined Capcom as COO for Europe, Middle East, Australia and Africa almost exactly a year ago when the firm had closed a disappointing financial year. Its game division’s sales were down 30 per cent to $513.2m.

So Reeves’ first year has been about recovery, about halting the decline and preparing for growth. “We made a bit of a stuttering start with Lost Planet 2,” he says. “I think we probably over-estimated how many it would sell through. It did well, but it didn’t do as well as management expected. Super Street Fighter IV did better.

“The rest of the year was focusing on Dead Rising 2. It was an original concept to have a prologue and epilogue as DLC and first parties now view this as a case of best practice. It worked really well.”

So well, that the studio behind the game, Blue Castle, was acquired and is now Capcom Vancouver.

And then the start of this calendar year (the last quarter in Capcom’s financial year) saw Marvel vs Capcom 3 perform excellently. Reeves says: “It was exactly where we wanted it to be. A mild disappointment was in release week – Black Ops did a price promotion and pipped us to No.1, but apart from that, we were really pleased.”

The end result has been a 12 months (up to March 31st 2011) that “was better from a revenue and bottom line point of view”.

PRICING PROBLEM
All of this, of course, goes against the overall market trend, certainly in the UK. Reeves, however, sees a bigger picture: “If you sit in the UK then yes, you would say it was tough, and you’re seeing that in the form of all the price discounting.

“But if you take a trip to, say, Dubai, or Russia, or Poland, you will find that the market is up. It’s a totally different mood.

“Then again, there are worse markets. Spain is in a terrible state and the numbers you can expect on day one sell-in for a triple-A title are dramatically reduced.

“When you look at PAL, you have Spain and Italy at one end doing incredibly poorly. You’ve got the UK, battling away, as it always does, trying to keep sales high. At the other end you’ve got the sort of places I’ve mentioned that are experiencing growth. If you take PAL as a whole, including Middle East and Eastern Europe, and you also include expanding digital sales in all territories, then I think it would be slightly up last year.”

PORTABLE PROFIT
One boost to the market this calendar year has been the introduction of the 3DS, and Capcom was very much to the fore. Super Street Fighter IV 3D was published by Nintendo in the UK but it is Capcom’s game and the firm was delighted to see it emerge as the biggest seller at launch.

Reeves says: “I think the DS is absolutely key for the market this year. I don’t know what we’d have done without it between now and E3 – and I certainly don’t know what the media would have written about.

“I did look at the retail discounts and trade-ins and think, ‘They’re absolutely crazy; only the Brits.’ On the continent they play it straight: ‘This is the price, buy it or not.’

“I thought it would’ve been possible to hold the price here for at least a while, but I suppose once one retailer goes then the others think they can’t miss out, in case they don’t sell enough and therefore don’t get enough allocation next time.”

Next up on the format from Capcom is Resident Evil: Mercenaries and in 2012, Resident Evil: Revelations. It hasn’t revealed plans for Sony’s NGP yet, but Reeves says it’s “just as important”.

He adds: “It’s obviously huge in the East, with Sony and the Monster Hunter brand working together.”

Monster Hunter is a geographically anomalous franchise within the Capcom portfolio – huge in Japan, growing in Germany and France, but still not massively significant in the UK.

Capcom is focusing on a handful of core brands going forwards. As with many other publishers in these risk-punishing times, Capcom has pared down its schedule to key, ongoing IPs that it will evolve and exploit through physical and digital channels. It will also experiment with new concepts and brands.

FIGHTING TALK
At the top of the pile, of course, are Street Fighter and Resident Evil. The former is nearly 25 years old, the latter a sprightly 15; neither show signs of losing their lustre.

Reeves confirms: “The strategy going forward is for those franchises to form the basis of the portfolio.”

He adds that Devil May Cry (now known as DMC) and Monster Hunter are also viewed as gold standard brands, and that Lost Planet and Dead Rising will remain in the mix.

He continues: “There will also be new IP. We will continue to take calculated risks. We’ve already announced Dragon’s Dogma and Asura’s Wrath and there will be at least one more original title that will come out next year.

“We’re not saying it’s going to be all about Street Fighter and Resident Evil forever. There will be new projects, but they will be shot through with Capcom’s quality DNA and subjected to a rigorous green light process.”

Capcom’s goals for the year ahead are based around fiscal expediency. It would be nice, Reeves admits, to break into the UK Top Ten in terms of market share (it was No.11 last year), but that’s not how it will measure its performance.

“Capcom is very profit driven and that’s as it should be. They’re all about delivering value to shareholders. We’ll look at this year and say we will do well to maintain revenues at the same level, but we want to come out with a better bottom line.

“In 2013/14 we may be more expansive, with new IP and hardware opportunities, but for now, that’s where we’re looking. Capcom’s like an armadillo – it puts its head out and has a look around when the sun is shining, but when it rains it withdraws into its armour.”

Right now, the armadillo has probably just got its nose poking out, sniffing the air for signs of better weather. See how easy it is to get caught up in those analogies?

REEVES ON... HARDWARE
"Wii is coming down dramatically, Xbox 360 is coming down a little bit, but PS3 probably hasn’t quite peaked, they probably still have a price drop or two left in them.

"But, from a software point of view, there will be a very, very long tail; two to three years longer than the hardware. And that tail is vital for software profitability.

"For Sony and Microsoft, firmware upgrades are becoming more and more important. And Kinect and Move have also extended the hardware lifecycles by 12 to 18 months. So I don’t know…

"It’s true to say that there is nothing like a hardware launch to invigorate the market for retailers and publishers, but there’s also nothing like a hardware launch to lose two billion dollars in two years.

"I guess hardware manufacturers want to delay it for as long as possible and retailers want to see it as soon as possible. But what will actually determine it will be the competition between Sony, Microsoft, Nintendo and anyone else who might come in. Koreans maybe, I don’t know. That competition will make someone put a stake in the ground and really challenge their rivals.

"My best guess is that, given the rate of the Wii’s decline, Nintendo would have to do something and so they might be the first mover.

"Microsoft and Sony I think will hold off as long as they can. I think they’ll try and make sure that Kinect and Move in one form or another will be part of the next offering, because they have to amotise the cost of developing and advertising those kind of peripherals.

"But I don’t know what they will look like. I guess my hope is that in ten or 15 years there will just be a single, standard gaming platform. Maybe that’s anti-capitalistic of me."

REEVES ON... DIGITAL
"One factor in the transition between physical and digital is profitability. If you’re not producing a disc, you’re not shipping the disc and you don’t have a 35 per cent retail margin and you don’t have to worry about returns, then profitability is way in excess of anything you can do at retail.

"From a publisher point of view, it is very profitable. What you’ve got to bear in mind is that the current console business model requires, as with Dead Rising 2, a central disc, off of which you feed – in our case with a prologue, an epilogue and other bits and pieces.

"There’s no doubt smart retailers will be a big part of this business for at least ten to 15 years.

"You can get such reach and coverage by going with both retail and digital, that you cannot afford, in Capcom’s position, to give up with physical distribution.

"I think you can double your revenue through an integrated digital/physical strategy. And the profit you make without physical goods or cost of distribution, is much more. I’ve got a feeling digital distribution will actually come up very, very quickly, as it’s doing, and then start to plateau."

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