Capcom - Company History

From arcade reseller to <em>Street Fighter II</em>

In May 1979 the founder, Tsujimoto Kenzo (辻本憲三), incorporated I.R.M. Corporation at Matsubara in Osaka Prefecture with capital of $43,478 (¥10m)[1]. The stated purpose was the development and sale of electronic-application game machines, and at the outset the business consisted chiefly of route sales — buying in arcade machines made by other firms and reselling them. In September 1981 the company was renamed Sanbi Co., Ltd. and moved its head office to Habikino in Osaka Prefecture[2]; then in June 1983 a new company, the (old) Capcom Co., Ltd., was established at Hirano-ku in Osaka with capital of $42,109 (¥10m) to take charge of the sales side[3]. “Capcom” is a contraction of CAPsule COMputer, a name meant to carry both senses at once: game software as a capsule packed with play, and a hard outer shell protecting what is inside from pirated copies and shoddy imitations. That it changed its name and its registered head office three times in the four years after its founding corresponds to the period in which it was feeling its way from the sale of electronic-application equipment towards the development and sale of video games of its own.

In July 1983 the company manufactured and sold the medal game Little League リトルリーグ as its first machine developed in-house[4], entering arcade game development in earnest. From May 1984 it began developing and selling commercial arcade video games[5], and in August 1985 it established CAPCOM U.S.A., INC. to put direct sales into the North American arcade market[6]. In December of the same year it also took up the development and sale of home console software, entering the console market with 1942 for Nintendo's Family Computer[7]. The following year, 1986, it ported arcade titles of its own making — Makaimura 魔界村 and Senjo no Ookami 戦場の狼 among them — to the Family Computer, accelerating the move from the arcade to console software. The shift of weight from a business selling arcade cabinets outright to one aiming at sales of several hundred thousand to several million copies per title in the console market at the height of the Family Computer era was carried out in parallel, within a few years of the founding.

In January 1989 Sanbi Co., Ltd. absorbed the (old) Capcom Co., Ltd., changed its name to Capcom Co., Ltd. and moved its head office to Higashi-ku, Osaka (now Chuo-ku, Osaka)[8]. Sales company, development company and holding functions were consolidated into a single entity, a capital structure that put the face of a console software publisher to the front. In October 1990 the shares were registered as an over-the-counter issue with the Japan Securities Dealers Association[9], securing a route to funding from the stock market. The arcade version of Street Fighter II, released in 1991, became a worldwide hit[10] and fixed the competitive fighting game in the industry as a genre in its own right. From 1992 onwards, through conversions to home consoles, the series as a whole reached a sales scale of more than 20 million copies, and it was the starting point from which the Capcom name became recognised as a game software brand around the world.

Listing on the second section in Osaka, and building the overseas network

In July 1993 the company established CAPCOM ASIA CO., LTD. in Hong Kong[11], putting in place a sales and procurement base for the Asian region. In October of the same year its shares were listed on the second section of the Osaka Securities Exchange, a promotion in market classification three years after the over-the-counter registration[12]. In June 1995 it established CAPCOM ENTERTAINMENT, INC. and CAPCOM DIGITAL STUDIOS, INC. in the United States[13], extending the North American base into two arms, sales and development. These overseas establishments were not simply the opening of branch offices: they were pursued with the intention of putting three layers of function in place — local sales of arcade machines in the North American market, localisation of console software, and development on the ground at a United States studio. Reading early that the American market would become the largest consuming region for home consoles, and putting the local structure in place ahead of the domestic one, supported the rise in the overseas share of sales in later years.

In May 1994 the Ueno works was completed at Ueno in Mie Prefecture (now Iga)[14], securing a domestic logistics base to handle the manufacture and shipping of console software. In July of the same year the head office building was completed at Uchihirano-machi, Chuo-ku, Osaka, and the registered head office moved there[15]. The business base that had begun small in the founding years had expanded, fifteen years after incorporation, into a multinational development and sales structure spanning Osaka, Tokyo, North America and Asia. In April 1997 the company established Flagship Co., Ltd. as a specialist subsidiary for script and scenario production[16], dividing the upstream stages of game development into a separate function. Capcom in the first half of the 1990s was in the period in which it pushed the shift of weight from the arcade to console software and the construction of an overseas sales network in parallel, moving the mainstay of its business from a domestically centred arcade operator to a publisher supplying console software to the world market.

Founder Tsujimoto Kenzo's “live within your own size” and the business design of the early 1990s

The founder, Tsujimoto Kenzo, was an entrepreneur who had run a mobile candy-floss machine business and a food wholesaling operation from a base in Osaka, and who had been starting businesses within the commercial customs of the Osaka merchant world well before the founding of IRM in 1979. Even in decisions carrying heavy investment, such as the move to home consoles or the establishment of overseas bases, he consistently avoided expansion beyond the reach of the company's own funds and its bank borrowings, and held to covering all development and capital investment out of its own cash flow. When overseas studios were set up in the 1990s he chose to raise them from nothing as local subsidiaries rather than to acquire them[17], avoiding both excessive dependence on local partners and the payment of acquisition premiums. In a later interview the founder described this stance in his own words: it is fine for one's own size to grow. Investment and borrowing alike — do all of it within the reach of your own size.

Under this management stance, dependent on neither borrowing nor acquisition, the company sought to run even the rapid expansion phase of the console software business by funding the working capital of its overseas bases from head-office cash flow. In the late 1980s, when the sale of arcade cabinets and the development and sale of console software ran side by side, the differing lengths of the two businesses' earnings cycles made the management of inventory and working capital a problem for management in its own right; from the 1990s, once the centre of gravity of earnings had moved to console software developed in-house, a transition began from the conventional packaged business, in which development costs were recovered by sales at launch, to a structure in which they were recovered through continued selling over the long term. The establishment of the series titles that followed — Street Fighter II in 1991, Breath of Fire in 1993 and Biohazard バイオハザード in 1996 — rested on the development structure and the sales channels accumulated in this period.