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). 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; 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. “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, entering arcade game development in earnest. From May 1984 it began developing and selling commercial arcade video games, and in August 1985 it established CAPCOM U.S.A., INC. to put direct sales into the North American arcade market. 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. 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). 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, securing a route to funding from the stock market. The arcade version of Street Fighter II, released in 1991, became a worldwide hit 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, 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. In June 1995 it established CAPCOM ENTERTAINMENT, INC. and CAPCOM DIGITAL STUDIOS, INC. in the United States, 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), 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. 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, 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, 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.

Promotion to the first sections in Osaka and Tokyo, and the completion of the overseas network

In September 1999 the shares were redesignated to the first section of the Osaka Securities Exchange, and in October 2000 they were also listed on the first section of the Tokyo Stock Exchange. Six years after the second-section listing in Osaka the company was a dual-listed first-section issue, occupying a place among Japan's listed entertainment companies alongside the console makers Nintendo and Sony. In November 2002 it established CE EUROPE LTD. in the United Kingdom as a European sales base, and in February 2003 CEG INTERACTIVE ENTERTAINMENT GmbH in Germany to reinforce sales and marketing functions on the European continent. The three-pole structure of the United States, Asia and Europe was complete by 2003, giving the company the shape of a global publisher with direct sales bases in every major region of the world console market.

On the development side, the generational change in consoles (the PS2, GameCube and Xbox generation) lengthened the development period for a single title and swelled development costs from several hundred million yen to the order of a billion yen and more. In the console software market of the 2000s, competition for shelf space at retailers grew fierce, and the tendency strengthened for a new title's fate to be settled in a short contest decided by the initial volume sold at launch. The company brought up series IP one after another — Biohazard, Street Fighter, Onimusha, Devil May Cry and Monster Hunter — seeking to stabilise earnings through the continued selling of series instalments; but under the contradictory pressures of lengthening development and shortening sales, managing the productivity of the development organisation rose to become the most important problem facing management. Delayed releases and after-the-fact impairment of development costs affected results by several hundred million yen per title, and the quarter-to-quarter swing in earnings was treated as a problem by investors.

The first restructuring — the 60-month map, two-stage approval and a shared engine

Across the years to March 2003 and March 2004 the company embarked on its first restructuring. It had three cores: (1) making the five-year title release plan visible in what was called the “60-month map”; (2) a “two-stage approval system” that screened the business viability of development proposals at two points; and (3) standardising the game engine across the company (later MT FRAMEWORK). The 60-month map is a mechanism for avoiding a bias of sales towards particular financial years and releasing series instalments steadily every period, managing development progress and the sales plan five years ahead on a single map. The two-stage approval system placed a viability screening both at the planning stage and at the stage of committing to full production, creating a mechanism by which a project could be stopped before development costs had swollen. The introduction of a shared engine standardised as reusable components the base technology that had until then been built up separately for each title in development, laying the ground for shorter development periods and lower development costs.

The results of the first restructuring appeared in the financial indicators from FY07 onwards. The annual report issued for the year to March 2010 summed these mechanisms up as having “taken root as a stable earnings base”. Making the release plan visible narrowed the width of the quarterly swing in earnings, and the introduction of the shared engine lowered both the absolute level of development cost per title and the amortisation burden. As the improvement in the profitability of the consumer business took hold, in July 2007 the founder Tsujimoto Kenzo handed the presidency to his eldest son, Tsujimoto Haruhiro (辻本春弘), and himself became representative director, chairman and CEO. It was a generational change in the presidency alone, a move to a two-headed structure in which the founder continued to carry the central axis of management as CEO — securing continuity in the “live within your own size” discipline held since the founding and in long-term investment judgement, while entrusting execution on the ground to the next generation. In June of the same year the company absorbed its subsidiary Flagship Co., Ltd., pressing on with the consolidation of development functions within the group.

The second restructuring — the mobile overreach and the review of the amusement equipment business

In the first half of the 2010s the spread of smartphones shifted the centre of the world game market from home consoles to mobile devices in a short space of time. In April 2011 the company established Beeline Interactive Japan Co., Ltd. (later Capcom Mobile), and alongside Enterrise Co., Ltd., acquired in November 2008, pressed on with investment in earnest in the mobile and social game field. In FY11 consolidated sales were $1.0B (¥82bn), with ordinary profit of $147.9M (¥12bn) and profit attributable to owners of the parent of $84M (¥7bn), a record high for sales; but the front-loaded investment in the mobile field emerged as a drag on the profit margin. In FY12 profit attributable to owners of the parent fell to $37.6M (¥3bn), a decline of about 55 per cent on the previous year, and the delay in monetising the mobile business and the shortfall of some titles against plan brought the instability of results into relief.

In its results for the year to March 2012 the company announced a “second restructuring”, beginning a fundamental review of low-margin businesses and a rebuilding of the business portfolio accompanied by the recognition of restructuring losses. It had two cores: (1) a continuing review of the amusement equipment business (pachislot machines and the like), and (2) selection and concentration in the mobile and social game business. The amusement equipment business went on lacking a stable structure, posting an operating loss of $6.2M (¥700m) in FY17, and by FY18 had shrunk to sales of $30.8M (¥3bn) and an operating loss of $24.5M (¥3bn), reducing its presence in the business portfolio. In the mobile field, while continuing to roll out collaborative titles developed in-house, the company pursued from 2016 an organisational reorganisation bringing together the production know-how peculiar to mobile and the marketing functions held within the group. In September 2017 Capcom absorbed Capcom Mobile Co., Ltd., settling the movement to integrate the small development studios it had taken as subsidiaries into the parent company's development functions.

The financial results of the second restructuring showed in the numbers from FY14 onwards. Consolidated sales contracted from $1.0B (¥102bn) in FY13 to $607.5M (¥64bn) in FY14, but this reflected the tidying of the business portfolio and a change in accounting classification, and the profitability of the core business, concentrated on consumer games, improved instead. FY14 operating profit was $100.2M (¥11bn), an operating margin of 16.5 per cent, and the structure changed such that clearing away the low-margin businesses let the earning rate of the main business come to the surface. The 60-month map and the shared engine put in place by the first restructuring served as the base on which the selection and concentration of the second restructuring could be executed, and the shrinking of the amusement equipment business and the stabilisation of consumer earnings advanced together.

RE ENGINE and the simultaneous worldwide launch of <em>Monster Hunter: World</em>

Having come through the second restructuring from 2014, the company set about developing its own game engine, RE ENGINE. RE ENGINE was positioned as the successor to MT FRAMEWORK, a next-generation engine whose main features were photorealistic graphics, VR support and simultaneous optimisation for multiple platforms. The first title released on it in earnest was Biohazard 7: Resident Evil バイオハザード7 レジデント イービル, published in January 2017; it sold 3.5 million copies worldwide by the end of the year to March 2017 and drew praise for bringing the original experience of the horror game to VR and for the finish of its photorealistic graphics. Monster Hunter: World, which followed in January 2018, lifted the sales scale of the series as a whole to a level it had never reached, through the first simultaneous worldwide release in the series and optimisation for home consoles.

The success of Monster Hunter: World was the turning point that raised the digital share of console software sales. The company's digital sales ratio had stayed in the thirty per cent range up to FY16, but with a sales model combining the simultaneous worldwide release with DLC (downloadable add-on content) it passed 50 per cent in FY19 and reached the seventy per cent range in FY20. Digital sales stand clear of retailers' inventory risk and discounting pressure, and even titles several years past release can be made to sell again through continuing price measures — annual price cuts and sales at particular moments. The company built a pricing strategy of stepping a title sold at about $60 immediately after release down to the $10 and $5 levels over roughly five years, maximising units and profit across a selling period of about five years per new title. The earnings contribution of repeat sales established a structure that supports development investment in new titles.

The in-house engine and the commitment to 10 per cent profit growth every year

The commitment to “10 per cent profit growth every year” declared by president Tsujimoto Haruhiro became the goal that symbolised the company's management stance from FY13 onwards. Operating profit expanded roughly sixfold, from $100.2M (¥11bn) in FY14 to $434.3M (¥66bn) in FY24, and the run of twelve consecutive years of operating profit growth continues. The operating margin also rose 22 points, from 16.5 per cent in FY14 to 38.8 per cent in FY24, a level high even by comparison with others in the industry. Use of the in-house RE ENGINE contributed both to lower development costs per title and to more stable quality, supporting a structure in which several series instalments — Monster Hunter, Biohazard, Street Fighter and others — could be released reliably every period at a sales scale above a million copies each. As of FY24 development investment had reached the order of $330M (¥50bn) a year, and the company had established a structure in which, across new releases and continued selling together, eighty per cent of annual unit sales were digital.

In a Famitsu interview in May 2023, at the milestone of the company's fortieth anniversary, president Tsujimoto Haruhiro said that Capcom would bring up the game industry as content able to compete globally, making the wider selling of its own IP in overseas markets explicit as the main axis of Capcom's medium- and long-term strategy. In an interview with the digital edition of Nikkei Business he also set out the message of using the strength of game intellectual property to open up the world market under its own power, and the stance of developing overseas markets through its own IP and its own sales channels, rather than through tie-ups with foreign publishers, has been consistent. This lies on an extension of the founder Tsujimoto Kenzo's “live within your own size” discipline: rather than expansion through overseas M&A or borrowing, growth is to be realised through an in-house engine and the worldwide roll-out of its own IP — a management stance the company still carries forward now, forty-six years after its founding.

Three stock splits and a ¥2 trillion market capitalisation — where “live within your own size” arrived

The company carried out 1:2 stock splits three times, in April 2018, April 2021 and April 2024, widening the base of individual investors and improving the liquidity of the shares. On dividend policy it made a “consolidated payout ratio of 30 per cent” explicit from the year to March 2017, putting in place a framework combining a stable dividend with stepped increases linked to results. The annual dividend for FY24 was ¥70 on a post-split basis, a payout ratio of 33.7 per cent, and for FY25 a plan has been set out to raise the year-end dividend to ¥22 (¥40 for the year, a payout ratio of 34.5 per cent). Market capitalisation expanded roughly fifteenfold, from $1.6B (¥128bn) in FY11 to $12.9B (¥1.95tn) in FY24, and reached $15.3B (¥2.29tn) at the end of May 2025. The price-to-book ratio rose from 1.84 times in FY11 to 6.77 times in FY24, achieving a structural break from the market valuation under which game software makers have historically been placed at a low PBR.

Consolidated employees increased by about 1,100, or 40 per cent, from 2,681 in FY14 to 3,766 in FY24, as the expansion of the development structure continued. The company has kept up the recruitment of more than 150 new graduates every period, developing internally both its response to the technical evolution of game graphics (animator posts in particular) and the technical staff who build and run the in-house engine. As of FY24 the number of developers had reached about 3,094 (digital contents business), and together with 213 in amusement facilities and 150 in amusement equipment the group carried 3,457 business employees in all. The founder Tsujimoto Kenzo's management philosophy — “it is fine for one's own size to grow” — marks, in the combination of its own IP, an in-house engine, digital sales and continued selling, the point at which forty-six years of building a business structure have arrived.