A Struggle to Regain Namco Bandai’s Past Glory

Business Report by

Tyler Trosper

1

Overview of Problem 3

About Namco Bandai

Namco 4

Bandai 4

Mission Statement 5

Analysis of Problems

Lack of Advertising 6

Lack of Titles 7

Solutions

Outsourcing 9

Mobile Gaming 10

Conclusion 11

Sources 12

Overview of Problem

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Namco Bandai Games Inc., a publisher and developer of video games along with a

producer of children’s toys, has been seeing a decline in sales over the past few years,

primarily in their video game department (Feit, 2010). The first half of this year,

according to Namco Bandai Holdings Inc.’s financial report, the company suffered a loss

of around 1.93 billion yen (approximately $23.7 million) and is expected to lose 5 billion

yen (approximately $61.5 million) for their foreign markets (Feit, 2010 and Financial

highlights for the second quarter of the fiscal year ending march 2011). In February,

Namco Bandai also cut 10% of their workforce, 630 jobs, as a part of a restructuring

plan to help them with their recent financial decline (Pigna, 2010). Despite their

improvement on domestic sales ($221 million, tripled what it was in 2009), Namco

Bandai Games Inc. is steadily falling, their reach over several countries (Americas,

United Kingdom, Ireland, etc.) crumbling from horrible sales in those regions. Only one

title, Tekken 6, was able to meet their expectations for sales in the second quarter of the

fiscal year (Pigna 2010). If Namco Bandai does not shape up they may need to start

cutting more than just 10% of their workforce.

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About Namco Bandai

Namco was founded in 1952 as Nakamura Manufacturing Ltd., later becoming Namco

in 1972. It was not until 1974 that Namco invested in coin-operated video game

machines (“MobyGames”). One of their most famous titles, Pac Man, has been a

popular hit since its release in 1980 and still continues to sell well with sequels and spin-

off games (“The official pac-man history”, 2010). The company became popular with

other titles, mostly in the vein of one-on-one fighting, such as Tekken and Soul Calibur,

though their genres can range from role playing games to racing games as well.

Bandai Incorporated is now a division of Namco Bandai, but their company has always

specialized in toy manufacturing along with animation and video games (“About Bandai

America”, 2010). Bandai’s toyline contains many popular franchises, such as Dragon

Ball, Ben 10, Tamagatchi, Power Rangers, and so on. Bandai has published many

Japanese animation titles in the West, such as the recent Code Geass that played on

the channel Cartoon Network’s Adult Swim viewing block.

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Mission Statement

“Dreams, Fun and Inspiration are the Engine of Happiness. Through our

entertainment products and services, BANDAI NAMCO will continue to

provide Dreams, Fun and Inspiration to people around the world, based on

our boundless creativity and enthusiasm.”

-Namco Bandai Games America Inc.

The mission statement is actually quite vague and full of flowery sentences that do not

really belong in a company’s mission statement. What exactly does “Dreams, Fun, and

Inspiration are the Engine of Happiness” mean and why are those specific words

capitalized throughout the entire mission statement? What proof is there that Namco

Bandai has “boundless creativity and enthusiasm”? However, the mission statement is

not really the company’s main problem, but it is something to think about when

restructuring in order to improve its sales.

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Analysis of Problems

Lack of Advertising

One of the problems Namco Bandai has is their lack of advertisements for their titles. In

an article by William S. Comanor and Thomas A. Wilson, the profitability of advertising

was found to have “a statistically significant and quantitatively important impact upon

profit rates which provide a measure of market performance as well as indicate the

existence of market power” (423). However, as the two also brought up, the

effectiveness of the advertising can depend upon the type of product and the audience

for said product.

Namco Bandai, in recent years, has done little to no advertising for their products. An

example of a video game that would have done well if enough buzz had been generated

for it is the game Enslaved: Odyssey to the West, a multiplatform game for the

Playstation 3 and the Xbox 360. The game was set up to be a success: built by a

capable company that created the highly acclaimed, but also poorly sold, Heavenly

Sword; the fact that it was on both major consoles, Playstation 3 and Xbox 360, giving

the game a better chance to reach more people; and because the game received good

scores from critics (the Official Xbox Magazine gave it an 8.5 out of 10 and popular

video game website 1up.com gave it a B+, among other good scores). Despite all of

the positive factors, Enslaved: Odyssey to the West failed to meet Namco Bandai’s

sales expectations of one million units sold, instead only selling 800,000 units

(Helgeson, 2010).

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Only after a month, Namco Bandai dropped Enslaved’s price from the normal $60 to

$40, an act one usually does not see so early in a game’s release (Feit, 2010). The

cause? Little was done to promote the game beyond internet advertisements. Namco

Bandai had their hopes high at a million copies, though their advertising efforts did not

reflect their enthusiasm for the game. With an intense advertising campaign, the game

Call of Duty: Black Ops broke records with its $650 million sales from only its first day

of release (Snider, 2010). After these disappointing sales, Namco Bandai lowered their

expectations for two titles, Majin and the Forsaken Kingdom and Splatterhouse, the

latter of which changed developers while it was still in progress due to issues between

Namco Bandai and the original developer (Beraradini, 2009 and Helgeson, 2010). The

former, Majin and the Forsaken Kingdom, had its priced dropped from $60 to $40 before

its release and had its release date pushed forward a week, leaving the impression that

Namco Bandai wanted the game out as fast as possible while enticing consumers with

the early price drop (Grant, 2010). However, I feel the sudden drop in prices, in the long

run, will not benefit Namco Bandai. It is a quick and lazy way to sell their games that

could have performed better if they had focused more attention on publicity, such as

investing in commercials.

Lack of Titles

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As noted earlier, the only title to reach Namco Bandai’s sales expectations was a part of

a long running series, Tekken 6 (Pigna, 2010). All of Namco Bandai’s other “main

game” titles did not even reach half of Tekken 6’s over one million units sold, their

second highest selling game being the multiplatform game based on the movie

Despicable Me, the total sales of which was only 390,000 units (Financial highlights for

the second quarter of the fiscal year ending march 2011).

Figure 1. Sales figures taken from Namco Bandai Holdings Inc.'s Financial Highlights for the Second Quarter of the Fiscal YearEnding March 2011

The company needs more breakout titles, be it a sequel in one of their long-running

series or through the creation of an original title that is hyped up correctly. Also, several

titles that Namco Bandai’s home Japanese branch makes have a tendency not to be

translated over for Western audiences. If the titles underperformed in Japan, Namco

Bandai’s refusal to bring the games to the West makes sense, but with titles such as

Fragile Dreams: Farewell Ruins of the Moon for the Nintendo Wii and Super Robot

Taisen OG Saga: Endless Frontier for the Nintendo DS, two games that were published

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by Namco Bandai in Japan but fell to other Japanese localization companies in the

West to publish in America, Namco lost potential money.

Solutions

Outsourcing

One solution I would like to recommend is the possibility of outsourcing game

development to game companies in the West. Since the drastic drop in sales primarily

stems from overseas sales, connecting to a Western game developer could be a

learning experience for Namco Bandai in terms of what appeals more to Western

audiences in video games (Feit, 2010). Outsourcing to a Western developer has

proved successful with the company Capcom. Capcom has been outsourcing many of

their bestselling series to various Western companies lately, one example of which is

through the Dead Rising series. Dead Rising 2, the Canadian developed sequel to the

originally Japanese developed first title, has shipped over 4 million units worldwide,

showing that outsourcing can prove effective for a video game company (Makuch,

2010). If Namco Bandai decided to outsource, I believe they could try to alter many of

their popular games to appeal to the tastes of the West.

However, this plan should be looked upon as a last resort if Namco Bandai wishes to

remain loyal to their domestic consumers. Outsourcing would layoff many designers

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within Namco Bandai’s home branch in Japan, leading to a possible PR disaster in

regards to loyalty and public image. Furthermore, the state of Japan’s video game

industry has been declining over the years, video game sales down 20% since the year

2007 (Tabuchi, 2010). Also, video games have become more and more expensive to

create, American companies having it easier to make blockbuster titles over Japan

(Tabuchi, 2010). For Namco Bandai overall, outsourcing sounds like a logical step in

order to increase international sales, but at the cost of their domestic sales.

Mobile Gaming

Namco Bandai’s best bet at improving their sales

would be to increase their focus on the mobile gaming

market. Pictured to the right are Namco Bandai’s

sales for the second quarter of the fiscal year 2010,

organized by video game platform. Located in the top

three platforms are two of today’s most popular

handheld gaming devices, the Nintendo DS and the

Playstation Portable (PSP). Along with that, the

mobile gaming market is said to have, as of last year,

reached a revenue of over $6 billion, and by 2015 is expected to reach over $11 billion

in revenue (Reisinger, 2010). In comparison

to developments costs of blockbuster

console titles, developing for the Nintendo

DS is relatively cheap (between $53,000

and $527,000), though this will increase with

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Figure 2. Sales figures taken from Namco Bandai Holdings Inc.'s Financial Highlights for the Second Quarter of the Fiscal Year Ending March 2011

Figure 3. Demographic Survey from the Nintendo 2010 Fall Conference

the release of the new handheld system the 3DS (Robinson, 2010). In terms of

demographics for the Nintendo DS, a Nintendo press conference revealed a survey of

owners who owned the device, ages ranging from 7 to 74 and representing both

genders, the results pictured to the left (Iwata, 2008). The demographics of the

handheld has great maneuverability in terms of appealing to a specific group of people.

Also, mobile gaming should not just be limited to the Nintendo DS or PSP, as the

inclusion of iPhone applications is also part of the increasing mobile gaming market

(Reisinger, 2010). Currently, Namco Bandai has a small selection of games available

for the iPhone, mostly ports of their early successful titles, but this could easily be

expanded upon with more recent ports of popular titles or even original titles. With

iPhones selling over 11 million units in the last quarter of 2009 and with no cost in

producing physical copies of their games for the format, Namco Bandai Games would

be crazy not to take further advantage of this gaming platform (Keizer, 2010).

Conclusion

Namco Bandai might not be in the hole yet, but at this pace it will not take them long to

get there. Based on two titles from this year, Namco Bandai’s strategy to increase sales

has been to drop the price of the game before it has practically had time to gather many

sales. Advertising requires more effort on Namco Bandai’s part, not slashing prices

when they should have been pushing the game harder to begin with. Also, sales from

some of their lesser known titles are being taken away by other companies who

specialize in localizing games, giving Namco Bandai’s fans more games than Namco

Bandai themselves provide. Namco Bandai could try to outsource the development of

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their core games, but that would cost them financially in terms of domestic sales and

their esteem among Japanese gamers. The best way to handle the situation then is to

invest more in the growing mobile game market, be it a devoted game handheld or the

iPhone. With time, Bandai Namco should be able to regain their former glory as video

game juggernauts.

Sources

About bandai america. (2010). Retrieved from http://www.bandai.com/about/

Beradini, C.A. (2009, February 09). Namco bandai takes back splatterhouse. Retrieved from http://news.teamxbox.com/xbox/18820/Namco-Bandai-Takes-Back-Splatterhouse/

Comanor, W.S., & Wilson, T.A. (1967). Advertising market structure and performance. The Review of Economics and Statistics, 49(4), 423-440.

Feit, D. (2010, November 08). Namco bandai posts losses, won't "push" overseas development. Retrieved from http://www.1up.com/news/namco-bandai-posts-losses-overseas

Feit, D. (2010, November 12). Square enix's shiokawa sounds off on "what we can learn from enslaved". Retrieved from http://www.1up.com/news/square-enix-shiokawa-sounds-enslaved

Financial highlights for the second quarter of the fiscal year ending march 2011. (2010). Namco Bandai Holdings Inc.

Grant, C. (2010, November 10). Majin and the forsaken kingdom gets $20 price drop at amazon, gamestop. Retrieved from http://www.joystiq.com/2010/11/10/majin-and-the-forsaken-kingdom-gets-20-price-drop-at-amazon-ga/18820/Namco-Bandai-Takes-Back-Splatterhouse/

Helgeson, M. (2010, November 08). Namco bandai sales: enslaved disappoints, naruto excels. Game Informer, Retrieved from http://www.gameinformer.com/b/news/archive/2010/11/08/namco-bandai-sales-enslaved-disappoints-naruto-excels.aspx

"History for Namco Limited." MobyGames. MobyGames, 2010. Web. 9 Dec 2010. http://www.mobygames.com/company/namco-limited/history.

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Iwata, S. (2008). Nintendo conference fall 2008. Proceedings of the Nintendo conference fall 2008, http://www.nintendo.co.jp/n10/conference2008fall/presen/e/index.html

Keizer, G. (2010, January 6). Apple to grow iphone sales 35% in 2010, says analyst. Retrieved from http://www.pcworld.com/article/186092/apple_to_grow_iphone_sales_35_in_2010_says_analyst.html

Makuch, E. (2010, October 28). Dead rising 2 ships 2 million globally. Retrieved from http://www.gamespot.com/pc/action/deadrising2/news.html?sid=6283153

Namco bandai games america inc.. (n.d.). Retrieved from http://www.namcobandaigames.com/company

Pigna, K. (2010, February 03). Namco bandai cutting 630 jobs in restructuring plan. Retrieved from http://www.1up.com/news/namco-bandai-cutting-630-jobs

Reisinger, D. (2010, November 30). Mobile game revenue to top $11 billion by 2015. Retrieved from http://news.cnet.com/8301-13506_3-20024103-17.html

Robinson, M. (2010, November 22). 3ds to triple ds development costs. Retrieved from http://ds.ign.com/articles/113/1136083p1.html

Snider, M. (2010). 'call of duty: black ops' video game blows up sales records. USA Today, Retrieved from http://www.usatoday.com/tech/gaming/2010-11-26-blackopswriter26_ST_N.htm

Tabuchi, H. (2010). Japanese playing a new video game: catch-up. The New York Times, Retrieved from http://www.nytimes.com/2010/09/20/technology/20game.html?_r=1

The official pac-man history. (2010). Retrieved from http://pacman.com/en/history

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