Capcom says digital has helped reduce the high volatility of the games industry

Capcom acknowledges that digital delivery has helped offset the high risk factors of the games industry through cost reduction and higher volume of readily-available game sales.

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Consumers have mostly shifted towards digital game sales through a combination of convenience and insistence among publishers; games companies can pull specific levers through digital distribution, including frequent sales and discounts that aren't available through traditional retail channels.

This tactic has worked very well for most of gaming's biggest players, including Japanese publisher Capcom, who has achieved consecutive year-over-year operating profit growth for 10 years running. The company attributes these results in part to the digital landscape, which has helped Capcom lower the risk factors and general volatility that it used to face across international markets.

In a recent Q&A with investors, Capcom management touched upon how digital has ultimately transformed its business.

Q In the past, this was a highly volatile industry where a new release in one fiscal year would drive large earnings growth, with a comparative drop in earnings in the next fiscal year. Recently however, we no longer see this pattern in Capcom's earnings. Further, the company has achieved increased operating profit of over 10% each year. What has driven this?

A In the past, we primarily sold games at physical retail stores, where we would typically sell a new game that was placed on the limited space of stores shelves for a period of approximately six months.

However, accompanying the digital shift, in recent years game makers have become able to sell games directly online, which allows us to carry out pricing strategies as well as discounts on past series titles in conjunction with the launch of a new release.

Thanks to this, unit sales continue to grow even today for titles such as Resident Evil 7 biohazard, which was released seven years ago, as well as for Monster Hunter: World, which was released six years ago.

This has led us to think that the game industry overall has shifted to one of low volatility due to a change in our business model, via which we can continue to sell games over the long term as the ratio of digital title sales increases.

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We can further add context through Capcom's sales data. From FY17 through FY23, Capcom's game sales have seen a Compound Annual Growth Rate (CAGR) of 10.8%, driven primarily through digital distribution.

In FY17, digital made up 53% of total game sales. By FY23, which ended on March 31, 2024, digital rose to a whopping 93%. Capcom's willingness to significantly discount its games in order to maximize sales volume is a big reason for this big uptick in digital sales.

"Regarding game software, we are working to capture new users globally by offering our catalog of past games at affordable prices, among other methods," the company said elsewhere in the Q&A.

Capcom ultimately wants to achieve annual game sales of 100 million copies per year, and digital will be a big part of how it achieves this goal.