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A Struggle to Regain Namco

Bandai’s Past Glory

Business Report by
Tyler Trosper

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Overview of Problem

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About Namco Bandai
Namco

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Bandai

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Mission Statement

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Analysis of Problems
Lack of Advertising

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Lack of Titles

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Solutions
Outsourcing

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Mobile Gaming

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Conclusion
Sources

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Overview of Problem
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 spinoff 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
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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
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,
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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
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,

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

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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 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
Figure 3. Demographic Survey from the Nintendo
2010 Fall Conference

crazy not to take further advantage of this

gaming platform (Keizer, 2010).

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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
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
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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
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Feit, D. (2010, November 12). Square enix's shiokawa sounds off on "what we can
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Snider, M. (2010). 'call of duty: black ops' video game blows up sales records. USA
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