Marvelous Inc.

Home video game software and online games require review and approval for each supported device model and platform, and if approval is not obtained, development and sales of the relevant game become impossible. In addition, contract changes, the introduction of new regulations, and trends in the diffusion of gaming devices or the occurrence of defects can also affect development and sales plans. Although the Group strives to maintain relationships with each platform, it is difficult to completely eliminate the impact of such external factors.

The domestic game market is affected by sluggish demand growth due to the declining birthrate, diversification of leisure activities, changes in user preferences, and the rise and fall of various game consoles. If the Group fails to accurately grasp diversifying user needs and cannot supply content that is well received, there is a possibility of sluggish sales or a competitive disadvantage relative to other companies. The number of titles developed and released annually, release timing, the presence or absence of hit titles, and sales trends per title also significantly affect period profit and loss.

Although the Company releases numerous game content titles, there is a tendency for sales to concentrate on a limited number of popular titles. While series titles contribute to stabilizing business performance, if user attrition occurs due to defects or changes in the market environment, this could have a material impact on the Group's business performance. Because of the high degree of dependence on specific titles, a slowdown in such a title carries the risk of directly impacting overall company performance.

The Group provides products and services via the internet, and the stable operation of systems and communication environments is a prerequisite for user satisfaction. Since systems and communication environments depend on third parties, if defects, communication failures, natural disasters, unauthorized access, computer virus infections, or similar events occur, stable service provision may become difficult, potentially affecting business performance. In addition, if the number of users or the volume of data deviates significantly from projections, there is also a risk that costs exceeding the plan may be incurred.

Sales from contract development consist of development revenue and royalty income; however, if changes in delivery deadlines or specifications occur due to market trends or changes in the production process, the timing and amount of recorded sales may fluctuate. If discrepancies arise from initial estimates, or if delays in responding to technological innovation lower the client's evaluation of return on investment, this could lead to reduced profitability or a decrease in development requests. The Group seeks to smooth out such fluctuations by diversifying clients and delivery timing and optimizing production process management, but the impact of external factors remains.

In stage productions such as musicals and theatrical performances, there is a risk that cast changes or cancellation of performances may occur due to a performer's health issues, unforeseen accidents, or scandals. In addition, business performance may also be affected if sufficient audience attendance cannot be achieved due to changes in the topicality of the performance content or cast, or in customer preferences. As the Group works to expand its business through new productions, expansion into new regions, and increases in the number of performances, these risks may become more pronounced.

In the IP business involving production investment in animation, stage productions, and other works, there is a possibility that expected returns may not be achieved due to changes in viewer/user preferences, intensifying market competition, trends in distribution platforms, and the success or failure of overseas expansion. There is also a risk that rising production costs and delays in production schedules could lead to lower profitability or a longer recovery period. These factors may affect the Group's business performance.

Personnel and outsourcing partners with specialized skills, such as designers, programmers, and composers, are essential for the planning and development of games and video content. If such personnel leave or if outsourcing partners cannot be secured, the Group may be unable to carry out planned business activities, which could have a material impact on business performance. The Group continuously works to secure and develop excellent talent, but competition in the market for specialized personnel is fierce, creating a risk that securing such talent may become difficult.

The Group sells digital content, amusement equipment, and video content in overseas markets such as North America, Europe, and Asia, and is exposed to market trends, political, economic, legal, and cultural factors, country risk, tax risk, and other factors specific to each country. Because the Group has established overseas consolidated subsidiaries and conducts transactions denominated in foreign currencies, fluctuations in exchange rates may affect the Group's business performance. As overseas expansion increases, exposure to these risks also increases.

In the event of a global pandemic of an infectious disease such as a novel influenza virus or coronavirus, the Amusement Business, Music & Visual Business, and live entertainment business may be particularly significantly affected. There is a risk that requests to refrain from going out or store closures could halt the operation of amusement machines, and requests to refrain from holding large-scale events could lead to the cancellation of stage productions and events. Overseas subsidiaries may also face restrictions on business activities due to movement restrictions imposed in various countries.