Chuta Mitsui gave a cold snort: "At least he still has some self-awareness."
No one took up his remark.
Bandai had reached a dead end on the path of game development.
"Gentlemen, let's face reality," an executive director with a head full of white hair leaned back in his chair and sighed heavily. "We are amateurs at game production. Sega has already beaten us to it and blocked our path. Their 'Gundam Battle Operation' is still drawing long lines in arcades. What do we have to compete with them? That pile of vomit-inducing polygons?"
Makoto Yamashina closed his eyes.
He didn't want to admit it, but he had to.
The ostrich-like mentality previously held by Bandai's senior management—that "we can still save this"—had been ruthlessly shattered by reality.
"Then, let's reopen the discussion on the merger proposal," Yamashina opened his eyes, his tone weary. "Pack up the entire game division and hand it over to Sega. This is the issue we shelved earlier."
The atmosphere in the conference room grew even more oppressive.
Handing over the game division was equivalent to admitting Bandai's incompetence.
At the negotiating table, Sega would certainly take the opportunity to drive down the price.
"If it were just a problem with the gaming division, we could grit our teeth, cut off that rotten flesh, and focus on making toys. But look at this. Our own backyard is on fire."
The document was passed around.
The data on the paper was shocking.
Bandai's core business, "character toys," which it had long relied on, was facing an unprecedented Waterloo in 1995.
"Can someone explain the sales figures for 'Sailor Moon'?" Makoto Yamashina pointed to one of the lines.
It was the absolute pillar of Bandai's girls' toy line.
In 1993, toy sales for this anime exploded, reaching their peak in 1994.
At the time, some within Bandai even boasted that "'Sailor Moon' can be milked for ten years."
The General Manager of the Toy Division swallowed hard and pointed to the line graph: "Starting this year, the fourth year, shipments have seen a cliff-like drop. In the third year, our peak, we achieved 26.3 billion yen in shipments. This year, it plummeted directly to 16.4 billion yen. According to the Marketing Department's forecast model, if this trend continues into next year, the fifth year, sales will fall to 6.1 billion yen."
"Shrinking by nearly eighty percent in two years?" Chuta Mitsui's eyes widened. "Have little girls stopped watching anime?"
"They're still watching, but they're also growing up," the General Manager of the Toy Division said with a wry smile. "This is the curse of the short-lived business model. Market laws are what they are. No matter how popular a character is, the hype cycle is only three to five years. Once the novelty wears off, sales of peripheral products will plummet."
He turned to the next page.
"It's not just 'Sailor Moon.' Our ace in the North American market, 'Power Rangers,' is in even worse shape."
In late 1994, "Power Rangers" had created a legendary toy sales record of one billion dollars and was the greatest contributor to Bandai's successful entry into the US market.
"Feedback from the North American market in the first half of this year shows that the audience's novelty with the Super Sentai genre is fading rapidly. Sales of the entire Sentai toy line have fallen by nearly thirty-five percent compared to the same period last year. In terms of revenue, we expect a decrease of nearly thirty billion yen in this sector alone."
Gasps of disbelief rose one after another in the conference room.
Losing some money on games was a minor matter, but the toy business was Bandai's lifeline.
With both cash cows failing at the same time, it was like someone was digging out the roots of Bandai.
Makoto Yamashina placed his hands together on the table, forcing himself to calm down.
"Didn't we have a contingency plan? To have the protagonists of 'Dragon Ball' and 'Sailor Moon' pass the torch to the next generation, introducing new characters to extend the IP's vitality. How did that go?"
"It failed," the General Manager of the Toy Division shook his head. "Players and viewers have an emotional bond with the old characters. They didn't buy into the new characters. The model of relying purely on animation popularity to drive toy sales seems to have hit a ceiling. Once the animation stops or the hype dies down, our production lines have to grind to a halt."
Crisis lurked everywhere.
Bandai's executives looked at each other. Their once-proud moat was now full of holes.
"Is there no good news?" Chuta Mitsui tugged at his tie, frustrated.
"There is," the General Manager of the Toy Division flipped to the last few pages of the financial report. "Our performance in the newly opened categories has been quite impressive."
He pointed to a set of data.
"The 'Dragon Ball CARDDASS' trading cards have cumulatively sold over two billion units this year. These tiny pieces of paper have created an extremely substantial cash flow. Additionally, the full-color painted HG series gashapon launched last year have had an excellent market response. We've upgraded gashapon from cheap toys to collectibles for adults, opening up an entirely new market for fragmented consumption."
This was a few rays of hope shining through the darkness.
Looking back from a later era, an experienced business analyst would see at a glance that Bandai had stumbled into success, catching the rising trend of the "prize figure" and "figure" markets.
Adults have stronger purchasing power and a more enduring desire for collecting; this was the true blue ocean of the future toy market.
Bandai's senior management had not figured out the underlying business logic behind this.
They only saw that these two product lines were profitable.
"Since they are profitable, why not expand production?" asked Makoto Yamashina.
"President, we already arranged for increased production earlier this year," the Production Manager stood up, his face looking troubled. "Following our experience during the heyday of Dragon Ball and Sailor Moon, we doubled our production capacity for cards and capsule toys, and significantly expanded the variety of categories. We turned every IP we could get our hands on into cards and capsule toys."
"And the result?"
"Inventory backlog," the Production Manager wiped his sweat. "The market did not respond linearly. Players didn't buy into the expanded categories. They only buy the high-quality items. Now our warehouses are packed with cards from unpopular IPs and lower-quality capsule toys that we can't sell. The profits from the increased production have been entirely eaten up by inventory costs."
Path dependency can be fatal.
Now, the warehouses are piled high with unsold, obscure IP cards and subpar gashapon. The profits brought by production expansion were all eaten up by inventory costs. Path dependence is deadly.
Bandai had grown accustomed to the "flood irrigation" sales method of the past. By applying outdated experience to a new business model, they suffered a massive loss.
The meeting room fell completely silent.
The gaming division had become a quagmire, the core toy business was facing a cyclical downturn, and new ventures were stuck in the mud due to blind overexpansion.
Bandai was now like a leaking ship—it hadn't sunk yet, but the people on board were already panicking.
"Back to the original topic," Makoto Yamashina's voice echoed in the empty conference room. "Regarding the merger with Sega."
No one spoke.
How could they even negotiate?
A few months ago, when Sega's Takuya Nakayama extended an olive branch, Bandai still had its lucrative toy business as a bargaining chip.
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