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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
[Interpreted] Thank you for taking the time out of your busy schedule to attend NEXON's earnings presentation. Please be aware that this presentation will be streamed live on the Internet, including the Q&A session. I am Junko Tomita, a member of the Investor Relations team, and I will be acting as the moderator for this presentation.
First, let me introduce the attendees. From the right, Owen Mahoney, our Representative Director, President and CEO; followed by Shiro Uemura, our Representative Director and CFO; lastly, Maiko Ara, the Head of Investor Relations and Corporate PR. Now let me explain today's program. First, we will have President Mahoney give you an overview of the full year of 2019 introduction of highly anticipated new titles and game development and investment strategy in English. Next, we will have CFO, Uemura, give you some highlights for the full year and fourth quarter of 2019 as well as review the outlook for the first quarter of 2020 in Japanese. The presentation will take approximately 30 minutes, and then we will have a Q&A session. Today's presentation will be available on our IR website within a few days.
Lastly, please make sure that you have all of the handouts that we distributed. There should be documents including Q4 2019 investor presentation and 1 press release, total of 2. Please raise your hand to let us know if you find any missing documents. Now we will begin our presentation. Owen, please start.
Thank you all for joining FY '19 -- 2019 fourth quarter earnings presentation today. Thanks also to those of you who are joining us remotely through the live broadcast. Before we get to our results, I'd like to spend a minute talking to you about the evolution of the interactive entertainment business and NEXON's strategy within that landscape. I'm going to then follow up with a brief recap of our performance in the fourth quarter and for the full year 2019, our plan for growth in 2020, and I'll spend some time on our exciting game pipeline for 2020. And then I'm going to conclude briefly by touching on our approach to shareholder returns.
Okay. So let's start by talking about the industry today. We think it's helpful to think of the video games industry in terms of 4 quadrants. In the x axis here, we have off-line versus online games. So off-line on the left-hand side, online games on the right-hand side. And on the y axis, we have deep game experiences versus casual game experiences on the bottom. And this is not scientific, this didn't come from any external analysts. We didn't get this from any of our consultants. This is just what we draw on the whiteboard internally at NEXON when we think about the business. It's also not a value judgment. It's that each of these 4 quadrants can be good businesses by themselves. It's just a way to think about the business, especially when we frame about what NEXON's strategy is all about. So thinking about the last 25 years, the games business, we started mostly -- the games industry started mostly in the upper left-hand quadrant. This is where the types of games that I played when I was a kid, which is now quite a long time ago, unfortunately. But this is the realm of deep online -- off-line games, single-player games, primarily on consoles and on PCs. By the way, again, there is no science in terms of what games we chose to put up here. Mostly, these were the ones that came off the top of my head and the folks that we built this slide with. Now there are many great games and franchises in that area. But the key thing here is that NEXON has really never played in this area of deep single player games. Okay. Then thinking historically, the Internet. The Internet enabled the right-hand side of the graph. And around the mid-90s, when NEXON and some other companies in Korea and then China, invented the online game and then free-to-play. Then about 12 years ago, Facebook and smartphones really unlocked the lower half of the graphic and made it a big business. This is the realm of casual games. Now NEXON's core strength, our history, where we've always really focused has been in the upper right-hand quadrant. That's the area of deeply immersive online games. We sometimes call them virtual worlds because you have a very immersive experience with thousands of other connected players at the same time. And even though they may look simple on the surface, they're designed to be experienced almost as a second life. As a matter of fact, there is a game called Second Life from another publisher.
Now from a business perspective, the key thing to know about this is that in the past, these types of games, the ones in the upper right, were really only available on the PC platform. And then starting about 24 months ago, we've seen the iPhone X and equivalent mobile platforms become much more powerful, and powerful enough to act really like a PC. And what that means for a company like us is that rather than having a total addressable market, a TAM, of a few hundred million gamer PCs, our TAM is now -- our total addressable market is now literally several billion people who have full workstation functionality in their pockets. This is an increase of roughly 10x in the total addressable market. And of course, the mobile unit number is rising very rapidly. We think this is really important, and this is a massive opportunity for NEXON. Our core competency is in the upper right, and it's in the upper right that has the best growth going forward and the fewest number of competitors who can make and grow these types of immersive games.
Games I'll show you later in this presentation are all in the upper right-hand quadrant. So this is where we see opportunity, and this is where our focus lies as a company. Now with that as a backdrop, I'm going to briefly review our performance in Q4 and for the full year 2019, and then I'm going to talk about our future. Group revenues in Q4 came in ahead of our expectations, driven by the phenomenal strength of the Korea region. Our major franchises, especially MapleStory and FIFA ONLINE 4 performed exceptionally well, and V4 is off to a very strong start.
Our Q4 performance in Korea marked our highest Q4 revenue ever. On an as-reported basis, revenues and operating income for the full year 2019 were down year-over-year due to FX headwinds, while net income was up versus a year ago. On a constant currency basis, full year 2019 revenues, operating income and net income all grew year-over-year. The growth was again primarily driven by Korea, demonstrating the strength of our major franchises in that market.
MapleStory in Korea, which is our second biggest franchise, continues to amaze. The game marked another revenue record in 2019, surpassing the previous record set in 2018. On a constant currency basis, Q4 MapleStory on the PC grew 88% year-over-year and the mobile version of MapleStory grew 114%. On a full year basis, constant currency revenues grew 39% and 65%, respectively. This was on top of an already strong 2018 where PC and mobile MapleStory year-over-year growth was 67% and 81% percent, respectively. PC and mobile MapleStory each recorded double-digit growth for the sixth and the third consecutive years, respectively.
As a reminder, MapleStory PC originally launched in 2003 and MapleStory M launched in 2016. As you could see from the graphs on the bottom of this page, they have been incredible performers over time. This is what we mean by forever franchises.
FIFA Online 4 also recorded the highest Q4 and full year revenue, growing significantly year-over-year, surpassing the previous peak of FIFA Online 3 that was achieved in 2017. Okay. Now on to Chinese Dungeon&Fighter. Q4 revenues decreased year-over-year, but came in slightly ahead of our expectations. Full year revenues also declined year-over-year due to its soft performance in the second half of 2019 when we faced challenges following a June update that did not resonate well with our players as we had hoped.
During the earnings call last quarter, we said that we expected things to be challenging for the next few quarters, and we still expect that to be the case. Over the course of Q4, we conducted multiple in-game events and dropped small-scale updates in addition to national update, which continued from Q3.
Most recently, we introduced the Lunar New Year update on January 14. And so far, we have not experienced a notable pickup. And the sales from this year's Lunar New Year update is expected to decline substantially from 2019's very strong performance. We think the next important event for Dungeon&Fighter comes later in the first half of 2020, when we launch a new update that addresses the primary feedback that we have received from our players.
In December, our operating team at Neople announced to our players in China that this key update will become available in China in March. The update includes the level cap release and the third awakening, which allows players to gain new skills for their characters. This update went live last month in Korea, and Korea performance has historically been a good indicator of how things will be received in China. The reviews by our players in Korea have been good with better key performance indicators after the introduction of the update. We have a number of other projects underway for D&F PC and are very focused on bringing improvements to our player base that will drive further growth.
Okay. Now onto the mobile version of D&F. We've made some great progress since our last call. In December, together with our partner, Tencent, we began the second closed beta test for M D&F in China. We are happy with the encouraging results we observed during the test and went on to start preregistration for the game later that month. As of today, more than 16 million people have signed up and are awaiting for the game's launch in the first half of 2020. We are extremely excited to deliver the deep immersive multiplayer online world of Dungeon&Fighter to many more people in the region on the mobile platform. And we think mobile represents a massive increase in the total addressable market for the game.
In the meantime, we launched V4 in November. It's early, but so far, we're very satisfied with its performance, especially given its competition in the Korean market. As you can see, it's -- it has -- since launch, it's been in the top 5. As of last night, it was at #4 on Android and IOS. Android, just for reference, I think, most people here know, Android is about 70% of the market -- of the mobile market in Korea. So, so far, so good. At this point, I'd like to pause and I'd like to place NEXON's key IP in the context of other great media franchises around the world. So you get a sense of the scale and the future potential. Several NEXON's franchises have been played by hundreds of millions of players around the world and generate revenue that is both recurring and growing over time. First, let's look at MapleStory, a 16-year strong franchise, which has amassed more than 180 million registered players worldwide. It's so deeply woven into the culture that player registrations now equal 45% of the total number of people in Korea. In terms of revenue, MapleStory PC and mobile total is about equal to the global box office of the movie franchise Frozen, which is one of Disney's largest. In terms of total players, life-to-date user registrations of MapleStory PC are larger than life-to-date unit sales of one of the greatest game franchises of all time, the Final Fantasy series on PC and console. So MapleStory is in very good company.
Next is KartRider, NEXON's fully online multiplayer racing game originally introduced in 2004. Now KartRider may not be fully on the radar of the people who follow games closely in Japan and the U.S., but more than half of the Korean population and over 45% of the Taiwanese population has played this game. Life-to-date registered users of KartRider totaled more than 380 million people worldwide. For a sense of scale, that is over 100 million more people than Mario Kart, which is clearly the gold standard of the genre and one of the great games of the entire games industry. We have enormous respect for Nintendo and the craftsmanship they put into Mario Kart. Now acknowledging that free-to-play business model is quite different, we think that the reach of these 2 game IP is very important.
One of the points about entertainment IP is that the fact that you've had many hundreds of millions of people experience the IP's game world for many hours, creates a very large and a very receptive audience for new versions or expansions or extensions of that IP. So reach of the IP really does matter if you can make use of it. And that's exactly what we're doing. In 2020, we will be releasing an all-new KartRider. Unlike the previous versions, which were only -- which was only for PC, the new version will be on multiple platforms all over the world. We think this is a massive opportunity for NEXON's customers as well as its shareholders. Okay. And last but not least is Dungeon&Fighter. We launched this fully online RPG in 2005. And since then, it has garnered a massive fan base that exceeds 700 million registered users globally. Sort to put that in some comparison, that's more than 2x more than Fortnite across all platforms as of 2019. Life-to-date Dungeon&Fighter has grossed well more than USD 10 billion. That is several billion dollars more than the life-to-date receipts for both Star Wars and Harry Potter series box office and roughly double the revenue for the entire Avengers series. And remember, D&F is still only on PC, and PC installed base is a small percentage of total game players. You can see why we're so excited to bring this franchise to mobile players, which have an installed base of, by our estimates, more than 10x than a PC and growing very quickly.
Now in 2019, NEXON went through a major transition. Our management team spent a lot of time resetting the strategic pillars of our global business. We believe these will result in better games, a more robust business and strong returns for our shareholders. The 4 core tenets are: first, focusing on a portfolio of fewer but bigger, fully online multiplayer games in virtual worlds; second, enabling these virtual worlds to be played across multiple hardware platforms, PC, console and mobile; third, leveraging our substantial IP portfolio to generate long-lasting games with significant recurring revenue; and fourth, as appropriate, placing bets on new IP that we think are really special. Our acquisition of Embark last year is an example of this.
In 2020, you'll start to see us roll out products that are based off of these 4 themes. So with that in mind, I'd now like to show you 3 big beats we have planned for 2020. The first, the next one up, the one that's coming up in the near term is Dungeon&Fighter 2D Mobile, the mobile version of one of the biggest game franchises in the world. I mentioned this before that our development team has been working hard to make sure that this fully online multiplayer action game will work well across the China mobile Internet. We recently had a terrific beta. So today, I'd like to show you some of the game scenes from that most recent closed beta test. [Presentation]
Okay. So next is KartRider Drift, which is the next KartRider, the PC franchise, which has been played by more than half of the Korean population. Three things to know about this new version KartRider Drift. First, when it launches, it will not just be on PC but consoles and other platforms as well. Second, it's built from the bottom-up to be fully online. That means it has a lot of features, online game players love and have not seen in either casual or hard-core racing games. Third, it's free to play. No other game has this set of features. We just completed our first round of closed beta testing, and we plan to introduce it in 2020 to players around the world on multiple platforms.
[Presentation]
And third, later this year, we'll be talking a lot more about the new game from Embark. It's a multiplayer co-op action game, and we think it is really exciting. Embark's team is truly extraordinary from both a creative and a technology perspective. And we think what they are working on will change online games in the west.
Okay. So now let me put the strategic priorities I talked about earlier as well as our 2020 game pipeline into the context of our drivers for growth and shareholder value going forward. NEXON has a great foundation, that consists of a world-class portfolio of franchises that are as big or bigger than the very best movie and game franchises around the world. While these game franchise revenues can fluctuate during their long life cycle, our extensive experience has shown again and again that the franchise revenues can continue to grow over decades despite near-term fluctuations. This is a key point to understand about a business -- about our business and that of companies like us.
Now NEXON is well positioned to lead the next wave of online games, as platform providers invest heavily into the games business and build a much bigger addressable market for us. I talked about mobile before, but it's also true about advances in console and cloud-based technologies from newer entrants, such as Google and Amazon. All of these platform providers are spending billions to bring high-end game platforms to consumer mass markets way beyond the previous online business, which was largely focused on PC. Because of all this, we see big opportunities to get our online games and virtual worlds in the hands of at least 10x as many players as there were previously, and we will be aggressive on leaning into these opportunities. The 3 big game beats of 2020: D&F Mobile, KartRider Drift, and Embark's game are just the beginning.
Okay. Lastly, I'd like to briefly touch on our cash allocation and shareholder returns of FY '19 since we get asked a lot about this, and our Board of Directors and I review it frequently.
In 2019, NEXON group generated operating cash flow of JPY 105.1 billion, a little less than USD 1 billion. Our working capital was JPY 10.3 billion. We made equity investments in Embark Studios as well as Wonder Holdings, which totaled JPY 38.4 billion in 2019. These 2 companies make games that are firmly in the upper right quadrant, I talked about earlier, meaning that they're about deeply immersive online games. Additionally, we returned JPY 30 billion to our shareholders in the form of a share buyback. Now after all these expenditures, we kept the surplus of JPY 26.4 billion. Now we're going to continually reexamine the best use for our cash flow and flexibility we need to grow NEXON's global business. However, we think 2019 represents an allocation that is good for our shareholders with a good balance of shareholder return and of investments. With that, I'll hand it over to Uemura-San to discuss the Q4 results and Q1 2020 outlook. Thank you very much.
[Interpreted] Thank you very much. Let's move on to Mr. Uemura, CFO.
[Interpreted] Now let's move on to FY 2019 results FY 2019 revenues were JPY 248.5 billion, down 2% year-over-year on an as reported basis. On a constant currency basis, full year revenues were up by 4% year-over-year. Full year 2019 operating income was JPY 94.5 billion, down 4% year-over-year on an as reported basis and up 3% year-over-year on a constant currency basis. FY 2019 net income was JPY 115.7 billion, up 7% year-over-year on as-reported basis and up 16% year-over-year on a constant currency basis. Continuing on to the Q4 results. For additional details, please see the Q4 2019 investor presentation included in the handouts. Revenues were JPY 49.2 billion, up 7% year-over-year on an as reported basis and up 14% year-over-year on a constant currency basis, which exceeded our outlook, primarily driven by the strong performances of MapleStory and FIFA ONLINE 4 in Korea. In addition, revenues from the new mobile, MMORPG V4, which launched in November as well as Dungeon&Fighter in China slightly exceeded our expectations. On a platform basis, both PC and mobile revenues exceeded our outlook. Operating income was JPY 4.5 billion, which was below our outlook. While Q4 revenues exceeded our outlook, this was more than offset by a JPY 9.2 billion impairment loss primarily on assets related to Pixelberry including goodwill. Total expenses of other cost items were roughly in line with our expectations. Net income was JPY 3.3 billion, which was below our outlook. While we recognize JPY 11 billion deferred tax assets related to foreign tax credit at Neople, our consolidated subsidiary, this was more than offset by operating income underperformance and a JPY 11.4 billion FX loss primarily on U.S. dollar-denominated cash deposits.
And based on the Korea tax rules, Neople enjoy a 5-year tax exemption period beginning in 2015 when it relocated to Jeju Island. During this time, however, Neople paid the withholding taxes on their foreign income, including royalty income related to China Dungeon&Fighter. While withholding taxes are subject to foreign tax credit, these credits have been carried forward since Neople had a tax exemption. Beginning in 2020, Neople will again pay corporate taxes at half of the Korean statutory rate. However, it will be able to apply its federal foreign tax credits, which it has carried forward over the last 5 years. Based on our estimated tax amount, we have forecasted a foreign tax credit that can be applied in 2020 and booked an JPY 11 billion deferred tax asset at the end of 2019. Revenues from our China business exceeded our outlook as Dungeon&Fighter's revenues slightly exceeded our expectations. As for Dungeon&Fighter, we do not expect to experience a notable improvement before we launched the new key update in March. While its Q4 revenue came in above our expectation, it was essentially as planned. In Q3, we introduced a National Day update, which included limited-time-offer Dungeons as well as Avatar Package sales and continue until November 28. Following the National Day update, we conducted multiple in-game events and small-scale updates, aiming to recover the user metrics, including active users and paying users. As a result of these, Q4 paying users increased slightly on a sequential basis, however, they remain well below the year ago level. As we have not experienced a notable change from Q3, Q4 paying users decreased year-over-year, both ARPU and revenue decreased sequentially due to seasonality year-over-year. Revenue decreased while ARPU increased primarily due to a decrease in live users compared to a year ago. MAUs decreased both quarter-over-quarter and year-over-year, primarily due to the reduced number of bots since the implementation of stricter measures to verify player identity was made in October. Revenues from our Korea business in Q4 exceeded our outlook, primarily driven by stronger-than-expected performances of MapleStory and FIFA ONLINE 4. New mobile MMORPG V4 and MapleStory M also exceeded our expectations. As a part of our key themes, we are leveraging our substantial IP portfolio and strengthening our best-in-class live operations capabilities. Accordingly, we are placing more resources on MapleStory. Q4's performance certainly reflects our efforts. MapleStory's Q4 revenue exceeded our expectations, driven by strong item sales in the latter half of the quarter, supported by well-received seasonal in-game events and the winter update, which began in mid-December. User metrics, including MAUs, paying users and ARPU increased year-over-year. Revenue grew 73% on an as-reported basis or 88% on a constant currency basis, surpassing the previous record Q4 revenue, which was achieved in 2018. It's mobile version, MapleStory M, also delivered a strong quarter, together with PC. It recorded the highest Q4 revenue growing 97% on an as-reported basis or 114% on a constant currency basis year-over-year. We have experienced great synergies between the PC and mobile platforms. FIFA ONLINE 4 revenues also exceeded our expectations, driven by the strong sales in the latter half of the quarter, which was supported by the successful introduction of legendary players, seasonal events and sales promotions. Q4 user metrics, including MAUs, paying users and ARPU increased year-over-year. A combined PC and mobile revenues grew significantly year-over-year compared with Q4 2018 when its revenue had reached approximately the level of FIFA Online 3 in Q4 2017 prior to the service transition.
We launched our new mobile MMORPG V4 on November 7 and it is off to a great start. Despite the intense competition in this genre as well as the big launch from a competitor during the quarter, V4 has been extremely stable and its December revenue exceeded our expectation. As a result of all these, both the PC and mobile business grew year-over-year, resulting in a year-over-year increase in our Korea business.
Revenues from our Japan business in Q4 were slightly below our outlook primarily due to the lower-than-expected performances of mobile games, including MapleStory M. On a year-over-year basis, while we benefited from MapleStory M and MapleStory 2, both of which launched in Q2 2019, these were more than offset by decreases in Dynasty Warriors: Unleashed and FAITH, which launched in 2018 as well as the lower contribution from browser-based mobile games. As a part of our growth strategy to focus on games closer to our value and expertise, we disposed our gloops' browser business, which completed on December 1. Consequently, the browser revenue contributed a month less in this year's Q4.
While revenues from North America in Q4 decreased year-over-year, their performance was better than we had expected driven by Choices. The year-over-year decline was primarily attributable to Choices as well as Darkness Rises and MapleStory M, both due to tough comparisons with last Q4 when the services just began in the region.
While revenues from Europe and others in Q4 decreased year-on-year, the performance was better than expected, driven by MapleStory M and Spiritwish global service, which launched on October 30. Revenue decreased year-on-year, while we benefited from Spiritwish and X. These were more than offset by a decline of MapleStory M and Darkness Rises, both due to tough comparison with Q4 2018, when the services began in the region as well as a decrease in Choices. Now turning to our Q1 2020 outlook. We expect the Chinese yuan and Korean won, both major currencies in our business, to depreciate against the Japanese yen, and therefore, to negatively impact the as-reported basis performance. For Q1, we expect revenues in the range of JPY 74 billion to JPY 80.7 billion, a 20% to 13% decrease year-on-year on as reported basis and 18% to 10% decrease year-on-year on constant currency basis. While we expect Korean revenue to increase, we anticipate revenues from other regions to decrease and overall revenues to decrease year-on-year.
We expect our operating income to be in the range of JPY 36 billion to JPY 42.1 billion. 32% to 20% decrease year-on-year on as-reported basis and 29% to 17% decrease year-on-year on constant currency basis. I will discuss the details of this shortly.
We expect the net income to be in the range of JPY 31.7 billion to JPY 36.6 billion, a 41% to 31% decrease year-on-year on as-reported basis and 38% to 29% decrease year-on-year on constant currency basis. Turning to China, while we expect to benefit from the KartRider Rush Plus, we anticipate this to be more than offset by the decrease in revenue of our key PC online games, Dungeon&Fighter. Overall, we expect the Chinese revenues to be in the range of JPY 33.5 billion to JPY 37.6 billion, 42% to 35% decrease year-on-year on an as-reported basis and 40% to 32% decrease year-on-year on constant currency basis.
As for Dungeon&Fighter, we introduced the Lunar New Year update on January 14, which includes limited-time-offer Dungeon's and Avatar Package sales. As we explained earlier, we do not expect to experience a notable lift in Dungeon&Fighter performance before the key update releases in March, which includes the level cap release and many more components. We expect a decline in sales, including sales from Lunar New Year package sales compared to Q1 2019, when the number of paying users were high and the sales from Luna New Year update was strong. Accordingly, we expect the Dungeon&Fighter revenue to decrease year-on-year. In Korea, which has historically been the good indicator of how things would be received in China, key update, including the level cap release and the third awakening, which allows players to gain new skills for their characters, went live in January ahead of China. We experienced certain improvements in user metrics, such as returning users and paying users. So far, we are happy about the reviews from our players in the region. We'll share the early results of the outcome of the update in China on our next earnings call. Turning to Korea business for MapleStory. The winter update continued from December to the end of January. The winter update included the introduction of the new classes and jobs Avatar Package offering and they were well received by users. We have strong sales from the Lunar New Year sales promotion. We expect new growth story revenue to increase significantly on top of the 69% year-on-year growth we achieved in Q1 2019. We expect FIFA ONLINE 4 to grow year-on-year in Q1 as the game continues its positive momentum from Q4 2019. The performance will primarily be driven by the strong sales from the Lunar New Year package offering. We expect our mobile revenue in Korea to increase year-on-year. Growth will be driven by V4, Counterside and our new mobile title launched on February 4 as well as the increases in MapleStory and FIFA ONLINE 4 M. We anticipate both PC and mobile revenue to each grow year-on-year. Overall, we anticipate revenues from our Korea business to be in the range of JPY 32.3 billion to JPY 34 billion, 44% to 52% increase year-on-year on as-reported basis and a 51% to 59% increase year-on-year on constant currency basis.
In Japan, we expect contributions from MapleStory M to be more than offset by a decrease in revenues from the browser-based mobile games due to the disposition of gloops' business. We also expect a decreases in FAITH, Dynasty Warriors: Unleashed and OVERHIT, which all started their services in 2018. As a result, we expect revenues in the range of JPY 1.6 billion to JPY 1.7 billion, 58% to 55% decrease year-on-year on as-reported basis and 55% -- 57% to 54% decrease year-on-year on constant currency basis. In North America, we expect revenues in the range of JPY 2.5 billion to JPY 2.7 billion, 40% to 35% decrease year-on-year on as-reported basis or constant currency basis, mainly due to decreases in Choices, Darkness Rises and AxE.
In Europe and other regions, we expect revenues to be in the range of JPY 4.2 billion to JPY 4.7 billion, an 18% to 10% decrease year-on-year on as-reported basis and 16% to 8% decrease year-on-year on constant currency basis, while we expected to benefit from World of Dragon Nest, which launched in Southeast Asia on January 8. We expect this to be more than offset by decreases in AxE, Choices and Darkness Rises.
In Q1 2020, we expect operating income to be in the range of JPY 36 billion to JPY 42.1 billion, a year-on-year decrease of 32% to 20%. The main driver for the lower operating income in Q1 is year-over-year revenue decrease. Other unfavorable factors include greater HR costs due to the annual salary increase as well as higher variables costs, including PG fees associated with the revenue growth in Korea and royalty costs in relation to increase in contributions from publishing right titles. Now favorable factors regarding the operating income include: one, decreased marketing costs, we expect promotion costs for Choices to decrease and marketing costs to decrease compared to Q1 2019, when we launched multiple new games; two, a decreased impairment loss of JPY 2.9 billion recorded in Q1 2019, which will not be repeated in Q1 2020. The high end of the range reflects the fact that we expect the impact of negative drivers to be larger than the positive drivers, resulting in year-on-year operating income decrease.
Lastly, I'd like to give you an update on the shareholder returns. First, on the share buyback. Last September, we initiated a share repurchase program of JPY 30 billion and conducted the share buyback through September 10 to January 29, 2020, up to the full amount. Furthermore, today, the Board of Directors approved the plan to cancel the shares we bought back on February 28.
Additionally, today, the change to our dividend policy was approved. We had suspended the dividend since the end of fiscal 2016 to retain the flexibility to continue our growth investments in our global operations. As a result of our re-evaluation, we have made a plan to reinitiate a shareholder dividend of JPY 2.5 per share to shareholders registered as of December 31, 2019. We plan to pay the same dividend per share at the interim and year-end of fiscal 2020. We will remain disciplined in delivering shareholder value by growing our business globally as well as returning capital to shareholders through dividends and share buybacks.
Now we'd you like to take questions.
[Operator Instructions]
[Foreign Language]
[Interpreted] I'm Junko Yamamura of Nomura Securities Company Limited. Firstly, thank you very much for your presentation. I have 3 questions altogether. Firstly, my question is on the China Dungeon&Fighter update, which is scheduled in March. You mentioned about Level Cap release as well as the provision of new skills. So listening to that explanation, I got the impression that you are targeting towards core fans. But looking at the KPIs, it seems that there is an outflow of casual users. So my question is, through the China Dungeon&Fighter fighter update in March, what kind of impact are you aiming at? And what is the current attribute of the users you have for this game.
[Interpreted] As you have mentioned, looking at the current situation of China, Dungeon&Fighter, it is indeed too that we are seeing some light users leaving the game. Having said that, what is the major objective of our big update in March? We want to regain the light users, and as you have mentioned, we have the plan for the level cap update as well as the third awakening. But you said that these 2 seem to be targeting at the core users, but that is not necessarily the case from our point of view.
In 2013, we have conducted the second awakening of the characters. And so that means that after 7 years, we are conducting the third awakening of the characters. By awakening the characters, we will be able to provide special skills to those characters and have those characters go beyond their current limit. And we hope that this will further motivate the users to play Dungeon&Fighter.
So once again, I repeat, this awakening is the first time over the past 7 years, and also, secondly, we are conducting level cap update in the March update of Dungeon&Fighter. And by implementing these 2 measures, we plan to dramatically change the current situation, revitalize the game and hope that we will be able to see the return of the light users.
[Interpreted] I would like to move on to the second question, which is narrowing down of the pipeline that you have in 2019 and 2020. Can you tell me some ballpark figure of what were the number of titles that you have launched? And what will be the number of titles that you will be launching this year? If you can be as concrete as possible, I will appreciate it. For example, do you think that you will incur further impairment loss? Or do you believe that you will be able to reduce further HR as well as marketing costs, so that you will be able to attain some level of profitability?
[Interpreted] We have been pursuing this concept of concentrating on the games that are close to our value as well as expertise. And this is true not only for the past endeavors, but also true for the present as well as for the future. You mentioned how much pipeline titles did we narrow down or you want to know how many titles we plan to launch in 2020, but it's very difficult to give you any definitive numbers because the concept is, as I mentioned right now, we would like to work and focus on the game titles that are close to our value and expertise. That is to say, focus on online, in particular, in MMORPG games. So when we develop new games, we will try to check each and every milestone, and maybe at the very beginning, when we included a certain title in the pipeline, we thought that it might be promising. But as we go down the road, maybe that might not be the case. And in those instances, we decide to drop those titles from the pipeline. So at this point in time, I cannot tell you any concrete numbers. Now as to what will be the impact of the strategy on our cost structure? In the past, we try to have a very rich pipeline. So we tried different game titles. Therefore, our marketing cost in some instances increased, but in the future, we would like to be more laser focused on the titles that will be very promising in terms of its future success and try to look at the potentials of each game. And by doing so, I believe that there is a potential for enjoying less marketing cost.
Just to add to what Uemura-San said a little bit. First of all, as Uemura-San said, really, what the pipeline changes that we've made are really about focusing our efforts. That's the key thing. It's not a cost-savings exercise so much as it is reallocating those resources from games where we have less expertise or less capability or we think the market is more of a red ocean and focus on that upper right-hand quadrant that we talked about where we really bring a lot to the table, particularly online, deep, immersive online game. So that's really what that's about. It's point number one.
Point number two is, there are areas where we can save costs and also have much more efficiencies. And we've started to talk about some of those, but as a slightly different topic, I recently gave a presentation about the cost of AAA game development. It has been rising very substantially over time. And by spending a little bit of time and effort into the game development tools and technologies you use, we can actually really save a lot of costs in the development -- in the game development process. Game development can be done much more inexpensively than it has been in the past. So especially through our team at Embark, they have been able to make some tools and technologies that we think are going to allow us to develop AAA quality content at a much less expensive price, which also means that we can do more rapid development and more rapid development of a follow-on content after a game launches. So we're very excited about that, and we'll be talking about that more. [Foreign Language]
[Interpreted] My last question is on Embark Studios, again. You have shown the matrix on Page 3. And considering that categorization, I believe that the future titles of Embark Studios will fall into the upper right. And if I may try to decompose the titles that will exist on the top right in more granularity, I personally believe that I can break those titles into 2 subsets. One being as a core games that are more akin to movies and second one is the type that is led by Nintendo, meaning that it's easy to start playing, but hard to play. And I personally believe that you had been working on the games in this area. And the titles of Embark Studios seem to fall under the latter one. But in terms of the explanation that you have been giving and what is your strength so far, it seems that the prior one, the first subset is the one that you have your strength in. So whether it be a good or bad, it seems that there is a discrepancy between your current strength and what you might plan to realize to Embark Studios. So can you tell me whether my analysis of that quadrant is correct or not in the positioning of your current games as well as Embark Studios games that you plan to launch in the future?
First of all, let me just mention a couple of points. First of all, I think your question is very insightful. It's a very interesting and very good question. And the game that Embark Studios is working on is definitely in the upper right-hand quadrant. Our marketing and development teams won't allow me to tell you much more about it than that, as much as I want to. I can't tell you, I'm having a really good time doing the reviews, the milestone reviews. It's -- we're having a great time with it. But I actually think that the idea of a game that is hard to learn and hard to master and a game that is easy to learn and hard to master, it's a bit of a false dichotomy. And what I mean by that is, you can have a very sophisticated game that actually is easy to learn and hard to master. And it may look simple or it may look complex at first, but sometimes there are some games that I play that are very, very hard to learn and they are very hard to master. And there are some that are easy to learn and easy to master. So it's -- I'll give you 2 examples of games that start off easy to learn, but are, in fact, very deep games. Actually, I'll give you 3.
On this chart, we have Fortnite. I learned to pick it up very, very quickly, but I don't play it anywhere near the level of my kids. They play a whole different, much more sophisticated game of Fortnite than I do. Another example would be MapleStory, which looks very friendly and open in the beginning, but it's a very deep, very deep RPG. Civilization in the offline world is also easy to learn, very hard to master game. It gets very deep and sophisticated later on. So as we think about it, and certainly, the Embark team thinks about this, a great way to build a good business is to have a game that is easy to pick up, that's intuitive to learn, but then you can go very, very deep on over time, over many years. So in that respect, what they're working on, what they think about, what we think about when we think about this game is kind of like MapleStory, easy to pick up, easy to learn, friendly and open to players, but something that you will want to play for a very long time. That's what we're going for, and we think more games should be like that. I hope that answers your question. [Foreign Language]
[Interpreted] Any other questions from the audience?
This is Jay Defibaugh with CLSA. Thanks for taking my 2 questions. First one is referring to your comment that you expect revenue growth to be tough for the next few quarters for D&F in China. Now I was under the impression that the key update due out in March was the event that could bring about a return to revenue growth. So is there something that you saw in fourth quarter performance or Lunar New Year update or the read-through from performance in Korea that has made you reassess that return to growth? Or actually, after all that is -- perhaps, there's no change in your schedule? [Foreign Language]
[Interpreted] Thank you for your question. Well, yes, about the China Dungeon&Fighter, last year, there was an anniversary update as well as the summer update in those times. The things started to worsen a little bit. And at that time, we mentioned that it would take some quarters to start to see the recovery. And we mentioned that we would take the countermeasures in order to realize the recovery. So that's what we mean by several or some quarters to go. So it's not some quarters to go from now, but at that time. So with the March major update, we would like to turn it around, so that we can start to see the increase of the revenue. And so far, we are in line with our plan. And as we mentioned in March, we plan to do the level cap update or release as well as the third awakening, and so that we can keep -- we can get back those churned users, so that they would return as users. So that is our plan.
Second one is, there's been talk that the coronavirus is keeping folks at home in China and that might have a positive impact on gaming activity. Can you give us some comments on whether you have any insights on? Whether that is actually happening in China? And if it is, how would you assess the impact on both the PC and mobile games businesses? [Foreign Language]
Well, when we're talking about the coronavirus, we should just preface and start by emphasizing that our first concern is for the health and safety of our customers, our partners and our employees in China. And it's our strong feeling that they should make sure to pay attention to the authorities and stay safe. So that's a first and our overwhelming concern, frankly, at this point. Having said that, we don't offer a precise breakdown, but we really think that a large majority of our players access the game from PCs in their home, the large majority. But having said that, we have not seen any noteworthy changes in our player engagement at this point as of this evening. We're obviously watching it on a very close basis. But as of this evening, we haven't seen any sort of change in our engagement, but we'll continue to monitor.
[Foreign Language]
[Interpreted] Thank you very much. We have limited time, so we'd like to take some questions over the phone.
[Operator Instructions] The first question is Seyon Park from Morgan Stanley.
I have 2 questions. The first is regarding Dungeon&Fighter Mobile. It's been about 2 months since we're a bit more -- we're 1.5 months since preregistration and given that the preregistration usually lasts about 2 to 3 months, can you share maybe a little bit more detail on when you expect the game to be launched? And whether depending on certain conditions, whether the game could potentially be delayed to further quarters or a launch within the first half of 2020 is something that we should realistically be expecting? I'll ask the second question, too, while we're at it. The second question is actually regarding your shareholder return policy. It's a decision to return about 1/3 of your annual free cash flow to shareholders, but should we take this as a benchmark in management and the Board of Directors thought process going forward? [Foreign Language]
[Interpreted] Thank you. To your first question about the Dungeon&Fighter Mobile, plan is to launch the game by the end of first half 2020. So there has been no changes made to that, but we did not include this impact in Q1 guidance. So the launch is naturally in Q2 number. And as for your second question, Owen, in his presentation, talked about the cash allocation. And he mentioned that the cash allocation in 2019 was ideal allocation for the shareholders, but that doesn't mean that, that will be the benchmark from now on. We will try to make it possible, so that we can pay stable dividend in 2020 and onwards. And as for the share buyback will be flexibly conducting the buyback in a very agile manner. Thank you.
The next question is Han Joon Kim from Macquarie.
I just wanted to double check on KartRider Drift. I believe we've had a few iterations of KartRider released onto mobile over time. And I understand that this one is different in being a multi-platform release. But can you just walk us through some of your postmortem analysis of why some of the other mobile iterations for KartRider haven't been as commercially successful and how this one might be different? And then I just have a quick follow-up question after that. [Foreign Language]
Han Joon, thanks for your question. We have not announced all the platforms that KartRider Drift will be on yet. What we have announced is that it will be on PC and several other platforms. So that's where it stands as of now, but you'll see us make more announcements about that title later. There have been other iterations of KartRider in the past around the world. But keep in mind that it has been pretty heavily focused on one platform or another. And our general direction for KartRider is multi-platform, cross-play across several regions, very deep game play, very easy to learn, very deep game play. And so our development teams are working very hard on that, and we will be making more marketing announcements about that in the future. But the key thing is that it's a key title, a key franchise for us. And so we're putting a lot of -- we're putting certainly time and attention and resources towards it. [Foreign Language]
And the second one is more of a clarification. So I think, if I understand you correctly, we were talking more about selective distribution of key titles. Now I'm trying to understand if the launches of games like V4 or Counterside are more of residual games that we have in the pipeline that might as well just kind of get them out, and that we really wouldn't have a bunch of these type of publishing titles going forward. Or is it that we'll continue to have those, but just reallocate a little bit more research into some of our core franchise IPs. So just help me understand the pipeline flow and the resource allocation to a better degree.
[Foreign Language]
This is Owen, again. I'll answer your question as best as I can, and maybe you can tell me after I have answered it whether I've understood your question appropriately. But I think the way to answer your question is, the key thing we want to communicate that we've been working on very hard is the idea of focusing our new game development efforts around fewer franchises that are very close to what we are all about. And what we are really all about is deeply immersive online games. So that focus is extremely important to us, into our development teams. That's the area that we pioneered. We invent in much of that industry. It's the area where we bring the most to the table where we have our greatest expertise. And we think as we look at franchises like the performance, for example, of MapleStory in Page 5 of the presentation, really reflects that very, very well. And so we think that, that's where -- it's really where our heart is. So with that in mind, we are transitioning to a much greater focus, and it has been -- our teams -- our development teams have worked very, very hard to transition our focus. Now that doesn't turn on a dime. There are still some games that we've had in the pipeline that we think are very strong, but are not as much in that or deep in that upper right-hand quadrant that we talked about, but this is a transition that we're really doing over time. It won't happen on a dime, but it has been happening pretty rapidly within our organization. So hopefully, that answers your question. [Foreign Language]
[Interpreted] Are there any questions from this room?
[Foreign Language]
[Interpreted] If not, that concludes the Q&A session.
[Foreign Language]
[Interpreted] We'll now conclude NEXON's 2019 Fourth Quarter Earnings Presentation. Please make sure to leave your devices on the table. We appreciate your cooperation in filling out the feedback sheet to support our IR activities. And again, thank you very much for joining us today.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]