20th in a series of occasional articles on venture businesses
The flagging economy and recent wave of deregulation in Japan were the main factors that facilitated the marriage between convenience stores and game software distributor DigiCube Co. 2 1/2 years ago, according to the president of the company.
DigiCube, established by major game software makers such as Square Co. in February 1996, successfully expanded sales of games by fully utilizing 17,150 convenience stores nationwide and their point-of-sale system. The company recently has started selling music CDs and movies through the same channels.
On July 28, the company’s stock debuted on the over-the-counter market. “Starting a new business is like going outside in a pouring rain,” said Hisashi Suzuki, president of DigiCube, describing the firm’s tough start. “But because we started at that time, we were able to grow.”
Suzuki said that some 15 years ago, he and his colleagues, many of whom came from Square, DigiCube’s parent company, anticipated strong growth of convenience stores in Japan. “When we launched Square 15 years ago, DigiCube’s current owner and founder of Square, Masafumi Miyamoto, used to say that convenience stores have great potential to grow. From that time on, we always drew our model from the rational management of Ito-Yokado Co., which owns Seven-Eleven Japan Co.,” he said.
But the game industry was still small and the time was not ripe for Seven-Eleven to sell games in their stores, Suzuki said.
However, by the time DigiCube was established in 1996, Square had become Japan’s leading game software company. On the other hand, convenience stores, which had enjoyed double-digit growth until then, were beginning to slow down. “Just when convenience stores were beginning to feel the need to include new products to expand their sales, I appeared before them with the new game business,” Suzuki said.
The 37-year-old added that favorable winds for venture businesses also enabled the company to go public on the OTC market in a short period of time. “There was an atmosphere that people needed to support a young generation of entrepreneurs in Japan,” he said, citing how quickly DigiCube obtained a license for satellite broadcasting for SkyPerfecTV. “Until we applied for the license, we were told by many people that it would take at least three years to get a license from the Posts and Telecommunications Ministry. But we got it in two months,” he said.
Between November 1996 and July, the firm sold 14.32 million games, 1.02 million music CDs and 330,649 movie videos through five convenience store chains, including Seven-Eleven and FamilyMart Co.
In the business year that ended in March, the company posted 46.84 billion yen in earnings and its pretax profit was 2.04 billion yen.
Suzuki said that in the past 2 1/2 years, DigiCube was able to achieve its initial target of expanding game users, especially by bringing back male adults in their 20s and 30s who used to play games when they were children.
However, like other venture companies, the firm also faced strong opposition and interference by existing business groups when it tried to sell music CDs. “The game industry only has about 15 years of history but the music industry has a history of nearly 100 years. So (the music industry’s) distributing system, already firmly rooted, tends to resist newcomers such as us,” he said.
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