When you get down to it, the Nico Nico Douga website is just a combination of videos and text comments about them.

But this simple amalgamation has created a cultural phenomenon that has spread like wildfire among Japanese Internet users — especially the young.

In the past five years, Nico Nico Douga, operated by Tokyo-based Dwango Co., has become one of the leading online video-sharing platforms in the country, with roughly 21 million registered users, about 86 percent of whom are under the age of 40.

And while it is often said Japanese IT firms cannot create globally popular Internet services, Dwango believes it has the potential to beat the odds and aims to take the site global in the future.

“There are probably no other Japanese media that grab the hearts of young people as firmly as Nico Nico Douga does,” said Satoshi Hamano, a researcher at Tokyo-based IT advisory Nihon Gigei Inc., who has researched the service.

Dwango, whose main business was creating online video games and distributing music for cellphones, launched Nico Nico Douga in 2006. One of the site’s main goals was to enable users to enjoy live music events over the Internet as if they were actually there. Using the site’s real-time comment function, which allows users to write comments on the video screen being played, users were able to communicate with each other in novel ways.

The service quickly gained a strong foothold among heavy Internet users, attracting over 1 million registered users within six months and more than 500 million monthly page views.

On top of the contents uploaded by users, it now runs official live-streaming programs that include politicians’ full-length news conferences, symposiums, comedies featuring popular celebrities, as well as sporting events like professional baseball.

Its business model is based on revenue from paid users and ads, but turning an online video-sharing service into a profitable endeavor has proven difficult, as the cost to handle a huge amount of data traffic is enormous. This also applies to Google’s YouTube, the giant among online video-sharing services.

Although Google does not disclose figures for YouTube, it has for years struggled to make a profit, according to various media reports.

Nico Nico Douga has attracted about 1.2 million paid users so far, with each paying a ¥500 monthly fee. It managed to post operating profits of ¥115 million on sales of ¥1.84 billion in the October 2009-September 2010 business year.

Paid users get various benefits, including priority access to the site when traffic is congested and the right to run a user’s own live streaming program on the website.

What has contributed to this growth is its service’s popularity among the young and its real-time comment function, which enables users to post comments anytime on a video being played. Once users send comments, they immediately appear on the videos, moving from right to left on the screen.

One of the commonly used comments is the letter “w,” which represents laughter, taking the first letter of “warau (to laugh)” in Japanese. When a funny thing happens in the video, users can often be found typing a stream of “wwwww” to express laughter.

“Although people are actually not watching the same video at the same time and in the same place, the comments make them feel like they were watching it together,” said Hamano of Nihon Gigei.

YouTube users can also post their comments, but these appear in a separate space, not over the video, so “it doesn’t make you feel like (you are) watching with others,” Hamano said.

The function has also become a useful tool for some professionals, such as Kotaro Fujiyama, a practitioner of a type of Japanese traditional magic called “wazuma.”

Fujiyama, who has uploaded a number of video clips of his magic shows, said because users’ comments are often anonymous, he is able to read their genuine reactions — the “things that are in their minds but are not spoken.”

Nico Nico Douga “is a very interesting place for performers,” he said.

Takeshi Natsuno, Dwango director of Nico Nico’s business model, said the company’s service policy is to pursue “sharing of a place” with other users through videos.

“If you look at it, you can see Nico Nico Douga is like getting YouTube, Twitter and Ustream on one screen,” he said. “It doesn’t work if they are not all on one screen.”

Some observers say Nico Nico Douga’s growth is backed by changes in society, and what the site provides matches people’s shifting interests and communication patterns.

Since the late 1990s, communication via cellphone email services has experienced a boom among young people. And now, more and more of them are also coming to spend a significant amount of time on the Internet rather than watching TV.

“Communication through the Internet itself has become entertainment for them,” which is why Nico Nico Douga has matched up well with young people’s needs, Nihon Gigei’s Hamano said.

But the service has not just provided users with entertainment, it has also changed some people’s lives.

A singer who goes by the stage name Pokota was a real estate worker until uploading videos of himself singing around April 2008.

Pokota, who was singing in a band, posted his videos because he wanted to show off his ability to impersonate popular singer Gackt.

After adding his videos, they became popular among the Nico Nico community. And when Pokota’s band held a live event after about a year, it attracted a full house of about 250 people, many of whom were young girls who got to know him through the online service.

Thanks to this online success, Pokota quit his job last year to focus on his singing career.

Still, he said that although singing is now his full-time job, he “still feels like just one of the Nico Nico users.”

Pokota’s success is just one example of how the service has expanded from cyberspace into the real world. As it has spurred the rise of many celebrities, Dwango now connects the virtual and real communities together by hosting events like concerts and musicals featuring the stars it helped create, including Pokota.

Recently, Dwango also opened a new studio for its streaming program in the center of Tokyo’s Harajuku district. The building also has a shop selling Nico Nico Douga’s goods.

The company is even planning to open a live house called NicoFarre at the former site of the now defunct Velfarre nightclub in Tokyo’s Roppongi district. The new club is scheduled to open in July, and will have its walls and ceiling decorated with LED monitors, displaying the real-time comments about the events taking place.

And with Nico Nico Douga’s strong presence in Japan, Natsuno hopes to expand abroad.

“I think Nico Nico Douga has potential to become a worldwide IT business,” stressed Natsuno, a former NTT DoCoMo director and known as a creator of the i-mode service.

But Natsuno may face a challenge breaking into the global Internet market — Japan’s presence is barely visible, as U.S.-based services like Google, Apple, Facebook and Twitter dominant the scene.

“Those U.S.-based firms have a very clear philosophy on their business,” said Natsuno, adding Nico Nico also has a clear philosophy, which is sharing virtual space with others through videos.

For Natsuno, most important in venturing abroad is making sure the business is sustainable, as the costs are enormous.

“If it’s not sustainable, it will be hard to find even one business partner,” and Nico Nico Douga has only just started making a profit, so the company needs to strengthen its business model and then take it overseas, Natsuno said.

He added this is not just a challenge for Dwango, but for the whole Japanese business world. There are not enough investors like the U.S., he said, who would put funds into startups that do interesting business.

“Japan has many interesting businesses, but they are run with their own funds. Managing everything with their own funds will be a huge risk for publicly listed companies in Japan when going into overseas markets,” he said.

In the meantime, Nico Nico Douga plans to strengthen its business model and aim for more growth in Japan.

“We are creating brand new infrastructure in the virtual community. We want to increase the number and kinds of content and users, so the community will be more energized and become more stable,” he said.

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