GungHo Online Entertainment Inc. plans to strike partnerships with third-party game developers and share its recipe for success as the maker of the world’s highest-grossing smartphone title begins to expand into publishing.
President Kazuki Morishita said the company has hit on the right formula to win over notoriously fickle gamers and is eager to share it.
“Companies have been coming to us for years begging to publish their games. We are now getting ready to do that,” Morishita said Wednesday in an interview in Tokyo. “It’s just not something you can teach. It’s an accumulation of many years of practice, a kind of a secret sauce that has been infused into the pot.”
GungHo spent a decade in relative obscurity as an operator of online computer games before the 2012 release of the puzzle and strategy game “Puzzle & Dragons” rocketed it to the ranks of the world’s top three mobile developers. The company generated $1.3 billion in sales last year from a free-to-play game that has attracted copycats.
Morishita said GungHo’s learnings can be a boon to developers hoping to replicate the success of the title, while avoiding the user fatigue that now plagues former hits like Rovio Entertainment Oy’s “Angry Birds” or King Digital Entertainment’s “Candy Crush Saga.”
Not a one-hit wonder
Unlike packaged titles for Sony Corp.’s PlayStation and Nintendo Co.’s Wii consoles, mobile games require constant upgrades to keep people playing and spending.
Morishita likens the process to making a campfire — too much kindling and it burns out too soon. That’s why the company intentionally caps earnings per user and focuses on increasing the audience to extend the game’s life span.
Publishing can be lucrative — often the publisher takes a large chunk of sales and revenue — but GungHo may also take on responsibility for guiding and helping developers run their games.
“There are so many cases where a company excels at development but slips up when it comes to publishing,” Morishita said.
GungHo is looking at bringing overseas games to Japan and vice versa, he said without giving further details.
Expanding into publishing is part of Morishita’s plan to prove the company is not a one-hit wonder confined to Japan.
“Puzzle & Dragons” accounted for 92 percent of its 2014 sales, virtually all domestic. GungHo’s shares are trading at one-third of their peak in 2013 as investors look for evidence it can deliver another big hit and succeed in capturing audiences in China and North America.
A rash of copycats
“There are so many games that are following in the footsteps of ‘Puzzle & Dragons,’ threatening the company’s domestic user base,” said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo. “GungHo needs to make moves and advance their business model.”
Taking on third-party titles may entail acquisitions, capital and business alliances, Morishita said without naming specific companies.
Potential purchases may include developers, publishers and game technology companies, he said.
“Big or small, we have an aggressive investment strategy in mind,” Morishita said. “The cash keeps piling up every month, more than we need for in-house game development, and we need to find an effective way to use it.”
Raking in the cash
Since the company introduced “Puzzle & Dragons” three years ago, its cash and equivalents has increased 20 times to ¥129 billion as of March 31. Over the same period, shares have surged 28-fold.
GungHo said in December it is teaming with Tencent Holdings Ltd. to release “Puzzle & Dragons” in China. The launch may come in the last three months of the year and will make use of the Shenzhen-based company’s WeChat and QQ messaging applications, Morishita said.
The Tokyo-based company is also developing a new smartphone title that promises a completely new mode of play, standing out in a market that increasingly relies on popular formats, Morishita said. The game may be announced as early as this year, he said, declining to give further details.
“Pretty much everything you can do with a smartphone has already been done. There isn’t much innovation in the industry these days,” he said. “It’s extremely difficult. We’ll either strike out or hit a home run. The question is whether we can change people’s daily habits or not.”