May 20, 2014 / 8:05 AM / in 4 years

Japanese app developer GungHo to launch game in China this year

TOKYO (Reuters) - Japan’s GungHo Online Entertainment Inc (3765.T) will launch its blockbuster “Puzzle & Dragons” smartphone game in China before the end of the year, as the app maker aims to grab more revenue abroad than from home.

GungHo, a third-owned by Softbank Corp (9984.T), earned almost all of last year’s $1.6 billion in revenue from Japan. Of that total, around 90 percent came from the world’s top-grossing mobile game whose downloads equal almost half of the smartphone contracts in Japan.

To diversify, GungHo aims to raise overseas sales to 70 percent of total revenue. With that goal in mind, it is working out details for localizing the game to help it succeed in neighboring China.

“We can’t go directly into China so we have to find a local partner. We have already narrowed that down and set our terms. Right now we are organizing the timing for the game release and tweaking it for the local market,” Chief Executive Kazuki Morishita said at the Reuters Japan Investment Summit.

“For localization we’re not just translating it into Chinese but adjusting aspects of the game for Chinese culture,” Morishita said at the summit, held at the Reuters office in Tokyo.

Puzzle & Dragons has helped GungHo become one of the world’s most profitable developers, reaching an operating margin of 58 percent in the January-March quarter. But investors are concerned about prospects for the mobile game market as rivals such as Farmville maker Zynga Inc (ZNGA.O) struggle to retain users.

And as Puzzle & Dragons becomes widespread at home, that concern is compounded by the relatively few examples of developers following major hits with equally successful titles.

Kazuhiro Morishita, president and CEO of Japanese smartphone app maker GungHo Online Entertainment Inc, poses for a picture before the Reuters Japan Investment Summit in Tokyo May 20, 2014. REUTERS/Toru Hanai

Shares in GungHo have fallen 33.1 percent this year after soaring almost ten-fold last year. That compared with a decline of 14 percent since January 1 on the benchmark index .N225 which rose 57 percent last year.

Morishita said the share fall is at odds with a company whose operating profit grew 55 percent in January-March. He also said GungHo is nurturing five other major titles, and that he wasn’t worried about market saturation at home.

    “Puzzle & Dragons hasn’t peaked out at all. We’re still seeing about 1 million downloads a month and 28 million total downloads are in our sights,” Morishita said.

    That compared with the 57.3 million smartphone contracts in Japan at the end of April, according to MM Research Institute.

    Overseas, the game has been downloaded 7 million times across 12 regions, including North America, Europe and Taiwan.

    Morishita also said, however, that rather than downloads, the company focuses on monthly active users, which were still increasing two years after the game’s release.

    The game was the top-grossing game app in the world in 2013, according to app analytics firm AppAnnie that reviews revenue taken at Apple Inc’s (AAPL.O) App Store and Google Inc’s (GOOGL.O) Google Play. GungHo said the game also accounted for around quarter of Japan’s total smartphone game market that year, based on figures from market researcher CyberZ.

    That helped swell GungHo’s operating profit to 91 billion yen ($900 million) for the business year to December 31, a tenfold increase on the previous year, or more than double the latest annual profit of video game software maker Namco Bandai Holdings

    Editing by Christopher Cushing

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