TT-707 -- Online Games Challenges for GREE, ebiz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, Apr 21, 2013, Issue No. 707

+++ INDEX

- What's New -- Online Games Challenges for GREE
- News -- Now you get to smell Ironman, not just watch
- Upcoming Events
- Corrections/Feedback
- Travel Picks -- Naked Man festival, Scuba Diving in Tokyo
- News Credits

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+++ WHAT'S NEW

In writing Terrie's Take 706 last week about the Cool Japan initiative, we mentioned how it was strange that the Cool Japan Promotion Council, with a very cool JPY50bn of funds at its disposal, doesn't appear to have a single member on its board from the most successful sector of the Japanese culture industry -- online games. Maybe the government doesn't want titans such as GREE and DeNA getting a piece of the action because they are rich enough already, but certainly it is a mystery why they are not at least advising the Council on how it can best invest for success in foreign markets.

This got us wondering about how GREE and DeNA are doing, GREE in particular, because of its high profile forays into the US market over the last two years. Both companies are incredible money machines. Last year on sales of JPY157bn, GREE had a pretax profit of JPY81.5bn -- in other words, about 52%. DeNA had sales of JPY132bn, and a pretax profit of JPY62.6bn -- 47%. It's no wonder then, that both companies attract a lot of attention from foreign shareholders.

Because of their high profile, though, GREE and DeNA are also very susceptible to missteps. They are easy targets for criticism about the deleterious effects of gaming on kids and youth, and in May last year (2012) their stock prices fell by more than 20% after the Consumer Affairs Agency accused them of breaking the gaming (games of chance) law with their 'complete gacha' prize offerings, which require players to invest money to win virtual cards and thus prizes. This negative publicity plus the fact that complete gacha was essentially an online casino has caused both companies to see their profit margins drop this year -- but not by much.

[Continued below...]

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[...Article continues]

Of the two companies, GREE is the more aggressive, and has tried a number of times to take clear leadership in the market using classic leapfrog techniques. One of these has been to use excess cash to buy strategic stakes in promising smaller games companies, so long as those firms only release their titles through GREE. Every other month there is another investment announcement from the company. The other technique has been to offer a technical platform which makes it easier for all those smaller games companies to develop their ideas and bring them to market quickly.

GREE amped up this approach when it spent US$104m in April 2011 to buy out a US games platform operator called OpenFeint. The OpenFeint platform wasn't particularly well built, and at the time of purchase the company behind it, Aurora Feint, had just been through a damaging class action law suit, where plaintiffs accused it of misusing customer information. But it did have over 1,000 games in the Apple App Store, and many more on Android, as well as 10m users. At the time, the GREE move seemed like either a master stroke or me-too-ism, given that it came just months after DeNA bought ngmoco.

GREE moved very quickly after the OpenFeint acquisition, and had its stable of investee game makers both here and abroad start to build for the platform, as well as reaching out and exciting the hundreds of existing OpenFeint development partners. It was around this time that GREE's administrative expenses started to soar, and we imagine that management got quite a shock in mid-2012 when they realized that they had bought into a black hole for their funds. They were not only dealing with the need to try to integrate their platform dreams with the complexity of OpenFeint, they also had to try to fix the various bugs and platform weaknesses they had inherited. If these weren't fixed quickly, then GREE could have had a public relations disaster on its hands later.

Against that background, it is no surprise that at the end of 2012, GREE management had realized that in OpenFeint they had bitten off more than they could chew and decided to swallow the investment loss and bury the platform before it damaged the parent company itself. Thus it was that in November 2012 GREE announced to its hundreds of partners that the platform that was an integral part of their software would be no more -- and that they had just one month to make other plans.

Although GREE did offer partners to port to GREE's own platform, the fact that moving meant the loss of all cloud-based leader boards and other user/game data was a non-starter, and this coupled with their ultra short notice made the offer tainted. To exacerbate things, Apple was also making extra demands on games developers at the time, so many firms had to watch their games investments go down the tubes. As a result, the name GREE is a dirty word for those developers and the company will be hard-pressed to mend those fences.

Indeed, last year's decision may breed a group of future competitors, because one of the founders of OpenFeint, Peter Relan, last month announced that he has created an open source version of OpenFeint, to be called OpenKit. This will be a cross-platform solution that allows games that ran on OpenFeint to run on both iOS and Android. It also offers in-app purchases, cloud storage of user data, and push notifications -- things that small games houses really need to be laid on. The platform already has 50 developers in beta, which we believe is more than all the developers that GREE has working on its own platform in the US. It will be interesting to see if OpenKit comes to Japan.

Anyway, GREE seems to have learned two lessons from its OpenFeint debacle: i) that it needs to be more cautious about further adventures in the US (although it still has the well-performing Funzio unit), and so it appears to be re-focusing on Japan and squeezing more juice out of the local market, and ii) it will abandon the idea of forcing everyone on to a specific platform, at least for the near future. Instead, it is going to focus on the quality of the games themselves -- a lesson that competitors DeNA and recent powerhouse Gung Ho have learned already. DeNA apparently spent about US$30m on promoting one of its recent titles in the USA, and despite the game having no formalized platform or even house branding, the title has done quite well. DeNA shows that marketing and focus matter.

GREE is now on a tear locally, setting up tie-ups with various major web players, so as to mop up any pockets of consumers that it may have missed. The biggest of these is between GREE and Yahoo Japan, via a Yahoo subsidiary named GyaO. They have just formed a joint venture called Future Content Partners, to invest into Japanese anime. Now, with timing like this, we wonder if they don't want to tap into the Cool Japan funds? Time will tell.

In the meantime, though, the online games and anime markets in Japan are worth more than JPY800bn combined, and are expected to pass JPY1trn over the next couple of years. If GREE, DeNA, and other players can get their foreign strategies figured out, then this sector has unlimited growth potential for a while to come. This coupled with the high profit margins the major players enjoy mean that Japan is likely to undergo a major shift in how it invests and uses resources in the technology sector -- from "hardware" to "content". In this respect, maybe that's one of the objectives of Cool Japan.

It certainly explains why last week a company which is only 14 years old and has 2,000 employees, DeNA, has seen its market cap rise past that of Sharp Corp., a company which is 88 years old, has 46,000 employees, and which has more than 20 times the revenue.

...The information janitors/

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----------------Spinning the Wheel in Fukushima------------

Perhaps you have seen NHK’s historic drama set by a picturesque castle in Aizu Wakamatsu? It’s a real castle in a part of Fukushima sheltered by beautiful mountain ranges from the radioactive fall out. In fact, radiation is slightly higher in Tokyo, so there is no excuse not to enjoy the sakura blossoms. To coincide with this special time, CLIF Bar is sponsoring a local invention called the Fukushima Wheel. LED lights project images as the bike is ridden through the castle.

Read more about the concept here: http://fukushimawheel.org and join us every day during Sakura season at the famous castle in Aizu Wakamatsu!
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+++ NEWS

- Major transformer factory opens in Tennessee
- Japan's politicians take to the Internet
- Carl Sundberg gets overdue recognition
- Now you get to smell Ironman, not just watch
- Patent reviews to be sped up

=> Major transformer factory opens in Tennessee

Mitsubishi Electric has just opened a massive 100-acre plant in Memphis, Tennessee, to supply precision-made high-power transformers to electricity utilities around the USA. The new facility will start with 65 employees, expanding to 275 as it ramps up production. It will turn out some of the world's largest power transformers, capable of handling voltages of up to 765kV and weighing 400 tons each. (Source: TT commentary from businesswire.com, Apr 19, 2013)

http://bit.ly/11sMpAj

=> Japan's politicians take to the Internet

The election campaigning law will change mid-this month, when a provision to allow electioneering over the internet will be approved. Just in time for the Upper House election set for June, the new law will allow politicians and their parties to use websites and social media to promote themselves and their policy positions. Interestingly, they will not be allowed to campaign using email, since the bill's authors felt that email is too easy to fake (spoof). So we will have a situation where politicians will be allowed to Tweet but not email. ***Ed: Suppose this makes sense...** (Source: TT commentary from asahi.com, Apr 20, 2013)

http://ajw.asahi.com/article/views/editorial/AJ201304200031

=> Carl Sundberg gets overdue recognition

A big congratulations to Carl Sundberg for getting featured in an excellent article in the Japan Times this past week. Carl was recognized for his visionary project to turn abandoned schools in Fukushima, and eventually around the country, into datacenters. Carl is pioneering low-tech computer networks, using natural ventilation and fault-tolerant software to keep costs down. Carl's company, Smart Technology Partners, employs 30 mostly local staff. He reckons that if they can get the formula right in Fukushima, there are 1,000 public schools a year being shut down in Japan, leaving them a rich set of resources to convert to data centers. ***Ed: We covered Carl's exploits briefly in TT-682.** (Source: TT commentary from japantimes.co.jp, Apr 20, 2013)

http://bit.ly/17DKSJv

=> Now you get to smell Ironman, not just watch

The next Ironman movie will open in Japan in a new format called "4D". The term refers to the fact that 4D theaters will feature the usual 3D imagery plus: tilting seats, strobe lights, bubbles, wind machines, fog, and most importantly, odors. No word on what kind of odors, but this is apparently the next big thing in theater experiences. 4D will set patrons back an additional JPY1,000/ticket. (Source: avclub.com, Apr 18, 2013)

http://avc.lu/Zdhk5r

=> Patent reviews to be sped up

A government commission has recommended the the Japan Patent Office speed up patent reviews so that none take longer than 3 years. The commission is trying to improve Japan's competitiveness, and sees the current patent log-jam as a major problem [Ed: true]. In addition, it will recommend the JPO also speed up the translation of Chinese patents into Japanese, so as to help Japanese firms avoid being sued in China, something that has been happening more frequently recently. The target is to have all new Chinese patents translated into Japanese within 6 months of their being filed. ***Ed: Sounds to us like the state is facilitating Japanese firms find ways around Chinese patents -- a time-honored practice normally reserved for western patents. ;-)** (Source: TT commentary from e.nikkei.com, Apr 17, 2013)

http://e.nikkei.com/e/ac/tnks/Nni20130416D1604A03.htm

NOTE: Broken links
Some online news sources remove their articles after just a few days of posting them, thus breaking our links -- we apologize for the inconvenience.

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+++ CANDIDATE ROUND UP/VACANCIES

=> BiOS, a Division of the LINC Media group, is actively marketing the following positions for customers setting up or expanding in Japan, as well as other employers of bilinguals.

** HIGHLIGHTED POSITION

CEO Wanted for Financial Firm

Our client is a rapidly growing credit card acquisition company based in Europe/USA, that is looking to expand in Japan. The company is looking for a foreigner with deep operations or technical experience in the credit card industry and who speaks fluent Japanese, or a Japanese person with strong English skills and international work experience.

The job primarily has an operations, people management, and large accounts management focus, as the company already has a long list of potential clients in Japan interested in signing with them once they are established. You will be Employee #1, and over 2-3 years will be expected to build a team of roughly 50 in Tokyo, so team development and team management experience is essential.

The position is challenging and fast-paced, but well remunerated. Stock options offered to outstanding candidates.

** POSITIONS VACANT

- Inside Sales, global IT services company, JPY 2.5M - 3.5M
- Data Center Operator, global financial services company, JPY 3M - 5M
- Application Support Helpdesk Engr, major global apps co., JPY 2.5M - 3.5M
- Staffing Consultant, IT integration services provider, JPY 2.5M - 3M
- Desktop Engineer, IT services provider, JPY 3M - 5M

** BiOS Job Mail

Every 2 weeks BiOS sends out a regular communication to its job seeking candidates, called BiOS Job Mail. Every edition carries a list of BiOS's current and most up-to-date vacancies, with each entry featuring a short job description and a direct link to the main entry on the BiOS home page. Regardless of whether you are unemployed and searching, thinking about a career change, or just curious to know if there is something out there that might suit you better, the BiOS Job Mail newsletter is an easy and convenient way for you to stay informed. If you would like to register for the BiOS Job Mail, or to find out more, please email jason.kisling@biosjp.com.

Interested individuals may e-mail resumes to: jason.kisling@biosjp.com and check out the BiOS web page for other jobs: http://www.biosjp.com/positions.php
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+++ UPCOMING EVENTS/ANNOUNCEMENTS

------------------ ICA Event - April 25 -------------------

Speaker: Andrew Silberman, President and Chief Enthusiast of Advanced Management Training Group
Title: "Professional Networking Made E.A.S.Y."

Details: Complete event details at http://www.icajapan.jp/
Date: Thursday, April 25, 2013
Time: 6:30 Doors open, Buffet Dinner included and cash bar
Cost: 4,000 yen (members), 6,000 yen (non-members) Open to all. No sign ups at the door!!!!!!!
RSVP: RSVP by 5pm on Friday, April 19th

Venue is The Foreign Correspondents' Club of Japan, http://www.fccj.or.jp/aboutus/map
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---------------- Start a Company in Japan -----------------

Entrepreneur's Handbook Seminar 25th of May, 2013

If you have been considering setting up your own company, find out what it takes to make it successful. Terrie Lloyd, founder of over 17 start-up companies in Japan, will be giving an English-language seminar and Q&A on starting up a company in Japan.

This is an ideal opportunity to find out what is involved, and to ask specific questions that are not normally answered in business books. All materials are in English and are Japan-focused.

For more details: http://www.japaninc.com/entrepreneur_handbook_seminar
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***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted by readers. We encourage you to spot our mistakes and amplify our points, by email, to editors@terrie.com.

=> No corrections this week.

***------------------------****-------------------------***
+++ TRAVEL DESTINATIONS PICKS

=> Yanaizu's Nanokado Hadaka Mairi, Fukushima
One of Japan's most famous Naked Man festivals

In a singular, quiet village in Fukushima Prefecture, local male citizens welcome the arrival of a new year in a fantastic way. Last year, myself and a few pals drove up to the village of Yanaizu, a small town famous for its yellow manju, the nationally esteemed modern artist Saito Kiyoshi, and its yearly Naked Man Festival, the Nanokado Hadaka Mairi, which is celebrated every 7th of January. To win good luck for the new year, men participating in the Yanaizu Hadaka Mairi await the night's trial with sake (rice wine), strip naked down to a fundoshi (loincloth), and at the loud strike of the bell of Enzo-ji Temple, begin their barefoot climb through meters of snow and up 113 steps to a large Buddhist temple atop the Tadami River's steep bank.

http://japantourist.jp/photos/yan-aizu-s-hadaka-matsuri

=> Scuba diving in Hachijojima, Tokyo
An unexpected diving spot in the Izu Islands chain

As the overnight ferry from Tokyo makes its 12 hour journey to Hachijojima, the sight of Hachijo-fuji, a tiny Mt Fuji rising up in the distance, is the first sign that the ferry is about to reach its destination. Hachijojima, a quaint little island of around 8,500 people, is mountainous and volcanic with black sandy beaches, warm sea temperatures and a beautiful and diverse marine life with plenty of sea turtles. It’s a popular destination in September and October as the sea is still warm and there are a couple of long public holiday weekends in both months.

Dive spots are strewn across the island. One site next to the port is Sokodo, a good place if you have not been in the water for a while. Home to a collection of hard and soft corals, its highlight is a triple arch, a gigantic rocky structure full of tunnels and crevices that runs almost up to the surface and is teeming with marine life and interesting routes to swim through. After entering the water down some slippery steps, you are soon in a sheltered bay around 3m deep. From here, a straightforward swim past some concrete boulders leads to the triple arch. As the dive begins, the bottom is mainly rocky and visibility can be poor but the complex arch formed by the eruptions of two now-extinct volcanoes is home to many angelfish, parrotfish, trumpet fish, sea bream, butterfly fish, sea slugs and sea urchins.

http://japantourist.jp/view/an-unusual-diving-spot

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Written by: Terrie Lloyd (terrie.lloyd@japaninc.com)

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