Japan's new regulations banning "complete gacha" in mobile games could pave the way for stronger growth of alternative games segments and offer opportunities for overseas players, especially from South Korea, one analyst says.
"Complete gacha" has been likened to a form of gambling with gamers collecting a series of items to complete specific combinations in return for rare virtual prizes. These complete gacha virtual games have become a main source of revenue for local online games operators in an industry estimated to be worth 250 billion yen (US$3.1 billion), according to Japanese news agency Yomiuri Shimbun.
On Jul. 1 this year, rules kicked in making virtual games of chance illegal though. As a result, the news agency reported in June that six operators--DeNA; Gree; NHN Japan; CyberAgent; Dwango; and Mixi--had announced their decisions to end the practice.
Independent Japanese social games consultant Serkan Toto noted that following the announcement of the ban, Japan's two dominant social game platform providers, DeNA and Gree, lost almost 50 percent of their market capitalization within a month.
"The immediate impact was panic, as the ban marked the first time the social games industry was regulated by the Japanese government--which was very lenient with mobile games operators until that point," said Toto, who added that game makers would now have to turn to alternative mechanisms to monetize their user base.
In response to queries from ZDNet Asia, Gree said it has always been "working on continuous improvement for usage environment for the users as well as promoting an environment where users can play games safely".
It added that it did not "specifically look into any new plans" in response to the new regulations. However, a Gree spokesperson noted the company is eyeing more growth from overseas and is on the lookout for a fifth studio in Southeast Asia, but has yet to finalize a timeframe.
Opportunity for other games segments, overseas players
While the new rules may be a drag on growth for domestic operators, Nomura Equity Research believes this could help overseas players such as those from South Korea gain more market share in Japan in the long term.
With the regulation acting as a possible catalyst for non-gacha games to grow, Stanley Yang and Eric Cha, research analysts at Nomura, said in their research note June that South Korean players such as JCE and Gamevil, which already have a small presence in Japan, are well positioned to capture that growth.
"In order to secure future growth drivers, Japanese mobile game companies may take a more aggressive strategy toward non-gacha-based smartphone games, given that Japanese smartphone penetration is expected to increase from 23 percent in March 2012 to 40 percent in March 2013," said Nomura.
However, Toto believed that despite the tighter regulations, the domestic market would still be tough to crack for non-Japanese developers.
"The local social games market will get over the shock and remain as hard to penetrate for non-Japanese developers as ever," he said.
Toto pointed to how Japanese social games companies were already adapting by introducing new forms of gacha that are not covered under the ban.
"One such type is '11-Gacha', where users first pay, for example, 3,000 yen (US$37.60) for a set of 10 spins upfront and get an 11th one for free," said the consultant. Users are guaranteed to own a special rare item after the final spin with no gambling element involved, in contrast to complete gacha, he said.