Gaming group defies Japanese gloom

In Zombie Jombie, the latest game from Gree, an ambitious Japanese marketer of video games for mobile phones, players are invited to "build a mighty zombie army" by pitting their undead minions against those of rivals over the company's online social network.

Gree, which was founded seven years ago by Yoshikazu Tanaka - then a 28-year-old software developer at an internet shopping site and now Asia's youngest self-made billionaire - has a mighty army of its own in Japan. There are 29m people, nearly a quarter of the country's population, using its service to slay dragons, raise virtual puppies and re-enact historic battles.

The popularity of mobile games is exploding worldwide: PwC, the consultancy, expects sales of downloadable games for mobile phones to more than double this year to $13.5bn.

Yet for Gree, Zombie Jombie represents a new and particularly assertive turn. The first game developed by the company specifically for foreign audiences, it became the fourth-ranked free app on Apple's US App Store after its release late last month and was swiftly followed by the launch of another, Alien Family. Gree has also introduced a globally integrated software platform from which users can download games in an effort to expand in the US, China and other international markets.

"Lots of overseas internet services are coming to Japan, and this [platform] will allow us to extend ourselves the other way," says Mr Tanaka, whose style - tousled hair and T-shirt - is straight out of Silicon Valley. "It takes down the walls between countries and makes us just like the Apple Store or Android Market."

At a time when well-known Japanese manufacturers such as Toyota and Sony are struggling with a strong yen and increasingly tough competition from lower-cost countries, many are wondering whether newer, more service-focused technology businesses such as Gree can pick up the economic slack.

There are plenty of sceptics: while Japan has homegrown versions of internet staples such as Facebook and Amazon, its global businesses are overwhelmingly concentrated in hardware. "Succeeding in the US will be difficult," says Takayoshi Koike, an analyst at Goldman Sachs. "Gree has its own platform, but it has to compete against powerful local ones like Facebook and Apple."

To kick-start its foreign expansion, Gree last year paid $104m for OpenFeint, a US social gaming platform for Google Android and Apple phones. It has also struck a deal with Tencent, China's leading internet gaming company, to allow games to be played across both platforms. And its war chest is expanding rapidly: for the financial year that ended on March 31, Gree estimates it earned a net profit of between Y44bn ($534m) and Y50bn, on sales of Y160bn-Y170bn.

As a result of its recent foreign deals Gree, which went public in 2008 and has a market capitalisation of Y489bn, boasts a global user base of 190m. By comparison Sony's PlayStation Network, which connects home video game systems, has about 70m users.

Other Japanese social gaming companies are also looking abroad, including DeNA, a start-up that began as an online auction site before adding games. In 2010 DeNA bought Ngmoco, another US social gaming company, for $400m.

Mr Tanaka argues Gree is well placed to prove its doubters wrong. In Japan, mobile phones have long been the favoured means of accessing the internet, so unlike Facebook - and US game developers such as Zynga - Gree's social networking functions were designed around games and mobiles from the start. "When you control the games and the platform, you can innovate much more easily," he says.

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The biggest reason for optimism may be the explosive growth of mobile gaming in general, which could reward even companies that capture a small slice of the market. So-called casual gamers are increasingly forgoing specialised gaming devices from the likes of Sony and Nintendo in favour of playing cheap, downloadable games on smartphones.

With Zombie Jombie, Gree has combined an American visual style with the Japanese "card battle" playing format, familiar to young gamers from the hit Pokemon and Yu-Gi-Oh franchises. The zombies in the game are cute in their own demon-eyed, flesh-eating way, but look more like the product of the US Nickelodeon cartoon network than of Japanese anime.

The game was tested in Australia before its global launch, and Naoki Aoyagi, Gree's chief financial officer, told Japan's Nikkei Business Daily that average revenues per user from purchases of extra character abilities and other add-ons were two to three times greater than typical social games.

With Gree's shares having gained 45 per cent over the past year, investors certainly like what they see.

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