(BN) DeNA, Gree to Stop Game Feature Scrutinized by Regulators (2)

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DeNA, Gree to Stop Game Feature Scrutinized by Regulators (2)

May 9 (Bloomberg) -- DeNA Co. and Gree Inc., Japan's two biggest social-gaming operators, will stop offering a game feature scrutinized by regulators who said charges to use it were in some cases excessive.

DeNA will stop using the "complete gacha" function in games, President Isao Moriyasu told reporters in Tokyo today. Gree will also halt it by May 31, Shinichi Iriyama, a spokesman, said by phone.

DeNA and Gree plunged in Tokyo trading for a third day today after the consumer agency's May 7 announcement it was probing whether "complete gacha," where players pay to accumulate virtual tokens online, is legal. Gree said yesterday it almost tripled profit in the three months ended March 31 as it drew users to games, including those with the "complete gacha" feature on its own online social network.

"The companies would lose a profit opportunity if the government regulates the method," said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan Co., a Tokyo- based hedge fund advisory firm. "Users will move away."

Japan's social-gaming market may expand 33 percent from a year earlier to about 343 billion yen ($4.3 billion) this fiscal year, Yano Research Institute Ltd. forecast in January. That would be 70 times the 4.9 billion-yen market in 2008, according to estimates by the researcher.

Profit Reduction

A ban on "complete gacha" could reduce Gree's net income by 18 percent and DeNA's by 6 percent, said David Gibson, a Tokyo-based analyst at Macquarie Securities Ltd., who has an underperform rating on both companies.

Zynga Inc., the world's biggest developer of games for social-networking sites, had revenue $1.1 billion in sales last year.

KLab Inc., another Tokyo-based social-game operator, also plans to abandon "complete gacha" effective May 31, it said in a statement to the Tokyo Stock Exchange today. The shares gained 3.2 percent to 489 yen at the close of Tokyo trading after the announcement, erasing earlier losses.

Gree fell 9.6 percent today, bringing its drop this week to 31 percent. DeNA declined 22 percent this week, compared with a 3.6 percent three-day drop in the benchmark Nikkei 225 Stock Average.

Similar to Gambling

Japan's Consumer Affairs Agency will issue an opinion on "complete gacha" next week at the earliest, Hirohiko Fukushima, secretary general of the agency, said today. The agency has said games with the feature entice users with an appeal that's similar to gambling.

"Complete gacha" users pay about 300 yen for each virtual token, which can be converted to a more valuable virtual item if the player obtains the right combination or a "complete" set.

Gacha gacha are the Japanese words for vending machines that dispense miniature toys or prizes in plastic capsules without showing the contents beforehand. Buyers take a chance they will receive a desired item after inserting coins and turning a knob.

One "complete gacha" user's charges totaled 4 million yen in two months, according to the minutes of the consumer agency's panel meeting in February. Some users also offer virtual items on auction sites, the panel said.

"There may be a need for some regulation, as children get charged hundreds of thousands of yen a month" to obtain special virtual items, Fukushima told reporters in Tokyo today. "We first want to call on companies to make changes on their own."

Industry Panel

Six companies including DeNA and Gree set up a panel in March to discuss measures to improve social gaming. The panel will cooperate fully with the government and release guidelines by May 31, Gree's founder and President Yoshikazu Tanaka said at a press conference in Tokyo yesterday, after the company reported that third-quarter profit almost tripled.

DeNA's revenue may not decline this fiscal year from last year, Moriyasu said today.

Gree kept its forecast unchanged yesterday. It predicted net income may total between 44 billion yen and 50 billion yen in the year ending June 30.

"Even if complete gacha is abandoned, it won't rock the foundation of Gree," Ryotaro Shima, head of Gree's corporate division, said yesterday. "We will consider introducing new services to spur sales."

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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Eugene.