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Japanese social game networks take a hit over regulation concerns
Japanese social game networks take a hit over regulation concerns
May 7, 2012 | By Eric Caoili

Reports of impending Japanese regulations for social game networks and their virtual goods practices have cast doubt over the futures of Gree and DeNA -- and their stock prices have tumbled as a result.

Japan's Consumer Affairs Agency has reportedly decided that "kompu gacha," a common online game practice that rewards players with a virtual prize after purchasing a complete set of goods, is illegal, according to The Daily Yomiuri. [See this Gamasutra Expert Blog post for a better understanding of "kompu gacha" - Ed.]

The Korean government has sought to regulate online games in its country over similar concerns. Various departments there have argued that "Jackpot items," or microtransactions for random virtual goods, constitute as gambling, and seek to impose limits on them.

CAA began investigating these concerns after receiving dozens of complaints over expensive charges from consumers who played games with the virtual prizes. Some parents have also alleged that the addictive nature of these microtransactions led their children to spend as much as ¥120,000 ($1,500) on them in just a few days.

Two weeks ago, Gree and DeNA instituted a monthly cap on how much younger players could spend on virtual goods for their social games. Teens and children are now restricted from spending more than ¥5,000 ($61.79) and ¥10,000 ($123.58), depending on their age range.

CAA will purportedly request that Japanese social game networks like Gree and DeNA (Mobage) cease this practice on their services, and will fine companies that do not comply. Those two firms have declined to provide a comment on the matter so far, though Gree has said it will make a statement once it receives the request.

Stockholders have chosen not to wait for that news, though, as those companies' share prices plunged on the Nikkei index -- Gree's shares fell by 23 percent, while DeNA's fell by 20 percent. Local social network firms Mixi and CyberAgent (Ameba) saw their stocks dive, too.

Stocks for other Japanese developers that produce social games have been affected as well, including Konami, Capcom, and Namco Bandai. Bloomberg points out that Gree CEO Yoshikazu Tanaka, who owns a 48 percent stake in his company, lost ¥56.1 billion ($702 million) today.

The news comes during a critical period for Gree and DeNA, as both are currently making aggressive efforts to expand beyond Japan and to the West, securing big investments and acquisitions to build momentum for their respective social networks.

Gree expects to launch its new global mobile social game platform in the coming months, and virtual good sales make up a big portion of its revenues. The company expects to bring in more than ¥160-170 billion ($2-2.1 billion) in sales by the end of its fiscal year next month.

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E McNeill
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I don't want to see our industry regulated. I also don't want to see this kind of exploitative mechanic. Game designers have a lot of power, and we should be more ethically conscious about how we use it. This story could repeat itself.

Christopher Enderle
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The people who pay the game designers have a lot of power. The regulations are coming and now the people who made their money are bailing out, leaving only the people who care about the medium to slowly repair their damage, until games are profitable enough to be co-opted again.

Cordero W
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To be honest, they are partially right. A lot of games have microtransactions where you have a "chance" to get a good item. So instead of paying to get that item directly, you're paying for the chance to eventually get that item or not at all. So you end up getting a low par item that's worthless. I'm glad something like this is happening. Hopefully, those same regulations come over to the US.

Jeremy Reaban
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The worst part is, you don't even know the odds of getting the item. So you are not only gambling, but gambling blind.

Ian Uniacke
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..and with no monetary benefit for winning. It's like gambling for the mathematically stupid.

Sean Kiley
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When will everyone learn its only okay to gamble when the government says so, sheesh. *sarcasm*

Ken Love
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Couldn't of happened to a nicer bunch of guys.

Ramin Shokrizade
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I spent seven years developing advanced monetization models so that things would not come to this. I have been warning companies for years that they invited regulation on their current path. On the last game I monetized, Yacuba Games' Army Rage, I designed a "fair" (not pay to win) monetization model for them without any gambling elements. They convinced me to include a gambling mechanism in the final design and I did. These tend to monetize well, and as long as they are not the sole method of revenue generation they can tap into those that enjoy or are vulnerable to gambling mechanisms.

The systems described in the OP are certainly gambling, and I have written a number of articles on this subject in the last year (see my LinkedIn profile to get to my blog). When I wrote my "Zynga Analysis" paper in July of 2011 I warned that a number of the mechanisms described here could lead to regulation. I am eager to see how this plays out.

Saul Gonzalez
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This article, like many others, contains factual mistakes about the "konpu gacha" mechanism and what is actually being considered for regulation. I've tried to clear the facts on a blog post: