Japan's Digital Casinos Are Closing

Mobile game leaders edge into other fields as they lose ground to Chinese and Korean rivals.

- Yuji Nakamura

Getting players to pay real-world money for digital items has become de rigueur for most mobile game makers, but in Japan it’s something like an art. Over the past decade, fighting and puzzle games with titles such as Monster Strike and Puzzle & Dragons haven’t just made Candy Crush Saga look like a piker—they’ve ranked among the most lucrative digital products on Earth. The creators of Monster Strike and Puzzle & Dragons, Mixi Inc. and Gung Ho Online Entertainment Inc., respectively, are among the game makers specializing in gacha, a form of not-quite-gambling in which players pay for a mystery in-game prize, typically a special weapon or character outfit. Japanese gacha games have generated at least $55 billion since 2007, according to industry association Mobile Content Forum (MCF) and an analysis of data compiled by Bloomberg.

Yet for Japan’s pioneers of mobile gaming—or, according to critics, gambling—the good times seem to be just about over. Mostly unable to produce follow-up hits, the companies are losing market share to more innovative rivals in China and South Korea, and their profits and share prices are tumbling. “The gacha business model is under pressure to change,” says Koki Kimura, president of Mixi, whose stock has crashed 65 percent from last year’s all-time peak. He predicts mobile games, which account for 90 percent of Mixi’s $1.7 billion in annual revenue, will drop to a third of the total in 5 to 10 years, supplanted by sports broadcasting and gyms.