KLab Inc. (3656), maker of the most popular music game for Apple Inc. iPhones in Japan, is seeking more partners in China to bolster growth and build on the success of its Love Live! title.
KLab aims to increase operating profit from its overseas gaming business to half the total within the next two years from about 3 percent now, President Tetsuya Sanada said in an interview. To help do that the company has teamed with Qihoo 360 Technology Co. (QIHU:US) and Shanda Games Ltd. to expand in China, and KLab will begin self-publishing games outside Japan next year.
KLab joins other Japanese gaming companies, including GungHo Online Entertainment Inc. (3765) and Square Enix Holdings Co. (9684), in targeting overseas markets for growth to build on domestic success. Love Live! School Idol Festival, which features songs sung by animated schoolgirl characters that players tap along with, started offering Chinese and Korean versions last month after reaching 3 million downloads in May.
“The China smartphone game market has large potential,” Sanada said in the July 23 interview at KLab’s Tokyo-headquarters. “It may surpass Japan and U.S. combined. China’s smartphone market is growing very fast.”
Japan surpassed the U.S. as the top-grossing market for applications in October as smartphone use surged and wireless carriers started billing customers directly for downloads from Google Inc.’s online store.
Shares of KLab added 3.4 percent to close at 1,705 yen in Tokyo trade. The stock has more than doubled this year, compared with a 1.6 percent decline in the benchmark Topix index.
“Everybody in the mobile market in Japan has to look outside,” said Serkan Toto, the Tokyo-based founder of Kantan Games Inc., a game consultant. “Everyone will tell you they want to boost revenue from overseas.”
Love Live! was the top-grossing iPhone app for Japan in the music games category and ranked No. 2 in adventure games as of July 24, according to analysis company App Annie.
“Japanese cartoon characters are well-received in Asian markets and game players in Asia like Japan,” said Kentaro Hayashi, an analyst at Tachibana Securities Co. “The China market has large potential. But there are unclear things like regulatory risk and possible trouble with local carriers on revenue sharing.”
GungHo, maker of Puzzle & Dragons, is led by Taizo Son, who is an adviser to KLab.
Square Enix, which makes the Final Fantasy and Dragon Quest games, last month said it was seeking partners in China beyond existing tie-ups with Tencent Holdings Ltd. and Shanda Games.
KLab has about 700 employees and offices in China, Philippines, Singapore, and the U.S. The company forecast sales of 4.5 billion yen ($44 million) in the second quarter, and Sanada said the company may exceed that target.
“Our previous estimate was very conservative,” Sanada said. “When we made the forecast, we only included the solid part and excluded upper side possibility.”
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