Global Economics

A Japanese Video Game Company's Winning Streak


Despite the crisis, Hudson Soft is racking up big scores and profits, using an in-house celebrity promoter

Conventional wisdom says the $40 billion gaming industry's fortunes aren't tied to the economy. The rationale goes like this: During a downturn, people go out less and load up on video games for stay-at-home entertainment.

But this financial crisis is unlike anything the gaming industry has faced, and the old assumptions might not hold true. Die-hard gamers will probably keep buying no matter what happens. Ordinary consumers are a question mark, though. Many have flocked to Nintendo's low-priced, easy-to-play Wii and portable DS consoles, and they might think twice about splurging on games this holiday season.

That's why Japanese game maker Hudson Soft is lucky to have an in-house celeb like Toshiyuki Takahashi. Back in the mid-1980s, Takahashi had a cult following among gamers in Japan. Known as Takahashi Meijin ("Master Takahashi"), he was a wizard with the controller of a gaming console: He could hit the button 16 times in a second—a technique he took to calling the 16-shot. Takahashi's employer, Hudson Soft, quickly gave the young sales and marketing staffer a starring role in games and how-to videos, and sent him on tour to emcee gaming tournaments across Japan.

The Comeback Kid

Takahashi dropped the act in the '90s. But lately he has made a comeback and is reaching out to a new generation of gamers at a time when Hudson is rebounding from a low point three years ago. The company is No. 20 on BusinessWeek's annual Hot Growth Asia list and is the highest-ranking Japanese name.

It's benefiting from a healthy gaming market that consultancy PricewaterhouseCoopers estimates could expand 45%, to $68 billion, by 2012. This year, Hudson has forecast record earnings, and it's optimistic about its chances. In the July-September quarter, Hudson's operating profits were up 15%, to $11.2 million, even as sales shrank 14%, to $47.6 million. For the fiscal year through March 2009, it expects operating profit to rise 10%, to $32.3 million, and sales to be up 15%, to $215 million, from last year. That would give Hudson a fourth year of profit gains, thanks to blockbuster titles like Decca Sports for Nintendo's Wii.

The streak sounds impressive until you consider that the company, which is majority-owned by game maker Konami, is clawing its way back from a disastrous 2005. Back then its net loss exceeded $88 million, and its operating loss was more than $15 million. Hudson's problem: It had bet too heavily on games for living-room consoles and arcades, which are a hit-or-miss sector of the gaming industry.

Hudson's top brass learned a lesson. Recently they expanded Hudson's offering in mobile gaming. And when a title is popular on, say, Nintendo's portable DS, Hudson immediately assigns programmers to adapt it for other platforms and overseas markets. Hudson now has a slew of Bomberman titles, including Bomberman Touch for Apple's (AAPL) iPhone, and puzzles like Sudoku for the DS and cell phones.

Analysts applaud the changes. By March 2010, Hudson's goal is to top $313 million in sales and $52 million in operating profits; that's nearly double the sales and profits it had at the end of the last fiscal year, which ended in March 2008. "What Hudson is good at is tapping into the new DS and Wii users," says Macquarie analyst David Gibson. "There is real skill there. Most other developers have been late to the party and struggled, especially Electronic Arts (ERTS)."

Slower on the Trigger

Hudson Soft's Takahashi hasn't influenced game design like Nintendo's creative guru Shigeru Miyamoto or Konami's Metal Gear Solid director Hideo Kojima. But he is a marketer's dream come true. A generation of Japanese gaming fans who grew up on Hudson's games, starting in the mid-'80s, remember him as the character in Takahashi Meijin no Boukenjima (or Adventure Island, as it was known in the U.S. and Europe), or as the inventor of the 16-shot technique, which he used to break open a watermelon in a campy ad. (Meijin comes from the title reserved for top-ranked players of shogi, or Japanese chess.) "People will still come up to me and ask for my autograph or want to shake my hand," he says.

It's only in the past couple of years that Takahashi has reprised his former role. The timing wasn't entirely accidental: His return coincided with a rollout of Hudson arcade oldies for Nintendo's Wii game downloading service. Hudson officials say Takahashi has had little do to with the company's restored health. But in a market crowded with thousands of brands, he raises Hudson's profile.

Now 49, Takahashi sports a shiny shaved head where he once had a mass of unruly curls. He communicates with fans through his blog and YouTube videos in which he plays Hudson's newest releases. Recent online ads of Hudson's free Touch Trix special-effects applications for the iPhone showcase his natural gifts onscreen. In one video, he yanks his finger away from the iPhone's screen when a set of virtual teeth appears and snaps at him. In another, he does a double-take when a bullet appears to lodge itself in the center of the shattered screen. Takahashi still wears T-shirts with the 16-shot logo, but his trigger-finger abilities have eroded. "I have slowed to 13 hits a second," he says.

Hall is BusinessWeek's technology correspondent in Tokyo.

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